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On May 14, FHA issued Mortgagee Letter 2020-13, which extends the foreclosure and eviction moratorium in connection with the Covid-19 emergency and issues new reporting requirements related to FHA single family’s CARES Act loss mitigation options. The foreclosure moratorium is extended to June 30, 2020, and applies to FHA-insured single family mortgages, except vacant or abandoned properties. The moratorium on evictions of persons from properties securing FHA-insured single family mortgages, excluding actions to evict occupants of legally vacant or abandoned properties, is also extended for the same period. The bulletin also provides guidance on how mortgagees must report the Default/Delinquency Reason Codes that apply to the borrower at the end of each reporting cycle. The mortgagee must update the code as the borrower’s circumstances change.
On May 14, the FTC and SBA sent letters to two companies for allegedly misleading small businesses seeking Paycheck Protection Program (PPP) loans. The first letter was sent to a California-based media company, which owns the web address “sba.com.” The letter claims the website suggests an “an affiliation or relationship with the SBA and approved PPP lenders” and encourages customers to apply for PPP loans through the site. The second letter, sent to a Utah-based company, asserts the company and its affiliate lead generators may be violating Section 5 of the FTC Act. Among other things, the FTC notes that one of the company’s affiliate lead generators advertises itself as an SBA loan packager for a $495 fee, even though the SBA prohibits lead generators from charging fees to PPP loan applicants. Both letters instruct the recipients to remove all deceptive claims and advertisements and remediate any harm that may have been caused. The letters require the companies to notify the FTC within 48 hours of the actions taken in response.
On May 14, the SEC announced separate charges against two companies claiming to offer products to combat the Covid-19 virus in violation of the antifraud provisions of federal securities laws. One of the SEC’s complaints alleges the company issued a press release on March 31 advertising finger-prick Covid-19 tests that could be used at home and in schools, when in actuality the tests could be administered only in consultation with a medical professional and were not intended for home use by the general public. Moreover, the company failed to disclose the product was not authorized by the U.S. Food and Drug Administration. In the second complaint, the SEC alleges a company and its owner issued press releases claiming to sell, through a public and private partnership, thermal scanning equipment to detect fevers, that would help to “break the chain of virus transmission through early identification of elevated fever, one of the key early signs of COVID-19.” However, the SEC argues the company did not have an agreement to sell the product, nor did it have a partnership with any government entities.
In both complaints, the SEC alleges that the false or misleading statements materially affected the price of each company’s stock after the releases were made. The SEC is seeking permanent injunctive relief and civil penalties against both companies.
On May 14, the Federal Reserve Board (Fed) issued the latest Report on the Economic Well-Being of U.S. Households, which outlines the results of an October 2019 survey of over 12,000 adults. Notably, the Fed included supplemental data from an April 2020 survey of 1,000 adults, which caused the Fed to state that financial conditions “changed dramatically for people who experienced job loss or reduced hours during March 2020 as the spread of COVID-19 intensified in the United States.” Highlights of the supplemental data include: (i) 19 percent of all adults reported either losing a job or experiencing a reduction in work hours in March; and (ii) among the adults who experienced a job loss or had hours cut in March, 51 percent indicated they were at least “doing okay” financially, while 48 percent were “finding it difficult to get by” or “just getting by.”
Additionally, on May 15, the Fed released its Financial Stability Report, which focuses on the effect of the Covid-19 pandemic on U.S. financial stability and discusses the Fed’s response. The report notes that due to the Covid-19 pandemic, “disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit” and that the banking sector “may experience strains as a result,” even though it had large capital and liquidity buffers before the shock. Overall, the Fed concludes that the outlook for the pandemic and economic activity is “uncertain.” The report also notes that (i) asset prices remain vulnerable to significant price declines; (ii) the issuance of high-yield corporate bonds and the origination of leveraged loans appear to have slowed appreciably; (iii) the prospect for losses at financial institutions appears elevated; and (iv) while funding markets proved less fragile than during the 2007-09 crisis, Fed actions were required to stabilize short-term funding markets.
