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Special Alert: OFAC encourages humanitarian aid, promises consideration of Covid-19 compliance challenges
The Department of the Treasury’s Office of Foreign Assets Control recently took two actions to address the impact of Covid-19. First, OFAC issued a fact sheet that consolidates existing authorizations and guidance permitting humanitarian, agricultural, and medical aid to six jurisdictions subject to sanctions. Second, OFAC encouraged companies facing compliance challenges due to Covid-19 to shift resources to higher-risk areas, noting that it would take this move into consideration if it leads to a violation during the pandemic. Companies facing compliance challenges may wish to consider such a shift, while documenting their risk-based rationale for doing so.
Humanitarian fact sheet
Last week, OFAC issued a fact sheet regarding the provision of Covid-19-related assistance under its Iran, Cuba, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions regimes. The fact sheet made no changes to existing laws and guidance, but consolidated existing licenses, exemptions, authorizations, and related FAQs relevant to humanitarian aid and medical equipment for these regimes. The fact sheet should prove to be a valuable resource for financial institutions and other organizations confronting a wave of transactions to provide personal protective equipment to sanctions-targeted jurisdictions wracked by Covid-19, while complying with OFAC regulations.
FHFA: Fannie, Freddie to temporarily buy mortgages in forbearance due to Covid-19
On April 22, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (GSEs) will purchase “certain single-family mortgages in forbearance that meet specific eligibility criteria” for a limited period in an effort to provide liquidity to ensure continued lending. Current policies dictate that the GSEs do not purchase loans that are in forbearance; however, due to the economic effects of Covid-19, FHFA will begin allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs. The temporary selling requirements in Freddie Mac Bulletin 2020-12 allow lenders to sell to the GSE mortgages in forbearance only on mortgages for home purchases or “no cash-out” mortgage refinances. Further, the mortgages must have note dates between February 1, 2020 and May 31, 2020, the dates of settlement must be after May 1, and the mortgages must not be more than 30 days delinquent. Fannie Mae Lender Letter 2020-06 follows most of the same guidelines provided in the Freddie Mac bulletin, but Fannie Mae will also buy mortgages for limited cash-out refinances. To limit losses, the GSEs will charge sellers loan-level price adjustments of 5 percent for loans to first-time homebuyers, and 7 percent for all others.
NCUA amends capital regulation to conform to CARES Act
On April 22, the NCUA approved an interim final rule (IFR) amending its capital adequacy regulation to align with the CARES Act. The NCUA amended its risk-based capital requirements to provide for a zero percent risk weight for Paycheck Protection Program (PPP) loans. Further, to neutralize the effect of the PPP loans on credit unions, the IFR will allow credit unions to omit covered loans from their total assets calculation when determining their net worth ratios. However, the covered loans must be “pledged as collateral for a non-recourse loan that is provided as part of the [Fed’s] PPP Lending Facility.” The IFR also amended “the definition of a commercial loan in the NCUA’s member business loans and commercial lending rule” to exclude PPP loans. This IFR is effective upon publication in the Federal Register, after which comments will be accepted for 30 days.
FHFA: Servicers obligated to advance only four months of payments on loans in forbearance
On April 21, the Federal Housing Finance Agency (FHFA) announced it has aligned Fannie Mae’s and Freddie Mac’s (GSEs) “policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans.” The plan, which is applicable to all GSE servicers regardless of type or size, limits servicers’ obligations to advance scheduled principal and interest payments to mortgage-backed securities (MBS) investors after a servicer has advanced four months of missed borrower payments on a loan. FHFA further clarifies that loans in forbearance due to Covid-19 will not be purchased out of MBS pools by the GSEs, but will instead “be treated like a natural disaster event and will remain in the MBS pool,” reducing potential liquidity demands on the GSEs. FHFA notes that both the agency and the GSEs will continue to monitor Covid-19’s impact on the housing finance market and will make policy updates as necessary.
Fed issues enforcement actions for flood insurance violations
On April 16, the Federal Reserve Board announced enforcement actions against a New Jersey-based bank and a Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order issued against the New Jersey-based bank assesses a $28,000 penalty for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. A separate consent order issued against the Virginia-based bank assesses a $5,500 penalty and similarly does not describe the specific alleged allegations. The banks neither admitted nor denied the allegations. The maximum civil money penalty for a pattern or practice of violations of the NFIA is $2,000 per violation.
