Some lenders participate in trial modification programs such as The Home Affordable Modification Program (HAMP). Under these programs, lenders enter into an agreement with a borrower to modify their loan for an initial trial period. Upon successful completion of the trial period, the loan is permanently modified.

We are aware that the SEC staff has provided guidance that the lender is considered to have granted to the borrower a modification with a contingent concession that qualifies as a troubled debt restructuring at the start of the HAMP trial period when there is a legally binding obligation to the borrower on the part of the lender. In evaluating the significance of the concession granted to the borrower, the SEC staff concluded that the lender should consider the modification of payments both during the trial period as well as the expected modification in loan terms assuming the loan will be permanently modified, notwithstanding the possibility that an individual borrower may not successfully complete the trial period and his loan may not be permanently modified.

This guidance may also apply to other types of trial-period modifications.