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Financial Services Law Insights and Observations

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  • HUD will allow mortgages to be endorsed despite forbearance

    Federal Issues

    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.”

    Federal Issues HUD Mortgages Forbearance CARES Act Covid-19 FHA

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  • CFPB, CSBS issue CARES Act forbearance guidance

    Federal Issues

    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.

    Federal Issues CFPB CSBS CARES Act Mortgages Forbearance Consumer Finance Covid-19

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  • North Carolina Attorney General announces joint relief effort for North Carolinians facing Covid-19 financial hardship

    State Issues

    On June 4, the North Carolina attorney general announced the Carolina Relief Plan, a voluntary agreement whereby participating financial institutions will offer certain financial relief to customers facing Covid-19 financial hardships. Relief includes, among other things, allowing eligible customers to request a forbearance on residential mortgage payments not otherwise covered by the CARES Act, assistance for payment extensions of auto loan accounts, and relief from monthly maintenance fees, overdraft fees, and CD early withdrawal penalties. Under the agreement, any participating financial institution also must: (1) offer to place a moratorium on residential mortgage foreclosures and consumer auto repossessions through at least June 30, 2020; (2) refrain from reporting loans subject to Covid-19 accommodations; and (3) inform customers about the assistance they are being offered and of the heightened risk of scams. One financial institution has signed onto the relief plan as of the time of the announcement.

    State Issues Covid-19 North Carolina State Attorney General Bank Compliance Consumer Finance Forbearance Mortgages CARES Act Overdraft Repossession Auto Finance

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  • VA clarifies property inspection requirements for CARES forbearance cases

    Federal Issues

    On June 4, the Department of Veterans Affairs issued Circular 26-20-21 to clarify inspection requirements for properties purchased with loans guaranteed by the VA, where the borrower has been negatively impacted by Covid-19. The VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. The circular sunsets on July 1, 2021.

    Federal Issues Covid-19 Department of Veterans Affairs CARES Act Forbearance Mortgages

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  • Acting Comptroller Brooks warns of lockdown effects on banks

    Federal Issues

    On June 1, Acting Comptroller, Brian Brooks, wrote to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors warning of the adverse impact the regional economic shutdowns due to the Covid-19 pandemic will have on the nation’s banks. In the letter addressed to the U.S. Conference of Mayors, Brooks emphasizes the risks to the banking industry associated with state and local lockdown orders, including (i) physical risks associated with commercial real estate loan collateral, should businesses be forced to remain closed indefinitely; (ii) inability for businesses to generate revenue needed to repay loans; (iii) difficulties forecasting future delinquencies and losses with shifting definitions of “essential” businesses; and (iv) increased risks in bank robberies due to potentially permanent face mask requirements. The letter states, “[n]ational banks and federal savings associations entered the Covid-19 crisis extremely well capitalized and with strong liquidity,” and many aspects of the CARES Act rely on a strong banking system. Brooks urges state and local officials to “consider the impact of their lockdown orders on the health and functioning of our shared national financial structure” as they make plans to unwind, narrow, or end lockdowns.

    Federal Issues Covid-19 OCC State Issues CARES Act

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  • Boston Fed releases Main Street Lending Program forms and agreements

    Federal Issues

    On May 27, the Federal Reserve Bank of Boston posted the necessary legal forms and agreements for eligible borrowers and eligible lenders to participate in the Main Street Lending Program on their website. The documents include, among other things, lender registration certifications and covenants, lender wire instructions, loan participation agreements, and servicing agreements. The Boston Fed has also updated the Main Street Lending Program’s FAQs.

    Additional details about the Main Street Lending Program can be found in a previous InfoBytes post here, and a Buckley Special Alert here.

    Federal Issues Federal Reserve Agency Rule-Making & Guidance CARES Act Small Business Lending Covid-19

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  • SBA extends PPP safe harbor for a second time

    Federal Issues

    On May 27, the Small Business Administration (SBA) in consultation with the Treasury Department issued an update to the Paycheck Protection Program (PPP) Frequently Asked Questions to reflect the extension of the safe harbor deadline from May 14 to May 18. The SBA recently issued an interim final rule (IFR) to supplement the CARES Act and extend, for the second time, the PPP safe harbor for repayment from May 14 to May 18, to allow borrowers to avail themselves of a safe harbor with respect to the certification required by the CARES Act. The IFR also codifies the timeframe extension for submission of the initial SBA Form 1502 report for PPP loans. As previously covered by InfoBytes, the new timeframe for submission of Form 1502 is the later of (i) May 29, or (ii) 10 calendar days after disbursement or cancellation of the PPP loan. 

