Will My Lender Give Me Any Relief as a Result of the Economic Effects of the Pandemic?
By Lisa F. Harper, Esq., TFH Legal
Whether a lender is willing to modify terms of a loan or defer payments as a result of the Coronavirus is of course up to each lender. However, the Federal Deposit Insurance Corporation (the FDIC) issued a press release earlier this month (March 17 press release) stating that
"Federal financial institution regulators and state regulators today encouraged financial institutions to meet the financial needs of customers and members affected by the coronavirus. The agencies recognize the potential impact of the coronavirus on the customers, memebrs and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision."
In accord with that publicized position, the FDIC issued a letter to its financial institutions (March 13 Letter to Financial Institutions) encouraging financial institutions to do just that.
In fact, in their Frequently Asked Questions for Financial Institutions, the FDIC published this advice to its financial institutions:
Q: Would it be acceptable for a bank to offer borrowers affected by COVID-19 payment accommodations, such as following borrowers to defer or skip some payments or extending the payment due date?
A: Yes, The FDIC encourages financial institutions to provide borrowers affected in a variety of ways by the COVID-19 outbreak with payment accommodations that facilitate their ability to work through the immediate impact of the virus. Such assistance provided in a prudent manner to borrowers facing short-term setbacks could help the borrower and a community to recover. The FDIC understands that effective loan accommodation programs may involve protracted resolutions, but all should be ultimately targeted toward loan repayment.
Financial institutions may want to consider addressing any deferred or skipped payments by either extending the original maturity date or by making those payments due in a balloon payment at the maturity date of the loan. When deferring or skipping payments, providing borrowers with accurate disclosures that are consistent with federal and state consumer protection laws will help to avoid any misunderstandings relative to the changes in the terms. Finanacial institutions can call their DFIC Regional Office, which can assist them by discussing key considerations and regulations on payment accomodations and disclosures.
That of course does not mean that every financial institution must work with every borrower or must modify existing loan facilities to meet every borrower’s needs, as financial institutions are still required to use “prudent” and “safe and sound” banking practices and still abide by regulatory requirements.
That said, the encouragement by the FDIC is likely to make the financial institutions less concerned about audits by regulators finding that their willingness to work with their customers will result in some sort of violations.
And local banks that I have spoken with are echoing this same sentiment about being willing to work with their existing customers, possibly allowing deferments of payments or other modifications of their customers loans. Nationally that seems to the case also. See Forbes Article updated March 24 and continually updated BankRate.com Mortgage Relief Article.
The one thing that the articles say and that the lenders with whom I spoke said (without any prodding) is that borrowers should talk with their existing lenders now and should be in front of this, rather than asking for forgiveness later.
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Taylor, Feil, Harper & Lumsden P.C. (TFH Legal) is a full service Atlanta law firm that concentrates in providing corporate and litigation services to a diversified business community ranging from entrepreneurs to Fortune 500 companies. Learn more.