Article written by:
Scott Runyan, CPA
Director, Credit Union Services
A Joint Statement, Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, was recently released by six government agencies (FRB, FDIC, NCUA, OCC, CFPB and the Conference of State Bank Supervisors) based on consultation with the FASB staff. The Joint Statement provides guidance to credit unions for loan modifications made to borrowers relating to the Coronavirus. In response to the Coronavirus, and under certain conditions, short-term modifications made in good faith to borrowers that were current prior to such relief should not be considered (and not accounted for as) troubled debt restructurings (TDRs). Specifically:
- Short-term modifications (e.g., for six months) include payment deferrals, fee waivers, extensions of repayment terms, or other insignificant payment delays.
- Borrowers should be deemed current if they are less than 30 days past due on their contractual payments at the time that a modification program is implemented.
- Working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers that are experiencing short-term financial or operational problems resulting from the Coronavirus, generally would not be considered TDRs.
- For modification programs designed to provide temporary relief for affected borrowers, financial institutions should presume that borrowers that are current on contractual payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and, thus, no further TDR analysis is required for each loan modification within the program.
- Modification or deferral programs mandated by the federal or a state government relating to the Coronavirus are not in the scope of FASB ASC 310-40 (e.g., a state program requiring all institutions within that state to suspend mortgage payments for a specified period).
In addition, with respect to loans not otherwise reportable as past due, credit unions are not expected to designate loans with deferrals granted as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal loan documents. If a credit union agrees to a payment deferral, this may result in no contractual payments being past due, and, thus, such loans are not considered past due during the deferral period. If the specific conditions of the Joint Statement are met, for the short-term at least, such guidance overrides the current US GAAP guidance for determining whether a loan modification qualifies as a TDR.
GBQ’s Credit Union Services team is here to help assist our credit union clients and friends during these challenging economic times. Please contact a member of our team for further assistance or to discuss this information in more detail.