Regulators Issue Major Regulatory Announcement: A Prudent Peace Pipe?
This past Friday (October 31, 2009), the Federal Financial Institutions Examination Council (website) released a major policy statement giving guidance, and articulating general principals, for the distressed commercial real estate debt market.
The report is a "must" read: PDF. (Footnote #1 to the report lists the Federal & State Regulators - visit the FFIEC website for the complete list.)
The introductory paragraphs and the Article I "Purpose" statement contain some very, very interesting (even bold) statements:
- " . . . financial institutions and borrowers may find it mutually beneficial to work constructively together"
- "The regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower."
- "Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classifications."
- " In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance (emphasis added)."
This is a must read for everyone involved in CRE.
This is very different from the regulatory guillotine used in the late 80s & early 90s.
And the policy statement should have major implications - and undoubtedly will influence regulatory bodies such as the NAIC (which loosely governs commercial mortgage investments by life insurance companies) (website) and other "unregulated" financial institutions.
Please post your comments.
