Regulators Urge Restructuring Loan Terms For Struggling Borrowers

I saw a news flash on Drudge yesterday afternoon saying banking regulators and the Federal Reserve had issued some loan guidelines. There was no meat in the story. It was a breaking story at the time. This morning I found that various regulatory bodies as well as the Federal Reserve are asking lenders and loan servicers to restructure loans for borrowers facing difficulty. According to the WSJ:

The guidance doesn’t compel lenders and the investors who buy loans to restructure the loans — but it puts an added burden on them to try to do so, while clarifying that they shouldn’t face negative tax or accounting implications from such restructuring. The statement was issued by the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and the Conference of State Banking Supervisors.

The WSJ story also said it’s unclear how many would benefit from restructuring loans. Given the sheer number of ARM’s (in excess of 1 million) which will reset in the next year or so this should have a significant impact.

It is a make sense idea in my opinion. From the lenders perspective taking a smaller loss as opposed to  having to write off the entire loan may make sense. Same goes for investors. However, these companies appear to be concerned about the tax consequences. That should be no problem to  Uncle Sam though, all they have to do is add one more page to the 60,000 + pages in the current tax code.

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