FEDERAL GOVERNMENT RELATIONS
SBA Issues Guidance on Direct PPP Loan Forgiveness
The Small Business Administration on Wednesday released guidance on how it will accept Paycheck Protection Program loan forgiveness applications directly from borrowers – bypassing the lending institutions – for loans of $150,000 or below. The direct borrower forgiveness process is an “optional technology solution that SBA is providing to PPP lenders that will leverage SBA’s existing and proven platform,” SBA reported.
PPP lenders that opt-in to the direct borrower forgiveness program will be provided with a single secure location for all of their borrowers with loans of $150,000 or less to apply for loan forgiveness through the platform using the electronic equivalent of SBA Form 3508S. Upon receipt of notice that a borrower has applied for forgiveness through the platform, lenders will review the loan forgiveness application in the platform and issue a forgiveness decision to SBA. The forgiveness platform will begin accepting applications from borrowers on Aug. 4, 2021.
SBA said it will release in the coming days additional guidance on the opt-in process, how borrowers can access the platform, and how lenders can access the forgiveness applications in the platform.
The guidance also allows borrowers who received second-draw PPP loans of $150,000 or less to be exempt from supplying required documentation proving a 25% revenue reduction in 2020 when compared to a comparable time in 2019. Instead, SBA will issue an alternative COVID reduction score based on a variety of inputs, including industry, geography and business size for each second-draw loan of $150,000 or below. The guidance takes effect immediately.
Opt in to the direct forgiveness program
ARRC Completes Key Milestone in Libor Transition, Recommends SOFR Term Rates
In a highly anticipated move on Thursday, the Alternative Reference Rates Committee formally recommended CME Group as the administrator for a Secured Overnight Financing Rate term rate – a major milestone in the transition away from Libor. CME group was selected after a robust RFP process, through which firms were evaluated on technical criteria, firm criteria, public policy criteria and calculation methodology criteria.
With this action, market participants now have access to a forward-looking term rate. The ARRC’s formal recommendation of SOFR term rates comes five months before the Dec. 31 deadline for use of Libor in new contracts, and just after the completion of a key change in intradealer trading conventions that took place earlier this week, as part of the “SOFR First” initiative. The ARRC has previously released conventions and recommended best practices for the use of SOFR term rates.
“With this step, market participants now have every tool they need to transition from Libor,” said Federal Reserve Vice Chairman for Supervision Randal Quarles. “All firms should be moving quickly to meet our supervisory guidance advising them to end new use of Libor this year.”
View the ARRC’s conventions and best practices for term SOFR
Agencies Issue FAQs on Effect of Libor Transition on Regulatory Capital Instruments
The Federal Reserve, FDIC and OCC on Thursday issued answers to frequently asked questions about the effects that the Libor transition will have on regulatory capital instruments. The FAQs address, among other provisions, the issue of changing a reference rate from Libor to an alternative rate and clarify that such a transition would not change the capital treatment of the instrument, provided the alternative rate is economically equivalent with the Libor-based rate.
Financial Groups: 36% Fee and Rate Cap Could Constrain Credit
A coalition of financial trade groups last Friday urged Senate Banking Committee members to reject any legislative proposal that would impose a national fee and interest rate cap of 36%, noting that such a cap would create barriers to credit access for consumers.
“A 36% rate cap, however calculated, will mean depository institutions will be unable to profitably offer affordable small-dollar loans,” the groups said, cautioning that a reduction in small-dollar credit products from depository institutions would drive many consumers to turn elsewhere for short-term financing needs, such as pawn shops, online lenders or other non-supervised financial services providers. Capping total fees and interest rates at 36% would also affect credit card customers, they added, as it would likely result in the elimination or reduction of popular and valued credit card features, like cash back or other rewards.
“History has shown that fee and interest rate caps reduce access to credit, especially for those with no or marred credit histories. They also limit consumer choice and shrink competition,” the groups wrote. “We urge you to oppose pending fee and interest rate cap legislation because it will reduce access to credit for millions of consumers, particularly subprime borrowers who rely on affordable small-dollar loans, credit cards, and other depository institution products for short-term financing needs. Fee and interest rate caps will also discourage development of innovative products, especially those designed for the underserved market.” Read the letter.
White House Announces New COVID-19 Relief Measures for Homeowners
As more borrowers exit COVID-19 forbearance programs, the Biden administration last Friday announced several new relief measures designed to help mortgage borrowers with loans through the Department of Housing and Urban Development, Department of Veterans Affairs and the Department of Agriculture avoid foreclosure. These actions are intended to “bring federal agency options closer in alignment with payment reduction and loan modification options for borrowers with Fannie Mae and Freddie Mac mortgages.”
Among other provisions, HUD will begin offering in the coming months a standalone partial claim option for borrowers who are able to resume their current mortgage payments, as well as a loan modification option that would extend the term of the mortgage to 360 months at market rate and targets reducing the borrowers’ monthly principal and interest portion of their monthly mortgage payment by 25%.
Meanwhile, USDA and the VA will begin offering new alternatives for borrowers to help them achieve up to a 20% reduction in their monthly P&I payments.
‘SOFR First’ Initiative Kicks Off
Monday marked the start of the first phase of the Commodity Futures Trading Commission’s “SOFR First” initiative, which it recommended for switching trading conventions from Libor to the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred Libor alternative. By some measures, SOFR swaps accounted for 50% of total activity.
“Most importantly, we saw sustained SOFR activity throughout the trading day,” noted a blog post from Clarus Financial Technology that tracked SOFR and Libor trading activity throughout the day. “There was trading across the whole curve in a number of different products. Spread-overs versus SOFR can be considered particularly successful with 28 different trades. There were ‘only’ 22 spread-overs versus Libor.”
ARRC Chairman Tom Wipf, who is also vice chairman at Morgan Stanley, noted that “in our initial outreach to inter-dealer brokers today, the ARRC is hearing that the forward-looking projection for SOFR activity appears to be positive. This should provide strong momentum for the ARRC to recommend the CME SOFR Term Rates.” He added that “If signs continue to trend as they currently are progressing,” the ARRC will likely make its formal recommendation of those rates “very soon.”
Congress Turns Attention to Cryptocurrency, CBDC
While infrastructure negotiations continue, many members of Congress on Tuesday turned their attention to digital currencies and their impact on the financial system.
Senate Banking: During a Senate Banking Committee hearing on cryptocurrency, Chairman Sherrod Brown (D-Ohio) said crypto is an unregulated operation that lacks transparency and investor protections. During the hearing, Brown said community banks are a better alternative to Wall Street institutions than crypto.
Agency Push: Meanwhile, Sen. Elizabeth Warren (D-Mass.) on Tuesday urged Treasury Secretary Janet Yellen to lead federal agencies in coordinating a “cohesive regulatory strategy” on cryptocurrencies, specifically citing concerns with stablecoins, decentralized finance, hedge funds and bank risks.
Ransomware: At a Senate Judiciary Committee hearing, Justice Department representatives cited the impact of cryptocurrency on cyberattacks, arguing that digital currency has fueled the rise in ransomware incidents.
CBDC: Finally, a House Financial Services subcommittee hearing explored the “promises and perils” of central bank digital currencies as the Federal Reserve works on a discussion paper for release this summer on possibly issuing a U.S. CBDC.