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SBA codifies PPP flexibility guidance
Recently, the Small Business Administration (SBA) released an interim final rule (IFR) to incorporate key revisions made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act). The Flexibility Act, as previously covered by InfoBytes, took effect June 5. Many of the Flexibility Act’s provisions, such as those related to loan forgiveness and deferral periods for PPP loans, are retroactive to March 27, 2020. The provision related to the maturity date of PPP loans took effect June 5, 2020, and the remaining provisions will take effect upon publication in the Federal Register.
The IFR codifies several changes made to the PPP, including the following:
- Reiterates that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
- Amends the end date of the “covered period” for a PPP loan from June 30, 2020 to December 31, 2020.
- Provides a minimum maturity of five years for all PPP loans made on or after the enactment of the Flexibility Act, and provides an option for borrowers and lenders to mutually agree to extend maturity from two years to five years for loans made before June 5.
- Clarifies that if a borrower submits its loan forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not be required to make any payments on the loan before the date SBA remits the forgiven amount to the lender or notifies the lender that loan forgiveness is not allowed.
- Extends the deferral period on PPP loans by extending the loan forgiveness period from eight weeks to 24 weeks beginning on the date the loan is disbursed. However, borrowers may opt to keep the forgiveness period at eight weeks for loans made prior to June 5, 2020.
- Sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness, but provides that—consistent with a safe harbor in the Flexibility Act—the SBA, in consultation with Treasury, will “interpret[] this requirement as a proportional limit on nonpayroll costs as a share of the borrower’s loan forgiveness amount, rather than as a threshold for receiving any loan forgiveness.” Revisions to the SBA’s IFRs on loan forgiveness and loan review procedures addressing these amendments are forthcoming.
The SBA also released an updated borrower application form, as well as a revised lender application.
SBA reduces felony look-back to one year for PPP applicants
On June 12, the Small Business Administration (SBA), in consultation with the Treasury Department, released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the Paycheck Protection Program (PPP). Specifically, the changes impact the eligibility requirements related to felony convictions of applicants or owners of the applicant. The revisions reduce 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. The ineligibility rule applies to any owner of 20 percent or more of equity in the applicant's business. The revisions are effective immediately and reflected in the updated Borrower Application and Lender Application.
Senators say PPP loan forgiveness application is unnecessarily burdensome
On June 12, a bipartisan group of senators wrote to the U.S. Treasury Department and the Small Business Administration (SBA) urging revisions to the Paycheck Protection Program’s (PPP) loan forgiveness application. Specifically, the letter requests that the application be “no longer than one page for any loan under $250,000.” The senators note that the CARES Act only requires the forgiveness application to include three items: (i) documentation supporting payroll numbers and pay rates; (ii) documentation supporting mortgage, lease, and utility payments; and (iii) certification that the information is true and correct. While the SBA has the ability to require more documentation, the senators argue that the “11-page forgiveness application” is “beyond the program’s intent” and that it is not only difficult to complete, but it may require businesses to seek costly professional tax advice. The senators acknowledge that for loans above $2 million, intense scrutiny is “an appropriate oversight of taxpayer resources,” but for loans “worth a mere fraction of that,” the lengthy application is a “needless complication to our nation’s economic recovery.”
Details on the PPP loan forgiveness process can be found here.
FHFA’s Calabria discusses housing market with Senate Committee
On June 9, Federal Housing Finance Agency (FHFA) Director Mark Calabria testified before the Senate Committee on Banking, Housing, and Urban Affairs on the state of the housing market due to the Covid-19 pandemic. In his published statement, Calabria noted that at the start of 2020, the housing market was in a “strong position,” but “in response to Covid-19, financial markets endured a severe dislocation in March.” According to the statement, home prices have remained supported, as drops in demand have been balanced by a decrease in inventory. The statement also provides an update on FHFA’s policy responses to the Covid-19 pandemic. With regard to forbearances, Calabria acknowledged that forbearance rates were predicted to reach 25-50 percent; however, internal data indicates that “[e]nterprise forbearance rates remain manageable.” Specifically, the 30-60 day combined delinquency rate for borrowers with loans in Enterprise mortgage-backed securities “remains below the estimated rate of forbearance,” with Calabria commenting that some borrowers “who have requested forbearance are nonetheless continuing to make payments on their loan.” At the hearing, in response to a question asking if the FHFA plans to extend the foreclosure moratorium past June 30, Calabria noted that the agency is considering extending it “a month at a maximum” and would be “making that announcement certainly within a week.”
Calabria also discussed FHFA’s re-proposed capital rule for the Enterprises (covered by InfoBytes here). His statement notes that “Fannie and Freddie lack the capital to withstand a serious downturn in the housing market,” and the re-proposed rule would “help each [E]nterprise become safe and sound to fulfill its statutory mission across the economic cycle.”
Fed expands Main Street Lending Program
On June 8, the Federal Reserve Board (Fed) announced an expansion to its Main Street Lending Program in order to assist more small and medium-sized businesses. The Fed notes that small and medium-sized businesses’ needs “vary widely,” and after seeking feedback, revised the program to, among other things, (i) lower the minimum loan size for certain loans to $250,000 from $500,000; (ii) increase the maximum loan size for all facilities; (iii) increase the term option to five years, from four years; (iv) delay principal payments for two years, rather than one; and (v) raise the purchase rate to 95 percent of each eligible loan. The announcement notes that the Fed expects the program to be open for lender registration “soon” and will be “actively buying loans shortly afterwards.” The program will continue to accept loans that were originated under previous terms if the loans are funded before June 10 (see InfoBytes here on the program’s previous terms).
The Fed’s announcement also contains a chart covering the detailed changes and term sheets for the program’s New Loan Facility, Priority Loan Facility, and Expanded Loan Facility.
