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04/08/2020

Revised interagency statement on COVID-19-related loan modifications

The federal financial institution regulatory agencies (the agencies), in consultation with state financial regulators, have issued a revised interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The revised statement also provides the agencies' views on consumer protection considerations.

The revised statement—

  • Clarifies the interaction between the interagency statement issued on March 22, 2020, and the temporary relief provided by Section 4013 of the CARES Act signed into law on March 27, 2020. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs).
  • Provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital.

The agencies encourage financial institutions to work with borrowers and will not criticize institutions for doing so in a safe-and-sound manner. The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.

The agencies' examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.

The FDIC issued FIL-36-2020 repeating the information in the joint press release, and noting that it has moved its FIL-22-2020, dated March 22, 2020, to inactive status.

04/08/2020

Treasury has updated its PPP FAQs

The Treasury Department has updated its FAQ document on Paycheck Protection Program Loans. Participating banks should "bookmark" that page and check it regularly for updates.

The changes to the FAQs as of April 6 provide these clarifications:

  1. That lenders may rely on borrower certifications as to the applicability of affiliation rules (question 4).
  2. That lenders do not need to re-verify beneficial ownership information for existing customers. (If participating depository institutions have not yet collected beneficial ownership information on an existing customer, they are not required to do so when that customer applies for PPP loans, unless the lender's risk-based BSA compliance program indicates otherwise.) (question 18)
  3. How payroll is defined under the CARES Act, including the calculation of non-cash benefits and coverage of paid leave. (Various questions)
  4. Methods for determining payroll to calculate maximum loan amounts. (various questions)
  5. That lenders who processed applications based on the April 2 interim final rule may rely on the laws, rules and guidance available at the time. (question 17)

Also, the SBA has approved and made available a promissory note that can be used for PPP loans. The agency has also established a new lender gateway at connect.sba.gov to be used for submitting loan authorization requests. For updated lender information on the SBA's Paycheck Protection Program, access the Lender Forms and Guidance section of its Paycheck Protection Program webpage.

04/08/2020

Fed CRA evaluations released in March

Our monthly review of the Federal Reserve's Community Reinvestment Act performance evaluation releases reveals that 16 evaluations were made public in March, all with ratings of Satisfactory or better. We congratulate two Missouri banks that received ratings of Outstanding (links are to their evaluation reports):

04/07/2020

Fed encourages participation in SBA and Treasury relief programs

The Federal Reserve Board has issued SR 20-10 to inform supervised financial institutions about several forms of relief available to small businesses affected by COVID-19 as a result of the CARES Act. The Federal Reserve encouraged financial institutions to consider participating in programs administered by the SBA and Treasury. The programs include:

  • The Economic Injury Disaster Loan program under Section 7(b) of the Small Business Act, which provides funds to small businesses to cover economic injury resulting from the disaster, such as a loss of revenue; and
  • The Paycheck Protection Program, which provides loans to encourage certain qualified small businesses to retain employees through the COVID-19 pandemic and includes loan forgiveness subject to certain conditions

The letter includes links to the SBA and Treasury websites on their COVID-19-related programs. Consistent with Federal Reserve statements on institutions working with borrowers affected by COVID-19, Federal Reserve examiners will not criticize supervised institutions that prudently use these programs. Information on the Federal Reserve’s COVID-19 supervisory and regulatory actions, as well as responses to questions from financial institutions, is available on the Board’s public website, which is updated on a regular basis.

04/07/2020

Fed to establish facility for lending to small businesses

The Federal Reserve Board has announced that, to facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP), the Federal Reserve will establish a facility to provide term financing backed by PPP loans. Additional details will be announced this week.

04/07/2020

Temporary reduction of Community Bank Leverage Ratio

The Federal Reserve Board, FDIC and OCC announced yesterday they have issued two interim final rules to provide temporary relief to community banking organizations. The changes implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank leverage ratio to 8 percent. The two rules will modify the community bank leverage ratio framework so that:

  • Beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and
  • Community banking organizations will have until January 1, 2022, before the community bank leverage ratio requirement is re-established at greater than 9 percent.

