Importance of the Commercial Loan Review in the Loan Restructuring Deals Encouraged by Regulators

A commercial loan review means two different things for the borrower and the lender when they are striving to reach a debt restructuring deal. This kind of deal is encouraged by banking regulators, such as the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), because they know that this compromise could result into a win-win situation for both parties.

The financial regulators know that many distressed commercial borrowers have only temporarily lost their capability to make the monthly payments and do not desire to cheat the banks. They also know that giving the businesses a chance to recover would later be beneficial to the banks and to the economy as well. Naturally, the regulators also caution the banks to be careful in the negotiations. There is no sense in giving a chance to a company or enterprise that is already doomed to failure. In this case, there is nothing that the bank could do to avoid foreclosing the property.

In essence, what the regulators want the lenders to do is to be more creative when trying to find a way out for businesses that have not lost their creditworthiness. Here is the importance of the commercial loan review for the bank. This is the process of evaluating the capability of the business or 香港債務重組 company to repay the loan based on the adjusted mortgage payments. Basically, the factors to be considered by the bank include the payment record, the cash flow of the company or business, the possibility of guarantors for the borrower, and conditions of the market. In other words, the commercial loan review that is conducted by the bank will be the basis whether to approve the loan modification or not.

On the other hand, for the borrower, the commercial loan review is performed by a loss mitigation consultant or professional. The focus of this process is the original agreement because experts have found out that 80 percent of the commercial loans that were released during the boom years had flaws. These are violations of certain federal or state laws that are designed to protect borrowers’ rights. Therefore, these violations have correspondingly stiff penalties, such as requiring the bank to refund all interests that it has collected since the beginning of the loan. What is worse for the bank is that it would not be able to enforce the various provisions contained in the contract, and this includes foreclosure. Therefore, this is a powerful advantage for the borrower if such violations are indeed discovered.

The discovery of these violations will also help the borrower with a property already undergoing the process of foreclosure. The foreclosure process will be halted until a court decision has been made regarding these allegations. The borrower can also stop making the payments to the lender while the case is being heard, although the borrower is usually advised to deposit these payments to a separate account, just in case. Therefore, the commercial loan review is a powerful weapon for the borrower in negotiating with the lender.

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