Q: Real Estate Loans in Excess of Loan-to-Value (LTV) percentages. How will the FDIC view refinanced real estate loans with an advancement of new funds to borrowers affected by COVID-19 whose LTV exceeds supervisory LTV limits?
A: The FDIC recognizes the COVID-19 pandemic may have a negative impact on the market value of real estate collateral for loan renewal and refinancing requests from existing, creditworthy borrowers seeking to obtain additional funds from the transaction. Such transactions may result in exceptions to the supervisory LTV limits listed in the Interagency Guidelines for Real Estate Lending Policies, unless they meet certain criteria, including that the transaction was part of a prudent loan workout plan.
An institution’s board of directors is responsible for establishing standards for the review and approval of LTV exception loans, including those due to COVID-19. Such standards include reporting all such LTV exceptions to the board at least quarterly. Within these reports, financial institutions may find it useful to separately identify transactions that exceed the supervisory LTV limits due to COVID-19, such as for creditworthy borrowers’ liquidity needs.
The FDIC recognizes that the LTV ratio is only one of several pertinent credit factors to be considered when prudently underwriting a real estate loan. The FDIC will not criticize financial institutions that exceed the supervisory LTV limits for real estate secured loans, if extended in a safe and sound manner to creditworthy borrowers affected by COVID-19.
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.