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Is a loan modification a TDR if it is not eligible under section 4013 of the CARES Act or an institution elects not to apply section 4013?
There are circumstances in which a loan modification may not be eligible under Section 4013 or in which an institution elects not to apply Section 4013. For example, a loan that is modified after the end of the applicable period would not be eligible under Section 4013. For such loans, the guidance below applies.
Modifications of loan terms do not automatically result in TDRs. According to U.S. GAAP (ASC Subtopic 310-40), 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. Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current (i.e., less than 30 days past due) 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. 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 under ASC Subtopic 310-40.
Accordingly, working with borrowers who are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19 generally would not be considered TDRs. More specifically, financial institutions may presume that borrowers are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program, if:
- The modification is in response to the National Emergency;
- The borrower was current (i.e., less than 30 days past due) on payments at the time the modification program is implemented; and
- The modification is short-term (e.g., six months).
FASB Statement on Prudential Regulator Guidance Concerning Troubled Debt Restructurings https://www.fasb.org/cs/Satellitec=FASBContent_C&cid=1176174374016&pagename=FASB/FASBContent_C/NewsPage