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  • OCC highlights key risks for federal banking system, says compliance risk elevated due to Covid-19

    Federal Issues

    On June 29, the OCC released its Semiannual Risk Perspective for Spring 2020, which reports on key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. In particular, the OCC focused this report on the financial impacts of the Covid-19 pandemic on the federal banking industry, emphasizing that weak economic conditions stemming from the shutdown will stress financial performances in 2020, and that banks should monitor elevated compliance risks that may occur as a result of their responses to the pandemic, including participating in the Paycheck Protection Program as well as forbearance and deferred payment programs. The report highlighted that the surge in consumer demands, government programs, and the modifications to operations due to remote work and the “short timelines for implementing changes placed additional strains on banks already operating in a stressed environment.” However, the report noted that, “[s]ome banks are leveraging innovative technologies and third parties, including fintech firms, to help manage these challenges,” and that “[b]ank risk management programs should maintain effective controls for third-party due diligence and monitoring and other oversight processes, operational errors, heightened cyber security risks, and potential fraud related to stimulus programs.” The report highlighted several areas of concern for banks, including (i) credit risk increases; (ii) interest rate risk, including risks related to the LIBOR cessation; (iii) operational risks related to banks’ Covid-19 response; (iv) heightened cyber risks; and (v) compliance risks related to Bank Secrecy Act/anti-money laundering laws, consumer compliance, and fair lending.

    Federal Issues OCC Covid-19 Risk Management Fintech Third-Party SBA Compliance

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  • Small business owners previously excluded from PPP granted application extension

    Courts

    On June 29, the U.S. District Court for the District of Maryland issued a memorandum to address two similar suits, which will provide several small business owners with criminal records three additional weeks to apply for loans through the Paycheck Protection Program (PPP). The court ruled that previous versions of the Small Business Administration’s (SBA) rule that excluded felony convictions of applicants or owners of applicants were “arbitrary and capricious” because the rules contained no explanation for the criminal history exclusion. The ruling extends the PPP application deadline for the business owners to July 21 following the SBA’s issuance of an interim final rule (IFR)—effective June 24 (covered by InfoBytes here)—that, according to the court, “provides a reasoned explanation for a more limited criminal history exclusion.” The court rejected the SBA’s argument that the case is now moot, stating that even though the business owners are now eligible to apply for PPP loans, they “still face difficulties in applying at the last minute either because banks are no longer accepting applications or because banks are still using old forms with the prior criminal history exclusion. Therefore, the plaintiffs continue to face ongoing harm because of the allegedly unlawful prior iterations of the rule.”

    However, the court disagreed with one of the business owner’s claim that the criminal history exclusion violates the CARES Act, finding that the SBA is within its rights to consider borrowers’ ability to repay PPP loans. “While the court agrees that the PPP functions differently than the SBA’s other loan programs, it is not unreasonable to consider ability to repay, because if the loans are not used for specified purposes, then they are not forgivable,” the court wrote. The court also declined to extend the PPP application deadline to all newly eligible individuals who were previously excluded, stating that “past harm cannot justify an injunction extending the application deadline,” since it is unclear “what harm to [the business] resulting from prior iterations of the criminal history exclusion will continue past June 30.”

    Courts Covid-19 SBA CARES Act Small Business Lending

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  • Fannie Mae announces updated protections for renters and multifamily property owners impacted by Covid-19

    Federal Issues

    On June 29, Fannie Mae announced updated protections for renters in multifamily units and multifamily property owners impacted by Covid-19. Fannie Mae’s Delegated Underwriting and Servicing lenders have the authority to extend existing forbearances by three months for multifamily property owners, for a total period of up to six months. If extended, at the conclusion of the forbearance period, the borrower may qualify for up to 24 months to repay the missed payments. For Fannie Mae-financed multifamily properties with a new or extended forbearance, the borrower is required to provide certain tenant protections during the repayment period, including allowing the tenant flexibility to repay back rent over time and giving the tenant at least a 30-day notice to vacate.

    Federal Issues Covid-19 Fannie Mae Mortgages Forbearance

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  • Michigan governor extends eviction moratorium and creates Eviction Diversion Program

    State Issues

    On June 26, the Michigan governor issued Executive Order 2020-134, which extends the temporary suspension of evictions, previously covered here and here, until July 15. The order also creates the “Eviction Diversion Program” through which qualified renters who fail to make required payments during the Covid-19 pandemic can obtain rental assistance. The order “strongly” encourages Michigan landlords to take advantage of Covid-19 housing debt remedies, instead of pursuing eviction or foreclosure after July 15.

    State Issues Covid-19 Michigan Evictions Mortgages Foreclosure

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  • Colorado issues rule concerning remote notarization

    State Issues

    On June 26, the Colorado Department of State issued temporary amendments to the Notary Program Rules to authorize and establish minimum standards for remote notarization for individuals located within the state of Colorado. The amendments, which took immediate effect, set forth requirements for using remote notarization, including requirements surrounding the remote notarization system used to perform the notarizations and requirements for ensuring satisfactory evidence of identity.

