Oct. 18, 2012 – The Federal Financial Institutions Examination Council is encouraging financial institutions to work constructively with drought-affected borrowers in modifying loan agreements, noting that regulators will not penalize lenders for such efforts.
A severe drought has affected much of the Midwest and parts of the South, impacting many farmers in those areas, the FFIEC noted. Financial institutions should perform “a comprehensive review” of the loan situation of each borrower hurt by the drought to develop an effective loan workout arrangement, the council said.
The council is reminding financial institutions that not all loan workouts are troubled-debt-restructured loans. Each loan situation should be evaluated individually to determine whether it requires reporting as a TDR. That evaluation should be “based on the facts and circumstances of each borrower and loan,” the council advises.
Examiners will consider “the unusual circumstances financial institutions are facing in the affected areas” when exams are conducted, the council said. Financial institutions that work out loans with these borrowers “will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse classification or credit risk grade.”