We have used the definition of collateral dependent as a loan where the ultimate repayment of the loan is based upon the sale of the collateral. We have an FDIC examiner who is stating that if the customer is servicing the debt then the loan is not collateral dependent even if ultimate repayment will be from the sale of the collateral. Would anyone mine sharing how they define collateral dependent? Thanks in advance.

Under the examiner's definition, how would any loan be collateral dependent? The only loan that could be would be a single payment balloon, as any loan with recurring payments would clearly be paid from some source other than the collateral.

However, if the cash flow is insufficient to make the payments, based on your underwriting standards, and you are willing to make the loan based strictly on asset value, then that, in my mind, is a collateral dependent loan.

"Collateral dependent" means when the repayment of the loan comes only from the collateral, and there are no other sources of repayment.

Example would be if loan if for an apartment complex, secured by same and the loan is repaid from rental income from the property and without that rental income the customer could not service the debt.

We have a loan secured by vacant land. Customer pays interest monthly out of pocket. Payoff will occur when land is sold. We thought this loan would be collateral dependent. Since customer has never missed a payment examiner thinks not collateral dependent. Now we do not like looking a gift horse in the mouth, but our concern is if we change to this examiners definition what will happen when the next examiner comes in. Examiner is saying payment is coming from some other source than the collateral.

Did you ever get any more clarification on this? Because the guidance is not clear. I've seen references to collateral dependent as referring to the underlying value of the property, but I've also seen reference to operation of the property in some cases. If you have a loan to an entity that owns a commercial property, which has tenants as a source of repayment, is this "collateral dependent"? If there was no revenue, and the ultimate source of repayment was from the sale of the property, for TDR purposes, would this be "collateral dependent"?