    Federal Issues SBA Small Business Lending Department of Treasury CARES Act Covid-19

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  • SBA clarifies PPP eligibility for foreign affiliates

    Federal Issues

    On May 21, the SBA recently published an interim final rule (IFR), which addresses the eligibility requirements related to employees of a Paycheck Protection Program (PPP) borrower’s foreign affiliates. The SBA reiterated in the IFR that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. The SBA acknowledged, however, that previous guidance (covered by InfoBytes here) may have created “reasonable borrower confusion,” so in “an exercise of enforcement discretion,” the agency reiterated that the “SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-US employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States.” The SBA further determined that these borrowers will “not be deemed to have made an inaccurate certification of eligibility solely on that basis.”

    The IFR takes effect upon publication in the Federal Register and is applicable to PPP applications submitted through June 30, 2020, or when program funding is exhausted. Comments are due within 30 days.

    Federal Issues Department of Treasury SBA Small Business Lending CARES Act Covid-19 Of Interest to Non-US Persons

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  • Senators question CFPB on student loan servicer examinations

    Federal Issues

    On May 20, several senators, including Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), sent a letter to CFPB Director Kathy Kraninger requesting information regarding the Bureau’s examination of companies that service student loans guaranteed by the federal government. The senators noted that they are “encouraged to learn that the CFPB recently began its first examination of a servicer of federally-held student loans since 2017,” but they stated that, given the Department’s “record [of] obstructing CFPB oversight and enforcement, [they] are skeptical of the Department’s role in this joint examination and would strongly oppose limitations, restrictions, or other interference with the CFPB’s ability to conduct complete and thorough examinations.” Among other things, the senators also expressed concerns that the Bureau and the Department have not yet finalized the Supervisory Memorandum of Understanding (MOU), which would allow the Bureau to access student borrower loan data that the senators claim is necessary for the Bureau to conduct future examinations. As previously covered by InfoBytes, the agencies signed an MOU to share student loan complaint data last February. The senators requested clarification on measures the Bureau is taking to carry out its statutory mandate to oversee the federal student loan market, including (i) how many examinations the Bureau has planned for 2020; (ii) what progress, if any, has been made on reestablishing the supervisory MOU; (iii) how the Bureau is monitoring student loan servicers’ compliance with the CARES Act, including pausing payments, interest, and collection; and (iv) whether the Bureau has identified any trends in borrower complaints since the Covid-19 pandemic began. The senators asked that the Bureau respond to the questions by June 3.

    Federal Issues U.S. Senate CFPB Examination Student Lending Student Loan Servicer CARES Act Covid-19

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  • Treasury and Fed testify on CARES Act relief

    Federal Issues

    On May 19, the Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin to discuss the agencies’ efforts to implement the CARES Act relief provisions to support consumers and help stabilize the infrastructure of the economic system. Topics discussed included emergency lending facilities, such as the Main Street Lending Program and the Municipal Liquidity Facility, as well as the Paycheck Protection Program (PPP) and the Payroll Support Program.

    Mnuchin testified that Treasury has “worked closely with the Small Business Administration on the [PPP] to ensure the processing of more than 4.2 million loans for over $530 billion[.]” He issued praise for the nearly 400 Community Development Financial Institutions and Minority Depository Institutions, as well as the many small and non-bank lenders that are participating in the program. Mnuchin noted that, while Treasury has already committed up to $195 billion of the $500 billion provided by Congress, the agency plans to use the remainder to create or expand programs as necessary after determining how best to deploy the money to help losses associated with the Covid-19 pandemic. “The only reason I have not allocated it fully is we are just starting to get these facilities up and running,” Mnuchin emphasized during the hearing. “We want to have a better idea as to which one of the facilities needs more capital as well as the potential for adding additional facilities.” Mnuchin also stated that Treasury is “fully prepared to take losses in certain scenarios on that capital.”

    Powell discussed lending programs and monetary policy efforts taken by the Fed under section 13(3) of the Federal Reserve Act since the pandemic started, including measures to help stabilize short-term funding markets. These include lengthening the term and lowering the rate on discount window loans to depository institutions, and—together with Treasury—establishing the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility. Powell also discussed the Term Asset-Backed Securities Loan Facility, which will lend against asset-backed securities “backed by newly issued auto loans, credit card loans, and other consumer and small business loans.” Powell stressed that “public input has been crucial” in the agency’s development of these facilities and that additional adjustments may occur “as we learn more” about the needs of potential borrowers.

    Federal Issues Department of Treasury Federal Reserve Senate Banking Committee Covid-19 CARES Act

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