
Federal Agencies Finalize Policy Statement on CRE Loan Accommodations and Workouts
DebtX Team | 07/13/2023
In addition to Fair Value pricing of loan portfolios and forward-looking CECL analysis, we do traditional stress testing for our clients. The steady increase in rates has had several direct and indirect consequences for the various services we provide to lenders. Below are some observations as we head into the end of the year:
To tie this all back to the catchy title, a fair number of our traditional stress testing clients use the Fed’s Supervisory Scenarios. The assumed conditions clearly did not contemplate the current rate or inflationary environment we are experiencing. As a result, we are finding some loans that are pricing higher under a 2022 Severely Adverse stress test scenario than today’s mark to market price. That was a real eye opener for us.
Thus, our advice is to scrutinize your stress test results closely and make sure they are sensible, as models are only as good as their inputs. Also, if you have not re-underwritten the underlying collateral for your loans recently, we highly recommend it given this year’s volatility. It is very difficult to have a fulsome understanding of your portfolio risk if you are using stale credit metrics.