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Regulators update Senate on Covid-19
On November 10, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of Financial Regulators,” which primarily focused on Covid-19-related actions taken by the Federal Reserve Board (Fed), OCC, FDIC, and NCUA since the federal financial regulators last testified in May (covered by InfoBytes here). Committee Chairman Mike Crapo (R-ID) opened the hearing by applauding the actions taken by the regulators after the passage of the CARES Act to help mitigate the economic impact of the pandemic. Crapo cautioned, however, that the regulators should continue to review and adjust their regulatory and supervisory frameworks to support economic recovery, including by “alleviat[ing] the regulatory burdens associated with a variety of asset-based regulatory thresholds on [] banks and credit unions temporarily experiencing growth from participation in recovery-orientated programs” such as the Paycheck Protection Program (PPP).
In his written statement, Fed Vice Chair for Supervision Randal K. Quarles discussed actions taken by the Fed, such as (i) issuing a set of key principles concerning Covid-related credit accommodations; (ii) updating guidance on bank examinations to “consider the unique, evolving, and potentially long-term issues that institutions face”; (iii) clarifying the Fed’s approach to Covid-related activity under the Community Reinvestment Act; and (iv) supporting the ability of banks to meet customer needs by issuing PPP loans, underwriting loans in the Main Street Lending Program, and acting as counterparties in several other facilities.
OCC Acting Comptroller Brian Brooks also discussed activities undertaken by the agency, and noted that the regulators are working on an interagency basis “on a set of rule[s] that would relieve for a period of time certain asset thresholds being tripped that trigger heightened scrutiny and heightened compliance requirements at different levels.” According to Brooks, this relief would “cap out at $10 billion, most likely, based on current conversations.” Brooks agreed with Quarles that while larger banks are “fully capable of managing those risks,” smaller banks will face difficulties.
FDIC Chairman Jelena McWilliams also provided an update on actions undertaken to provide banks flexibility while maintaining safety and soundness. McWilliams discussed five key areas: (i) responding to Covid-19 economic risks; (ii) “enhancing [] resolution readiness”; (iii) supporting communities; (iv) “fostering technology solutions and encouraging innovation”; and (v) “finalizing outstanding rulemakings,” including approving an interim final rule to provide regulatory relief to insured depository institutions that have experienced significant, but temporary, asset growth due to government stimulus efforts (covered by InfoBytes here).
NCUA Chairman Rodney E. Hood also discussed updated agency measures in response to the pandemic, such as adjusting supervision priorities to ensure that credit unions’ good-faith efforts to comply with the CARES Act are reviewed. Hood further emphasized in his written statement that “NCUA’s examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight.” Hood also discussed, among other things, NCUA’s cybersecurity efforts in response to the pandemic and significant rulemaking actions, including an interim final rule that provides relief to credit unions that temporarily fall below the well-capitalized level.
The House Financial Services Committee also held a hearing later in the week to discuss the regulators' responses to the pandemic.
District Court: National bank agrees to obtain customer consent before Covid-19 forbearance placement
On November 2, the U.S. District Court for the Western District of Virginia entered an agreed order resolving a class of homeowners’ motion for preliminary injunction. The national bank defendant voluntarily agreed it will not place mortgages into Covid-19-related forbearance plans unless a customer or their authorized representative has made the request. The agreed order will remain in place until the court enters either a superseding order or a final judgment in the matter. In addition to not activating Covid-19 forbearances without customer permission, the bank has also agreed to stop extending forbearances for any mortgage customers beyond the originally disclosed terms unless an extension has been requested, or a customer or their authorized representative has failed to respond to attempts made by the bank to determine whether the customer would like to extend the forbearance. At issue are allegations made by the plaintiffs that the bank, among other things, “unilaterally” placed their mortgages into CARES Act forbearance without their consent which negatively impacted their credit reports. The agreement notes that nothing in the order prohibits the bank “from delaying or deferring enforcement of any noteholder’s rights and remedies under the applicable mortgage loan documents,” and that, moreover, the agreement does not concede any disputed issue related to the pending preliminary injunction motion or the plaintiffs’ complaint.
SBA clarifies loan forgiveness application deadline
On October 13, the Small Business Administration (SBA) updated the Paycheck Protection Program (PPP) loan forgiveness FAQs to include a new question covering the PPP loan forgiveness application forms (3508, 3508EZ, and 3508S). Specifically, the SBA notes that even though the application forms display an expiration date of October 31, that is not a deadline to apply for forgiveness. Rather, the date posted on the forms is displayed for Paperwork Reduction Act purposes and will be extended when the same forms are re-approved. Borrowers may submit loan forgiveness applications any time before the maturity date of the loan, which can be either two or five years after origination.
CSBS discusses CARES Act response in congressional letter
On October 9, the Conference of State Bank Supervisors (CSBS) wrote to the ranking members of the Senate Banking Committee and the House Financial Services Committee with an update on the organization’s efforts regarding the CARES Act and oversight of nonbank mortgage servicers. CSBS notes that state regulators are the primary authority over nonbank mortgage servicers, and during the early stages of the Covid-19 pandemic, the state regulators “identified liquidity as a supervisory priority.” Thus, according to CSBS, state regulators have been actively monitoring liquidity and other business operations by seeking real time data and other updates from nonbank mortgage servicers. Moreover, CSBS discusses the efforts made in response to the CARES Act, including consumer and servicer guidance issued in conjunction with the CFPB (covered by InfoBytes here and here), as well as examination procedure guidance. Lastly, the letter highlights the organization’s recent release of proposed regulatory prudential standards for nonbank mortgage servicers. As previously covered by InfoBytes, the proposal includes baseline standards that would apply to all covered servicers and enhanced standards—covering capital, liquidity, stress testing, and living will/recovery and resolution planning—that would apply to certain larger servicers. CSBS concludes the letter with a commitment for “continued coordination and information exchange with federal agencies.”
