Frequently Asked Questions
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The following Frequently Asked Questions (FAQs) provide brief answers to questions about FCA’s risk identification expectations. They are designed to answer the most common questions posed by examiners, as well as Farm Credit System (System) management and board members. For general guidance on risk identification and FCA expectations of System lending institutions, see the Risk Identification Examination Manual section. FCA will update these FAQs periodically based on feedback received.
1. Why does FCA use the UCS for identifying credit risk?
FCA uses the UCS because it provides an important link to the commercial bank regulatory agencies for areas of common interest (e.g., shared national credits). Specifically, the UCS is the common language between the System, commercial banks, FCA, and other financial regulators. The UCS is, and will remain, a critical part of FCA’s risk identification processes for the foreseeable future. The UCS is embedded in all of FCA’s risk identification and credit quality reporting processes, including Call Reports, benchmarks for assigning Financial Institution Rating System (FIRS) ratings, loan review workpapers, and other internal analysis tools. See FCA’s guidance on Classifying Assets Using the UCS for additional information.
2. Are all credit factors weighted equally when FCA classifies loans?
All five credit factors (capacity, capital, collateral, character, and conditions), also known as the 5 C’s of credit, are important and need careful consideration. However, FCA emphasizes capacity and typically places more weight on it when classifying loans. Loans that are not supported by adequate repayment capacity are at risk of not performing or of being repaid through higher risk repayment sources (e.g., liquidation of capital assets or collateral). See FCA’s guidance on Classifying Assets Using the UCS for further discussion on the 5 C’s of credit, including the importance of capacity in classifying loans.
3. Does FCA classify loans in industries experiencing stress differently than other loans?
No. The classification criteria and definitions FCA uses are the same regardless of industry conditions. FCA’s methodology for assigning classifications is based on UCS definitions and an evaluation of the 5 C’s of credit, and that does not change. However, because distressed industry conditions can have a similar effect on a large number of borrowers (e.g., weak commodity prices causing losses), consistently applying the definitions and criteria can be more challenging. It is important to dig deeper to ‘get behind the numbers’ and fully understand the impact of industry stress on each borrower’s repayment ability and financial condition. In many cases, strength in financial condition (solvency and liquidity) and management ability (character) can lessen the impact of losses during industry stress. When evaluating management ability, it is important to consider subjective factors, such as the borrower’s risk management practices, quality of financial information, and willingness to make adjustments to operations. Likewise, effective servicing can help to manage risk and result in a more favorable credit classification, while ineffective servicing can lead to increased risk and a downgrade in the classification. Because there can be a wide range of offsetting factors, it is important to assign classifications on a borrower, rather than industry-wide, basis.
4. How much weight does FCA place on earnings when evaluating capacity and assigning classifications?
Earnings (or profitability) are a key factor in assigning loan classifications and typically correlate closely with a borrower’s repayment capacity. However, repayment capacity involves more than just earnings, and when a borrower experiences losses, a deeper analysis of capacity becomes critical. This is especially true as losses become more significant or extend into multiple years. These conditions necessitate not only greater scrutiny of the capacity factor but also a deeper evaluation of other credit factors to determine if sufficient offsetting strengths are present to justify maintaining an Acceptable or Special Mention classification. Key questions to consider in this evaluation include:
- Are losses significant relative to the borrower’s scope of operations and financial position?
- Have losses extended into several operating cycles, resulting in an adverse trend?
- Has working capital been depleted or declined to a point where it is inadequate to support capacity? If working capital is sufficient to fund losses, avoid a breakdown in repayment, and maintain a cushion for further adversity (i.e., working capital remains positive and covers expected losses), losses are less likely to result in a classification downgrade.
- Are there reasons for the losses other than weak commodity prices? If so, these factors may impact the evaluation of management as well as capacity, especially when these factors are controllable by management. When losses are expected (e.g., start-ups) or caused by nonrecurring or non-cash items that do not materially impact cash flow, losses are less likely to result in a classification downgrade.
- Is the borrower unwilling or unable to make operating or financial adjustments to lessen or eliminate the losses in response to changing conditions?