On May 13, the Federal Reserve published updated frequently asked questions (FAQs) regarding savings deposits under the recent changes to Regulation D. On April 23, the Federal Reserve issued an interim final rule amending Regulation D, which we previously covered here. Among other things, the interim rule deleted restrictions on transfers to address financial disruptions related to Covid-19. The FAQs clarify the definition of a savings deposit under the regulation, requirements for reporting savings deposits, reservation rights, and whether amendments to Regulation D impact Regulation CC.
The Small Business Administration (SBA) recently issued an interim final rule (IFR) to supplement the CARES Act and extend the Paycheck Protection Program (PPP) safe harbor for repayment from May 7 to May 14. Borrowers who received a PPP loan prior to April 24 but determined that the funds were “obtained based on a misunderstanding or misapplication of the required certification standard” will be deemed by the SBA to have made the borrower certification on a loan application in good faith if they repay the loans in full by May 14. Additional guidance on the safe harbor extension is forthcoming. (The SBA first announced the repayment extension last week in updated Frequently Asked Questions, covered by InfoBytes here.) Due to the safe harbor extension, the IFR also extends the deadline to May 22 for PPP lenders to file yet-to-be released Form 1502 in order to receive their lender processing fees. As previously covered by InfoBytes, the SBA stated that PPP lenders must disburse each loan and submit SBA Form 1502 within 20 days of loan approval. The IFR takes effect upon publication in the Federal Register, with comments due within 30 days.
On May 13, the CFPB released a policy statement and two FAQ documents outlining the responsibilities of financial firms during the Covid-19 pandemic. The policy statement covers Regulation Z’s billing error resolution timeframe in light of the operational disruptions faced by many merchants and small businesses, causing delays in responses to creditors’ inquiries and thus making it difficult for creditors to accurately and timely resolve consumers’ billing error notices. The statement emphasizes that the CFPB will be flexible with its supervisory and enforcement approach during the pandemic as it relates to billing error resolution set forth in §1026.13(c)(2), stating “the Bureau intends to consider the creditor’s circumstances and does not intend to cite a violation in an examination or bring an enforcement action against a creditor that takes longer than required by [Regulation Z] to resolve a billing error notice, so long as the creditor has made good faith efforts to obtain the necessary information and make a determination as quickly as possible, and complies with all other requirements pending resolution of the error.” The Bureau notes that creditors are still expected to fully comply with the other requirements of billing error disputes in Regulation Z.
The Bureau also released payment and deposit rule FAQs related to the Covid-19 pandemic, which state that financial or depository intuitions may change account terms due to the pandemic so long as they provide appropriate notice to consumers. However, if a change is favorable to the consumer, it can be implemented immediately without advance notice. Additionally, the Bureau released open-end (not home-secured) rule FAQs related to the Covid-19 pandemic, which state that creditors may change account terms in response to the pandemic but most changes will require advance notice. However, changes that may help a consumer in need—such as reducing a finance charge—do not require advance notice.
On May 13, the FHFA, Fannie Mae, and Freddie Mac, announced a new Covid-19 payment deferral option that will be available starting on July 1. According to Fannie Mae Lender Letter LL-2020-07 and Freddie Mac Bulletin 2020-15, the new Covid-19 payment deferral is “a new workout option specifically designed to help borrowers impacted by a hardship related to Covid-19 return their mortgage to a current status after up to 12 months of missed payments.”
