InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Treasury, SBA report on second round of PPP loan processing
On May 3, the Department of Treasury (Treasury) and the Small Business Administration (SBA) released a joint statement detailing the performance of the second round of the Paycheck Protection Program (PPP) thus far. The statement shares that PPP loans made during the first week of round two loan processing—beginning on April 27—reached 2.2 million totaling more than $175 billion. This brings the total since the program began on April 3, to more than 3.8 million loans with a value of more than $.5 trillion. According to the second round report accompanying the joint statement, of the nearly 5,450 lenders, just over 4,450 were lenders with less than $1 billion in assets as well as non-bank lenders—which “include Community Development Financial Institutions, Certified Development Companies, Microlenders, Farm Credit lending institutions, and FinTechs.” The average loan size during the first week of round two was $79,000.
Since the release of the joint statement, the SBA has provided updated PPP loan processing numbers on its website, which can be accessed here.
GSEs to cover servicer advances on mortgages in forbearance
On May 1, Fannie Mae and Freddie Mac filed their first quarter 10-Qs, which included statements clarifying that in the coming months Fannie Mae and Freddie Mac, not loan servicers, will assume responsibility for advances on loans in forbearance that meet certain criteria. Fannie Mae’s 10-Q states that effective August 2020 “after four months of missed borrower payments on a loan…we will make the missed scheduled principal and interest payments…so long as the loan remains in the MBS trust.” As previously covered by InfoBytes, FHFA announced on April 21 that servicers are only obligated to advance principal and interest payments for up to four months on single-family loans. Likewise, Freddie Mac’s 10-Q similarly stated, “we expect to advance significant amounts to cover principal and interest payments to security holders for loans in forbearance in the coming months.”
Waters urges exclusion of predatory lenders from PPP loans
On May 1, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), sent a letter to the Department of Treasury (Treasury) and the Small Business Administration (SBA) urging them to prohibit payday and car-title lenders from receiving Paycheck Protection Program (PPP) loans, citing harm these types of lenders have caused to consumers. The Congresswoman stressed that “there is no reason why Congress, SBA, or Treasury should bail out these predatory lenders” and encouraged them to instead focus on “providing PPP loans to the millions of responsible small businesses who are pillars in communities across the country and warrant immediate support.”
Oregon regulator issues guidance for debt buyers and collectors
On April 30, the Oregon Department of Consumer and Business Services, Division of Financial Regulations issued Bulletin No. DFR 2020-14 to provide guidance to state-regulated debt buyers and collection agencies on reasonable measures they could take consistent with the governor’s April 17 executive order preventing garnishment of CARES Act stimulus checks (covered here). The guidance encourages entities to take active measures to help debtors affected by Covid-19, including: (i) offering payment accommodations like deferrals; (ii) waiving certain fees; (iii) temporarily suspending collection activities for debtors with significant hardships; and (iv) stopping collection activity for debts whose only income source is exempt.
Maryland regulator issues guidance for non-depository institutions on CARES Act relief payments
On April 30, the Maryland commissioner of financial regulation issued guidance for non-depository financial services providers in light of the April 29 executive order prohibiting garnishment or setoff of CARES Act recovery rebates. The guidance notes that all entities licensed by the commissioner must comply with the executive order, and that if an institution inadvertently receives proceeds of a CARES Act recovery rebate, it should try to permit those funds to be used by the intended recipient. Finally, the guidance notes that institutions found to be willfully or negligently violating the executive order may be subject to regulatory action. Any entity that seeks to engage in collection efforts against CARES Act rebate payments would be in violation of the Maryland Debt Collection Practices Act.
Maryland regulator: Banks and credit unions should lift automated holds imposed on CARES Act recovery rebates
On April 30, the Maryland commissioner of financial regulation issued guidance to banks and credit unions in light of the April 29 executive order prohibiting garnishment or setoff of CARES Act recovery rebates. The guidance “strongly” urges Maryland-chartered depository institutions to “immediately” review their automated systems to ensure that they do not intercept, hold, or set-off against CARES Act recovery rebate payments made through direct deposit. The guidance also urges depository institutions to cash CARES Act recovery rebates issued as checks for customers and non-customers alike, and to do so without charging any fees to consumers. Any entity that seeks to engage in collection efforts against CARES Act rebate payments would be in violation of the Maryland Debt Collection Practices Act.
