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financial Regulators Find that Prudent Commercial loan workout deals

US financial regulators, including the Federal Reserve, the National credit Union Administration and the Federal Deposit Insurance Corporation, have issued a policy statement pointing out that Commercial Mortgage Workout deals between the Borrower and the Lender could be beneficial for both parties. The policy statement points out that while the Property Owners may be experiencing a decline in their financial situations, this does not necessarily mean that they have lost their creditworthiness. The statement goes on to declare that these Property Owners may still be prepared and have the capability to repay the Mortgages.

The regulators also stated that the examiners will not consider it as a negative factor for the Lender if the result of such Mortgage workout agreements are weaknesses that could lower their credit classifications. The policy statement also added that the credit classifications of the Property Owners will not be degraded just because the market value of their properties have dropped to levels that are below their outstanding Mortgage balance. The Commercial Mortgage Workout can take various forms, including Renegotiation, provision of additional credit, the extension of the Mortgage duration, and the renewal of certain Mortgage terms.

However, the regulators also cautioned Lenders and lenders to ensure that the Renegotiation or renewal of the Commercial real estate Mortgages should be based on prudent lending practices. The Lenders should also follow all applicable reporting requirements. Some of the issues that should be addressed are the management infrastructure, internal controls, management information systems, documentation standards, Mortgage collection processes, and regulatory reporting.

By Commercial Loan Review