COVID-19 UPDATES / GOVERNMENT RELATIONS
House Approves Additional PPP Funds
By a strong bipartisan vote last night, the House cleared legislation providing $310 billion in new funding for the Small Business Administration’s Paycheck Protection Program. The Senate passed the bill earlier this week, and President Trump is expected to sign it today.
Of the funding appropriated for PPP loans, a minimum of $30 billion will be set aside for community development financial institutions, banks and credit unions with less than $10 billion in assets. At least another $30 billion will go to banks and credit unions with assets between $10 billion and $50 billion. (Institutions in these categories may originate PPP loans above these levels.) The bill also includes an additional $60 billion in funding for the SBA’s Economic Injury Disaster Loan program and provides long-sought clarity that agricultural businesses may apply for EIDL funds.
SBA Addresses PPP Applications from Companies with Access to Capital
In the wake of media reports of some firms qualifying for PPP loans despite having access to capital markets or ongoing revenue streams, SBA yesterday emphasized that companies seeking PPP funding must provide a good-faith certification of their economic need.
While noting that each business must make its own assessment of economic need for a PPP loan, the SBA updated its frequently asked questions to say that “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, for the basis of its certification.”
SBA also clarified that borrowers that applied for PPP loans prior to the issuance of the new guidance and repay the loan in full by May 7, 2020, “will be deemed by SBA to have made the required certification in good faith.”
Updated interim final rule on ppp
Gov. Signs Order Expediting Process for Renewal of Business Certificate
On April 23 Gov. Holcomb signed Executive Order 20-23, suspending a five year statutory limitation on reinstatements for businesses with the Secretary of State’s office and also suspending the requirement that a certificate of clearance must be submitted as part of the reinstatement process. As a result, all administratively dissolved businesses may now reinstate. It also means that businesses do not need to submit a certificate of clearance with the reinstatement application. The suspension of the certificate of clearance requirement will greatly reduce the reinstatement processing time. Up to this point, the reinstatement process has been a significant impediment to the application process for PPP for certain businesses. Executive Order 20-23 is effective April 23, 2020, and orders the suspension of the above statutory requirements for the duration of the public health emergency in Indiana.
View SOS Statement on Executive Order 20-23
New Gov. Executive Order Makes Changes to Shareholder Meetings and Business Personal Property Tax
Other important updates in Governor Holcomb's Executive Order on Thursday included notable changes to both business and health care. In addition to the changes made to expediting the process to reinstate a business through the Secretary of State's office, the order changed both how Indiana corporation meetings may be conducted and the timeline for filing business personal property taxes. The order extended the deadline for submitting business personal property returns from May 15 to June 15. In addition, the order permits an Indiana corporation to host meetings using remote communication.
FHFA: FHLBs May Purchase PPP Loans as Collateral for Advances
The Federal Housing Finance Agency has confirmed that Federal Home Loan Banks may accept PPP loans as collateral when making advances to their member banks. This move – the latest in a series of actions by the FHFA to support lending during the pandemic – is intended to provide additional liquidity for small banks in particular as they work to meet the needs of small businesses in their communities.
Members pledging collateral must have a CAMELS rating of 3 or better or a member credit ranking in the top 60% of FHLB’s member rating systems. FHLB member banks may pledge a maximum of $5 billion in PPP loans in collateral to their FHLB.
FHFA to Purchase Qualified Loans in Forbearance
In a significant move on Wednesday, the Federal Housing Finance Agency announced that it will purchase qualified single-family mortgages in forbearance in order to support mortgage markets during the coronavirus pandemic.
Generally, loans in forbearance or delinquency may not be sold to Fannie Mae or Freddie Mac. However, FHFA indicated it would ease this restriction “for a limited period of time and only for mortgage meeting certain eligibility criteria.” FHFA also noted that loans in forbearance that are sold to Fannie Mae and Freddie Mac will “be priced to mitigate the heightened risk of loss to the Enterprises.”
According to the guidelines issued by the GSEs, Fannie and Freddie will impose a loan-level pricing adjustment of 500 basis points for first-time buyers and 700 basis points for all others. In addition, borrowers cannot be behind by more than one payment and the transaction must involve either a purchase transaction or a no-cash-out refinance.
“We are focused on keeping the mortgage market working for current and future homeowners during these challenging times,” said FHFA Director Mark Calabria. “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending.”
State Associations Reject CU Calls for Expanded Member Business Lending Cap
In a letter to congressional leaders on Wednesday, 51 state bankers associations including Indiana flagged “opportunistic and unnecessary” attempts by the credit union industry to seek charter enhancements – such as expansion of the member business lending cap – during the coronavirus pandemic.
The groups noted that government guaranteed loans, including SBA Paycheck Protection Program loans, are already exempt from the business lending cap, and that an expansion is unnecessary. They added that currently only 30 credit unions – a fraction of a percent of the credit union industry – are at risk of hitting the member business lending cap.
“We are proud of the joint work banks and credit unions have done together during this crisis, and both industries appreciate the important role we all play to keep liquidity flowing to communities,” the groups wrote. “However, efforts to increase credit union powers in the name of a crisis, including increases to the member business loan limit, are disappointing and distract from important policy priorities that are actually needed to support our small businesses.”
FASB Delays Lease Accounting Implementation for Non-Public Companies
The Financial Accounting Standards Board on Tuesday delayed for certain filers the effective date of its new lease accounting guidance, which requires all operating leases to be recorded on the balance sheet of lessees. The effective date was deferred by one year for nonpublic business entities. For these entities, the lease accounting standard is effective for fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.
FASB recognized that businesses have faced challenges in implementing the new standard, especially amid the coronavirus pandemic and with the effective date imminent for non-public business entities. The standard, which culminated a multiyear project when it was issued in 2016, changes how credit officers review the financial statements of their borrowers and affects the classification of assets and liabilities on bank balance sheets.
Agencies Make Technical Corrections to CECL Rule
Federal regulators published technical corrections and clarifications to the March 31 interim final rule that provides a five-year transition period for the impact of the Current Expected Credit Loss methodology. The updates relate to “Category III” banking organizations, calculating the supplementary leverage ratio, day-one changes to retained earnings, and other minor corrections.
ICYMI - Indiana Supreme Court Rules on Garnishment of Stimulus Payments
On Monday the Indiana Supreme Court ruled 4-1 that courts in Indiana may not issue orders placing legal holds on or garnishing funds from stimulus payments resulting from the CARES Act. The decision came as a result of a petition for an emergency ruling filed by four agencies in Indiana. According to the decision, Indiana courts shall issue no new orders to garnish or hold funds attributable to stimulus payments, other than judgments or orders for child support. Also, if a previously issued order has placed a hold on a judgment-debtor’s depository account, the judgment-debtor is entitled to a hearing within two business days to determine if any funds in the account result from stimulus payments and for the judgment-debtor to assert any exemptions under state or federal law.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.