NAIC’S COVID-19 IMPACT DECISIONS: INT 20-03 – Troubled Debt Restructuring

Background

INT 20-03, Troubled Debt Restructuring Due to COVID-19 was adopted by the SAPWG in response to actions taken by the federal government through the March 27, 2020, passage of the Coronavirus Aid, Relief and Economic Security Act (CARES Act).  Section 4013 of the Act creates temporary relief from troubled debt restructurings.

Shortly following the passage of the CARES Act, on April 7, federal and state banking regulators jointly developed a revised statement to coordinate a position with respect to the CARES Act law. That statement is titled Interagency Statement of Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised).  The accounting position was developed in conjunction with the Financial Accounting Standards Board.

From the statutory perspective, SSAP No. 36 – Troubled Debt Restructuring is the driving promulgation for determining whether a debt restructuring is considered a troubled debt restructuring (TDR). It covers the accounting and disclosure direction for deciding if a deemed restructuring has occurred.  For the most part, SSAP No. 36 primarily follows U.S. GAAP.

What’s the Rub?

The key point of the decisions to accounting for loan modifications clarifies that within the applicable period, modification of loan terms does not automatically become a TDR.  Short-term modifications made on a good faith basis as a result of the coronavirus issue are not automatically considered TDRs. Short-term modifications include payment deferrals, fee waivers, extensions of repayment terms, or other delays in repayment.  To be eligible, borrowers must be current, less than 30 days past due on payments at the time a modification program is executed.  The applicable period for this temporary program means the period beginning on March 1, 2020, and ending on the earlier of December 31, 2020, or the date that is 60-days after the date on which the coronavirus national emergency formally terminates. The conditions of this program are only applicable to the term of the specific loan modification.

SAPWG Adoption

Under newly released INT 20-03, the SAPWG adopted the position that modifications of a mortgage loan or bank loan terms as a result of the coronavirus situation would follow the detail April 7, 2020, Interagency Statement of Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and the CARES Act in assessing whether modifications are considered a TDR under SSAP No. 36. The INT follows the temporary applicable period noted above. SAPWG will assess this interpretation in the future for a possible subsequent extension.

Other SAPWG Conference Call Decisions:

Three additional INT promulgations were adopted during the April 15 conference call. You can click below to read more about each issue.

• INT 20-01 – Reference Rate Reform – relating to shifting from the previous London Interbank Offering Rate (LIBOR) used in many contracts to other reference interest rates
  • Click to see our SSAP Chat article about the history of the elimination of LIBOR)
• INT 20-02 – Extension of the Ninety-Day Rule for the Impact of COVID-19 – provides a one-time, temporary and optional extension of the 90-day rule for uncollected premium balances, bills receivable for premiums, amounts due from agents and policyholders for high deductible policies, and amounts due from non-government uninsured plans for situations meeting certain eligibility requirements as defined in the INT.
• INT 20-04 – Mortgage Loan Impairment Assessment Due to COVID-19 – the purpose of this temporary INT is to assess the effect of loan forbearance or modifications on the statutory financial reporting requirements for mortgage loans, bank loans, and investment vehicles that carry underlying mortgage loans. Concentration will be on whether temporary relaxation of impairment assessment is warranted in specific circumstances.