Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts

The FDIC, Federal Reserve, NCUA, and OCC issued an updated Policy Statement on June 29, 2023, expanding upon existing guidance that encourages financial institutions to work "prudently and constructively with creditworthy borrowers during times of financial stress". This new guidance updates the 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts, with the goal of promoting consistency among examiners, increasing transparency in CRE loan arrangements, and supporting policies that ensure credit availability for creditworthy borrowers. Key changes include a new section on short-term loan accommodations, information on accounting principle changes since 2009, and revisions to examples of CRE loan workouts. The updated Statement reaffirms that financial institutions engaging in prudent loan accommodations and workouts will not face criticism, even if such arrangements lead to modified loans with identified weaknesses that result in adverse classification.

The statement details prudent risk management practices for short-term loan accommodations and long-term workout programs. It emphasizes that loans to creditworthy borrowers, modified based on sound underwriting, should not be classified adversely unless specific weaknesses jeopardize repayment. Furthermore, it addresses regulatory reporting and accounting considerations, stressing the importance of effective communication between loan workout staff and the accounting/regulatory reporting staff to accurately present the consequences of loan restructurings in regulatory reports. ARCSys offers consulting services to help financial institutions track and monitor both short and long-term loan modifications through the ARCSys Data Warehouse, as well as assisting with updating policies and procedures for loan-workout programs.