Pub. 15 2020-2021 Issue 2

NEBRASKA BANKERS ASSOCIATION 25 Chris W. Bell is an associate general counsel at Compliance Alliance. He has worked in the legal department of a federal savings bank and for the Texas Department of Banking. He is one of the C/A hotline advisors. Troubled Debt Restructuring (“TDR”) If neither a federal nor statemoratoriumapplies to a residential mortgage youhold inportfolio, youmay still be able to exercise your authority toassist pandemic-effectedborrowerswhoare struggling financially.Regulatorshaveurgedbankstoworkwithcustomersand prudently modify loans in a safe and sound manner. Section 4310 of the CARES Act provided banks relief from TDR. In April, regu - latory agencies issued revised interagency guidance to help banks sortmodification requests into three groups: (1) loanmodifications covered by Section 4310 of the CARESAct; (2) those outside of Sec - tion 4310 deemed not to be TDRs; and (3) those outside of Section 4310thatmaybeTDRs.InJune,regulatorsreleasednewinteragency safetyandsoundnessexaminerguidelines.Theseguidelinesinstruct examiners to not criticize institutions for doing so as part of a risk mitigation strategy intended to improve existing loans, even if a restructured loanultimately results inadverse credit classifications. To be covered by Section 4310 of the CARESAct, a loanmodifi - cationmust: (1) relate toCOVID-19, (2) be executedbetweenMarch 1st and December 31st (assuming the current national emergency does not end earlier than the end of the year), and (3) the underly - ing obligation must be not more than 30 days past due. If a loan modification meets these three criteria, financial institutions do not have to report it as a TDR; however, the financial institution shouldmaintain records of the volume of such loanmodifications. If a loanmodification fails to meet any of the three criteria for Section 4310 coverage, it does not automatically result in a TDR. Regulators will deem a modification as not to constitute a TDR if it relates to COVID-19, extends no more than six months, and the underlying obligation is not more than 30 days past due. The only subjective criterion is the relationship of themodification to COVID-19. As a best practice, banks should have the borrower certify that the requested change is due to COVID-19. To not raiseHIPAA concerns, the certification should be general and not address specific health details. While such a certification is not required to be in the loanfile, it would show future examiners that the lender followed the guidance in good faith. If a bank receives a modification request that is outside the scope of Section 4310 and does not meet the described criteria, the bank should assess whether the modification would be a concession to the borrower that the bank would not otherwise consider and act accordingly. As with everything related to the COVID-19 pandemic, ex - pect mortgage foreclosure protections to change as the country continues to deal with the long-termeffects of our national crisis. The federal agencies may extend the protections relating to the loans they back, and Congress will undoubtedly reassess the CARES Act’s protections as the end of its covered period draws near. Despite how things change, you can count on the Texas Bankers Association to bring you the most up-to-date informa - tion available as we walk hand-in-hand through this crisis.  You’re preapproved for trusted advice! Your bank works hard to make customer dreams become reality. Don’t let complex regulations delay your next big transaction. Our talented, supportive pros can help you stay compliant, manage risk and grow strategically, so you can focus on building equity in your community. Everyone needs a trusted advisor. Who’s yours? bkd.com/fs • @BKDFS