    State Issues Covid-19 Colorado Fintech Notary

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  • SBA again revises PPP rules on felony convictions

    Federal Issues

    On June 26, the SBA made effective an interim final rule, which revises, for the second time, the eligibility requirements for the Paycheck Protection Program (PPP) related to felony convictions of applicants or owners of applicants. As previously covered by InfoBytes, on June 12, the SBA reduced the look-back period from five years to one year for any felony conviction that does not involve fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance of any owner of 20 percent or more of the equity in the applicant. The new interim final rule specifies two additional modifications that would render an applicant ineligible for a PPP loan: (i) if a 20 percent owner is presently subject to pending criminal charges for felony offenses (as opposed to any formal criminal charges); and (ii) if a 20 percent owner is on probation or parole that commenced within the one- or five-year time frames, as applicable, for the convictions outlined above.

    Federal Issues Agency Rule-Making & Guidance SBA Small Business Lending Covid-19

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  • Illinois reissues and extends several Covid-19 executive orders

    State Issues

    On June 26, the Illinois governor issued Executive Order 2020-44, which reissues several executive orders issued to date, and extends a majority of the provisions therein through July 26, 2020. Among other things, the executive order extends Executive Order 2020-30, previously covered here, which prohibits residential evictions, subject to certain limited exceptions, through July 26.

    State Issues Covid-19 Illinois Mortgages Evictions

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  • Florida Office of Financial Regulation issues emergency order regarding certain filing deadlines

    State Issues

    On June 26, the Florida Office of Financial Regulation issued Emergency Order 2020-04, which extends filing deadlines for certain licenses. Specifically, any deadlines falling in May 2020 for mortgage brokers and lenders to file mortgage call reports, money services businesses to file quarterly reports, and for both to file financial reports have been suspended and tolled for a period of 30 days from the existing filing deadlines, unless extended by subsequent order. Additionally, the deadline occurring in the months of March, April, or May for any holder of a securities registration to file an annual updating amendment or financial statement is suspended and tolled through June 30, 2020, unless extended by subsequent order.

    State Issues Covid-19 Florida Licensing Mortgage Broker Mortgages Mortgage Lenders Money Service / Money Transmitters Securities

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  • Nevada governor issues Emergency Directive to assist landlords and tenants impacted by Covid-19

    State Issues

    On June 25, the Nevada governor issued Emergency Directive 025 to assist landlords and tenants in Nevada that have been directly or indirectly impacted by the economic environment caused by Covid-19.  The directive, among other things: (i) strongly encourages the use of form Lease Addendum/Promissory Note for Rental Arrearages Due to COVID-19, to cure rental payment defaults of the original lease agreement, whether written or oral; (ii) strongly encourages landlords and tenants to enter into a voluntary repayment agreement for defaults in rental payments related to COVID-19; (iii) orders landlords to cease any eviction proceeds in a repayment agreement is entered into; (iv) authorizes limited residential summary eviction actions as outlined in the directive; (v) clarifies that the prohibition on charging late payment fees or penalties for nonpayment under the terms of a lease or rental agreement will terminate on August 31, 2020, but cannot be applied retroactively to late rental payments due between March 30 and August 31; and (vi) authorizes unlawful detainer actions for other than commercial tenancies as set forth in the directive.  The Executive Department also issued General FAQs, Residential Landlord FAQs, Residential Tenant FAQs, and Commercial FAQs for the Directive.

    State Issues Covid-19 Nevada Mortgages Evictions

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  • Lawmakers urge HUD and FHFA to amend forbearance policies that reduce access to mortgage credit

    Federal Issues

    On June 25, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), Chairman of the Subcommittee on Housing, Community Development and Insurance, Wm. Lacy Clay (D-MO), and Congressman Juan Vargas (D-CA) sent a letter to HUD and FHFA calling for amendments to policies which penalize loans that go into forbearance prior to being insured by the Federal Housing Administration (FHA) or purchased by Fannie Mae or Freddie Mac (GSEs). According to the lawmakers, policies put into place prior to the Covid-19 pandemic by HUD and FHFA prohibited loans in forbearance from FHA endorsement or from being purchased by the GSEs. While the agencies amended the policies to allow for FHA insurance and GSE purchases due to the current economic crisis (covered by InfoBytes here and here), the lawmakers claim that lenders are required to pay “significant fees” and “increased costs” for these loans, which results in lenders (i) retaining mortgages that they had no intention, or may not have the capacity to maintain; (ii) paying a steep penalty to the GSEs; or (iii) agreeing to retain additional risk in the case of FHA. As a result, lenders have started limiting loans and access to credit or requiring “credit overlays” that are “disproportionately affecting borrowers of color and other underserved borrowers.” The lawmakers also assert that if a lender retains a loan to avoid a penalty, the loan does not become federally-backed and is consequently ineligible for protections afforded by the CARES Act and other federal regulations. The lawmakers ask that the agencies amend their policies to instead “spread the costs associated with those risks across a broader single-family portfolio,” which will lead to “near-negligible costs” on individual loans and “appropriately balance the need to manage risks to the taxpayer while serving [the] agencies’ missions of promoting access to credit.”

    Federal Issues HUD FHFA Mortgages Mortgage Insurance GSE Fair Lending Fannie Mae Freddie Mac Covid-19

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