InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CSBS requests clear guidance on PPP from SBA, Treasury
On April 9, the Conference of State Bank Supervisors (CSBS) sent a letter to Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza regarding Paycheck Protection Program (PPP) guidance. The letter requested the SBA and Treasury to (i) “[i]nstitute clear, coordinated, and timely guidance and communication on PPP”; (ii) “[e]nsure community banks and their small business customers have equal access to PPP loans”; and (iii) “[e]stablish transparent, public disclosure on PPP loans” in order to make the PPP successful. Among other points, CSBS specifically asserted that different SBA offices are providing conflicting information regarding PPP loan funding, and lenders require guidance on required documentation, initial disbursements, and terms and structure of unforgiven amounts on the PPP loans. Additionally, community banks are experiencing difficulties with the SBA’s loan application submission portal, including access and requests for additional information. Finally, the letter urges public disclosure of PPP loan statistics.
Fed, Treasury announce $2.3 trillion loan facilities
On April 9, the Federal Reserve Board (Fed) and the Department of Treasury (Treasury) announced actions to enhance liquidity in the financial system, including the expansion of recently initiated facilities and the launch of several new lending facilities. (See Fed press release here). As previously covered by InfoBytes, on March 23, Treasury announced the creation of three facilities to provide liquidity to the financial system: (i) the Term Asset-Backed Securities Loan Facility (TALF); (ii) the Primary Market Corporate Credit Facility (PMCCF); and (iii) the Secondary Market Corporate Credit Facility (SMCCF). To increase the flow of credit to consumers and businesses, the TALF will expand purchases to include “highly rated newly issued collateralized loan obligations and legacy commercial mortgage-backed securities as eligible collateral.” Treasury Secretary Steven T. Mnuchin approved a $10 billion equity investment in TALF, and—pursuant to the CARES Act—a $75 billion equity investment in PMCCF and SMCCF, which together are expected to provide up to $850 billion in credit. (See the TALF term sheet here, the PMCCF term sheet here, and the SMCCF term sheet here.)
Three new facilities approved by Secretary Mnuchin to support the flow of credit include the Paycheck Protection Program Lending Facility (PPPLF), the Main Street Business Lending Program, and a Municipal Liquidity Facility (MLF) to support the flow of credit in the economy. Pursuant to the CARES Act, the SBA’s Paycheck Protection Program (PPP) provides funding for small business loans so that they are able to pay their employees. The PPP will benefit from the PPPLF, which will provide liquidity to banks originating the PPP loans through term financing, and will then hold the PPP loans as collateral at face value. To advance the use of the PPPLF, the Fed, OCC, and FDIC issued an interim final rule, the “Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans,” which is effective immediately. The interim final rule ensures that lending banks are able to “neutralize the regulatory capital effects of participating in the facility.” In addition, the CARES Act provides that SBA PPP loans “will receive a zero percent risk weight under the agencies’ capital rule.” Comments on the rule must be received within 30 days after publication in the Federal Register. (See the PPPLF term sheet here.)
Treasury, through CARES Act funds, will provide $75 billion in equity to the Main Street facility, which will support the Main Street Lending Program with funding for up to $600 billion in loans to small and mid-sized businesses. The program extends four-year loans with deferred principal and interest payments for one year. Originating banks retain 5 percent of the Main Street loans, and sell 95 percent of the loans to the Main Street facility. Borrowers seeking Main Street loans “must commit to make reasonable efforts to maintain payroll and retain workers.” (See the Main Street New Loan Facility here, and the Main Street Expanded Loan Facility here.)
Finally, the Fed will establish an MLF to support liquidity to state and local governments. The MLF will provide up to $500 billion for which Treasury will provide credit protection of $35 billion to the Fed with CARES Act funding. (See the MLF term sheet here).
Secretary Mnuchin stated that “[t]he combination of these facilities will provide up to $2.3 trillion in new financing to support American workers by helping American businesses preserve jobs, sustain operations, and continue to serve their customers.” Likewise, the Fed asserted that it “will continue to seek input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds.”
NCUA issues summary of CARES Act provisions impacting credit unions
In April, the NCUA issued guidance to federally insured credit unions providing a summary of provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that impact credit unions. Such provisions touch upon the Central Liquidity Facility, insured deposits thresholds, temporary relief from troubled debt restructurings, the Paycheck Protection Program, optional temporary relief from current expected credit losses, credit protection during Covid-19, and foreclosures of certain mortgages.
NCUA provides guidance regarding Small Business Administration loan programs
In April, the NCUA issued guidance to federally insured credit unions regarding the U.S. Small Business Administration’s (SBA) loan programs to help small businesses. The guidance provides an overview of the Paycheck Protection Program, including eligibility criteria for both lenders and borrowers, loan terms, loan forgiveness, and lender compensation. The guidance provides that the NCUA will not criticize credit unions’ good faith efforts to prudently use the SBA programs with members affected by Covid-19.