Data breach exposes SBA Emergency Injury Disaster Loan program applicants
On April 21, according to reports, the Small Business Association (SBA) acknowledged that it notified almost 8,000 applicants of the Economic Injury Disaster Loan (EIDL) program that their information may have been exposed as part of a data breach. Specifically, the agency stated that on March 25, the personal information of business owners applying for the EIDL program was potentially exposed to other applicants on the SBA’s website. The information exposed included names, social security numbers, birth dates, certain financial information, email addresses, and phone numbers. According to the SBA, there is no evidence that the exposed information has been misused. Notably, the breach only effected the applicants of the EIDL program, not the Paycheck Protection Program, which did not begin accepting applications until April 3.
CFPB video instructs non-tax filers how to receive stimulus payments
On April 21, the CFPB announced the release of a video—aimed at consumers who do not file taxes—that describes the steps those consumers should take in order to receive their economic impact payments. The video explains that most Americans will automatically receive their economic stimulus payments from the IRS, but those who do not may need to submit their information and specify how they would like to receive their payments. Consumers are informed that if they do not submit their information, they will be mailed paper checks, which will take longer to receive than a direct deposit. In the announcement, Bureau Director Kathleen Kraninger states that the video “is intended to help consumers navigate the economic impact payments as well as helping them avoid scams related to the payments.” The announcement also provides eligibility guidelines for the stimulus payments, a link to frequently asked questions about the payments, and a link to additional Bureau information related to Covid-19.
Banks face class actions for prioritizing large customers for PPP loans
On April 20, five class action lawsuits were filed in the U.S. District Court for the Central District of California against six of the nation’s largest banks, alleging that the banks prioritized existing, large customers over smaller businesses for the Small Business Administration’s (SBA's) Paycheck Protection Program (PPP) loans. The suits claim that the banks submitted PPP applications for existing large customers first, failing to process applications in the order they were received. Moreover, pursuant to the CARES Act, the SBA provided PPP lenders with origination fees on a sliding scale, from 1 percent to 5 percent, based on the amount of each loan. The complaints allege that higher origination fees provided incentive for the banks to process higher dollar loans ahead of smaller dollar loans. See the complaints here, here, here, here, and here.
Fed provides FAQs on PPP liquidity facility
On April 20, the Federal Reserve Board (Fed) released a series of frequently asked questions (FAQs) and answers relating to the agency’s newly launched Paycheck Protection Program Liquidity Facility (PPPLF). As previously covered by InfoBytes, the PPPLF was up and running on April 16 to provide liquidity to banks making loans to small businesses pursuant to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The SBA-guaranteed PPP loans are used as collateral for term financing provided by the PPPLF. The PPPLF extends credit to financial institutions participating in the PPP at a fixed rate of 35 basis points. Additional information regarding the PPPLF, including a term sheet, borrowing documentation, and operational documentation including samples can be found on the Fed website here.
OCC bulletin highlights Covid-19 assistance to businesses, consumers, and governments through Fed facilities
On April 20, the OCC issued a bulletin to spotlight the many Federal Reserve (Fed) lending programs established to provide relief from the effects of the Covid-19 pandemic and to highlight how the programs benefit consumers, businesses, and state and local governments. The Fed has supported the economy in a number of ways, particularly through establishing or expanding loan, credit, and liquidity facilities including (i) the Paycheck Protection Liquidity Facility (PPPLF); (ii) the Term Asset-Backed Securities Loan Facility (TALF); (iii) the Primary and Secondary Market Corporate Credit Facilities (PMCCF) and (SMCCF); (iv) the Municipal Liquidity Facility (MLF); and (v) the new Main Street Facility. As previously covered by a Buckley Special Alert, the PPPLF provides liquidity to banks to enable them to lend to small business owners so they can keep their businesses running and pay their employees. The TALF, PMCCF, and SMCCF ensure the flow of credit to consumers and businesses for things such as auto loans, credit card loans, and student loans. The MLF facilitates the flow of cash into states, counties, and cities so that their governments may continue to provide services to residents. Finally, the Main Street Facility—like the PPPLF—supports lending to businesses, in which banks originate Main Street Lending Program loans to small and medium-sized businesses by selling the majority of the loans to the Main Street Facility. Further details about the Main Street Facility can be found in a Buckley Special Alert here.