The more these conditions apply, the more weight FCA places on losses and the more likely the loans will be classified less than Acceptable. In addition, if repayment has broken down or is expected to break down, it is very likely the loan will need to be downgraded. Obvious signs that repayment has broken down include past due payments and the inability to repay debt through operations or working capital. If payments remain current but short-term debt from sources such as trade creditors is rising, repayment may have effectively broken down. Additionally, if the institution needs to rebalance debt or advance new money to ensure the borrower can make scheduled payments, repayment may have already effectively broken down. However, the rebalanced or new debt needs to be viewed in context of why it happened and the financial resources available to support the action. In many instances, financially strong borrowers can readily restore temporary breakdowns in repayment using new or rebalanced debt.
5. To what extent can a strong balance sheet offset weaknesses in earnings or capacity and support an Acceptable or Special Mention classification?
Financially strong borrowers with solid working capital and equity can typically withstand a year or more of losses without affecting the loan classification. These borrowers generally have smaller losses and better repayment capacity than more leveraged borrowers because they have less interest expense, lower debt servicing requirements, and more working capital. By definition, borrowers with positive working capital should be able to repay maturing debt obligations over the next 12 months. A strong working capital position may enable a borrower to maintain adequate repayment capacity despite one or more years of operating losses and reduced cash flow. As such, working capital is a key factor in assessing whether the borrower’s financial position provides adequate mitigating strength to compensate for losses or the inability to service debt from cash flow. An additional consideration is whether the borrower’s balance sheet could be rebalanced by restructuring operating debt to increase working capital. This may enable some borrowers to maintain adequate repayment capacity and allow their loans to remain classified Acceptable or Special Mention even if they have experienced losses. While this may be an appropriate approach for borrowers with strong equity that used cash to purchase equipment and real estate, it must be used prudently to avoid creating new credit factor weaknesses or extending additional credit to borrowers that have other underlying weaknesses. In those cases, the classification needs to be adjusted to reflect the weaknesses present.
6. How does FCA evaluate repayment capacity on multi-year revolving lines of credit?
As background, a revolving line of credit (RLOC) is commonly used to finance the general credit needs of borrowers. RLOCs may be structured with a 1 year or multi-year term and typically require periodic interest payments and repayment in full at maturity. RLOC terms and conditions can vary significantly depending on the borrower’s risk profile and needs. For example, an institution may provide 3-5 year RLOCs to its strongest customers but only provide a 1-year loan with additional controls to its weaker borrowers. Additional controls could include restrictions on the use of loan proceeds, required principal payments, or advances limited by a borrowing base. The expected principal payments or revolvement on RLOCs should be evaluated based on the purpose of the loan, its specific terms and conditions, and the risk profile of the borrower.
Although a borrower may remain current on interest payments, if a multi-year RLOC has not periodically revolved (i.e., the loan proceeds advanced have not been repaid consistent with the sale of assets being financed), the borrower’s repayment capacity and loan classification should be closely scrutinized. This is particularly true when the primary purpose of the loan is to finance the production of agricultural products, and the outstanding loan balance does not decline as these products are sold. If the current assets produced are insufficient to cover the outstanding RLOC balance, the shortfall could represent “frozen debt.” This debt could possibly be comprised of capital purchases, operating losses, or a combination of the two. In such circumstances, you should focus on the borrower’s ability to service these debts on a normalized basis (i.e., based on the useful life of any capital assets financed and repayment of operating losses over a reasonable time frame, which considers the borrower’s overall debt structure). The inability to service such debt on a normalized basis is a red flag and likely warrants a loan classification of less than Acceptable. You should also evaluate the source of interest payments to ensure they are not being made from a secondary operating line or consumer debt instruments. The inability to make interest payments from working capital or operating cash flow likely reflects a well-defined weakness in borrower repayment capacity and warrants an adverse loan classification. When accompanied by insufficient repayment capacity to service term or frozen debt and a weak financial condition, the situation may be severe enough to conclude the loan is only current because of the loan structure and is in effect past due. In these instances, a nonaccrual performance category may be appropriate to reflect repayment risk in the loan.
7. What is the appropriate approach for assigning UCS classifications to contract growers when the integrator’s loans are downgraded to a criticized loan classification?