Under the interim final rules, the community bank leverage ratio will be 8 percent beginning in the second quarter and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim final rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percent below the applicable community bank leverage ratio.

The agencies are providing community banking organizations with a clear and gradual transition back to the 9 percent leverage ratio requirement previously established by the agencies. This transition will allow community banking organizations to focus on supporting lending to creditworthy households and businesses given the recent strains on the U.S. economy caused by the coronavirus.

The changes will be effective as of the publication of the rules in the Federal Register and the agencies will accept comments on the interim final rules for 45 days after publication.

04/07/2020

PPP information for lenders

The SBA has published Form 3506, which non-SBA lenders must submit to receive delegated authority to issue 7(a) loans under the Paycheck Protection Program. Completed forms should be submitted via email to delegatedauthority@sba.gov.

During the weekend, the SBA issued an FAQ confirming that faith-based organizations (including churches, mosques, synagogues and other houses of worship) may apply for PPP loans. Treasury also issued an FAQ document on the PPP, which will be updated from time to time, and guidance on applicable PPP affiliation rules.

04/06/2020

COVID-19 info for small business lenders

The FDIC has created a page on its website with Coronavirus (COVID-19) Information for Small Business Lenders.

The FDIC is working with the SBA to help ensure that FDIC-supervised banks have the information they need to become SBA-certified lenders and start making loans to small businesses through the SBA’s recently launched Paycheck Protection Program (PPP).

One of the resources listing on the page is an FAQ on the SBA's Paycheck Protection Program, which was most recently updated on April 5, 2020. Lenders should return to the FAQ for updates, because Treasury and the SBA continue to fine-tune aspects of the program.

04/06/2020

Agencies encourage mortgage services to work with homeowners

The Federal Reserve Board, Conference of State Bank Supervisors, CFPB, FDIC, NCUA and OCC have issued a joint policy statement providing needed regulatory flexibility to enable mortgage servicers to work with struggling consumers affected by the Coronavirus Disease (COVID-19) emergency. The actions announced Friday by the agencies inform servicers of the agencies' flexible supervisory and enforcement approach during the COVID-19 pandemic regarding certain communications to consumers required by the mortgage servicing rules. The policy statement and guidance issued Friday will facilitate mortgage servicers' ability to place consumers in short-term payment forbearance programs such as the one established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

  • Under the CARES Act, borrowers in a federally backed mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID-19 pandemic, may request forbearance by making a request to their mortgage servicer and affirming that they are experiencing a financial hardship during the COVID–19 pandemic. In response, servicers must provide a CARES Act forbearance, that allows borrowers to defer their mortgage payments for up to 180-days and possibly longer.
  • The policy statement clarifies that the agencies do not intend to take supervisory or enforcement action against mortgage servicers for delays in sending certain early intervention and loss mitigation notices and taking certain actions relating to loss mitigation set out in the mortgage servicing rules, provided that servicers are making good faith efforts to provide these notices and take these actions within a reasonable time.
  • To further enable short-term payment forbearance programs or short-term repayment plans, mortgage servicers offering these programs or plans will not have to provide an acknowledgement notice within 5 days of receipt of an incomplete application, provided the servicer sends the acknowledgment notice before the end of the forbearance or repayment period.
  • The guidance also reminds servicers that there is existing flexibility in the rules with respect to the content of certain notices.
  • Finally, to assist servicers experiencing high call volumes from consumers seeking help, the policy statement also confirms that the agencies do not intend to take supervisory or enforcement action against mortgage servicers for delays in sending annual escrow statements, provided that servicers are making good faith efforts to provide these statements within a reasonable time.

04/03/2020

SBA releases interim final rule on Paycheck Protection Program

The U.S. Small Business Administration has released an interim final rule to implement sections 1102 and 1106 of the CARES Act, which temporarily adds a new product, the "Paycheck Protection Program," to the SBA's 7(a) Loan Program. It will be effective on publication, and SBA-approved lenders can start accepting applications under the program April 3, 2020.

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