Our bank has balloon mortgages and HELOCs that received 3 and/or 6 month mortgage deferrals where the payments were deferred to the end of the loan. In some instances, the loan is now maturing and the deferrals are due. Some customers can't afford to pay the 3/6 month deferred amount, so we are trying to determine how best to handle these situations. We are reluctant to add the amount to the principal for the refinance as equates to capitalization of interest. Can anyone share how they are handling these situations?

Well, there are two issues. Can you capitalize interest under State law and not violate any usury provisions when establishing these new legal workout agreements with the borrowers? And then you have the separate question as to how to account for this TDR/workout situation under the proper accounting standards. That likely requires that you visit with both your legal counsel and your external accounting firm.