When an institution downgrades an integrator’s loans to a criticized classification, it should also evaluate the classification of specific grower loans affiliated with the integrator. The classification of loans to contract growers must consider a number of factors, including: the degree of interdependence between the grower and the integrator, the ability of the grower to transition to another integrator, and the integrator’s financial condition. Absent a borrower-specific evaluation, the institution should classify the grower loans the same as the integrator’s loans. When the integrator is not financed by the institution and public information on the integrator is not available, the institution should update its evaluation of the integrator’s financial condition based on the best information available to determine if the growers’ loan classifications need to be reviewed. A similar evaluation of borrower-specific loans should occur when integrator loans are upgraded.
When completing a borrower-specific evaluation, one of the first steps in assigning a classification is to evaluate the degree of interdependence that exists between the grower and integrator. Loans to growers that are highly dependent on income from the integrator should generally be classified no better than the integrator loans. Loans to growers that have minimal or no dependence on the integrator may be classified on their own merits, while other loans (those where the grower has a more moderate degree of dependence on income from the integrator) will fall somewhere in between and require judgment when determining the appropriate classification. Where a high degree of dependence exists, a loan classification better than the integrator could be supported if the institution sufficiently documents the grower could readily align with another integrator. To determine this, the institution should evaluate factors such as the desirability of the facilities; industry structure, dynamics, and profitability; and the performance of other integrators. Please refer to Factors to Consider When Evaluating Loans to Contract Growers for additional details when completing a borrower-specific analysis of contract grower loans.
Note: The above guidance applies to UCS classifications only. Assigning the performance category requires further judgment. For example, if an integrator loan is in nonaccrual, the same performance category may not be required on a highly dependent grower loan if the integrator shows no imminent signs of defaulting on the contract or reducing payments to the grower.
8. How do you assign a UCS classification and Probability of Default (PD) rating to a severely undersecured real estate loan?
Volatility in agriculture and the general economy can result in situations where real estate loans become severely undersecured. FCA would not expect such loans to be classified less than Acceptable based solely on a significant decline in collateral value. However, the same stress causing the decline in collateral values would usually cause deterioration in the borrower’s other credit factors as well, particularly capital and capacity. In addition, if the decline is severe enough, it may provide an economic incentive for the borrower to stop repaying the loan (i.e., strategic default). In these situations, FCA expects UCS classifications and PDs to be supported by analysis of current borrower financial and collateral information. This analysis should assess the increased level of strategic default risk. Absent this analysis and confirmation that other credit factors remain adequate, severely undersecured real estate loans would typically warrant a less than Acceptable classification. Even if a severely undersecured real estate loan has other credit factors that continue to support an Acceptable classification, a PD rating of no better than 9 would typically be appropriate to reflect the increased risk of a strategic default when not mitigated by strengths in other credit factors.
9. How does loan structure impact classifications?
Loan structure is critical to managing and controlling risk and can influence the classification. More specifically, loan structure is a key part of the 5 C’s of credit as it directly impacts the conditions factor. Loan structure can significantly contribute to credit risk, particularly if repayment or amortization terms are not consistent with the type of asset financed or commensurate with the creditworthiness of the borrower. For example, loans with lenient repayment terms, such as term loans with limited principal amortization, interest only loans, and revolving term facilities, can lessen borrower discipline and increase credit risk. This is particularly true when lenient terms are granted on real estate or other term loans that traditionally would have a higher level of principal amortization.
Measuring repayment capacity against lenient repayment conditions may understate credit risk and must be factored into the credit analysis. Because of this, the assessment of capacity should be based on normalized repayment conditions for essentially all term loans, even if more lenient repayment requirements have been granted. When material weaknesses in repayment terms or other conditions exist, such weaknesses may be the sole basis for a Special Mention classification if not adequately offset by strengths in other credit factors.
10. Should all loans attributed for lending limit purposes have the same UCS classification?
FCA Regulation 614.4359 requires attribution when certain conditions relating to liability, financial interdependence, or control are present between related borrowers. While the regulation requires attribution for lending limit purposes, the regulation does not mandate that attributed loans have the same UCS classification. However, borrowers attributed because of financial interdependence will typically warrant the same loan classifications. In these cases, the related borrower is often dependent on revenue from the primary borrower, or operations are commingled to such an extent that the individual borrowers would have difficulty surviving if separated. If no financial interdependence exists and borrowers are attributed for control or liability reasons, identical loan classifications may not be necessary. You should apply judgment and look at the creditworthiness of the primary and related borrowers on a stand-alone basis when classifying loans attributed for control or liability reasons.