SBA simplifies PPP forgiveness for loans under $50K
On October 8, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, announced a more streamlined loan forgiveness application for Paycheck Protection Program (PPP) loans of $50,000 or less. According to the interim final rule released with the application and application instructions, lenders may rely on the borrower representations of the forgiveness amount, stating that a “lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.” Moreover, should a borrower apply for forgiveness of costs exceeding the borrower’s PPP loan amount, the lender should confirm the borrower’s calculations on the loan forgiveness application, “up to the amount required to reach the requested [f]orgiveness [a]mount.” The SBA notes that it began approving PPP forgiveness applications and remitting payments to lenders on October 2 and “will continue to process all PPP forgiveness applications in an expeditious manner.”
Additionally, on October 7, the SBA updated the PPP FAQs to add a question on the payment deferral extension granted by the PPP Flexibility Act. As previously covered by InfoBytes, the PPP Flexibility Act extends the six-month payment deferral period to at least 10 months after the program expires. Specifically, the FAQs confirm that the extension of the deferral period will automatically apply to all PPP loans, requiring lenders to “give immediate effect to the statutory extension and [] notify borrowers of the change to the deferral period.” Moreover, the FAQs emphasize that the SBA does not require a formal modification of the promissory note.
Virginia directs additional funds for rent and mortgage relief
On October 7, Virginia’s governor announced his direction of $12 million in additional funding from the federal CARES Act to Virginia’s Rent and Mortgage Relief Program. The program was first launched in June with $50 million in funding available for renters and homeowners. In September, the program began allowing landlords to apply for payments on behalf of tenants.
SEC: CARES Act, Federal Reserve facilities reduced impact of Covid-19 on U.S. credit market
On October 5, the SEC released issued a report addressing the economic effects of the Covid-19 pandemic on the U.S. credit markets. The report concludes that the immediate and multi-faceted actions taken by the Federal Reserve and under the CARES Act were instrumental in relieving stress in the credit market, stabilizing housing prices and sustaining consumer spending. The SEC will hold roundtable discussion with U.S. and international regulators on October 14 to discuss the report and related policy issues.
SBA issues notice on PPP loan ownership changes
On October 2, the Small Business Administration issued a procedural notice providing guidance for Paycheck Protection Program (PPP) lenders when a recipient of a PPP loan experiences a change in ownership. According to the guidance, a “change of ownership” occurs when (i) at least 20 percent of common stock or other ownership interest of a PPP borrower is sold or transferred; (ii) the PPP borrower sells or transfers at least 50 percent of its assets; or (iii) the PPP borrower merges with or into another entity. Borrowers must notify their PPP lenders in writing before the closing of any change in ownership. The guidance specifies that, regardless of the change of ownership circumstances, the loan terms still apply and PPP lenders are “required to continue submitting the monthly 1502 reports until the PPP loan is fully satisfied.” Among other things, the guidance explains that the PPP borrower remains responsible for performing all PPP loan obligations and PPP-related certifications (including the certification of economic necessity), as well as complying with all other applicable PPP requirements. Additionally, PPP borrowers are still required to obtain, prepare, retain, and provide all required documentation to their PPP lender or lender responsible for servicing the PPP loan or to the SBA upon request.
HUD OIG: FHA mortgage servicers’ Covid-19 information still misleading
On September 30, the HUD, Office of the Inspector General (HUD OIG) issued a follow-up study examining the information on mortgage loan servicers’ websites about the CARES Act loan forbearance provisions. As previously covered by InfoBytes, in April, HUD OIG issued consumer guidance noting that among the top 30 FHA mortgage servicers, information on forbearance options under the CARES Act was found to be incomplete, outdated, inconsistent, or unclear. On August 11, HUD OIG reviewed the “readily available” Covid-19 pandemic information on the websites of the same top 30 FHA mortgage servicers, noting that some of the servicers still provided misleading forbearance information. Among other things, HUD OIG found that certain mortgage servicers (i) did not offer clear information on the length of the initial forbearance period; (ii) did not make it clear that borrowers could qualify for forbearance extensions after the initial 180 day period; and (iii) did not clearly state that forbearance is an option for borrowers.
FTC settles with company posing as SBA lender
On September 25, the FTC announced a settlement with a Rhode Island-based company and its owner (defendants), resolving allegations that the defendants violated the FTC Act by claiming to be an approved lender for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) even though the defendants are neither affiliated with the SBA nor an SBA-authorized lender. As previously covered by InfoBytes, the FTC filed an action against the defendants in April, alleging that the defendants made deceptive statements on their websites, such as “WE ARE A DIRECT LENDER FOR THE PPP PROGRAM!,” and directly contacted small businesses claiming to represent the SBA in order to solicit loan applications on behalf of the businesses’ banks. The settlement prohibits the defendants from engaging in the conduct subject to the action, including misrepresenting that they are affiliated with the SBA and that they are authorized to accept or process applications on behalf of the SBA. Moreover, the defendants are prohibited from disclosing or benefitting from consumer information obtained prior to the settlement without express, informed consent from the consumer, and are subject to certain reporting and recordkeeping requirements.