Q: Troubled Debt Restructurings (TDRs). When does a payment accommodation become a TDR?
A: Modifications of loan terms do not automatically result in TDRs, and, as described below, institutions generally do not need to categorize COVID-19-related modifications as TDRs. According to U.S. generally accepted accounting principles (GAAP), a restructuring of a debt constitutes 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.
Under Section 4013 of the CARES Act, banks may elect not to categorize loan modifications as TDRs if they are (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. For all other loan modifications, the agencies have confirmed with staff of the Financial Accounting Standards Board (FASB) that 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 (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.
Examiners will exercise judgment in reviewing loan modifications, and will not automatically adversely risk rate credits that are affected by COVID-19. Regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers. Please refer to interagency supervisory guidance, which provides more information on TDRs.
This Q&A was contained in the Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19) – As of March 3, 2021 (which may be updated from time to time). This may be found on the FDIC’s website here: https://www.fdic.gov/Coronavirus/faq-fi.pdf.