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FDIC Loss Share Agreements
After the FDIC has taken over a failed bank, we provide advice on loss mitigation and aid you through the Loss Share Agreement, Loan Workouts and portfolio maintenance, including portfolio liquidation. We provide:
- Case Management preparation or review of various loan documents to insure compliance with the FDIC Loss Share Agreement
- Special Asset Management and Work-out Specialists to handle loss share loans that are versed in loss-share and regulatory requirements
Loss sharing is a common feature of purchase and assumptions agreements used by the FDIC to move failed bank assets into the private sector. Under a loss share agreement, the FDIC agrees to absorb a certain portion of losses on a failed bank's assets that are purchased by an acquiring bank. From the FDIC's standpoint, loss share transactions are simpler, reduce cash outflows and allow troubled assets to be sold or restructured in an orderly fashion instead of being sold at steep discounts in a poor market.
The FDIC uses two forms of loss sharing:
- For commercial assets, the agreements typically cover an eight-year period with the first five years for losses and recoveries and the final 3 years for recoveries only. FDIC will reimburse 80 percent of losses incurred by acquirer on covered assets up to a stated threshold amount (generally FDIC's dollar estimate of the total projected losses on loss share assets), with the assuming bank picking up 20 percent. Any losses above the stated threshold amount will be reimbursed at 95 percent of the losses booked by the acquirer.
- For single family mortgages, the length of the agreements tend to run for 10 years and have the same 80/20 and 95/5 split as the commercial assets. The FDIC provides coverage for four basic loss events: modification, short sale, foreclosure, and charge-off for some second liens. Loss coverage is also provided for loan sales but such sales require prior approval by the FDIC. Recoveries on loans which experience loss events are shared in the same proportion as the original loss.
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