As CoStar reported a couple weeks ago, the government announced plans to unveil workout guidelines encouraging banks to restructure troubled commercial construction and mortgage loans as banks continue to fail at a rate not seen since the early 1990s. The Federal Deposit Insurance Corporation (FDIC) made good on that vow on Oct. 30, adopting a policy statement supporting "prudent" commercial real estate loan workouts.

The FDIC is teaming up with other agencies, including the Federal Reserve and Office of Thrift Supervision, to roll out the guidelines, most of which are already accepted practice, which assert that modifying loans in a prudent way is often in the best interest of both banks and creditworthy commercial real estate borrowers.

Under the newly released policy, performing loans, including those that have been renewed or restructured on "reasonable modified terms," will not be subject to adverse classification solely because the declining value of the underlying collateral.

According to the 33-page policy document, banks must accurately identify their potential losses when making modifications to troubled commercial real estate loans.

The guidelines provides examples of CRE loan workouts for bank and regulatory examiners, including various scenarios involving troubled office, shopping mall, construction and land sale loans.

With hundreds of billions in commercial real estate loans coming due, loan losses are increasingly threatening banks, with small and midsize institutions the most at risk. At least 115 banks have failed this year, costing the FDIC insurance fund an estimated $25 billion -- a figure expected to rise to about $100 billion through 2013.

The FDIC is asking banks and savings & loans to pay $45 billion in advance premiums that would have been due three years from now to help replenish the fund.

See previous CoStar previous coverage of FDIC loan guidelines ...