12 USC 2202a - Restructuring distressed loans

from a borrower for the restructuring of a distressed loan in accordance with a preliminary restructuring plan proposed by the borrower as a part of the application;

(B)

submitted on the appropriate forms prescribed by the qualified lender; and

(C)

accompanied by sufficient financial information and repayment projections, where appropriate, as required by the qualified lender to support a sound credit decision.

(2)

Cost of foreclosure

The term “cost of foreclosure” includes—

(A)

the difference between the outstanding balance due on a loan made by a qualified lender and the liquidation value of the loan, taking into consideration the borrower’s repayment capacity and the liquidation value of the collateral used to secure the loan;

(B)

the estimated cost of maintaining a loan as a nonperforming asset;

(C)

the estimated cost of administrative and legal actions necessary to foreclose a loan and dispose of property acquired as the result of the foreclosure, including attorneys’ fees and court costs;

(D)

the estimated cost of changes in the value of collateral used to secure a loan during the period beginning on the date of the initiation of an action to foreclose or liquidate the loan and ending on the date of the disposition of the collateral; and

(E)

all other costs incurred as the result of the foreclosure or liquidation of a loan.

(3)

Distressed loan

The term “distressed loan” means a loan that the borrower does not have the financial capacity to pay according to its terms and that exhibits one or more of the following characteristics:

(A)

The borrower is demonstrating adverse financial and repayment trends.

(B)

The loan is delinquent or past due under the terms of the loan contract.

(C)

One or both of the factors listed in subparagraphs (A) and (B), together with inadequate collateralization, present a high probability of loss to the lender.

(4)

Foreclosure proceeding

The term “foreclosure proceeding” means—

(A)

a foreclosure or similar legal proceeding to enforce a lien on property, whether real or personal, that secures a nonaccrual or distressed loan; or

(B)

the seizing of and realizing on nonreal property collateral, other than collateral subject to a statutory lien arising under subchapter I or II, to effect collection of a nonaccrual or distressed loan.

(5)

Loan

(A)

In general

(B)

Exclusion for loans designated for sale into secondary market

(i)

In general

(ii)

Unsold loans

(I)

In general

(II)

Later sale

(6)

Qualified lender

The term “qualified lender” means—

(A)

a System institution that makes loans (as defined in paragraph (5)) except a bank for cooperatives; and

(B)

each bank, institution, corporation, company, union, and association described in section 2015(b)(1)(B) of this title but only with respect to loans discounted or pledged under section 2015(b)(1) of this title.

(7)

Restructure and restructuring

(b)

Notice

(1)

In general

On a determination by a qualified lender that a loan made by the lender is or has become a distressed loan, the lender shall provide written notice to the borrower that the loan may be suitable for restructuring, and include with such notice—

(A)

a copy of the policy of the lender established under subsection (g) that governs the treatment of distressed loans; and

(B)

all materials necessary to enable the borrower to submit an application for restructuring on the loan.

(2)

Notice before foreclosure

(3)

Limitation on foreclosure

(c)

Meetings

On determination by a qualified lender that a loan made by the lender is or has become a distressed loan, the lender shall provide a reasonable opportunity for the borrower thereof to personally meet with a representative of the lender—

(1)

to review the status of the loan, the financial condition of the borrower, and the suitability of the loan for restructuring; and

(2)

with respect to a loan that is in nonaccrual status, to develop a plan for restructuring the loan if the loan is suitable for restructuring.

(d)

Consideration of applications

(1)

In general

When a qualified lender receives an application for restructuring from a borrower, the qualified lender shall determine whether or not to restructure the loan, taking into consideration—

(A)

whether the cost to the lender of restructuring the loan is equal to or less than the cost of foreclosure;

(B)

whether the borrower is applying all income over and above necessary and reasonable living and operating expenses to the payment of primary obligations;

(C)

whether the borrower has the financial capacity and the management skills to protect the collateral from diversion, dissipation, or deterioration;

(D)

whether the borrower is capable of working out existing financial difficulties, reestablishing a viable operation, and repaying the loan on a rescheduled basis; and

(E)

in the case of a distressed loan that is not delinquent, whether restructuring consistent with sound lending practices may be taken to reasonably ensure that the loan will not become a loan that it is necessary to place in nonaccrual status.

(2)

Applications not required for restructuring plans

(e)

Restructuring

(1)

In general

(2)

Computation of cost of restructuring

In determining whether the potential cost to the qualified lender of restructuring a distressed loan is less than or equal to the potential cost of foreclosure, a qualified lender shall consider all relevant factors, including—

(A)

the present value of interest income and principal forgone by the lender in carrying out the restructuring plan;

(B)

reasonable and necessary administrative expenses involved in working with the borrower to finalize and implement the restructuring plan;

(C)

whether the borrower has presented a preliminary restructuring plan and cash-flow analysis taking into account income from all sources to be applied to the debt and all assets to be pledged, showing a reasonable probability that orderly debt retirement will occur as a result of the proposed restructuring; and

(D)

whether the borrower has furnished or is willing to furnish complete and current financial statements in a form acceptable to the institution.

(f)

Least cost alternative

(g)

Restructuring policy

(1)

Establishment

(2)

Contents of policy

The policy established under paragraph (1) shall include an explanation of—

(A)

the procedure for submitting an application for restructuring; and

(B)

the right of borrowers with distressed loans to seek review by a credit review committee in accordance with section 2202 of this title of a denial of an application for restructuring.

(3)

Submission of policy to FCA

(h)

Compliance

(i)

Permitted foreclosures

(j)

Application of section

(k)

Assistance in restructuring

(Pub. L. 92–181, title IV, § 4.14A, as added Pub. L. 100–233, title I, § 102(a), Jan. 6, 1988, 101 Stat. 1574; amended Pub. L. 100–399, title I, § 102(a)–(f), Aug. 17, 1988, 102 Stat. 990; Pub. L. 104–105, title II, § 208(a), Feb. 10, 1996, 110 Stat. 173; Pub. L. 115–334, title V, § 5411(22), Dec. 20, 2018, 132 Stat. 4681.)

cite as: 12 USC 2202a

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