Pub. 10 2020-2021 Issue 2

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S www.coloradobankers.org 12 applicable prohibitions. While effective dates vary widely, many of these pro- tections remain in effect until respec - tive governors lift statewide emergency declarations. Private loans The CARES Act provided no relief for loans that are not federally backed. Banks should refer to the appropri- ate investor guidelines for mortgages sold to private investors. Banks should refer to guidance from its regulators concerning their expectations regard- ing non-federally-back mortgage loans held in the portfolio. Troubled Debt Restructur ing (“TDR”) If neither a federal nor state morato- rium applies to a residential mortgage you hold in the portfolio, you may still be able to exercise your authority to as- sist pandemic-effected borrowers who are struggling financially. Regulators have urged banks to work with custom- ers and prudently modify loans safely and soundly. Section 4310 of the CARES Act provided banks relief from TDR. In April, regulatory agencies issued revised interagency guidance to help banks sort modification requests into three groups: (1) loan modifications covered by Section 4310 of the CARES Act; (2) those outside Section 4310 deemed not to be TDRs; and (3) those outside Section 4310 that may be TDRs. In June, regulators released new interagency safety and soundness examiner guidelines. These guidelines instruct examiners to not criticize in- stitutions for doing so as part of a risk mitigation strategy intended to improve existing loans, even if a restructured loan ultimately results in adverse credit classifications. To be covered by Section 4310 of the CARES Act, a loan modification must: (1) relate to COVID-19, (2) be executed between March 1st and Dec. 31st (as - suming the current national emergen- cy does not end earlier than the end of the year), and (3) the underlying ob - ligation must be not more than 30 days past due. If a loan modification meets these three criteria, financial institu - tions do not have to report it as a TDR; however, the financial institution should maintain records of the volume of such loan modifications. If a loanmodification fails tomeet any of the three criteria for Section 4310 cov - erage, it does not automatically result in a TDR. Regulators will deem a modifica - tion as not constituting a TDR if it relates to COVID-19, extends no more than six months, and the underlying obligation is not more than 30 days past due. The only subjective criterion is the relationship of the modification to COVID-19. As a best practice, banks should have the borrower certify that the requested change is due to COVID-19. To not raise HIPAA con- cerns, the certification should be general and not address specific health details. While such a certification is not required to be in the loan file, it would show fu - ture examiners that the lender followed the guidance in good faith. If a bank receives a modification request that is outside the scope of Section 4310 and does not meet the described criteria, the bank should assess whether the modification would be a concession to the borrower that the bank would not otherwise consider and act accordingly. As with everything related to the COVID-19 pandemic, expect mortgage foreclosure protections to change as the county continues to deal with the long- term effects of our national crisis. The federal agencies may extend the pro- tections relating to the loans they back. Congress will undoubtedly reassess the CARES Act’s protections as the end of its covered period draws near. Despite how things change, you can count on the Col- orado Bankers Association to bring you the most up-to-date information avail- able as we walk hand-in-hand through this crisis. n continued from the previous page