Loan Modifications Possible Under CARES Act

By Scott Birrenkott, Wisconsin Bankers Association

The CARES Act provides the option to temporarily suspend certain requirements under U.S. generally accepted accounting principles related to troubled debt restructurings (TDR). Banks have the option to not apply TDR accounting to qualifying loans or report them as TDRs. To qualify, a loan modification must be:

  1. Related to COVID-19; 
  2. Executed on a loan that was not more than 30 days past due as of December 31, 2019; and
  3. Executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or December 31, 2020 (applicable period).

There is no limit to the length of the modification, if it meets the above criteria. Meaning the accommodation can be short term or long term, including terms longer than six months, or extend past the applicable period. However, a modification executed outside the applicable period (for example, executed after December 31, 2020) would not be eligible. Section 4013 can be used for subsequent modifications, even if not used for initial modification. There is no limit on the number of modifications that can be granted to a single borrower, but each payment deferral has to meet the above criteria. Note that, aside from TDR designations, banks must still follow other requirements that may trigger because of modification, such as appropriate risk rating, placing loans on nonaccrual status, or charging off loans when appropriate.

Birrenkott is WBA assistant director – legal. For legal questions, please email