InfoBytes, November 6, 2010 - Weekly In-depth review of news & developments in the financial services industry

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Topics In This Issue

• Federal Issues

• State Issues

• Courts

• Firm News

• Mortgages

• Banking

• Consumer Finance

• Litigation

• E-Financial Services

• Privacy/Data Security

• Credit Cards

Excerpt from "Federal Issues"

FFIEC Issues Guidance on Workouts for Troubled Commercial Real Estate Loans. On October 30, the Federal Financial Institutions Examination Council (FFIEC) issued a Policy Statement on Commercial Real Estate Loan Workouts (Policy Statement) that provides supervisory guidance to examiners who evaluate a financial institution?s commercial real estate loan workouts. Among other things, the Policy Statement provides that a financial institution will not be penalized for prudent loan workouts, even if the renewed or restructured loan has weaknesses that result in adverse credit classification. Further, in the event that the value of the collateral that secured the renewed or restructured loan decreases in value to less than that of the balance of the loan, the loan will not automatically be subject to adverse credit classification. However, the borrower must demonstrate an ability to repay the debt. In determining whether a loan workout is necessary, the Policy Statement encourages financial institutions to consider (i) a borrower?s ability to repay, (ii) the financial strength provided by guarantees, and (iii) the value of the underlying collateral. The Policy Statement also includes a series of loan workout examples, which are designed to underscore the analytical process of an examiner in identifying an appropriate credit classification for loan workouts and in assessing a financial institution?s accounting and reporting treatment of loan workouts.

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