The new option is for borrowers who (i) are on a Covid-19 related forbearance plan, or (ii) have a resolved financial hardship due to Covid-19. Specifically, the servicer is required to confirm that the borrower is now able to continue making the full monthly contractual payment of their loan but is unable to reinstate the mortgage loan or afford a repayment plan to cure the previous delinquency. If a borrower is eligible for the Covid-19 payment deferral, the servicer must allow the borrower to resume their contractual monthly payments; however, the delinquency amount (which includes up to 12 months of past-due principal and interest payments; out-of-pocket escrow advances paid to third parties; and servicing advances paid to third parties in the ordinary course of business) must be deferred as a non-interest bearing balance, due and payable at liquidation, refinance, or maturity. Among other requirements detailed by the Lender Letter and Bulletin, servicers must report the loan in accordance with the Fair Credit Reporting Act, as amended by the CARES Act, which requires lenders to report as current any loans subject to Covid-19 forbearance or other accommodation. Additionally, servicers must waive all late charges, penalties, and fees upon completing the Covid-19 payment deferral.
In addition to the new Covid-19 payment deferral, borrowers will continue to have other hardship options including repayment plans, lump-sum repayment, or permanent modification. Servicers must begin evaluating borrowers for the Covid-19 payment deferral beginning July 1.
On May 13, the Small Business Administration (SBA) in consultation with the Treasury Department updated the Paycheck Protection Program (PPP) Frequently Asked Questions (FAQs) to provide additional borrower guidance. Borrowers that submit PPP applications must certify, in good faith, that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” FAQ #46 establishes a safe harbor that “[a]ny borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” According to SBA, this safe harbor is appropriate because borrowers with loans of less than $2 million are generally less likely to have access to other forms of liquidity than borrowers who are able to obtain larger loans. Also, the safe harbor will provide more certainty to PPP borrowers with more limited resources, and it will allow SBA to use its resources efficiently to prioritize reviews of larger loans, where compliance audits may yield higher returns.
SBA’s guidance noted, however, that borrowers with loans greater than the $2 million threshold “may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.” Those loans will be subject to review by the SBA, and if the SBA determines a borrower lacks an adequate basis for certification, the borrower will not be eligible for loan forgiveness and must pay the outstanding balance. If a borrower repays a loan after receiving notification from the SBA, the SBA states that it will not pursue administrative enforcement or make referrals to other agencies based on its determination concerning the certification of necessity.
Additionally, in FAQ #47, the SBA extended until May 18 the PPP safe harbor repayment deadline for borrowers who received PPP loans but had access to other sources of capital. Borrowers who applied for a PPP loan and repay the loan in full by May 18 will be deemed by the SBA to have made the required certification regarding necessity of the loan request in good faith. The extension is intended to provide borrowers an opportunity to consider FAQ #46. The SBA’s interim final rule providing the safe harbor (covered by InfoBytes here) will be revised to reflect the extension.
On May 12, the Office of the Comptroller of the Currency issued guidance for national banks and federal savings associations that are considering changing the date, time, or location of their annual meetings as a result of stay-at-home orders or other health concerns. The OCC clarified that, for national banks, the requirement to hold an annual meeting is governed by state laws and the bank’s governing documents. OCC regulations require federal savings associations to hold annual meetings within 150 days after the end of the fiscal year and to incorporate the time frame for conducting the meeting into their bylaws. Although federal savings associations must receive OCC approval to amend their bylaws to incorporate a longer time frame, the OCC will deem such an amendment as approved and effective if it meets the conditions set out in the guidance. The OCC also strongly encourages all banks to use electronic methods for submitting licensing filings during the COVID-19 emergency.
- Jeffrey P. Naimon to provide a "Washington update" at the Mortgage Bankers Association Live: Legal Issues and Regulatory Compliance Conference
- Brandy A. Hood to discuss "Ongoing challenges of TRID compliance" at the Mortgage Bankers Association Live: Legal Issues and Regulatory Compliance Conference
- Daniel R. Alonso to discuss "Resisting temptation in a crisis: How to make sure ethics and compliance don't get diluted under financial strain" at a New York City Bar webcast
- Daniel P. Stipano to discuss "BSA for BSA seasoned officers" at an NAFCU webinar
- Jon David D. Langlois to discuss "LIBOR transition: Preparations for legal professionals" at a Mortgage Bankers Association webinar
- Garylene D. Javier to discuss "Navigating workplace culture in 2020" at the DC Bar Conference