An important message about the recent interagency statement
On March 22, six federal agencies issued the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus” to provide additional information to financial institutions that are working with borrowers affected by the new coronavirus disease 2019 (COVID-19).
Financial institutions and auditors have been analyzing the guidance since its release. Through a few channels, including the American Institute of CPAs' (AICPA) Depository Institutions Expert Panel (DIEP), here is what we know: The agencies appreciate that the accounting and reporting aspects for loan modifications can be burdensome, and they are removing barriers to encourage institutions to work proactively with borrowers.
For loan modifications with borrowers who were not or are not past due, the statement indicates the financial difficulty prong of the troubled debt restructuring (TDR) test has not been met. The six-month example is available for all loans, regardless of duration. Also, it is important to point out that “less than 30 days past due” does not mean at the time of modification but rather when a modification program was implemented. "Implementation" is not defined, so financial institutions should use good faith efforts.
The message we have heard is that the Interagency Statement is not a "gotcha" exercise. The agencies acted quickly to provide financial institutions relief and allow broad discretion. As a result, they do not want to see financial institutions and auditors parsing every word and comma as they interpret meaning.