To avoid being exposed to dramatic declines in borrower creditworthiness over the commitment period, most FIs include an adverse material change in conditions clause by which the FI can cancel or reprice a loan commitment.

Question

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This statement is true. FIs include an adverse material change clause in loan commitments to protect themselves from significant declines in borrower creditworthiness. This clause allows them to either cancel or renegotiate the terms of the commitment if certain negative events occur.

To Avoid Being Exposed to Dramatic Declines in Borrower Creditworthiness