Apr 6, 2020Process providing COVID-19 lending support set by Farm Credit Administration
The Farm Credit Administration is issuing this informational memorandum to provide Farm Credit System (System) institutions with guidance on troubled debt restructuring (TDR) reporting, borrower rights and nonaccrual determinations when working with borrowers affected by COVID-19.
When is a COVID-19 loan modification a TDR?
On March 13, 2020, the president of the United States issued a proclamation declaring the COVID-19 outbreak a national emergency. In response, Farm Credit Administration (FCA) issued a news release on March 17 (PDF) encouraging System institutions to work prudently with their borrowers during the national emergency to “lessen any stress and financial burden related to the disease and efforts to control it.”
In this news release, we provided examples of extending loan repayment terms and restructuring debt obligations. This guidance is consistent with our practice of encouraging System institutions to assist borrowers in times of natural disaster and other extreme events as described in FCA’s board policy statement PS-71, Disaster Relief Efforts by Farm Credit Institutions.
We view loan modification programs as positive actions that can mitigate the short-term economic difficulties arising from the COVID-19 outbreak for borrowers who are or may be temporarily unable to meet their contractual payment obligations. However, you should not automatically categorize a loan modification action taken in response to the COVID-19 outbreak as a TDR.
According to U.S. generally accepted accounting practices (GAAP), a restructuring of a debt is a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.
We agree with the position of other financial regulatory agencies – and the Financial Accounting Standards Board – that short-term modifications made on a good faith basis in response to the COVID-19 national emergency are not TDRs when the borrower was not past due on loan payments before the March 13, 2020, presidential proclamation.2 These modifications include the following:
• Payment deferrals
• Fee waivers
• Extensions of repayment terms
• Other delays in payment that are insignificant, of short duration (e.g., six months), and either use the same interest rate or the current interest rate in effect for new extensions of credit demonstrating the same risk level
We do not consider any of these modifications to be a TDR; therefore, no further TDR analysis would be required on loans with these modifications.4
Would loans modified in response to the COVID-19 pandemic be considered “distressed loans” under FCA’s borrower rights provisions?
You should not automatically categorize a current loan as distressed because of the COVID- 19 outbreak or any loan modification made in response to the outbreak. Our position is that, when a loan is determined to be distressed (per our definition in § 617.7000), you should apply the provisions of part 617 – regardless whether the distress is related to COVID-19.
We will also consider requests to extend servicing relief under FCA’s board policy statement PS-71. As always, we expect System institutions to exercise reasonable and prudent decision making when working with affected borrowers.
When will loans affected by COVID-19 be classified as nonaccrual?
Refer to 12 CFR § 621.6, as well as your own internal accounting policies, to determine if loans to stressed borrowers should be reported as nonaccrual assets.