COVID-19 UPDATES
Fed Expands Main Street Lending Program
The Federal Reserve yesterday announced several adjustments to the Main Street Lending Program intended to facilitate participation by more small and midsize businesses. The Fed is lowering the minimum loan size for certain loans from $500,000 to $250,000. The Fed is also increasing the maximum loan size for each loan option under the MSLP, increasing the term for each loan option from four years to five years and extending the repayment period for all loans by delaying principal payments for two years instead of one.
Once the program is open for lender registration—which the Fed said it expects to happen “soon”—lenders may begin making loans immediately after they successfully register. The Fed will purchase 95% of each eligible loan submitted to the MSLP, provided that those transactions are consistent with the facility’s requirements. It will also continue to accept loans that were originated under the previously announced terms if those loans were funded prior to June 10, 2020.
Finally, the Fed said it is working separately to establish a program to provide support to nonprofit organizations that may be facing financial challenges due to the pandemic.
SBA, Treasury Preview Upcoming PPP Changes
The Small Business Administration and the Treasury Department signaled yesterday that they will promptly issue rules and guidance implementing the new Paycheck Protection Program flexibility law that was signed by President Trump on Friday.
The new law extends the maturity period for unforgiven PPP loans approved on or after June 5, 2020, to five years. For previous PPP loans, the maturity period remains two years, but may be extended by mutual agreement of the lender and the borrower. The law also extends the forgiveness period for all PPP loans to 24 weeks from the date of origination and reduces the minimum amount that businesses must devote to maintaining payroll from 75% to 60% in order to receive forgiveness.
Importantly, SBA and Treasury noted that borrowers that use less than 60% of the loan amount for payroll costs during the forgiveness covered period will still be eligible for partial loan forgiveness, “subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.” The forthcoming rules and guidance will also establish various safe harbors from reductions in loan forgiveness based on reductions in full-time equivalent employees, among other provisions.
Trump Signs PPP Flexibility Bill Into Law
President Trump on Friday signed into law a bipartisan bill providing greater flexibility for Paycheck Protection Program borrowers. The new law extends the maturity period for unforgiven PPP loans made after the date of enactment to five years; the maturity on previous PPP loans is not automatically extended, but may be extended by mutual agreement of the lender and the borrower. The law also extends the forgiveness period for all PPP loans to 24 weeks from the date of origination and reduces the minimum amount that businesses must devote to maintaining payroll from 75% to 60% in order to receive forgiveness.
Telephone Cooperatives Eligible for PPP
Telephone cooperatives that are exempt from federal income taxation are eligible for Paycheck Protection Program loans, the Small Business Administration indicated in an interim final rule. These cooperatives must satisfy employee-based size standards.
Banks that continue to have trouble with the SBA’s E-Tran and SBA Connect Lender Gateway portals can direct assistance questions to the SBA at 833-572-0502 or cls@sba.gov.
FHA Announces Temporary Policy for Insuring Mortgages in COVID-19 Forbearance
The Federal Housing Administration announced a temporary policy for lenders to obtain FHA insurance endorsements on mortgages where the borrower has requested or obtained a COVID-19 forbearance. This temporary policy applies to FHA borrowers that close in accordance with FHA requirements and are adversely affected by the COVID-19 pandemic immediately after closing, but prior to FHA’s endorsement of the loan for insurance.
Under the policy, FHA will provide mortgagees the ability to endorse mortgages under a special program that requires lenders to provide an indemnification agreement to FHA for 20% of the original mortgage amount, which only becomes payable if the mortgage goes into foreclosure and results in a claim to the FHA Mutual Mortgage Insurance Fund. This indemnification agreement between the lender and FHA will generally result in a reduction of the claim amount FHA would need to pay to the lender for defaulted mortgages. FHA will not require upfront payments by lenders.
Banking Hearings Scheduled in House, Senate Committees This Week
The House Financial Services Committee will hold two virtual hearings this week. On Wednesday the committee will hear testimony on how the coronavirus pandemic is affecting renters, and on Thursday the committee’s fintech task force will hear testimony on improving the delivery of stimulus payments.
Meanwhile, the Senate Banking Committee is scheduled to hold an oversight hearing of the Federal Housing Finance Agency and the U.S. Department of Housing of Urban Development. FHFA Director Mark Calabria and HUD Secretary Ben Carson are set to testify.
ICYMI - CFPB, CSBS Issue Joint Guidance on CARES Act Forbearance, Foreclosure
The Consumer Financial Protection Bureau and the Conference of State Bank Supervisors issued joint guidance for borrowers on the mortgage relief provisions included in the CARES Act. The law requires servicers of federally backed mortgages to provide forbearance to borrowers facing financial hardships due to COVID-19 for up to two consecutive 180-day periods, and waive additional interest, fees or penalties beyond the amounts scheduled. The guidance includes the relevant rules and guidelines governing CARES Act forbearance, along with answers to several frequently asked questions.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.