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OCC reminds banks of its exclusive visitorial authority
On April 24, the OCC issued Bulletin 2020-43 to “remind[] banks that it has exclusive visitorial authority over them.” The bulletin states that it is important for banks to quickly provide the Small Business Administration’s Paycheck Protection Program loans to small businesses. As such, state and local officials cannot examine banks’ books and records without prior authorization such that they attempt to exercise visitorial authority. Moreover, banks are not required to comply with such requests, and are further encouraged to contact their OCC examiner regarding any state and local requests. State and local officials are likewise encouraged to contact the OCC with any information or questions.
CFPB guidance provides clarity to mortgage servicing transfers
On April 24, the CFPB outlined new guidance to help facilitate compliance with mortgage servicing rules when transferring mortgage servicing rights to a servicer or a sub-servicer. According to the CFPB, after significant changes were made to Regulation X (RESPA) that took effect in 2014, the Bureau found weaknesses in the management of mortgage transfers. The new guidance provides “a roadmap for servicers that will prevent consumer harm,” and notes that when transferring a loan, “servicers should have policies and procedures reasonably designed to transfer all of the information and documents in their possession or control relating to a transferred mortgage loan, such as, a unique identifier for each loan, the terms of the loan, current unpaid principal balance as of a specific date, information concerning any escrow, and copies of any loss mitigation applications submitted by a borrower and of any loss mitigation agreements agreed to with a borrower.” According to the Bureau’s press release, servicers should also consider: (i) developing a servicing transfer plan, including an escalation plan for potential problems; (ii) engaging in quality control work to validate data; (iii) determining servicing responsibilities for legacy accounts; (iv) conducting post-transfer reviews to determine the effectiveness of a transfer plan; (v) monitoring consumer complaints and loss mitigation performance metrics; and (vi) identifying defaulted loans, active foreclosures, bankruptcies, or any forbearance agreements entered into with a borrower, and including loss mitigation activity for each loan where applicable.
The Bureau recognizes that entities may face particular challenges as a result of the Covid-19 pandemic and states it intends to consider such challenges, including operational and time constraints related to the transfer, and will “be sensitive to good-faith efforts demonstrably designed to transfer the servicing without adverse impact to consumers.”
FHFA allows PPP loans as collateral for FHLB advances
On April 23, the Federal Housing Finance Agency (FHFA) announced that Federal Home Loan Banks (FHLB) will begin to accept Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as collateral for advances to provide liquidity to community banks and other small lenders. FHFA issued a letter to FHLBs advising that banks may accept PPP loans from members subject to certain conditions including: (i) CAMELS rating must be at least a three, or credit rating in the top 60 percent; (ii) members downgraded after pledging PPP loans as collateral will have additional conditions placed on the collateral; and (iii) if the member does not replace PPP loans after downgrade with alternate eligible collateral, the FHLB will take possession of the collateral and impose haircuts based on member rating. The letter also sets out additional conditions regarding discounts, caps and limits. Among these conditions: (i) FHLBs must have at least a 10 percent collateral discount on 100 percent or less of unpaid principal balance (UPB); (ii) PPP collateral is capped at 20 percent of a member’s “lendable pledged collateral”; and (iii) a member may not pledge PPP loans for more than $5 billion of lendable collateral.
Fed IFR allows unlimited monthly convenient transfers and withdrawals
On April 23, the Fed issued an interim final rule (IFR) which will remove the limit on monthly transfers from “savings deposits” in Regulation D. The IFR revises Regulation D’s definition of a savings deposit so that it no longer includes the monthly convenient transfer limit of six. The IFR permits, but does not require, institutions to suspend enforcement of the six transfer limit. The IFR contains frequently asked questions and answers on the impact it will have on accounts, reporting and funds access. The Federal Register announcement is linked here. Federal Financial Institutions Examination Council reports that may be affected by this IFR will be addressed later. The IFR took effect on April 23, and the Fed will accept comments until June 22.
Fed to issue monthly reports on CARES Act loan programs
On April 23, the Federal Reserve Board (Fed) announced that in an effort to maintain transparency, it will disclose information to the public regarding recent actions it has taken to “foster economic recovery.” Among the information it will make public, the Fed plans to issue a monthly report on CARES Act liquidity and lending facilities which will contain the: (i) “[n]ames and details of participants in each facility”; (ii) “[a]mounts borrowed and interest rate charged”; and (iii) “[o]verall costs, revenues, and fees for each facility.” The Fed will provide this information on four CARES Act programs including the Main Street Lending Program (see Buckley Special Alert here).
