COVID-19 UPDATES / GOVERNMENT RELATIONS
SBA: Lender Review May Be Required for Certain PPP Loans
The Small Business Administration yesterday notified Paycheck Protection Program lenders that certain loans in their PPP portfolios may require review. Those loans – which have been marked by SBA as being in "research" status – must be reviewed for accuracy and completeness. A lender should verify the borrower’s name, EIN or Social Security number for these loans and make any necessary changes by today at 5 p.m. EDT.
SBA provided instructions for lenders on how to access the Capital Access Financial System, which was recently updated with a new search functionality intended to help PPP lenders review the loans in their portfolios.
Additionally, SBA announced an operational change in how it receives PPP loan data from lenders through the E-Tran system. "Business type will now determine whether a loan application should be submitted with either an SSN or EIN," SBA said, adding that lenders may no longer use a SSN in the place of a primary TIN for types of businesses requiring an EIN.
View instructions for accessing CAFS
Electric Cooperatives Eligible for PPP Loans
Electric cooperatives are eligible for Paycheck Protection Program loans, the SBA indicated in its latest interim final rule on the program. The rule says electric cooperatives must satisfy the employee-based size standards established in the CARES Act to participate.
FHFA Extends Foreclosure, Eviction Moratorium for GSE-Backed Mortgages
The Federal Housing Finance Agency announced yesterday that it would extend – until at least June 30 – 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 May 17.
"During this national health emergency, no one should be forced from their home," said FHFA Director Mark Calabria. "Extending the foreclosure and eviction moratoriums protects homeowners and renters with an enterprise-backed mortgage and provides certainty for families."
SBA Offering EIDL Loans and Advances
The SBA is currently offering Emergency Injury Disaster Loans (EIDLs) for certain entities that have suffered substantial economic injury. “Substantial economic injury” means the business is unable to meet its obligations and pay its ordinary and necessary operating expenses. EIDLs provide working capital to help small businesses survive until normal operations resume after a disaster. The loan is made directly through the SBA and can provide up to $2 million to help meet financial obligations and operating expenses that could have been met had the disaster not occurred. The loan amount will be based on actual economic injury and the company’s financial needs, regardless of whether the business suffered any property damage. The interest rate on EIDLs will not exceed 4% per year, and the term of these loans will not exceed 30 years. The repayment term will be determined by the ability to repay the loan. EIDL assistance is available only to small businesses that SBA determines are unable to obtain credit elsewhere.
In response to the COVID-19 pandemic, small business owners were able to apply for an EIDL Advance of up to $10,000, an addition to the current EIDL loan process. This advance is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. SBA is accepting new Economic Injury Disaster Loan and EIDL Advance applications on a limited basis to provide relief to U.S. agricultural businesses.
The new eligibility is made possible as a result of the latest round of funds appropriated by Congress in response to the COVID-19 pandemic.
- Agricultural businesses includes those businesses engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural related industries (as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)).
- SBA is encouraging all eligible agricultural businesses with 500 or fewer employees wishing to apply to begin preparing their business financial information needed for their applications.
Apply online for an SBA disaster assistance loan
Read more details on the Advance
SBA Announces Safe Harbor for PPP Borrowers with Loans for Less than $2M
Following the recent announcement that the Small Business Administration would review any Paycheck Protection Program loans made in amounts exceeding $2 million, the agency on Wednesday issued guidance extending an automatic safe harbor to borrowers receiving PPP loans with an original principal amount of less than $2 million. These borrowers "will be deemed to have made the required certification concerning the necessity of the loan request in good faith," SBA said in updates to its PPP FAQ.
Borrowers that received PPP loans for amounts over $2 million will be subject to review by the SBA for compliance with program requirements, including the certification of economic need. "If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness," SBA indicated.
SBA added that borrowers who repay their loans after receiving notification from the SBA will not be subject to administrative enforcement or referrals to other agencies. Additionally, SBA’s determination regarding the necessity of the loan request will not affect the SBA loan guarantee.
SBA also announced on Wednesday that it would extend until May 18 the deadline for PPP borrowers who did have access to other sources of capital to return funds.
CFPB to Offer Flexibility for Creditors Resolving Billing Errors During Pandemic
The Consumer Financial Protection Bureau on Wednesday said it would provide flexibility for creditors to resolve billing errors during the coronavirus pandemic. With many merchants forced to close due to local stay-at-home orders, the bureau acknowledged that these businesses may not be able to respond immediately to creditor inquiries to resolve billing disputes.
Accordingly, the CFPB said that when evaluating creditors’ compliance with the billing error resolution timeframes established by Regulation Z, it would "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 the regulation to resolve a billing error notice." CFPB added that creditors must make "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 CFPB also encouraged creditors to continue to provide relief to consumers who may be facing financial hardships because of the pandemic, including fee waivers, repayment forbearance or payment deferrals. The bureau issued two FAQ documents reminding financial institutions and card issuers of various account terms that may be changed without providing advance notice and outlining existing regulatory flexibilities for open-end credit that institutions may find useful when serving customers.
GSEs to Offer New Payment Deferral Option for Mortgage Borrowers
The Federal Housing Finance Agency announced on Wednesday that Fannie Mae and Freddie Mac are offering a new COVID-19 payment deferral option, beginning July 1, for mortgage borrowers facing financial hardship due to the coronavirus pandemic. With this repayment option for GSE-supported loans, borrowers in forbearance may have their forborne mortgage payments put into a payment due at the sale or refinancing of the home, or at loan maturity. Under this option, the borrower’s monthly mortgage payment will not change.
