Cross-collateralization strategy raises concerns

Description

Abstract: Commercial lenders cross-collateralize loans to reduce risks. But accounting concerns and debt restructuring issues may emerge when using multiple properties to secure a loan associated with one property. This article discusses a study that illustrates the potential impact of cross-collateralization on loans’ nonaccrual status. The article also notes that some banks use cross-collateralization in an attempt to avoid troubled debt restructuring (TDR) status on reworked loans.