COVID-19 UPDATES
SBA Implements PPP Loan Forgiveness Changes in Rule
The Small Business Administration last night issued a new interim final rule implementing in regulation changes made to the Paycheck Protection Program loan forgiveness process by the PPP Flexibility Act and other recent developments, including the SBA’s simplified Form 3508EZ forgiveness application.
The rule conforms previous rules to reflect provisions of the PPPFA, including the covered period for forgiveness, non-payroll costs eligible for forgiveness, reductions in the forgiven amount and the timing of when borrowers must apply for forgiveness to avoid making payments. It confirms that borrowers may submit forgiveness applications any time on or before the loan matures, including before the end of the covered period, provided they have used all of the loan funds for which they wish to apply for forgiveness.
The rule also incorporates exemptions in the PPP Flexibility Act that preserve loan forgiveness for employers that made good-faith attempts to rehire employees or fill vacant positions (and retained a previous exemption for employers that have reduced employee hours and offered in good faith to restore them) or whose business could not return to normal because of public health directives. SBA interpreted the latter exemption to include “both direct and indirect compliance” with state and local shutdown orders as well as federal guidance.
As of 5pm EDT Monday night, lenders nationwide had made approximately 4.7 million PPP loans totaling $515 billion. Forty-four percent of all PPP loans were made by lenders with less than $10 billion in assets, 19% were made by institutions with $10 billion to $50 billion in assets, and 37% were made by institutions with more than $50 billion in assets. The overall average loan size was $110,000.
SBA and Treasury Announce Enhanced Transparency Regarding the Paycheck Protection Program
Friday evening, the Small Business Administration and the Department of the Treasury announced they have agreed with the bipartisan leaders of the U.S. Senate Small Business Committee to make public additional data regarding the Paycheck Protection Program. The disclosure will include the business names, addresses, NAICS codes, ZIP codes, business type, demographic data, nonprofit information, jobs supported and the loan amount ranges as follows:
• $150,000 to $350,000
• $350,000 to $1 million
• $1 million to $2 million
• $2 million to $5 million
• $5 million to $10 million
These categories account for nearly 75% of the loan dollars approved. For loans below $150,000, totals will be released, aggregated by ZIP code, by industry, by business type, and by various demographic categories.
SBA Provides Guidance on Using PPP Loan Proceeds to Refi EIDLs
The Small Business Administration issued a procedural notice on Friday night providing guidance on using Paycheck Protection Program loan proceeds to refinance an SBA Economic Injury Disaster Loan, as well as providing instructions for PPP lenders on the procedure for remitting to SBA any PPP loan funds designated for an EIDL refinance.
Specifically, according to the SBA, a PPP loan may not be used to refinance an EIDL if the borrower received the EIDL before Jan. 31, 2020, or after April 3, 2020. EIDLs may be refinanced but are not required to be refinanced with PPP loans when the EIDL was received between Jan. 31 and April 3 and the PPP borrower used EIDL proceeds for purposes other than payroll. However, a PPP loans must be used to refinance the full amount of an EIDL when EIDL funds were received between Jan. 31 and April 3 and the borrower used the EIDL funds to cover payroll costs. The amount of the EIDL loan to be refinanced does not include the amount of any EIDL advance, SBA indicated, because the EIDL advance does not need to be repaid.
For PPP loan guaranty applications that include an amount for EIDL refinance, the lender must remit the funds directly to SBA. If the PPP lender has already disbursed funds to a borrower, SBA said, the lender is responsible for notifying the borrower of the amount of loan proceeds the borrower must remit to SBA. Both borrowers and lenders may remit funds using pay.gov, completing SBA Form 1201 (available at the link) and entering the EIDL number in the “SBA loan number” field.
Fed Updates Main Street Lending Program FAQs
This weekend the Federal Reserve updated several of the frequently asked questions for the Main Street Lending Program. Among other topics, the updated FAQs address debt refinancing under the Main Street Lending Program Liquidity Facility and the application of lending limit regulations.