11. What is an appropriate period of financial performance when considering an upgrade in classification?
While there are no specific rules, a full operating cycle (e.g., 12 months) of positive financial results is a reasonable rule of thumb for considering upgrades of Special Mention or Substandard loans where the borrower was previously showing unfavorable financial performance. Positive financial results would include returning to profitability, restoring adequate working capital, and eliminating violations of financial loan covenants. However, you should also consider the sustainability of those results and if the underlying causes of weaknesses have been resolved. In addition, the quality of financial information is critical in making the decision. Yearend financial information is typically the highest quality and provides the best support for upgrades, but good quality interim information that captures a full operating cycle may also be used.
12. What is FCA’s position on reporting credit classification differences as credit administration weaknesses?
FCA does not typically view credit classification differences as credit administration findings. We believe credit classification differences often interrelate with credit administration weaknesses (e.g., gathering and verifying information, credit analysis, decision making, and loan servicing), but that it is more through a cause and effect relationship. As such, we typically report these differences as part of our conclusions on internal review function reliability and the adequacy of credit risk identification, rather than in our credit administration review results.
13. Should loans with credit deterioration that are evaluated individually for an allowance be classified Doubtful?
The existence of an allowance on a loan evaluated individually for credit losses does not mean the loan should be classified Doubtful. Establishing an allowance for an individually evaluated loan and classifying that loan (or a portion of that loan) Doubtful are separate determinations. Therefore, the amounts do not need to be equal.
In determining the amount to classify Doubtful, institutions should apply the UCS definition rather than defaulting to the individual allowance amount. They should follow applicable accounting guidance to determine the allowance. An allowance is typically warranted when all or a portion of a loan is classified Doubtful. Refer to the Allowance for Losses topic in the FCA Examination Manual for additional guidance on establishing allowances.
Some institutions will classify a loan Doubtful when they determine that a Substandard classification and the allowance amount do not adequately reflect the severity or uncertainty of the situation. In such cases, an institution may classify the under-secured portion of the loan (i.e., the amount covered by an individual allowance on a collateral-dependent asset) Doubtful.
FCA has not prohibited institutions from using Doubtful in this manner, but we emphasize the need to be judicious. As previously noted, we do not advocate an approach where all individual allowance amounts are classified Doubtful. Consistent with the UCS definition, we expect the amount classified Doubtful either to be upgraded to Substandard or downgraded to Loss in a relatively short time.
14. When should an institution use the Loss classification?
The Loss classification should be used to reflect the amount of a loan that is considered uncollectible and should directly reflect the amount of any necessary chargeoff to be recognized on an asset for loan loss accounting purposes. The chargeoff should be recorded in the period in which the asset is determined uncollectible. As such, the institution should not have any amount classified as Loss at quarter-end. The chargeoff eliminates any loan amount in the Loss category. See FCA’s Classifying Assets Using the UCS and High-Risk Asset Accounting and Reporting guidance for further discussion of the Loss classification and chargeoffs.
15. Can an institution use an individual allowance to recognize a known loss in lieu of recording a charge-off?
No. FCA Regulation 621.5(c) requires institutions to charge off loans, wholly or partially, as appropriate, at the time they are determined to be uncollectible. Although establishing an allowance versus recording a charge-off has a similar effect on income, the effects on the balance sheet and related measures are different. A charge-off reduces the allowance, while establishing an individual allowance increases it. This difference has several implications for users of financial statements, including investors, management, examiners, and board members.
For example, some users may think a larger allowance relative to total loans outstanding signals a stronger financial condition when it actually reflects unrecognized charge-offs.
In addition, a portion of the allowance is included in total regulatory capital, which is viewed as a measure of the institution’s ability to absorb expected and unexpected losses. Therefore, an institution’s risk-bearing ability may be misstated if the institution does not recognize charge-offs in a timely manner. FCA expects institutions to record charge-offs when losses are quantifiable and reasonably known.
16. What is the correct UCS classification for loans with U.S. government guarantees or Federal Agricultural Mortgage Corporation (Farmer Mac) Long-Term Standby Purchase Commitments (LTSPC)?
