COVID-19 UPDATES / GOVERNMENT RELATIONS
SBA Updates PPP Guidance on Maturity Dates, Fishing Boats
The SBA updated its frequently asked questions on the Paycheck Protection Program with guidance on maturity dates.
The latest FAQ notes that PPP loans that received an SBA loan number on or after June 5, 2020, have a five-year maturity. Loans that received an SBA loan number before that have a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years.
The SBA separately released an interim final rule with updated guidance on calculating payroll costs of certain fishing boat owners.
FDIC Finalizes Rule Codifying ‘Valid When Made’ Principle
The FDIC finalized the rule codifying that permissible interest on loans made by state-chartered banks and insured branches of foreign banks remains valid when a loan is transferred or sold. The OCC finalized a similar rule earlier this year ensuring that the “valid when made” principle is codified for both national and state-chartered banks.
The so-called “Madden fix” addresses a Second Circuit Court of Appeals ruling in Madden v. Midland Funding, which held that a nonbank buyer of a loan issued by a national bank could not export the originated interest rate into another state. The Supreme Court declined to take up an appeal of Madden, resulting in conflicting precedent around the country and increasing the urgency of regulatory or legislative action.
Agencies Adopt Volcker Reforms on Covered Funds, Affiliate Transactions
The federal banking agencies yesterday approved an interagency final rule amending the Volcker Rule’s treatment of covered funds and transactions with affiliates. The final rule revises the “covered funds” regulatory provisions of the Volcker Rule, which places significant restrictions on financial institutions’ ability to have certain interests in, or relationships with, hedge funds and private equity funds, and the so-called “Super 23A” provision, which restricts certain transactions with affiliates that apply to those types of relationships.
Financial Regulators Modify Volcker Rule
Five federal regulatory agencies yesterday finalized a rule modifying the Volcker rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds – known as covered funds. The final rule is broadly similar to the proposed rule from January.
The Volcker rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring or having certain relationships with a hedge fund or private equity fund. Like the proposal, the final rule modifies three areas of the rule by:
• Streamlining the covered funds portion of rule;
• Addressing the extraterritorial treatment of certain foreign funds; and
• Permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.
The rule will be effective Oct. 1.
The agencies that issued the joint release are: the Board of Governors of the Federal Reserve System; Commodity Futures Trading Commission; Federal Deposit Insurance Corp.; Office of the Comptroller of the Currency; and the Securities and Exchange Commission.
Read the Federal Reserve notice
Agencies Release List of Distressed or Underserved Nonmetropolitan Middle-Income Geographies
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on Wednesday announced the availability of the 2020 list of distressed or underserved nonmetropolitan middle-income geographies. These are geographic areas where revitalization or stabilization activities are eligible to receive Community Reinvestment Act consideration under the community development definition.
Distressed nonmetropolitan middle-income geographies and underserved nonmetropolitan middle-income geographies are designated by the agencies in accordance with their CRA regulations. The criteria for designating these areas are available on the Federal Financial Institutions Examination Council website (http://www.ffiec.gov/cra). The designations continue to reflect local economic conditions, including unemployment, poverty, and population changes.
SBA Clarifies PPP Eligibility for Borrowers with Felony Convictions
The Small Business Administration issued an interim final rule making further changes to the eligibility requirements for Paycheck Protection Loan applicants with prior felony convictions. Under the IFR, which takes effect upon publication in the Federal Register, businesses would be considered ineligible if at least 20% of their equity was owned by someone who is presently facing felony charges, or whose probation or parole commenced within the last five years.
SBA: 4.7M PPP Loans Made as of June 20
Lenders nationwide had made approximately 4.7 million PPP loans totaling $515 billion as of Saturday, SBA reported over the weekend. 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.
The data also included an updated list of the top 15 PPP lenders. The top five PPP lenders were JPMorgan Chase, Bank of America, PNC, Truist and Wells Fargo. With the PPP program now in its final days before the program expires on June 30, approximately $128 billion was still available as of the report date.
Financial Regulators Issue Examiner Guidance for Assessing COVID-19 Effects
Recognizing the significant and long-lasting effects of the coronavirus pandemic on financial institutions, federal and state financial regulators issued joint guidance for how examiners should assess the effects of COVID-19 on the safety and soundness of banks and credit unions. The guidance directs examiners to assess institutions according to existing agency policies and procedures, and to consider the appropriateness of management actions to address COVID-19 challenges. It provides specific instructions for examiners when considering an institution’s risk assessment, capital adequacy, asset quality, management actions, earnings, liquidity and market risk sensitivity.
“Examiners should assess the reasonableness of management’s actions in response to the pandemic given the institution’s business strategy and operational capacity in the distressed economic and business environment in which the institution operates,” the agencies said. “When assigning the composite and component ratings, examiners will review management’s assessment of risks presented by the pandemic, considering the institution’s size, complexity, and risk profile.”
When determining whether a formal or informal enforcement is necessary, examiners should consider whether the institution appropriately planned for resiliency and operational continuity, has implemented prudent policies and is pursuing “realistic resolution of the issues confronting the institution,” they added.
With respect to credit risk, the agencies acknowledged that the pandemic could cause substantial, temporary changes to property values and noted that “examiners will not subject a renewed, extended, or modified loan to adverse classification” solely because of such a decline, provided management determines the borrower has an ability to repay according to “reasonable modified terms.”
Fed Updates Main Street Lending Program FAQs
The Federal Reserve late Sunday night 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.
CFPB Proposes Reforms to Address ‘QM Patch’
The Consumer Financial Protection Bureau issued two proposed rules to address the pending expiration of the “GSE Patch,” which exempts Fannie Mae and Freddie Mac mortgage loans from parts of the bureau’s Qualified Mortgage rule.
The patch provides QM status to loans purchased or guaranteed by the government-sponsored enterprises, even if they exceed the rule’s 43% debt-to-income limit. It is scheduled to expire in January 2021 or when the government-sponsored enterprises exit conservatorship.
The CFPB’s first proposal would replace the 43% DTI limit with an approach based on loan pricing. The second would extend the GSE Patch to expire upon the effective date of the final rule.
CFPB Updates ‘Underserved’ Methodology
The Consumer Financial Protection Bureau has issued an interpretive rule on how it determines which counties qualify as “underserved” for a given calendar year. With portions of the CFPB’s method now obsolete due to changes in Home Mortgage Disclosure Act regulations, the interpretive rule details the revised HMDA data that will instead be used in the new methodology.
CFPB Offers Leeway on Homeowner Loss Mitigation
The Consumer Financial Protection Bureau has issued an interim final rule clarifying that mortgage servicers may offer certain COVID-19-related loss-mitigation options based on limited borrower application information.
Regulation X normally would require servicers to collect a complete loss-mitigation application before making an offer. The rule specifies that loss-mitigation options must meet certain criteria to qualify for an exception.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.