By Leah M. Hamilton
Many clients have asked whether they can offer skip-a-payment programs for their consumers with consumer mortgage loans by simply executing a modification to extend the term and noting the month(s) to be skipped. The simple answer is YES! If you offer a skip-a-payment program for any of your customers, consumer or commercial, you may do this by way of a modification or amendment to your current agreement. However, if the loan is secured by a building or mobile home and any personal property securing the loan, then a flood determination is triggered when you extend the term of the loan. If you are keeping the same term and adding the deferred payments to the final payment, the flood determination is not triggered.
Under the flood rules, any time you make, increase, renew or extend a loan where the building, mobile home or personal property securing that loan, you must determine whether or not such collateral is in a flood zone. Institutions may rely on an existing flood determination provided that:
- The current flood determination is less than 7 years old;
- No map changes; and
- Current flood determination was completed on the then-current flood determination form.
If you rely on a prior determination, it is best practice to make a copy of it, list the three requirements with check marks (provided no changes) indicating you verified each of them, and then date and initial it. Lastly, attach it to the Amendment to the note and place in the file so no one has to later search for it. Alternatively, you may be able to have the current one re-certified at a minimal cost – and again, attach it to the Amendment.
Remember also that an extension is a contractual amendment requiring signatures of both parties (borrower and institution).
This type of modification to solely defer the payments short term and extend the loan term does not trigger any new disclosures, including TRID disclosures.
Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus
The federal financial regulatory agencies and state banking regulators (the “Agencies”) have also issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The
Agencies encourage financial institutions to work with borrowers and will not criticize institutions for doing so in a safe and sound manner. Additionally, they have stated that they will not automatically categorize loan modifications as troubled debt restructurings (TDRs) – reminding reminds institutions that not all modifications of loan terms result in a TDR. The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs. Short-term modifications that are made in good faith in response to COVID-19 to borrowers who were current prior to any such relief are not TDRs. Such short-term modifications may include – for example, six (6) months of payment deferrals, waiver of fees, term extensions or other alternative delays in payment that are insignificant.
The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk. Regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.