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Freddie Mac updates Covid-19 servicing guidance
On April 8, Freddie Mac updated previous guidance to servicers relating to working with borrowers impacted by Covid-19. Among other things, the guidance: (i) requires servicers to report activity to the credit bureaus for borrowers impacted by Covid-19; (ii) suspends all foreclosure actions, including initiation of the foreclosure process; (iii) waives milestone timelines for filing motions for relief from automatic stay in bankruptcy cases; (iv) waives requirements that forbearance cannot extend a delinquency beyond 12 months; (v) confirms that servicers must send the borrower the forbearance plan agreement to reflect the terms of the Covid-19 forbearance; and (vi) requires servicers to make good faith efforts at quality right party contact to evaluate the borrower for a forbearance plan. The guidance also clarifies that servicers should not submit disaster reporting codes for Covid-19 related issues, stating that Freddie Mac will continue to address the Covid-19 pandemic as unique and distinct from other “eligible disaster” provisions in the Freddie Mac guides.
Lawmakers want accountability for colleges receiving CARES Act funds
On April 8, Senators Elizabeth Warren (D-MA), Dick Durbin (D-IL), Sherrod Brown (D-OH), and Richard Blumenthal (D-CT) sent a letter to the Department of Education urging the Department to focus the CARES Act funding for institutions of higher education on public and nonprofit schools. In addition, the lawmakers call for “strong accountability polices” if for-profit colleges are eligible for the funds. The recommended policies “to protect students and taxpayers” include: (i) requiring that all funding must be used for “student instruction, emergency financial aid to students, and student support services”; (ii) preventing for-profit colleges from using the funds for executive compensation and freezing executive compensation; (iii) preventing publicly-traded for-profit colleges from buying back their stock; (iv) preventing for-profit colleges from using the funds for recruiting, marketing and advertising; (v) preventing for-profit colleges that receive funds from receiving other CARES Act funds; (iv) “[c]onsider[ing] CARES Act funding as federal funding for 90/10 compliance”; and (v) requiring that Congress receive a report detailing “how for-profit colleges used the funds.” The letter requests replies to the questions by April 21.
Treasury and SBA release PPP updates
On April 8, the Small Business Administration (SBA), in consultation with the Treasury Department, updated the Paycheck Protection Program (PPP) frequently asked questions to provide clarification concerning the SBA’s interpretation of the CARES Act and the PPP Interim Final Rule. Newly released Questions 2 through 20 discuss topics including the following:
- Businesses may be eligible for PPP loans even if they have more than 500 employees, provided that they meet certain criteria and satisfy the existing definition of a “small business concern.” However, businesses with fewer than 500 employees do not have to qualify as a small business concern in order to participate in the PPP.
- Lenders may rely on borrower certifications as to the applicability of affiliation rules, and borrowers must apply the affiliation rules under the SBA’s Interim Final Rule on Affiliation and certify on the application form that they are eligible to receive a PPP loan and meet the required criteria.
- The exclusion of employee compensation in excess of $100,000 does not apply to non-cash benefits, including coverage of health care, insurance premiums, state and local taxes, and paid leave. The CARES Act provides for a separate paid sick leave refundable credit.
- Methods and guidance concerning seasonal operational activity, the use of third-party payroll providers and authorized signers, the impact of criminal information or criminal charges on PPP eligibility, and whether lenders may use their own online systems and forms to collect information required by the Borrower Application.
- When calculating aggregate payroll costs to determine the maximum loan amount, borrowers can generally use data from either the previous 12 months or from calendar year 2019. Seasonal business exceptions are provided and borrowers are instructed to omit independent contractor or sole proprietor costs from the calculation. Guidance is also provided on how to account for federal taxes when calculating payroll costs.
- Borrowers and lenders who processed applications based on the April 2 PPP Interim Final Rule may rely on the laws, rules and guidance available at the time.
- Lenders are not required to re-verify beneficial ownership information for existing customers. In addition, if participating federal depository institutions and credit unions have not yet collected beneficial ownership information on existing customers, they are not required to do so for those customers applying for PPP loans unless otherwise instructed.
- Lenders may use either their own promissory note or an SBA form.
- The eight-week period starts on the date the lender makes the first PPP loan disbursement to the borrower. Lenders are required to make the first disbursement no later than 10 calendar days after the loan is approved.
Additionally, the SBA also released a promissory note form for use with PPP loans and unveiled the Paycheck Protection Lender Gateway (available here) to assist lenders in submitting loan authorization requests. Lenders can also contact the SBA hotline at 888-572-0502 if they experience technical difficulties.
Please see Buckley’s dedicated SBA page, which includes additional SBA resources.
Agencies revise reporting guidance during Covid-19 pandemic
On April 7, the Federal Reserve (Fed), FDIC, OCC, CFPB, and NCUA (agencies) issued a revised interagency statement for financial institutions regarding loan modifications for customers affected by Covid-19. As previously covered by InfoBytes, the agencies issued the initial interagency statement on March 22, which stated that the agencies would not require loan modifications made as a result of Covid-19 to be categorized as troubled debt restructurings (TDRs), and additionally that the agencies would not criticize implementation by financial institutions of credit risk mitigation procedures.
