FDIC ADOPTS REAL ESTATE LOAN WORKOUT POLICY

WASHINGTON, D.C. — The Federal Deposit Insurance Corp. (FDIC), in concert with the other members of the Federal Financial Institutions Examination Council (FFIEC), adopted a policy statement this week that advocates the prudent workout of commercial real estate loans.
WASHINGTON, D.C. — The Federal Deposit Insurance Corp. (FDIC), in concert with the other members of the Federal Financial Institutions Examination Council (FFIEC), adopted a policy statement this week that advocates the prudent workout of commercial real estate loans. It is meant to provide guidance to lenders that are working with commercial real estate borrowers that may be struggling through the current recession.

The statement stresses several key points. First, performing loans, including those that have already been renewed or restructured, will not be subject to a negative classification simply because the value of the real estate declined—a well-defined weakness must exist that would affect the borrower's ability to repay. Also, loans should not be negatively classifiedbecause the borrower is associated with a struggling industry. In uncertain financial times, when a borrower is attempting to obtain short-term financing or refinance existing financing, the borrower's payment history should be taken into account when deciding to restructure or renew the debt. The statement also mentions criteria that should be used to classify debt as well as preferred underwriting standards lenders should use. It goes on to say that financial institutions that implement these prudent loan workout arrangements will not be subject to negative opinion even if the restructured loans have weaknesses in them that would affect the rating.

Members of the FFIEC include the FDIC, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FFIEC State Liaison Committee Use the styles to create various types of font characteristics.

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