STATE GOVERNMENT RELATIONS
Holcomb Moves Indiana to Stage 5 of Reopening
At a press conference on Wednesday, Gov. Eric Holcomb announced that Indiana will move to Stage 5 of reopening procedures beginning tomorrow, Sept. 26. Face coverings and social distancing will still be required.
Stage 5 plans, originally scheduled to roll out on July 4, were released earlier this year on the state’s Back On Track website. The guidelines have since been updated.
Visit Indiana's Back on Track website
Changes Announced to State’s Small Business Restart Grant
Gov. Eric Holcomb and the Indiana Economic Development Corp. have announced changes to a program designed to help Hoosier small businesses impacted by the COVID-19 pandemic. Previously, businesses that received federal relief funds were not able to participate in the Small Business Restart Fund. Gov. Holcomb announced Wednesday that businesses that have accepted federal relief funds would now be eligible to participate in the state program.
Read about the Small Business Restart Fund
FEDERAL GOVERNMENT RELATIONS
Mnuchin: Additional Legislation Needed to Streamline PPP Forgiveness Process
Testifying before the Senate Banking Committee yesterday, Treasury Secretary Steven Mnuchin said he would reach out to the Small Business Administration “this afternoon” about how they could further streamline the forgiveness process for Paycheck Protection program loans, though he signaled that additional legislation may be needed.
“We would support if there is legislation to have loans under $150,00 have a presumption but allow for us to audit them as needed,” Mnuchin said. He added that borrowers with loans under $150,000 shouldn’t delay in filling out the existing EZ application, “but if we could get legislation that would help them, that would be great.”
Mnuchin and Federal Reserve Chairman Jerome Powell also urged Congress to reauthorize the PPP so that the remaining $130 billion could be used to make additional loans to struggling small businesses. Both also agreed that additional, targeted fiscal support would likely be needed to mitigate the effects of the coronavirus pandemic on individuals and businesses. Powell added that “our banks so far have really been a source of strength” through the crisis thus far.
FHFA Announces Additional Extension of COVID-19 Flexibilities
To continue providing support to mortgage borrowers during the coronavirus pandemic, the Federal Housing Finance Agency announced that it would again extend certain previously announced loan processing flexibilities and the purchasing of qualified loans in forbearance until Oct. 31. These flexibilities were put in place as part of the FHFA’s COVID-19 response and were set to expire on Sept. 30.
The extended loan processing flexibilities include allowing alternative appraisals on purchase and rate term refinance loans, allowing alternative methods for documenting income and verifying employment, and expanding the use of power of attorney to assist with loan closings.
Delinquent GSE Mortgages Rise Due to COVID-19
The number of mortgages backed by Fannie Mae and Freddie Mac that are 60 or more days past due jumped from 0.92% to 4.08% at the end of the second quarter, due to the COVID-19 pandemic and the forbearance programs being offered to the affected borrowers, according to the Federal Housing Finance Agency’s foreclosure prevention report released yesterday.
Seriously delinquent loans—those that are 90 days or more past due—rise to 2.58% in the second quarter. That figure was less than the seriously delinquent rate for Federal Housing Administration loans (7.96%), Veterans Affairs loans (3.98%) and the overall industry average (4.26%).
Fed Issues CRA Modernization Proposal
The Federal Reserve has issued an advance notice of proposed rulemaking (ANPR) on updating the agency’s three-decade-old Community Reinvestment Act regulations. The ANPR follows a separate rulemaking on CRA reform by the Office of the Comptroller of the Currency, which was finalized earlier this year without the support of the Fed or the Federal Deposit Insurance Corp. The Fed outlined several objectives for its own reform approach, which include:
- More effectively meeting the needs of low- to moderate-income communities and address disparities in credit access
- Increasing the clarity, consistency and transparency of supervisory expectations and standards regarding where activities are assessed, which activities count and how eligible activities are assessed, while minimizing data collection burden
- Tailoring CRA supervision based on size, business model, local market conditions, etc.
- Updating standards to reflect changes in banking over time, including the increased use of mobile and internet delivery channels
- Promoting community engagement
- Strengthening the special treatment of minority depository institutions
- Recognizing that CRA and fair lending responsibilities are mutually reinforcing
The proposal involves a retail test, which would consist of a retail lending subtest and a retail services subtest, as well as a community development test, which would consist of a community development financing subtest and a community development services subtest. Small retail banks could elect to be evaluated under the current CRA framework or choose to be evaluated under the retail lending subtest alone. Small banks could also elect to have their retail services and community development activities evaluated. The Fed is proposing an asset threshold of $750 million or $1 billion to distinguish between small and large retail banks.
“Separating the retail test and the community development test provides greater scope to tailor the metrics to local market conditions, which often differ for retail lending and community development financing,” said Fed Governor Lael Brainard in a speech on Monday. “This approach would create clear quantitative thresholds for the level of retail lending and community development financing that is needed to achieve a ‘satisfactory’ CRA rating.”
