Relief for Loan Modifications Due to COVID-19

Published on March 30, 2020

Recognizing that COVID-19 could cause temporary business disruptions for borrowers, Federal and state banking regulators issued a joint statement on March 22, 2020, providing guidance to financial institutions on loan modifications. The joint statement encourages financial institutions to work hand-in-hand with borrowers who may not be able to meet contractual payment obligations in the near term due to COVID-19. The guidance was developed in coordination with the Financial Accounting Standards Board (FASB).

A key provision of the statement is that short-term (less than six months) loan modifications, including payment deferral, fee waivers, extensions of repayment terms or other insignificant payment delays are not automatically considered troubled debt restructurings. If a borrower is current on payments (payment is less than thirty days past due) prior to restructuring due to COVID-19, and the loan is insignificantly modified on a good-faith basis, the modification is not deemed a troubled debt restructuring. Furthermore, financial institutions granting payment deferrals due to COVID-19 are not to consider those deferred payments as “past due” during the deferral period.

The National Association of Insurance Commissioners (NAIC) exposed Interpretation 20-03T on March 26, 2020, to consider the above guidance as it relates to short-term mortgage loan modifications due to COVID-19. The NAIC concurs with the guidance and the interpretation is expected to be adopted after a brief exposure period.

If you have any questions about this, contact the Johnson Lambert team.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.