Agencies Release Guidance on ALLL Estimation Practices for Junior Liens

FDIC Federal Reserve OCC NCUA

On January 31, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency (collectively, the agencies), released joint guidance related to allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior leans on one- to four-family residential properties. The guidance reiterates, specifically with regard to junior liens, key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL estimation practices. The agencies provided the guidance to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios and to follow appropriate risk-management principles in managing junior liens.