OCC Trim Effects of COVID-Related Loan Growth on Assessments
Noting that many banks grew loans substantially in response to credit needs during the coronavirus pandemic, the OCC yesterday announced that it will reduce the asset-based assessments banks are due to pay to the agency by Sept. 30. Under an interim final rule released today, OCC-supervised banks may calculate their Sept. 30 assessment payments using either their assets on the Dec. 31, 2019, Call Report or their assets on the June 30, 2020, Call Report—whichever is lesser.
FDIC Finalizes Rule on Mitigating the Impact of Loans Under PPP
The FDIC finalized its rule on mitigating the impact of loans under the SBA’s Paycheck Protection Program (PPP). The final rule provides several changes from the original proposal that the banking industry advocated. In particular, the quarter-end PPP loan balance – not just the quarterly average of PPP loans used as collateral to borrowing from the Federal Reserve’s PPP Liquidity Facility, as proposed – will be offset from the assessment base, excluded from elements of the assessment rate formulas, and not factor into classification of a banks as “small,” “large” or “highly complex” (per FDIC). The rule will go into effect for the quarter ending this month. Seven elements were added to Call Report forms to accommodate. The FDIC will post assessment calculators to help banks estimate the effect. A more detailed summary of the final rule will be available soon.
CFPB Proposes Changes to QM Rule, Extension for Temporary ‘GSE Patch’
Yesterday, the CFPB took a significant step to revise its Qualified Mortgage rule, issuing a proposal to replace the use of the 43% debt-to-income ratio as a QM qualification standard with a price-based approach. The bureau concluded that such an approach—which would compare the loan’s annual percentage rate to the average prime offer rate for a comparable transaction—provides “a strong indicator and more holistic and flexible measure of a consumer’s ability to repay than DTI alone.”
Specifically, loans would meet the general QM loan definition only if the APR exceeded APOR for a comparable transaction by less a than two percentage points as of the date the interest rate is set, the bureau noted. Creditors would still be required to consider the consumer’s income or assets, debt obligations and DTI ratio or residual income, as well as verify the consumer’s current or reasonably expected income or assets other than the value of the dwelling that secures the loan and the consumer’s current debt obligations, alimony and child support. The proposal would also remove Appendix Q.
Additionally, the CFPB issued a second proposal that would extend the temporary “GSE patch,” which grants QM status to loans eligible to be purchased or guaranteed by Fannie Me or Freddie Mac, until the QM rule changes are finalized and take effect. The CFPB will accept comments on the proposed changes to the QM rule for 60 days after publication in the Federal Register. The GSE patch extension proposal will have a 30-day comment period.
Legislative Hearings on COVID-19, Ex-Im Oversight Scheduled This Week
The House Financial Services Committee will hold virtual hearings this week on capital markets and emergency lending during COVID-19 and on challenges facing insurers and policyholders during the pandemic.
Meanwhile, Export-Import Bank President and Chairman Kimberly Reed was scheduled to testify before the Senate Banking Committee at an oversight hearing on Monday.
IRS Releases Guidance on COVID-19-Related Retirement Distributions
The IRS last week issued guidance related to the application of Section 2202 of the CARES Act for qualified individuals and eligible retirement plans. Under Section 2202, qualified individuals may take penalty-free coronavirus distributions from eligible retirement plans, subject to certain conditions.
The guidance is intended to assist employers and plan administrators, trustees and custodians, and qualified individuals in applying Section 2202 of the CARES Act. It provides instruction on how plans may report coronavirus-related distributions and how individuals may report these distributions on their individual federal income tax returns.
Quarles: Stress Tests to Assess Industry Performance Under COVID-19 Scenarios
The latest stress test results for the nation’s largest banks will include a “sensitivity analysis” of how institutions would perform under three distinct scenarios related to the coronavirus pandemic and economic recovery, Federal Reserve Vice Chairman for Supervision Randal Quarles said in a speech on Friday. The Fed is conducting this sensitivity analysis in addition to its normal Comprehensive Capital Analysis and Review process, which includes a “severely adverse” scenario that was published in February 2020 before the pandemic began.
