On May 5th, the Federal Deposit Insurance Corporation (FDIC) issued short, but helpful, guidance directed towards borrowers of failed financial institutions. Businesses with a borrowing relationship with a failed institution should be aware of procedures adapted by the FDIC to ensure a smooth transition. Some points covered by their guidance:
Communications with Borrowers during Interim Servicing - The FDIC will be responsible for interim servicing of a loan until transferred to another institution. The FDIC strongly encourages refinancing of loans with other institutions. In some instances the FDIC will offer an incentive to refinance in the form of reimbursement of closing costs.
Modifications and Reductions in Principal - If borrower experiences financial difficulties, the FDIC encourages contacting them for possible modification of terms or reduction of principal.
Lines of Credit - If a borrower has a line of credit or a construction/development loan, the FDIC prefers not to continue to loan additional funds, but will do so to protect or enhance collateral value.
Additional Funds Requested - If a borrower seeks additional funds, the FDIC will first utilize information in the failed bank's loan file. In many situations, documentation is incomplete and therefore, it is not unusual for a business to be asked to provide additional documentation.
Communications with Borrowers during Interim Servicing - The FDIC will be responsible for interim servicing of a loan until transferred to another institution. The FDIC strongly encourages refinancing of loans with other institutions. In some instances the FDIC will offer an incentive to refinance in the form of reimbursement of closing costs.
Modifications and Reductions in Principal - If borrower experiences financial difficulties, the FDIC encourages contacting them for possible modification of terms or reduction of principal.
Lines of Credit - If a borrower has a line of credit or a construction/development loan, the FDIC prefers not to continue to loan additional funds, but will do so to protect or enhance collateral value.
Additional Funds Requested - If a borrower seeks additional funds, the FDIC will first utilize information in the failed bank's loan file. In many situations, documentation is incomplete and therefore, it is not unusual for a business to be asked to provide additional documentation.
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