Bruce Rumbold, CCBCO
Manager | Risk Advisory Services
On August 3, 2020, the FFIEC issued a joint statement on additional loan accommodations for loans with accommodations that are expiring.
The statement reflects the opinion of the regulators that additional accommodations should be made wherever possible but should be done in a safe and sound manner. They are viewing loan accommodations as “positive actions.” Your financial institution should consider prudent accommodation options that are based on an understanding of the credit risk of the borrower; are consistent with applicable laws and regulations; and, that can ease cash flow pressures on affected borrowers, improve their capacity to service debt, and facilitate a financial institution’s ability to collect on its loans.
There are sections on prudent risk management, consumer protections, accounting and regulatory reporting and systems of internal control. I will leave the account mostly to the CPAs out there and briefly report on everything else.
If the accommodation was not granted under the terms of, and as part of the CARES Act (4013), this statement really doesn’t apply. Can you still provide an accommodation to a borrower that weathered the storm but is now in trouble? Yes, but make sure that the accommodation is truly COVID-19 related if you want the proper accounting treatment.
Regulators are very in tune with risk management, and start examinations by examining risk assessments and compliance management systems. Is your institution identifying, measuring and monitoring the credit risks of loans that received accommodations? You are the only ones that understand your specific contractual terms and covenants. Well-structured and sustainable accommodations are designed to prevent losses by both the borrower and the lender.
And don’t forget about the consumer. The statement is also positive on these accommodations, but highlights very strong consumer protections. Always be thinking about fair lending and disparate treatment and impact of your decisions. Be consistent and conspicuous with disclosures.
Additionally, ensure your institution is:
- Providing additional accommodation options to borrowers that are affordable and sustainable;
- Providing clear, conspicuous, and accurate communications and disclosures to inform the borrowers of the available options;
- Providing such communications and disclosures in a timely manner, before the end of the accommodation period to allow adequate time for the borrower and financial institution to consider next steps, which may include payment deferral, loan modification, or loan extension, among other options;
- Basing eligibility and payment terms on consistent analyses of borrowers’ (and, if applicable, guarantors’) financial condition and reasonable capacity to repay;
- Ensuring policies and procedures reflect accommodation options offered by the financial institution and promote consistency with applicable laws and regulations, including fair lending laws;
- Providing appropriate training to employees and other persons responsible for compliance and operational procedures related to any additional accommodation options, including customer service personnel;
- Ensuring that risk monitoring, audit, and consumer complaint systems are adequate to evaluate compliance with applicable laws, regulations, policies, and procedures; and
- Providing complete and accurate information to borrowers and subsequent servicers during loan transfers and ensuring post-transfer servicing is consistent with the agreement with the borrower and the borrower’s status at the time of transfer.
From an internal control perspective, ensure that accommodations are properly approved and servicing systems accurately consolidate balances, calculate required payments and process billing statements for the full range of potential repayment terms that exist once the accommodation periods end.
Additionally, make sure that personnel operating in this space are qualified and properly trained and that all documents are clear, accurate and timely and in accordance with policies and regulatory requirements.
See the entire statement at: