COVID-19 UPDATES / GOVERNMENT RELATIONS
SBA, Treasury Issue Guidance on PPP Flexibility, New Application Form for Borrowers
As expected, the Small Business Administration and Treasury Department released an interim final rule to reflect changes made by H.R. 7010, the Paycheck Protection Program Flexibility Act. SBA also published updated, streamlined application forms for borrowers and lenders to use for loans made on or after June 5, 2020.
The interim final rule codifies several changes to the program. Specifically, it:
• Confirms that borrowers that use less than 60% of their PPP loan amount for payroll costs during the forgiveness covered period will still be eligible for partial loan forgiveness.
• Extends the end date of the “covered period” for a PPP loan from June 30, 2020, to Dec. 31, 2020.
• Provides a five-year maturity for loans made on or after June 5, 2020, and provides an option for loans made prior to that date to extend maturity from two years to five years at the mutual agreement of the borrower and lender.
• Extends the loan forgiveness period from eight weeks to 24 weeks. (For loans made prior to June 5, 2020, borrowers may opt to keep the forgiveness period at eight weeks.)
• Clarifies that if a borrower submits its forgiveness application within 10 months of the end of the loan forgiveness period, the borrower will not have to make any payments on the loan before the date SBA remits the forgiven amount to the lender.
• Reiterates that the last day a lender can obtain an SBA loan number for a PPP loan is June 30, 2020.
SBA signaled that it will issue additional revisions to its interim final rules on loan forgiveness and loan review procedures to address changes H.R. 7010 made to the PPP loan forgiveness requirements, as well as guidance on advance purchases of PPP loans.
View the lender application form
Mnuchin, Carranza Offer Clarifications on PPP Forgiveness Process
During a Senate Small Business Committee hearing, Treasury Secretary Steven Mnuchin confirmed that, pursuant to the Paycheck Protection Program flexibility law passed last week, borrowers that use less than 60% of their PPP loan amount for payroll costs during the forgiveness covered period will still be eligible for partial loan forgiveness. Treasury and the Small Business Administration are expected to issue additional guidance related to the flexibility law in the coming days.
Meanwhile, Mnuchin and SBA Administrator Jovita Carranza signaled that they are working on updating the loan forgiveness form to incorporate the “safe harbor” changes found in H.R. 7010, the Paycheck Protection Program Flexibility Act. Mnuchin noted that these changes would make it “significantly easier” for borrowers to apply for forgiveness and reduce the overall size of the application.
Mnuchin also directed borrowers to third-party calculators that can help them complete their applications “in 15 minutes, so you don’t need to go hire lawyers and accountants.” He emphasized that “we want to make this easy for people to do, and now with this safe harbor, most people will have the benefit of that.”
SBA Clarifies PPP Loan Maturity Dates, Provides Tips on Lender Processing Fees
The Small Business Administration has issued an update to lenders clarifying that the maturity of all Paycheck Protection Program loans approved on or after June 5, 2020, will be for five years in accordance with the recently enacted PPP flexibility law. Any loans that were approved or funded prior to that date may be extended if the lender and borrower mutually agree to a five-year maturity. SBA said it would formally codify these changes in forthcoming guidance.
In addition, SBA provided tips for financial institutions to ensure they receive their lender processing fees. To receive the fee, lenders should submit Form 1502 in accordance with a previously issued procedural notice, ensure their ACH information is correctly reflected in the Fiscal Transfer Agent Lender Portal and check the 1502 dashboard frequently for any errors.
Read the Form 1502 procedural notice
SBA Releases New PPP Data, Includes List of Top PPP Lenders
As of June 6, more than 4.5 million PPP loans had been made, totaling $511 billion over two rounds of funding, according to new data released by the Small Business Administration. For the first time, the data included a list of the top 15 PPP lenders.
The top five PPP lenders by net dollar amount were: JPMorgan Chase, Bank of America, PNC Bank, Truist and Wells Fargo. By number of loans made, top lenders were Bank of America, JPMorgan Chase, Wells Fargo, Cross River Bank and U.S. Bank.
Lenders with less than $10 billion in assets accounted for 44% of all PPP loans, while lenders between $10 billion and $50 billion accounted for 20%, and lenders with more than $50 billion accounted for 37%. The overall average loan size was $113,000. As of the report date, approximately $130.7 billion in PPP funding was still available.
Fed Expands Main Street Lending Program
The Federal Reserve announced several adjustments to the Main Street Lending Program intended to facilitate participation by more small and midsize businesses. Responding to calls by the industry to increase small business access to the program, 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.
Read more and view the updated term sheets
Calabria ‘Encouraged’ by Incoming Housing Market Data
Testifying before the Senate Banking Committee, Federal Housing Finance Agency Director Mark Calabria said that he has been “encouraged” by incoming data on the state of the mortgage markets, including forbearance rates, as the coronavirus pandemic persists in the U.S. “Following some contraction in mortgage market activity in March and April, the purchase market appears to be rebounding, and combined purchase and refinance mortgage application activity has increased to levels last seen in 2013,” Calabria noted.
With respect to loans in forbearance, Calabria indicated that initial estimates in the early days of the pandemic suggested that forbearance rates could reach as high as 25% to 50%. However, “data developed internally at the enterprises and by industry groups indicate that enterprise forbearance rates remain manageable,” he said. “The 30- and 60-day combined delinquency rate remains below the estimated rate of forbearance as some borrowers who have requested forbearance are nonetheless continuing to make payments on their loan.”
Calabria added that he is considering an extension of the current moratorium on foreclosures of GSE-backed loans that is set to expire on June 30. “At a minimum, we’d want to extend it a month, at a maximum I don’t think we’d want it to be any more than two months, just because we can always extend it again as we start to see how the economy evolves,” he told lawmakers.
Calabria: Pandemic Highlights Need for GSE Reform
Calabria also emphasized that the pandemic has underscored the need for housing finance reform and to build capital at the GSEs. “Fannie Mae and Freddie Mac lack the capital to withstand a serious housing downturn. This undermines their countercyclical role and jeopardizes their important mission,” he said.
FHFA last month re-proposed changes to the existing capital framework for Fannie and Freddie, and Calabria noted that additional legislative changes will likely be needed to end the conservatorships and to ensure that FHFA has adequate tools and authorities to regulate the enterprises going forward.
Bipartisan Group of Senators Call for FSOC Study on CECL
A bipartisan group of senators urged Treasury Secretary Steven Mnuchin to direct the Financial Stability Oversight Council to conduct a study on the current expected credit loss accounting standard’s effect on lending and the economy. The senators raised concerns about the procyclical nature of CECL and the way in which it constrains credit availability, particularly during the current economic downturn due to COVID-19.
“The reserves for the 200 largest banks, which have community, state, regional, and national footprints, increased by nearly 60% at the end of the first quarter compared to the quarter ending 2019, representing billions of dollars of capital that has been taken out of the system during a moment when it is most needed,” they noted. “Now is the optimal time to assess CECL’s economic impact, including how the policy affects products and lending decisions of financial institutions, and especially the consequences on customers in low-to-moderate income communities.”
The senators recommend that FSOC study current macroeconomic data, rather than relying on “speculation and models,” and complete a report by 2021.
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.
Governor Holcomb Moves 'Stage 4' of Indiana Back On Track Plan to Friday
During Wednesday’s press conference, Governor Holcomb announced Indiana will proceed with Stage 4 of the reopening plans two days earlier than initially scheduled. Stage 4 will allow for social gatherings of up to 250 people and restaurant dining rooms may open at 75% capacity while maintaining social distancing.
Read more and view the Back on Track plan
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.