Consistent with prior FCA guidance (Informational Memorandum on Examination of Loans Guaranteed by Federal and Local Government Agencies dated July 10, 1998), loans with U.S. government guarantees or an LTSPC are usually classified Acceptable. Typically, upon determining the loan guarantee constitutes an enforceable contract and the institution is adhering to its terms and conditions, the entire loan will be classified Acceptable. Likewise, loans in the LTSPC program would be classified Acceptable even if repayment problems or other credit weaknesses exist, provided the institution has not done anything to undermine enforceability of the commitment. Examiners will assess whether the institution’s internal controls effectively control risk and contribute to meeting the terms of the guarantee or LTSPC contract. Criticized or adverse classification may be appropriate when enforceability of the guarantee or LTSPC contract is jeopardized.
17. How are PD and Loss Given Default (LGD) ratings handled for loans with government guarantees or an LTSPC?
Based on the System’s risk rating guidance, loans with government guarantees of payment (e.g., U.S. government guarantees for certain export transactions) receive a PD of 1 and LGD of A. Loans covered by government guarantees of collection, as well as loans covered by an LTSPC, are assigned a PD based on the merits of the asset on a standalone basis (i.e., absent the guarantee or LTSPC) because the guarantee would not affect the probability the borrower will default. In practice, a loan having a government guarantee of collection or LTSPC could be classified Acceptable yet have a PD of 10 or worse. The LGD will then reflect the loss expected with the guarantee. On loans with government guarantees of collection (e.g., U.S. Department of Agriculture - Farm Service Agency guarantees), the LGD will typically be A, B, C, or D. Loans with an LTSPC will carry an LGD of A as these assets are purchased in full upon default, provided there are no concerns with contract enforceability.
18. What is the appropriate PD for a loan with an LTSPC that is part of an agricultural mortgage-backed securities (AMBS) pool?
Once an asset with an LTSPC is converted to an AMBS, the resulting securities can be assigned a PD of 2 based on the System’s risk rating guidance. The basis for this approach is that Farmer Mac AMBSs are backstopped by Farmer Mac’s line of credit with the U.S. Treasury.
19. How should an institution assign a performance category on a loan having a government guarantee or an LTSPC and no apparent risk of loss?
Typically, a loan with a government guarantee or an LTSPC and no apparent risk of loss will be classified Acceptable and performing, even if credit weaknesses or moderate repayment problems (e.g., less than 90 days past due) exist. Past due loans serviced in accordance with the terms and conditions of the guarantee or LTSPC are normally presumed to be in process of collection and adequately secured as defined in FCA Regulation 621.2. Thus, when a loan with a government guarantee or an LTSPC becomes 90 days past due, the loan would be assigned a performance category of “loans 90 days past due still accruing interest” under FCA Regulation 621.6(c) until the institution collects on the guarantee or LTSPC. The institution has the option to assign a more conservative performance category (i.e., nonaccrual) in this situation. Also, if collectibility of the guarantee or LTSPC is in doubt because the institution’s compliance with the underlying contract is questionable, the performance status should be assigned based on the loan’s risks without reliance upon the guarantee or LTSPC.
20. How should an institution classify and assign a performance category on a government guaranteed loan with apparent risk of loss?
If a risk of loss becomes evident (e.g., the loan is not adequately secured and severe delinquencies exist or formal collection is imminent), the loan should be transferred to nonaccrual in accordance with FCA Regulation 621.6(a). Upon transfer to nonaccrual, the loan should be evaluated to determine if loss recognition is necessary. The amount covered by the guarantee can remain Acceptable if the institution chooses. Note that LTSPCs are typically purchased at the full debt amount by Farmer Mac when they become severely delinquent or enter formal collection. As a result, there is no apparent risk of loss on these assets unless the institution has not complied with underlying terms and conditions of the LTSPC.
21. Can a non-government guarantee be used to support an Acceptable classification on a loan that would otherwise be criticized or adversely classified?
Some personal or other non-government guarantees can be a strong enough credit enhancement to support an Acceptable classification on an otherwise criticized or adverse asset. However, many variables should be considered in determining the value of the guarantee as a credit enhancement. For example, the conditions described below can all impact the value of the guarantee, and you should apply judgment in determining whether an Acceptable classification is appropriate.
- Type of Guarantee: A performance guarantee that can be enforced for the life of the loan is more valuable than a guarantee that can only be pursued after liquidation of collateral.