SBA, Treasury address PPP amendments, rules and guidance forthcoming
On June 8, Small Business Administration (SBA) Administrator Jovita Carranza and U.S. Treasury Secretary Steven T. Mnuchin issued a joint statement on the enactment of the Paycheck Protection Program Flexibility Act (Flexibility Act). As previously covered by InfoBytes, the Flexibility Act—which took effect June 5—amends provisions of the CARES Act and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Flexibility Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period from eight weeks to the earlier of 24 weeks after origination or December 31, 2020; (iii) sets the minimum amount that businesses must spend on payroll to receive forgiveness at 60 percent (rather than 75 percent); (iv) allows borrowers to defer principal and interest payments on PPP loans until the SBA remits the amount of determined forgiveness to the lender, instead of the original six-month deferral period; and (v) confirms that June 30, 2020 will be the last date on which a PPP loan application can be approved.
SBA, in consultation with Treasury, will promptly issue rules and guidance, along with a modified borrower application form and loan forgiveness application to implement the Flexibility Act’s amendments to the PPP. The forthcoming rules and guidance will also establish various safe harbors from reductions in loan forgiveness based on reductions in full-time equivalent employees, as well as for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year.
Paycheck Protection Program Flexibility Act of 2020 provides more options for borrowers
On June 5, President Trump signed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which amends provisions of the CARES Act (covered by a Buckley Special Alert) and the Small Business Act to provide Paycheck Protection Program (PPP) borrowers greater flexibility and more time to make qualifying expenditures for loan forgiveness. Among other things, the Act (i) extends the maturity period for PPP loans with remaining balances after applying for forgiveness to five years; (ii) extends the covered period to the earlier of 24 weeks after origination or December 31, 2020, rather than the current eight weeks; (ii) maintains forgiveness amounts for businesses that document their inability to rehire workers employed as of February 15, and their inability to find similarly qualified workers by the end of the year; (iv) sets the minimum amount that businesses must spend on payroll at 60 percent in order to receive forgiveness; (v) allows borrowers to defer principal and interest payments on PPP loans until the Small Business Administration remits the amount of determined forgiveness to the lender, instead of the current six-month deferral period (borrowers that do not apply for forgiveness will be given at least 10 months after the program expires to begin making payments); and (vi) allows businesses with forgiven loans to defer payroll taxes. The Act takes effect immediately.
Louisiana enacts Act limiting seizure of consumer stimulus payments
On June 4, the Louisiana governor signed Act No. 44, which exempts from seizure any consumer stimulus payments directly received by the debtor pursuant to federal law enacted to provide Covid-19 relief, with the exception of seizure for spousal or child support payments. This exemption does not apply to unemployment compensation received by the debtor. The act limits the circumstances in which government payments, grants, or loans received as a result of an “extraordinary emergency event” (which includes, among other things, a public health emergency affecting Louisiana) by a natural or judicial person who is a U.S. citizen domiciled in Louisiana may be seized, sold, attached, or restrained. The act became effective on June 4, 2020.
HUD will allow mortgages to be endorsed despite forbearance
On June 4, HUD announced new, temporary guidance (see FHA Info #20-36 and HUD Mortgagee Letter 2020-16), which, among other things, grants mortgagees the ability to submit a mortgage for insurance endorsement involving a borrower who is experiencing financial hardships due to the Covid-19 pandemic, provided the mortgagee “executes a two-year partial indemnification agreement.” The temporary guidance sets the initial amount of partial indemnification at 20 percent of the original loan amount, which will only become payable if the mortgage goes into foreclosure and results in a claim to the FHA Mutual Mortgage Insurance Fund. Mortgagees may access the new agreement and instructions for endorsing these loans here. The guidance also provides for a temporary certification amendment to HUD 92900-A, which allows mortgagees to submit a separate addendum to a mortgagee’s certification addressing a mortgagee’s knowledge of changes in a borrower’s employment status and ability to make payments as a result of Covid-19 after the closing of a mortgage. HUD will also “continue to monitor the impacts to the market as well as implications to the Mutual Mortgage Insurance Fund and may adjust the level of partial indemnification for future indemnification contracts accordingly.”
CFPB, CSBS issue CARES Act forbearance guidance
On June 4, the CFPB and the Conference of State Bank Supervisors (CSBS) issued joint guidance to assist mortgage servicers in complying with the CARES Act provisions granting a right to forbearance to consumers impacted by the Covid-19 pandemic. In addition to providing a statutory overview of the CARES Act protections related to forbearance and additional resources on how the CARES Act impacts other rules and regulations, the guidance contains specific FAQs based on observed or anticipated actions of mortgage servicers related to forbearance. Specifically, the FAQs address the following:
- Servicers are able to grant CARES Act forbearance periods for less than 180-days at a borrower’s request or if the borrower has provided consent. In situations where a borrower and a servicer cannot agree on the length of the forbearance, or where a servicer cannot communicate with the requesting borrower under certain circumstances, servicers are required to default to the term requested by the borrower, which cannot exceed 180 days.
- Servicers may not request information from borrowers supporting the need for forbearance. Borrowers do not need to prove hardship—an attestation of hardship due to Covid-19 is the only requirement established by the CARES Act for forbearance. Servicers must also grant forbearance to any requesting borrower with a federally-backed mortgage regardless of delinquency status.
- Servicers, depending on the facts and circumstances, may be at risk of legal violation or causing consumer harm if they offer “limited repayment options when others are reasonably available.”
- Examiners will evaluate originators’ communications with borrowers for legal compliance or to determine if consumer harm has occurred. Originators that mislead borrowers by using “loan closing attestations, notices or other communications to discourage borrowers from seeking forbearance” may be at risk of legal violation or causing consumer harm.