Freddie Mac updates Covid-19 servicing guidance
On April 8, Freddie Mac updated previous guidance to servicers relating to working with borrowers impacted by Covid-19. Among other things, the guidance: (i) requires servicers to report activity to the credit bureaus for borrowers impacted by Covid-19; (ii) suspends all foreclosure actions, including initiation of the foreclosure process; (iii) waives milestone timelines for filing motions for relief from automatic stay in bankruptcy cases; (iv) waives requirements that forbearance cannot extend a delinquency beyond 12 months; (v) confirms that servicers must send the borrower the forbearance plan agreement to reflect the terms of the Covid-19 forbearance; and (vi) requires servicers to make good faith efforts at quality right party contact to evaluate the borrower for a forbearance plan. The guidance also clarifies that servicers should not submit disaster reporting codes for Covid-19 related issues, stating that Freddie Mac will continue to address the Covid-19 pandemic as unique and distinct from other “eligible disaster” provisions in the Freddie Mac guides.
Fannie Mae revises multifamily loan documents requiring escrow reserves
On April 8, Fannie Mae announced updates to certain loan documents for multifamily lenders in response to Covid-19. Form 6102.25—Modifications to Multifamily Loan and Security Agreement—Addenda to Schedule 2, and Form 6268—Modifications to Multifamily Loan and Security Agreement (Additional Reserve Escrows) are both updated to provide clarity in the drafting notes for calculating the replace reserve deposit when closing a supplemental mortgage loan. In addition, as a condition to closing a supplemental mortgage loan with required reserve escrows, the guidance clarifies that an additional principal and interest reserve escrow is required on the pre-existing mortgage loan. Loan documents may be modified to include a higher amount of reserves (not greater than 10% of the unpaid principal balance of the loan), or hold the escrows in a non-interest bearing account to the extent permitted by law.
Fannie Mae updates Covid-19 servicing guidance
On April 8, Fannie Mae updated its guidance to single-family servicers regarding the impact of Covid-19 on servicing. In particular, the guidance revises prior guidance on offering forbearance plans to comply with the recent enactment of the federal CARES Act. Among the updates to the servicer guidance are: (i) clarifying responsibilities relating to achieving “quality right party contact” for borrowers in a forbearance plan; (ii) providing a specific delinquency code for use in reporting to Fannie Mae; (iii) granting flexibility for inspections; (iv) extending deadlines for submission of financial statements and Form 582 to April 30; (v) clarifying forbearance plan terms; (vi) eliminating the requirement that the servicer determine occupancy status prior to evaluating a borrower for a workout option; (vii) requiring that the servicer comply with FCRA and report borrowers affected by Covid-19; and (viii) requiring servicers to suspend all foreclosure related activities to comply with the CARES Act and suspend filing motions for relief in bankruptcy cases.
SEC announces temporary, conditional relief for certain business development companies
On April 8, the SEC announced an order providing temporary, conditional exemptive relief for business development companies (BDCs) to enable them to make additional investments in small and medium-sized businesses, including those with operations affected by Covid-19. Among other things, the relief will provide additional flexibility to BDCs to issue and sell senior securities to obtain capital. The relief is subject to certain investor protection conditions.
SEC issues statement on importance of disclosures for investors, markets, and the fight against Covid-19
On April 8, the SEC issued a statement regarding the importance of disclosure for investors, markets, and the fight against Covid-19. Companies are encouraged to issue disclosures that respond to investor interest in the company’s standing, operationally and financially, describe the company’s Covid-19 response, and discuss how the company’s operations and financial condition may change as efforts to fight Covid-19 progress. The guidance also provides specific considerations for quarterly earnings statements and calls, and forward-looking disclosures.
CFPB publishes annual report on servicemember complaints
On April 3, the CFPB Office of Servicemember Affairs (OSA) released its annual report, which provides an overview of OSA’s activities in fulfilling its statutory responsibilities for fiscal year 2019 and covers the period between October 1, 2018 and September 30, 2019. OSA’s responsibilities include monitoring complaints from military consumers, and the report highlights issues facing military consumers based on approximately 34,600 complaints submitted by servicemembers, veterans, and their families (collectively “servicemembers”). Key takeaways from the report include the following:
- Education and empowerment. OSA examined financial issues that impact military consumers and provided various educational tools on topics including the Servicemembers Civil Relief Act, the Military Lending Act, mortgage lending and foreclosure protections, and credit reporting and monitoring. These tools include in-person outreach and digital education and engagement resources.
- Consumer complaints. Thirty-six percent of servicemember complaints focused on credit or consumer reporting. Complaints related to debt collection were the second most frequent issue, with most complaints alleging that debt collectors were attempting to collect debt that the servicemember did not owe. In particular, OSA expressed concern about complaints where “the debt collector ‘took or threatened to take negative or legal action.’” With respect to mortgage debt, many servicemembers reported challenges in the payment process, as well as difficulties in being able to afford mortgage payments. With respect to credit cards, the greatest concentration of complaints focused on problems with purchases on statements. Checking or savings account complaints centered on issues related to account management, and more than two-thirds of student lending complaints related to challenges dealing with lenders or servicers. With respect to auto lending, complaints focused on managing the loan or lease. Other complaint categories included money transfers/services and virtual currency, personal loans, prepaid cards, credit repair, and title loans.
- Agency coordination. During the reporting period, OSA coordinated several consumer protection activities with federal and state government agencies, including the Departments of Defense, Veterans Affairs (VA), Education, and Treasury, as well as the FTC, SEC, and state attorneys general. OSA also noted its participation in interagency working groups focused on helping servicemembers.
- Military consumer research. Coordinated research efforts into the financial well-being of veterans and the increased use of home loans guaranteed by the VA are highlighted.