- Guarantee Limitation: A guarantee can be unlimited or it can be limited to a specific dollar amount or percentage. Limited guarantees provide correspondingly limited protection. Also, if there are multiple guarantors, the guarantees can be limited based on a pro rata interest or other criteria. For example, pro rata guarantees create multiple and separate credit risks among the guarantors, making collection more complicated and potentially more limited.
- State Law: The enforcement of a personal guarantee varies by state. Some states have provisions that allow guarantors to be released from obligations after a certain number of payments have been made (e.g., the loan was substantially paid down or borrower repayment performance was reestablished).
- Relationship between Debtor and Guarantor: While a guarantee is a legal obligation regardless of the relationship, the closer the relationship between these two parties (e.g., a family corporation and an owner/principal), the fewer potential defenses the guarantor likely has in contesting the enforceability of the guarantee.
- Financial Strength of the Guarantor: Prior to placing significant weight on the guarantee, the lender should have clear documented evidence of the guarantor’s financial strength (e.g., current financials, related analysis as needed, and consolidations as appropriate).
With respect to using guarantees versus cosigners, cosignatures are generally a stronger form of credit enhancement as cosigners have the same legal obligation as all signers of the note. In contrast, a guarantor's obligation is generally not triggered until the loan is in default or a loss is incurred. In addition, cosigners are oftentimes closer to the primary obligor and may have a stronger commitment than what might be evident in many guarantees. Guarantors that are more removed from daily operations likely have more defenses if they chose to resist honoring the guarantee, making it potentially more difficult to collect on the guarantee.
22. Must loans to nonviable borrowers be reported as nonaccrual?
Loans to nonviable borrowers are typically nonaccrual, but they are not automatically assiged to that performance category. While FCA has not defined "nonviable" in the regulations, nonviable borrowers typically exhibits an extremely weak financial position and it is probable that full repayment of their loans can only be accomplished through liquidation, forced or otherwise, of assets other than those converted to cash in the normal course of business. Loans to borrowers with these characteristics typically meet the definition of a nonaccrual loan, which is further described in FCA Regulation 621.6. However, examiners occasionally encounter instances where institutions maintain substandard, nonviable loans (i.e., PD 12) in accrual status. If the borrower has paid as agreed without significant asset liquidation, and the loan is adequately secured, accrual status may be supported. Also, when the criteria in FCA regulation 621.6(c) are met, loans to nonviable borrowers could be classified as "loans 90 days past due still accruing interest."
23. Can debtor-in-possession (DIP) financing be viewed as an independent credit risk and not require aggregation under FCA Regulation 621.7?
Yes, under most DIP financing arrangements, the lender providing DIP financing receives super-priority status over other creditors. The bankruptcy court approves these loans and typically treats the post-bankruptcy petition DIP arrangement as a separate entity apart from the pre-petition debtor. As a result, the court’s involvement essentially results in a different obligor for purposes of applying the regulatory criteria for an independent credit risk when assigning a performance category to the DIP financing. While aggregation may not be required in typical DIP financings, each DIP financing arrangement is unique. As a result, lenders need to review the underlying details of each borrower’s bankruptcy filing and related DIP financing arrangement to support that an independent credit risk exists.
24. How are loans designated as “modifications to borrowers experiencing financial difficulty” handled for risk identification purposes?
Designating a loan as a modification to a borrower experiencing financial difficulty is an accounting determination and is not directly related to the loan’s UCS classification. However, a loan meeting this definition may also be adversely classified and may be nonaccrual because the characteristics of loans meeting the definitions are similar.
According to the System Loan Modification Guidelines, any loan assigned a PD 11 or worse should be evaluated for financial difficulty. A Special Mention loan (PD 10) that previously demonstrated adverse financial and repayment trends and is now, or has been, 30 days or more past due should also be evaluated to determine whether a modification to the loan meets the definition of a modification to a borrower experiencing financial difficulty.
26. If a loan receives only a time concession (e.g., the payments are deferred or the maturity is extended), would this concession meet the definition of a modification to a borrower experiencing financial difficulty?
Typically, if a delay in payment is considered minor, the entity is not required to disclose the delay as a modification to a borrower experiencing financial difficulty. Determining whether the modification is considered minor (and therefore a continuation of the existing loan) is important for determining Vintage Date disclosures and the associated accounting for costs and fees. Refer to the System’s Loan Modification Guidelines for additional information on whether a modification of debt is considered minor.