Fed announces temporary increase of intraday credit by Federal Reserve Banks
On April 23, the Federal Reserve (Fed) announced that it temporarily increased the availability of intraday credit that can be provided by the Federal Reserve Banks. In its policy statement, the Fed stated that it will automatically suspend net debit caps and waive overdraft fees to assist primary credit institutions, which are “eligible to borrow under the Federal Reserve’s primary credit program for the discount window.” In addition, the Fed announced that its max cap procedure will be streamlined to enable secondary credit institutions—which are “eligible only for the Reserve Banks’ secondary credit discount window program”—to utilize the max cap program to “request collateralized capacity from their Reserve Banks,” and will waive the requirement to obtain a self-assessed net debit cap and board resolution before requesting a max cap. The Fed’s actions are effective as of April 24 and will terminate on September 30.
Treasury, SBA weigh in on PPP loan certification and secondary market sales
On April 23, the Department of Treasury, and the Small Business Administration (SBA) updated their frequently asked questions (FAQs) list for the Paycheck Protection Program (PPP) to address whether a business owned by a large company is eligible for a PPP loan. A small business borrower must certify, in good faith, that at the time an application was submitted for a PPP loan, the borrower believed that the economic situation created by the Covid-19 pandemic made it necessary to apply for the loan in order “to support the ongoing operations” of the company. The FAQ instructs the borrower to consider other sources of liquidity other than PPP funds that could support the borrower’s current business activity. Though lenders may rely on the borrower certification of need, the guidance points out that a borrower must have a good faith basis necessitating the loan. Moreover, the guidance suggests that a public company with “substantial market value and access to capital markets” would likely not be able to make this good faith certification. For small businesses that applied for a PPP loan before the issuance of this FAQ, the SBA will find that the borrower certification was made in good faith if the borrower’s PPP loan is repaid by May 7, 2020.
Earlier on April 17, the SBA added FAQ number 30 to its FAQ list, which asked whether a PPP loan may be sold into the secondary market. The guidance provided by the SBA and the Department of Treasury reiterated information from the interim final rule issued on April 2, which implemented sections 1102 and 1106 of the CARES Act regarding sales into the secondary market:
- “A PPP loan may be sold into the secondary market at any time after the loan is fully disbursed.”
- “A secondary market sale of a PPP loan does not require SBA approval.”
- “A PPP loan sold into the secondary market is 100% SBA guaranteed.” and
- “A PPP loan may be sold on the secondary market at a premium or a discount to par value.”
FHFA: Fannie, Freddie to temporarily buy mortgages in forbearance due to Covid-19
On April 22, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (GSEs) will purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” for a limited period in an effort to provide liquidity to ensure continued lending. Current policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, FHFA will begin allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The temporary selling requirements in Freddie Mac Bulletin 2020-12 allow lenders to sell to the GSE mortgages in forbearance only on mortgages for home purchases or “no cash-out” mortgage refinances. Further, the mortgages must have note dates between February 1, 2020 and May 31, 2020, the dates of settlement must be after May 1, and the mortgages must not be more than 30 days delinquent. Fannie Mae Lender Letter 2020-06 follows most of the same guidelines provided in the Freddie Mac bulletin, but Fannie Mae will also buy mortgages for limited cash-out refinances. To limit losses, the GSEs will charge sellers loan-level price adjustments of 5 percent for loans to first-time homebuyers, and 7 percent for all others.
NCUA amends capital regulation to conform to CARES Act
On April 22, the NCUA approved an interim final rule (IFR) amending its capital adequacy regulation to align with the CARES Act. The NCUA amended its risk-based capital requirements to provide for a zero percent risk weight for Paycheck Protection Program (PPP) loans. Further, to neutralize the effect of the PPP loans on credit unions, the IFR will allow credit unions to omit covered loans from their total assets calculation when determining their net worth ratios. However, the covered loans must be “pledged as collateral for a non-recourse loan that is provided as part of the [Fed’s] PPP Lending Facility.” The IFR also amended “the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule” to exclude PPP loans. This IFR is effective upon publication in the Federal Register, after which comments will be accepted for 30 days.
FFIEC releases APR, APY computational tools
On April 16, the FFIEC, on behalf of its member agencies, announced the release of two computational tools for annual percentage rates (APR) and annual percentage yields (APY). These web-based tools are intended to assist financial institutions when complying with consumer protection laws and regulations.
The APR Computational Tool is intended to help examiners and financial institutions verify finance charges and APRs included on consumer loan disclosures subject to TILA and Regulation Z, including calculations “related to unsecured and secured installment and construction loans, including real estate-secured loans.” The tool can also be used to verify military annual percentage rates for loans subject to the Military Lending Act. The APY Computational Tool is designed to support the verification of APYs on consumer deposit account disclosures, including advertisements and periodic statements, subject to the Truth in Savings Act and Regulation DD. See FDIC FIL-45-2020 and OCC Bulletin 2020-40 regarding the release of these tools.