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Samantha Norman Kate Krones
August 14, 2020 Article 2 min read

Practical guidance and resources for assessing TDR classification under Section 4013 of the CARES Act and the Revised Interagency Statement have been issued by the FFIEC clarifying the treatment of loan modifications as a result of COVID-19.

Elderly woman reviewing documents on a desk next to her laptop computer.In the wake of the COVID-19 pandemic, both Congress and the financial institution regulatory agencies have issued guidance intended to provide relief to lenders on the identification of loan modifications as troubled debt restructurings (TDRs). Section 4013 of the CARES Act temporarily suspends accounting standards related to the identification of TDRs while the regulatory agencies issued a Revised Statement, allowing lenders to assume borrowers aren’t experiencing financial difficulty when loans are modified for reasons related to COVID-19. The criteria for each are summarized in the table below.

Additional modifications

In August 2020, a Joint Statement was issued by the Federal Financial Institutions Examination Council clarifying the treatment of subsequent modifications of loans previously modified as a result of COVID-19, along with other considerations for lenders in the current environment. Additional modifications can be independently assessed against the criteria established in Section 4013 of the CARES Act for the purpose of determining TDR status. For modifications that aren’t eligible under Section 4013, institutions must consider the cumulative effect of all modifications when considering whether the modification is short-term in nature under the Revised Statement or whether a concession has been granted under existing accounting standards.

Supporting your institution

The assessment of whether or not a modification is a TDR requires an understanding of each of the currently available accounting treatments. In practice, it’s common for institutions to have certain loan modifications that aren’t designated as a TDR due to eligibility for election of Section 4013, others due to the presumption that the borrower is not in financial difficulty under the Revised Statement, and some due to the modification not representing a concession.   

We’ve provided a quick reference guide below to aid in understanding TDR determination in the current environment. Our industry experts are available to further assist with navigating the available accounting treatments with a pragmatic approach designed to suit the needs of your institution.

COVID-19 loan modification resources: Criteria for relief from TDR designation

Section 4013 of the CARES Act

Revised Statement

Modification is related to COVID-19. Modification is related to COVID-19.
Borrower was current as of December 31, 2019. Borrower was current as of the date the modification program was implemented.
Modification occurs between March 1, 2020, and the earlier of December 31, 2020, or 60 days after the national emergency ends. Modification is short-term in nature.
Subsequent modifications continue to not be identified as TDRs, if also eligible under the criteria of Section 4013. Subsequent modification must be re-evaluated for TDR designation. Evaluation should consider the cumulative effect of modifications.

Flow chart depicting COVID-19 loan modifications and accounting considerations.

For additional details on the interagency statements, take a look at our alert on interagency guidance on TDRs related to COVID-19.

For a more detailed rendering of the flowchart above, see the OCC reference guide on TDR designation and COVID-19 loan modifications.

CARES Act: Get clarity. Then take action.

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