OCC Gives Banks Green Light to Hold Deposits Backing Stablecoins
The Office of the Comptroller of the Currency has provided additional clarity to national banks and federal savings associations regarding the types of activities they may engage in related to cryptocurrencies. In an interpretive letter, the OCC gave institutions under its supervision the green light to hold deposits that serve as reserves for “stablecoins” – a type of cryptocurrency that have a stable value, including those backed by fiat currency.
“National banks may receive deposits from stablecoin issuers, including deposits that constitute reserves for a stablecoin associated with hosted wallets,” the OCC wrote in the letter. “In connection with these activities, a national bank may also engage in any activity incidental to receiving deposits from stablecoin issuers. Likewise, [a federal savings association] is authorized to take deposits, including from an issuer of stablecoin associated with hosted wallets.”
The OCC noted that new activities should be implemented with sound risk management controls and comply with applicable anti-money laundering requirements. The agency noted that stablecoins in particular could expose banks to liquidity risk, and that it “expects all banks to manage liquidity risk with sophistication equal to the risks undertaken and complexity of exposures.”
GAO Estimates Bank Costs for AML/BSA Compliance
Banks in a Government Accountability Office study spent between 0.4% and 2.4% of total 2018 operating expenses on anti-money laundering activity and Bank Secrecy Act compliance, according to the GAO. While the largest banks in the study spent far larger absolute sums, they spent relatively less (0.5% and 0.7%) on AML/BSA compliance as a share of expenses. The five community banks in the study spent 0.4%, 1.1%, 1.3% or 2.4% of operating expenses on these activities.
Within the AML/BSA function, financial institutions on average allocated 29% on customer due diligence; 28% on reporting requirements; 18% to compliance program requirements, such as training, testing and internal controls; and 17% to software and third parties. Banks studied spent an average of $15 per new account on customer due diligence requirements, although this sum ranged from $5 to $44, based on banks’ geographies and customer bases.
While none of the banks studied (and just one large credit union) imposed direct fees to recoup AML/BSA compliance costs, banks reported restricting access to higher-risk products and services as a way of managing risks and costs. The report also suggested that AML/BSA requirements can increase the cost of offering online account opening solutions.
FHFA Establishes GSE Strategic Goals
The Federal Housing Finance Agency issued its strategic plan for 2021-24. Building on its plan for Fannie Mae and Freddie Mac to exit conservatorship, the plan emphasizes improving FHFA supervision to provide oversight for post-conservatorship government-sponsored enterprises; instituting reforms to foster competitive, liquid, efficient and resilient (“CLEAR”) national housing finance markets; and ensuring the safety and soundness of the Federal Home Loan Banks.
To ensuring the GSEs foster CLEAR housing markets, FHFA indicated it will “ensure a fair playing field for large and small lenders” when dealing with Fannie and Freddie and establish standards for institutions that sell to or service on behalf of the GSEs. As with last year’s strategic plan, the goals are designed to align with 2019 reform plans released last year by the departments of the Treasury and Housing and Urban Development to ensure a resilient housing finance system.
The plan also identified COVID-19 as a major challenge to achieving FHFA’s goals. Noting that the GSEs helped support the housing market and that mortgage activity has recovered after the early months of the coronavirus pandemic, FHFA warned that the GSEs “currently lack the capital to withstand a serious housing downturn,” underscoring the importance of helping them build loss-absorbing capital and moving them out of conservatorship.
New Agent Fees Court Decision Announced
This week a judge in the U.S. District Court’s Southern District of New York ruled in the case of Quinn v. JPMorgan Chase Bank N.A. that "the Court holds that, absent an agreement between agent and lender, defendant banks are not required to pay agent fees under the text of the CARES Act or its implementing regulations."
This decision was delivered after a previous U.S. District Court for the Northern District of Florida in August, in which the court dismissed a case seeking to establish whether or not “agents” are entitled to agent fees for Paycheck Protection Program loans. The court determined that agents were not entitled to fees and dismissed the case.
View Quinn v. JP Morgan Chase Decision
IRS Exempts Lenders From Reporting PPP Loan Forgiveness
The IRS has issued new guidance directing lenders not to file information returns or furnish statements to borrowers to report the amount of qualifying loan forgiveness for covered loans made under the Paycheck Protection Program.
Generally, forgiveness of debt is considered taxable income for a borrower. However, under provisions in the CARES Act, PPP forgiveness income is not includible in the gross income of the eligible recipient. The Internal Revenue Code generally requires a lender to file form 1099-C when debt is forgiven, regardless of the potential taxability of the income.
Friends of Traditional Banking Announces Endorsements
The inverse of a political action committee, Friends of Traditional Banking (FOTB) chooses two or three key races each cycle and encourages all bankers around the country to donate what they can in an effort to focus resources. This month, Friends of Traditional Banking announced their support of Senators Cory Gardner (CO), Thom Tillis (NC) and Joni Ernst (IA). Each of the banking allies are in very tight races, and FOTB is encouraging bankers to get involved. "These are amazing candidates, who really could use our help," said FOTB Chairwoman Joye Hunt, who is also CFO of PBK Bank in Kentucky. "We have been able to steer hundreds of thousands of dollars to key candidates in years past, by tellers kicking in $5, bank execs kicking in a few hundred, and anything in between."
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.