In addition to the payment deferral option, borrowers continue to have a range of other repayment options that they can utilize, including reinstatement, repayment plan or loan modifications based on their individual situations. FHFA also reiterated that the GSEs do not require borrowers to repay their loans in one lump sum when exiting forbearance.
FDIC Proposes Rule to Facilitate Bank Participation in PPP, Money Market Facilities
To help provide certainty to banks participating in the Paycheck Protection Program and its associated lending facility, as well as the Money Market Mutual Fund Liquidity Facility, the Federal Deposit Insurance Corp. has proposed a rule to ensure that institutions would not be subject to increased deposit insurance assessments as a result of their participation.
Specifically, the proposal would remove the effect of participation in the PPP and PPPLF on various risk measures used to calculate a bank’s assessment rate and remove the effect of participation in the PPPLF and MMLF programs on certain adjustments to a bank’s assessment rate. It would also provide an offset to a bank’s assessment for the increase to its assessment base attributable to participation in the MMLF and PPPLF and remove the effect of participation in the PPPLF and MMLF programs when classifying insured depository institutions as small, large or highly complex for assessment purposes.
If finalized, the rule would take effect June 30, but have an application date of April 1, ensuring that the changes will be applied to assessments beginning in the second quarter of 2020. Comments on the proposed rule are due seven days after publication in the Federal Register.
Fed to Disclose Names, Loan Information for PPPLF Participating Institutions
The Federal Reserve said it will identify, on a monthly basis, certain information about participants in the PPP Liquidity Facility and the Term Asset-Backed Securities Loan Facility. For both facilities, the Fed will release the names of each participating institution, the amounts borrowed, interest rate charged and value of pledged collateral. It will also disclose the overall costs, revenues and fees for each facility.
The Fed also released an updated term sheet for the TALF – which is intended to support the flow of credit to consumers and businesses – and an updated FAQ document.
McWilliams: Banks Should Rely on Borrower Certifications When Making PPP Loans
FDIC Chairman Jelena McWilliams on Tuesday confirmed that banks should rely on borrowers’ statements certifying that their economic need is legitimate when making PPP loans, referencing a recent interim final rule issued by the Small Business Administration.
"Our instruction to banks has been to make sure, since these loans are not being traditionally underwritten, to take a look at the certification that the borrower is providing," McWilliams told members of the Senate Banking Committee. "To the extent that they are community banks, they will quite often know the borrowers in their communities. We are less concerned about whether or not community banks are able to figure out whether the borrower is legitimate or not."
McWilliams added that for larger institutions "our instructions have been to rely on the certification but be cognizant of who they’re lending to. They have to cross their t’s and dot their i’s." She also emphasized that all banks must comply with existing fair lending laws when making PPP loans. "The fair lending laws, whether or not we issue specific guidance in connection with the PPP, they stand," she said. "Banks know they have to abide by them."
Fed’s Quarles: Main Street Lending Program Could Be Operational in Coming Weeks
Getting the Main Street Lending Program facilities up and running is a "top priority" for the Federal Reserve, Vice Chairman for Supervision Randal Quarles told the Senate Banking Committee on Tuesday. While Quarles declined to give a specific date for when the facility will be operational, he noted that "I don’t think we’re looking at months" before firms can begin to access the MSLP.
Quarles added that the Fed has already worked "at speed" to establish several new credit and liquidity facilities using its 13(3) authority under the Federal Reserve Act. "When you compare the speed to the development and deployment of the facilities at the time of the 2008 crisis, I think that we … have been able to respond much more rapidly now." He added that "It’s important that we do the complicated, technical work to ensure that they can be rolled out effectively as well as quickly."
Regulators Float Potential Legislative, Regulatory Changes to Aid in Crisis Response
During the above-referenced hearing, the heads of the financial regulatory agencies also discussed potential legislative changes that would enable them to provide additional support to banks to address the coronavirus crisis. Fed Vice Chairman Quarles urged lawmakers to expand the authority given to regulators under the Dodd-Frank Act’s Collins Amendment – which created statutory minimum capital requirements – to allow them to provide a temporary exclusion for safe assets from leverage ratio denominators.
Banks have seen a large influx of deposits since the crisis began, which has caused balance sheet growth and in turn created capital constraints, Quarles said. "If adjustments aren’t made to those capital constraints, then the influx of those safe assets will ultimately cause them to have to turn away customers." He noted that the Fed has already made the change to the supplemental leverage ratio at the holding company level and signaled that the agencies could also do so at the depository institution level.
However, he added that "it gets trickier to make a change to the tier 1 leverage ratio, which would be of general applicability, and that’s where Collins amendment difficulties really arise." Without expanded congressional authority, he said the agencies would continue to look for a regulatory solution "to allow banks to serve their customers in a way that’s safe."
Meanwhile, FDIC Chairman McWilliams called for changes to brokered deposit statutes that would limit growth for undercapitalized institutions rather than "placing a stigma on brokered deposits, which are not necessarily bad for banks." In her written testimony, McWilliams cited innovation and the need to make banking services accessible to the unbanked population as key factors driving the FDIC’s initiative to modernize the brokered deposit regulations.
CFPB, FHFA, HUD Launch Website Providing Housing Assistance Information
With many Americans struggling to make their monthly mortgage or rent payments, the Consumer Financial Protection Bureau has partnered with the Federal Housing Finance Agency and the Department of Housing and Urban Development to launch a new website to provide individuals with accurate, up-to-date information on forbearance and other assistance options.
The website consolidates the CARES Act mortgage relief, protections for renters, resources for additional help and information on how to avoid scams related to the coronavirus. It also enables homeowners to look up whether their mortgage is federally backed or if their rental unit is financed by the Federal Housing Administration, Fannie Mae or Freddie Mac.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.