Among other things, the revised interagency statement encourages financial institutions to continue to adhere to consumer protection laws, such as fair lending laws, as they assist borrowers who have been negatively impacted by Covid-19. The agencies take a favorable view of loan modification programs intended to assist borrowers affected by Covid-19 and note that financial institutions will not be criticized “for working with borrowers in a safe and sound manner.” In addition, with respect to credit risks, examiners will refrain from issuing automatic adverse risk ratings when reviewing loan modifications impacted by Covid-19. The revised statement explains that the CARES Act created a forbearance program for borrowers affected by Covid-19, and that under Section 4013 of the Act, financial institutions are not required to “report section 4013 loans as TDRs in regulatory reports.” Furthermore, deferrals granted to borrowers affected by Covid-19 do not need to be classified as “past due because of the deferral.”
Massachusetts regulator suspends lending limits for PPP loans
On April 6, the Massachusetts Division of Banks issued guidance to state-chartered banks and credit unions indicating that it will not make adverse regulatory findings or take enforcement action if a loan made under the Small Business Administration’s Payment Protection Program (PPP) causes the institution to violate legal limits on loans to one borrower or the institution’s internal policy. The division also encouraged institutions to work collaboratively to meet demand for PPP loans, such as instituting referral systems.
Florida issues executive order suspending the assessment and collection of taxation for notes and obligations under the CARES Act
On April 6, the Florida governor issued an executive order suspending the assessment and collection of excise taxes on documents imposed pursuant to Chapter 201 of the Florida statutes for all notes and other written obligations made pursuant to Title I of the CARES Act (the Paycheck Protection Program). The Department of Revenue is directed to issue an emergency order establishing that taxation imposed under Chapter 201 on such notes and obligations is not owed as a result of the suspension.
Federal Reserve encourages participation in SBA and Treasury lending programs
On April 6, the Federal Reserve Board (Fed) sent a letter to supervision officers at the Federal Reserve Banks encouraging supervised financial institutions to participate in programs offered by the Small Business Administration and the Treasury Department under the CARES Act. These programs include (i) the Economic Injury Disaster Loan program under Section 7(b) of the Small Business Act, which offers financial aid to small businesses to compensate for economic loss resulting from Covid-19; and (ii) the Paycheck Protection Program, which offers loans—subject to forgiveness pending certain conditions—to incentivize qualified small businesses to retain their employees throughout the Covid-19 pandemic. The Fed also reminded supervised institutions that prudent use of these programs will not receive criticism from examiners.
Treasury and SBA release additional details on PPP, including Affiliation Rules
On April 2, the Small Business Administration (SBA) released an Interim Final Rule (13 CFR Part 121). This Interim Final Rule supplements the Initial Rule with additional guidance regarding the application of certain affiliate rules applicable to SBA’s implementation of the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act. Comments on the Interim Final Rule must be received 30 days after publication in the Federal Register.
The Treasury Department also issued Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program, which states that “[f]or purposes of determining the number of employees of an applicant to the Paycheck Protection Program, the applicant is considered together with its affiliates.” This guidance details the affiliation tests applied to affiliated companies.
Additionally, the SBA, in consultation with Treasury, issued Paycheck Protection Program Frequently Asked Questions that will be updated on a regular basis. The first question discusses whether lenders must replicate borrowers’ calculations of the dollar amount of average monthly payroll costs.
Please see Buckley’s March 30 Special Alert for additional information on the program, as well as the firm’s dedicated SBA page, which includes additional SBA resources.
CFPB releases PPP information for small businesses
On April 6, the CFPB released information regarding the CARES Act Paycheck Protection Program (PPP). According to the Bureau, PPP was designed to help small businesses provide job retention for employees and cover certain other costs during the Covid-19 pandemic. Small businesses, as well as independent contractors and the self-employed, may be eligible to apply for PPP loans, which will be processed by SBA-certified lenders. Federally insured credit unions and depository institutions and Farm Credit System institutions may also apply to become approved lenders. Additional information for lenders, including links to an application form and an agreement, are provided in the release.
Federal regulators temporarily lower community bank leverage ratio
On April 6, federal regulators issued two interim final regulatory capital rules that will modify the framework of the Community Bank Leverage Ratio (CBLR) in order to enable qualifying community banking organizations (banks) to support lending during the Covid-19 pandemic. The first rule implements Section 4012 of the CARES Act, making temporary changes to the framework of the CBLR so that banks with a leverage ratio of at least eight percent starting in the second quarter of 2020 “may elect to use the community bank leverage ratio framework.” The rule also provides a two-quarter grace period for community banks whose leverage ratios fall below the eight percent requirement, provided that the bank’s leverage ratio does not fall below seven percent. The second interim final rule allows for the temporary CBLR gradually to transition to eight and one-half percent in 2021, and then back to nine percent at the beginning of 2022.