Top Story Lending Related

The Federal Housing Finance Agency (FHFA) has released its latest report on the sale of non-performing loans (NPLs) by Fannie Mae and Freddie Mac (the Enterprises) ,which includes information about NPLs sold through December 31, 2019, and reflects borrower outcomes on sales of 126,757 NPLs sold with a total unpaid principal balance (UPB) of $23.8 billion.

• NPL sales highlights:
  • NPLs sold had an average delinquency of 2.9 years and an average loan-to-value ratio of 91 percent.
  • The average delinquency for pools sold ranged from 1.4 years to 6.2 years.
  • NPLs in New Jersey, New York, and Florida represented nearly half (44 percent) of the NPLs sold. These three states accounted for 47 percent of the Enterprises' loans that were one year or more delinquent as of December 31, 2014, prior to the start of NPL program sales in 2015.
  • Fannie Mae sold 86,216 loans with an aggregate UPB of $15.8 billion, an average delinquency of 3.0 years, and an average LTV of 89 percent.
  • Freddie Mac sold 40,541 loans with an aggregate UPB of $8.1 billion, an average delinquency of 2.9 years, and an average LTV of 98 percent.
• Borrower outcomes highlights:
  • The borrower outcomes in the report are based on 114,745 NPLs that were settled by June 30, 2019, and reported as of December 31, 2019.
  • Compared to a benchmark of similarly delinquent Enterprise NPLs that were not sold, foreclosures avoided for sold NPLs were higher than the benchmark.
  • NPLs on homes occupied by borrowers had the highest rate of foreclosure avoidance outcomes (38.3 percent foreclosure avoided versus 15.9 percent for vacant properties).
  • NPLs on vacant homes had a much higher rate of foreclosure, more than double the foreclosure rate of borrower-occupied properties (76.9 percent foreclosure versus 34.4 percent for borrower occupied properties). Foreclosures on vacant homes typically improve neighborhood stability and reduce blight as the homes are sold or rented to new occupants.

In letters to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors, the Acting Comptroller of the Currency Brian Brooks urged mayors and governors to consider the adverse impact of a long-term regional economic shutdown on the nation's banks when making their decisions. He stated, “Certain aspects of these local orders potentially threaten the stability and orderly functioning of the financial system the OCC is charged by law to protect."

The letter raises awareness among state and municipal officials of certain risks closely associated with "essentially indefinite" business closures in certain cities and states. Requiring businesses to remain closed decreases businesses' ability to service their debt, thus increasing default risk in the banking system. Lengthy business closures also reduce the value of collateral securing commercial real estate because of increases in burglaries and vandalism of vacant strip malls, storefronts, and the like; in those cities considering cutting off electric, water, and other utilities to businesses that choose to remain open notwithstanding lockdown orders, the degradation of the physical loan collateral exposes banks to more severe losses.

• OCC press release

The FDIC has issued its lists of institutions scheduled for a Community Reinvestment Act (CRA) examination during the third and fourth quarter 2020.

CRA examinations are scheduled based on an institution's asset size and CRA rating. Without reasonable cause, an institution with $250 million or less in assets and a CRA rating of Satisfactory can be subject to a CRA examination no more frequently than once every 48 months, and an institution with $250 million or less in assets and a CRA rating of Outstanding can be subject to a CRA examination no more frequently than once every 60 months.

• Exam schedule for third quarter of 2020
• Exam schedule for fourth quarter of 2020

The Federal Reserve Board has posted the results of its most recent survey of senior financial officers (SFOS) at banks about their strategies and practices for managing reserve balances, which was conducted between January 31 and February 14, 2020. The questions in the survey focused on gaining updated information on banks’ demand for reserves and additional information on banks’ engagement in money market activity under three different conditions. The survey:

1. Asked respondents to identify the lowest level of reserve balances that they would be comfortable holding before they began taking active steps to maintain or increase their position
2. Asked whether respondents preferred to hold a minimum end-of-day reserve level in January 2020 that was different from their lowest comfortable level of reserves
3. Asked respondents to indicate the level of reserves above which the risk-adjusted returns of other high-quality liquid assets (HQLA) relative to the interest on excess reserves (IOER) rate would be the primary factor in their willingness to convert additional reserves into other HQLA

The next part of the survey explored respondents’ ability and willingness to lend in overnight wholesale markets (both secured and unsecured). It also asked respondents to elaborate on the factors behind these decisions, the kinds of instruments they used, and the expected risk- adjusted returns relative to the IOER rate at which they were willing to engage in such activity.

Acting Comptroller of the Currency Brian P. Brooks issued a statement on Friday regarding the OCC's final rule, issued on Friday to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer. Approving the rule was one of Brooks's first official acts as Acting Comptroller.

The OCC's press release on the final rule explains that the rule was issued following recent developments, including a decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC), which had created legal uncertainty regarding the effect of a transfer on a loan’s permissible interest rate. The final rule addresses this legal uncertainty by clarifying and reaffirming the long-standing understanding that a bank may transfer a loan without affecting the permissible interest term.

The rule applies to loans made by national banks and federal savings associations and will become effective 60 days following publication in the Federal Register.

PUBLICATION UPDATE: Scheduled for Federal Register publication on June 2, 2020, with an effective date of August 3, 2020.

The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac have launched new websites that provide key resources for lenders and investors as the Enterprises transition away from the London Interbank Offered Rate (LIBOR). LIBOR is expected to stop being published at the end of 2021. The Enterprises’ LIBOR Transition websites contain information about resources and products, including the Enterprises’ jointly published LIBOR Transition Playbook and Frequently Asked Questions (FAQs).

• FAQs from Freddie Mac and Fannie Mae

The SBA, in consultation with Treasury, has announced that it is setting aside $10 billion of Round 2 funding for the Paycheck Protection Program (PPP) to be lent exclusively by Community Development Financial Institutions (CDFIs).

• Treasury press release

The Federal Reserve Board has announced two enforcement actions, each resulting in consent orders of prohibition.

• A former employee of Regions Bank, Birmingham, Alabama, was prohibited from employment or any other affiliation with any depository institution after he was found guilty of having fraudulently withdrawn over $100,000 from bank customer accounts and used them to pay off a private mortgage held by another bank customer.
• Two former employees of Evolve Bank & Trust, Memphis, Tennessee, were issued a prohibition order for engaging in unsafe and unsound practices while running a loan production office.

The Federal Reserve Bank of Boston has released information, forms and an FAQ on its Main Street Lending Program, designed to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic.

The Program, which the Boston Fed is administering on behalf of the Federal Reserve System, is expected to launch shortly. It will operate through three facilities: the Main Street New Loan Facility (MSNLF), the Main Street Priority Loan Facility (MSPLF), and the Main Street Expanded Loan Facility (MSELF). Links to instructions and all the forms lenders need to participate in the Program are included in the Boston Fed's press release.

The OCC has released its schedule of Community Reinvestment Act (CRA) evaluations to be conducted in the third and fourth quarters of 2020.