Suspension Agreement

Suspension Agreement

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Question

This is a loan term or an arrangement that modifies a loan term under which a bank agrees to suspend all or part of a customer's loan obligation on the occurrence of a specified event. It May be a part of the loan itself or a separate agreement. Does not include a loan payment deferral arrangement where the borrower or the bank can unilaterally defer a payment. What is it?

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A

The correct answer to the question is A. Debt suspension agreement (DSA).

A Debt suspension agreement (DSA) is a contractual arrangement between a borrower and a lender, typically a bank, in which the lender agrees to suspend the borrower's loan payments for a period of time in the event of a specified triggering event. This triggering event may include the borrower's job loss, disability, or death.

The suspension of the loan payments can be partial or complete, and the period of suspension may be predetermined or can vary based on the circumstances. During the period of suspension, the borrower may not be required to make any loan payments, and the interest that would otherwise have accrued on the loan during the suspension period may be waived, capitalized, or added to the outstanding balance of the loan.

A DSA is different from a loan payment deferral arrangement, where a borrower or a bank can unilaterally defer a payment. In a DSA, the bank agrees to suspend the borrower's loan payments, and the suspension is triggered by a specified event. The terms and conditions of a DSA are typically negotiated between the bank and the borrower and may be included in the loan agreement or in a separate agreement.

DSA may be offered as a standalone product or as part of a loan product. The purpose of a DSA is to provide relief to borrowers who are facing financial hardship due to unforeseen circumstances. By suspending the loan payments, a DSA can help borrowers manage their finances during difficult times and avoid defaulting on their loans.

Finally, it's worth noting that ALLL (Allowance for Loan and Lease Losses) is not the correct answer to this question. ALLL is an accounting term that refers to the estimated amount that a bank sets aside to cover potential losses on its loans and leases. It is not related to the suspension of loan payments or the modification of loan terms for individual borrowers.