A coalition of national real estate organizations, including The Real Estate Roundtable, this week urged federal banking agencies to provide additional guidance that would reaffirm financial institutions may use reasonable judgment when assessing credit risk during the unique circumstances of the pandemic – such as allowing borrowers and lenders additional time to see properties and loans through the pandemic.

• The guidance would preserve financial institutions’ ability to continue work with borrowers and grant additional incremental accommodations that would total more than six months after December 31, without being classified as a troubled debt restructuring (TDR). (Coalition letter and MBA Newslink, Nov. 10)
  

• Early in the crisis, the Federal Reserve joined the Office of the Comptroller of the Currency (OCC) and other banking regulators in a March 22 Interagency Statement that encouraged banks to avoid automatically categorizing COVID-19 related loan modifications up to 6 months as a TDR. (Roundtable Weekly, March 27)

• The March joint statement also encouraged borrowers experiencing cash flow problems due to the pandemic to reach out to any FDIC-insured lenders about modifying their loans, without adverse consequences to the bank or the borrower that traditionally come with the TDR label.  

• The statement included, “Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.  This includes short-term — for example, six months — modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.”

• On March 24, The Roundtable called on all owners and operators of business and residential rental real estate to voluntarily, proactively work in a positive and constructive manner with their COVID-19 impacted tenants respecting current rent obligations. (Roundtable news release, March 24)

Confluence of Events

• A revised interagency statement released April 7 clarified the interaction between the March 22, 2020, interagency statement and section 4013 of the CARES Act, Temporary Relief from Troubled Debt Restructurings (section 4013). 

• Many of the modifications granted under the revised Interagency Statement and section 4013 of the CARES Act are reaching the end of their six-month terms – at that same time that CARES Act protections are set to expire on December 31, 2020.
  

• This confluence of these events creates significant, urgent challenges for any financial institution seeking to extend existing modifications of Covid-19 related loans past their six-month term.

• The Nov. 10 coalition letter states, “…we urge the Agencies to provide guidance that a loan modification with a term greater than six months (e.g., up to 18 months combined) will not automatically result in a TDR under the Interagency Statements.”

• “Because this issue is urgent, we request that the Agencies issue such a clarification and reaffirmation as soon as possible,” the letter concludes.

• OCC Acting Comptroller Brian Brooks on Nov. 10 testified before a Senate Banking, Housing and Urban Affairs Committee Hearing on Financial Regulator Oversight. 

• Brooks stated, “While banks remain sound, we see potential for troubled assets ahead in commercial and residential real estate, in small business and consumer lending, and in the travel and hospitality sectors in particular. Banks, particularly those with concentrations in those assets, must take a sober view of their risks and work with customers to the maximum extent possible consistent with safety and soundness.”
  

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) continues its work with Washington policymakers to constructively support The Roundtable’s efforts to address the economic consequences of the COVID-19 crisis.

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