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Regulators adopt CRE workout guidance
WASHINGTON (11/2/09)--The National Credit Union Administration (NCUA), in coordination with the Federal Financial Institutions Examination Council (FFIEC), is adopting a policy statement on commercial real estate (CRE) loan workouts. The statement will help financial institutions, including credit unions, who are working with CRE borrowers who have diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The guidance stresses that performing loans--including those that have been renewed or restructured on reasonable modified terms--made to creditworthy borrowers will not be adversely classified solely because the value of underlying collateral is declined. NCUA does not require credit unions to adopt a uniform regulatory classification schematic of loss, doubtful, substandard or special mention. A credit union should apply an internal loan grade based on its evaluation of credit risk. The guidance also details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition. Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be criticized for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications.
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