With respect to the scenarios used in the sensitivity analysis, Quarles said the Fed will consider a “V-shaped” recovery, where output declines and job losses were mostly reversed by the end of 2020; a slower, “U-shaped” recovery, in which only a small share of lost output was regained in 2020; and a “W-shaped” recovery in which there would be a short-lived recovery followed by another severe drop in economic activity later in the year if additional containment measures are needed. He emphasized that the scenarios “are not forecasts by the Fed or me, only plausible scenarios that span the range of where many private forecasters think the economy could be headed.”
In this year’s published stress test results, the Fed will “provide key details about the three downside risk paths for the economy and targeted adjustments” as well as aggregated results to illustrate how the banking system as a whole would perform in each scenario, but will not include firm-specific results, Quarles said. He added that the Fed will “use the results of our sensitivity analysis to inform our overall stance on capital distributions and in ongoing bank supervision.”
Finally, Quarles said that the firms will receive their stress capital buffer requirements from the Fed for the coming year next week and will have a period of time to make adjustments to their capital plans before the final capital requirements are released publicly for each firm later in the year. The SCB requirements will be based on the scenarios published in February 2020.
ICYMI - SBA Streamlines PPP Forgiveness Application for Many PPP Borrowers
As reported last Wednesday, the Small Business Administration released a three-page “EZ” Paycheck Protection Program loan forgiveness application requiring less documentation and fewer calculations than previously required. Form 3508EZ applies to borrowers who meet any one of these three criteria:
• Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees.
• Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of their employees (excepting laid-off employees who refused an offer to return).
• Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19.
The streamlined forgiveness form is expected to smooth the forgiveness application process for a substantial portion of PPP borrowers. SBA also updated the regular Form 3508 to reflect recent changes made by Congress in the PPP Flexibility Act and issued a new interim final rule that implements changes made by the PPPFA.
Download the instructions for Form 3508EZ
Download the revised Form 3508
Download the instructions for Form 3508
ICYMI - FHFA, FHA Extend Foreclosure, Eviction Moratoriums
The Federal Housing Finance Agency announced last Wednesday that it would extend – through Aug. 31 at a minimum – a moratorium on foreclosures and evictions for single-family mortgages backed by Fannie Mae or Freddie Mac. The current moratorium was expected to expire on June 30.
“To protect borrowers and renters during the pandemic we are extending the Enterprises’ foreclosure and eviction moratorium,” said FHFA Director Mark Calabria. “During this national health emergency no one should worry about losing their home.”
The Federal Housing Administration similarly extended through Aug. 31 its foreclosure and eviction moratorium for homeowners with FHA-insured single-family mortgages.
ICYMI - Powell: Main Street Lending Facility to Open ‘Within a Week or So’
After officially opening the Main Street Lending Program for lender registration last Monday, Federal Reserve Chairman Jerome Powell said last Wednesday that its corresponding Main Street Lending Facility will begin receiving MSLP loans “within a week or so.” The Fed will purchase 95% of each eligible loan submitted to the MSLP, provided that those transactions are consistent with the facility’s requirements.
Responding to concerns about the take-up rate for the program, Powell assured members of the Senate Banking Committee that “we feel there’s substantial interest on the part of bankers for this,” adding that the Fed has made several changes to the program in recent days to facilitate participation by more small and midsize firms.
“As we have been since the very beginning, we are very open to learning and adapting,” he said. “We have made repeated changes to these facilities to make them better structured to achieve their goals, and we’ll continue to do that.” Powell also noted that in the days ahead, “if we’re hearing about companies for whom a loan is the right answer who do not for some reason qualify for the Main Street loan facilities and should, then we’ll be adapting to that.”
Read Powell's written testimony
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.