COVID-19: Clarification on interagency statement on loan modifications

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COVID-19: Clarification on interagency statement on loan modifications

Dec 01, 2020
Dec 01, 2020
0 min. read

On December 1, 2020, representatives of the Chief Accountant’s offices of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation presented at the American Institute of Certified Public Accountants Online Update on Banks & Savings Institutions. Their presentation provided clarification as to the application of a revised interagency statement issued on April 7, 2020 that provided financial reporting information to financial institutions that are working with borrowers affected by COVID-19.

Specifically, the revised interagency statement provides relief from accounting for loan modifications as troubled debt restructurings as defined in Subtopic 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” of the Financial Accounting Standards Board’s Accounting Standards Codification when the following conditions are met:

  • The modification request is in response to financial or operational difficulties experienced by the borrower as a result of COVID-19;
  • The modification is short-term in nature (e.g., six-month, cumulative basis), including payment deferrals, fee waivers, extensions of repayment terms or other delays in payment that are insignificant for borrowers; and
  • The borrower was considered current (less than 30 days past due on their contractual payments) at the time the modification program was implemented.

During the December 1, 2020 presentation, the representatives confirmed that this guidance may be applied into calendar year 2021. Additionally, they discussed that the “time the modification program was implemented” may be measured as either the date of the modification of an individual loan or a specific program’s implementation date. This interpretation also aligns with the August 2020 Joint Statement on Additional Loan Modifications Related to COVID-19, which provides a sample scenario for applying the conditions in the revised interagency statement to a subsequent modification and defines “current” as less than 30 days past due on all contractual obligations at the time of the subsequent modification.    

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This article was written by RSM US LLP and originally appeared on 2020-12-01.
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