PPP loan application agent files suit against lenders for compensation
On April 30, an Illinois financial advising and consulting services business (company) filed a putative class action in the U.S. District Court for the Northern District of Illinois against several financial institutions (defendants) claiming that the defendants owe the business certain fees for assisting Paycheck Protection Program (PPP) loan applicants with applying for PPP loans under the CARES Act. The complaint alleges that the PPP SBA regulations specify that the lender must provide compensation of between one quarter of a percent and one percent of a loan’s value to an agent—which includes loan brokers, applicant representatives, consultants, accountants, and attorneys—for preparing PPP loan applications for small business applicants. Additionally, the company states that the PPP regulations prohibit it from collecting application fees directly from small business applicants that it assists. The company alleges that the defendants, in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, failed to compensate it for assisting with the preparation of applications submitted to the defendants for processing. The company seeks certification of the class, disgorgement, and punitive damages, among other things.
Fed expands Main Street Lending Program
On April 30, the Federal Reserve (Fed) announced plans to expand the Main Street Lending Program in order to “help credit flow to small and medium-sized businesses that were in sound financial condition before the pandemic.” As previously covered by a Special Alert, the Main Street Loan Program was established pursuant to the CARES Act to support small and medium-sized businesses by extending four-year loans with deferred principal and interest payments for the first year. Loan amounts started at $1 million and businesses with up to 10,000 employees or up to $2.5 billion in annual revenues could apply, with the majority of the loans then sold to a Main Street facility, while the lenders retained a 5 percent share of the loans. The Main Street Lending Program utilized a Main Street New Loan Facility (MSNLF) to provide an option for new loans, and a Main Street Expanded Loan Facility (MSELF) to provide a second option for increasing the amount of existing loans. After the Main Street Lending Program was introduced, the Fed received a large amount of feedback, which it used to make a number of modifications to the program. The modifications include:
- Increasing the size of eligible businesses to those with up to 15,000 employees or up to $5 billion in annual revenues for 2019;
- Adding a third loan option called priority, which increases “risk sharing by lenders for borrowers with greater leverage”;
- Increasing the percentage share of loans that lenders retain in the priority loan option to 15 percent; and
- Lowering the starting loan amount to $500,000 for the new loan and priority loan options.
Additional information can be found in the announcement and in the Main Street Lending Program Frequently Asked Questions here. See term sheets for the New Loan Facility here, Priority Loan Facility here, and the Expanded Loan Facility here.
SBA to limit maximum PPP loans to $20 million for corporate groups
On April 30, the Small Business Administration (SBA) issued an Interim Final Rule (IFR) prohibiting a “single corporate group” from receiving more than $20 million in the aggregate from the Paycheck Protection Program (PPP). Businesses are considered to be a part of a single corporate group “if they are majority owned, directly or indirectly, by a common parent.” Small businesses must adhere to this loan cap by withdrawing or cancelling any PPP loan application or approval above $20 million for any loan that is not fully disbursed as of April 30. Failure to follow the IFR, will make such loans ineligible for loan forgiveness. The IFR assures lenders that they are not responsible for a small business’s compliance with this rule, and further, that the IFR does not alter lender obligations required to procure an SBA loan guarantee. In addition, the IFR allows a non-bank lender to be a PPP lender, subject to certain criteria, if the non-bank lender is “either a community development financial institution…or a majority minority, women, or veteran/military owned lender.” The IFR is effective as of May 4, and comments must be received by June 3.
Fed permits SBA-approved non-depository PPP lenders to utilize liquidity facility
On April 30, the Federal Reserve (Fed) announced that expanded access to the Paycheck Protection Program Liquidity Facility (PPPLF) beyond depository institutions to include all Small Business Administration (SBA) approved PPP lenders. Non-depository lenders, “includ[ing] banks, credit unions, Community Development Financial Institutions, members of the Farm Credit System, small business lending companies licensed by the SBA, and some financial technology firms” are now eligible to borrow from the PPPLF using PPP loans as collateral. In addition, the Fed announced that, in addition to using originated PPP loans as collateral, eligible borrowers can also use purchased whole PPP loans as collateral for credit extended by the Federal Reserve Banks under the facility “at a rate of 35 basis points.” The Fed’s announcement clearly states that an eligible borrower that pledges a purchased PPP loan must provide SBA documentation to prove that the lender “is the beneficiary of the SBA guarantee for the loan.” The announcement includes a PPPLF Term Sheet and a link to PPPLF frequently asked questions for additional details.