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SBA addresses Loan Necessity Questionnaire review process
On December 9, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department updated the PPP FAQs to include a question covering the SBA’s Loan Necessity Questionnaire (for-profit here, non-profit here). Specifically, the SBA has sent a Loan Necessity Questionnaire to lenders to be provided to PPP borrowers that received loans of $2 million or more in order to perform a review for eligibility, fraud or abuse, and compliance with loan forgiveness requirements. The FAQs emphasize that being asked to complete a questionnaire “does not mean that SBA is challenging a borrower’s certification that is required by the CARES Act.” Moreover, after a borrower submits its completed questionnaire, the FAQs note that the SBA may request additional information, if necessary, to complete its review. At this point, the SBA states that borrowers will have an opportunity to provide a narrative response explaining the circumstances that provided the basis for their good-faith loan necessity certification. The SBA intends to “take into account the borrower’s circumstances and actions both before and after the borrower’s certification to the extent that doing so will assist SBA in determining whether the borrower made the statutorily required certification in good faith at the time of its loan application.”
Fannie and Freddie issue Covid-19 servicing updates
On December 9, Fannie Mae and Freddie Mac issued Covid-19 servicing updates (Lender Letter 2020-02 here, and Bulletin 2020-46 here), which, among other things, address the extension of the foreclosure moratorium and update the requirements of borrower-requested cancellation of mortgage insurance. Specifically, the servicing updates address the extension of the moratorium on single-family foreclosures and real estate owned (REO) evictions from December 31 until at least January 31, 2021 (previously covered by InfoBytes here). Additionally, the servicing updates include new payment-history requirements when a borrower requests the cancellation of mortgage insurance post-Covid-19-related hardship. In order to request cancellation, the borrower’s payment history must not have a payment 30 days or more past due in the preceding 12 months (and/or 60 or more days past due in the preceding 24 months) except when as a direct result of a Covid-19-related hardship and, following the hardship, a transition to a workout option to cure the delinquency. For mortgages restored to current status under the Covid-19 Payment Deferral, the borrower is required to have made three consecutive payments following the settlement of the deferral to meet the requirements.
Energy firm's U.S. affiliate agrees to pay $135 million to settle FCPA violations with CFTC and DOJ
On December 3, the DOJ announced it had entered into a deferred prosecution agreement with the U.S. affiliate of one of the largest energy trading firms in the world, in which the company agreed to pay a combined $135 million in criminal penalties related to two counts of conspiracy to violate the anti-bribery provisions of the FCPA. The agreement also resolves a parallel investigation in Brazil. According to the DOJ, between 2005 and 2014, the company paid millions of dollars in bribes to public officials in Brazil, Ecuador, and Mexico “‘to obtain improper competitive advantages that resulted in significant illicit profits for the company.’” Specifically, the company and its co-conspirators paid more than $8 million in bribes to at least four officials at Brazil’s state-owned and controlled oil company, Petróleo Brasileiro S.A. – Petrobras (Petrobras), “in exchange for receiving confidential Petrobras pricing and competitor information.” The company concealed the bribery scheme “through the use of intermediaries and a fictitious company that facilitated the payments to offshore accounts and, ultimately, to the Petrobras officials.” In another instance, the company bribed at least five additional Petrobras officials in order to receive confidential pricing information used to win fuel oil contracts, whereby “a consultant acting on behalf of [the company] engaged in back-channel negotiations with a Houston-based Petrobras official,” and “ultimately settl[ed] on the pre-arranged price that allowed for bribes to be paid from [the company] to the Petrobras officials.”
Between 2015 and July 2020, the company also engaged in a second bribery conspiracy by offering and paying government officials in Ecuador and Mexico more than $2 million in exchange for business opportunities connected to the purchase and sale of oil products. The company and its co-conspirators—who knew the funds, at least in part, were going towards the bribes—“entered into sham consulting agreements, set up shell companies, created fake invoices for purported consulting services and used alias email accounts to transfer funds to offshore companies involved in the conspiracy.”
DOJ is crediting $45 million of the total criminal penalty against the amount the company will pay to resolve the Brazilian Ministério Público Federal’s investigation into conduct related to the company’s bribery scheme in Brazil. The company and another entity within its group of energy trading firms have also agreed to continue to cooperate with the DOJ in ongoing criminal investigations and prosecutions, and will make enhancements to their compliance programs and report on their implementation for a three-year period.
In a related matter, the company also agreed to disgorge more than $12.7 million and pay an $83 million civil money penalty related to manipulative and deceptive trading activity not covered by the DOJ’s deferred prosecution agreement. Under the order, the civil money penalty will be recognized and offset up to $67 million by the amount paid to the DOJ as part of the deferred prosecution agreement. The CFTC noted that the company’s “fraudulent and manipulative conduct—including conduct relating to foreign corruption—defrauded its counterparties, harmed other market participants, and undermined the integrity of the U.S. and global physical and derivatives oil markets.” This case is the first foreign corruption action brought by the CFTC.
Georgia executive order requires telework, virtual conduct of business
On December 8, the governor of Georgia issued an executive order requiring businesses considered to be “Critical Infrastructure” to implement measures to mitigate the spread of Covid-19, including telework for all possible workers and delivering intangible services remotely. The order authorizes the Georgia Department of Economic Development to issue further guidance to persons considered to be Critical Infrastructure, which includes the financial services sector.
SBA issues tax guidance for Section 1112 of CARES Act
On December 8, the Small Business Administration (SBA) released a guidance document covering tax issues relating to payments made on behalf of borrowers under Section 1112 of the CARES Act. Specifically, Section 1112 of the CARES Act authorizes the SBA to cover, for a six-month period, the principal, interest, and any associated fees that small businesses owe on 7(a) loans, 504 loans, and microloans. The guidance states, among other things, that lenders are responsible for issuing Form 1099-MISC for 7(a) loans that have not been purchased by SBA, and for 7(a) loans that have been purchased by SBA and are serviced by the lender. Additionally, Microloan Intermediaries are responsible for issuing Form 1099-MISC for the microloans serviced by the intermediaries. However, the SBA is responsible for issuing Form 1099-MISC for (i) 7(a) loans that have been purchased, and are serviced, by SBA; (ii) microloans that are serviced by SBA; and (iii) all 504 loans.
Special Alert: Federal and state authorities take significant actions to address mortgage servicing concerns
On December 7, the Consumer Financial Protection Bureau, Multi-State Mortgage Committee of state mortgage banking regulators, and every state attorney general took actions against a large nonbank mortgage company for alleged violations pertaining to both mortgage origination and servicing practices that took place largely between January 2012 and December 31, 2015. The Special Inspector General for the Troubled Asset Relief Program also provided assistance as part of the government’s efforts. The settlement will result in approximately $85 million in remediation to consumers, the majority of which has been paid, and $6 million in fees and penalties. The Department of Justice, through its U.S. Trustee Program, also reached settlements with this mortgage company, as well as two national banks, pertaining to alleged violations of the bankruptcy code. Those three bankruptcy settlements will result in approximately $117 million of refunds and credits to impacted borrowers.
Ginnie Mae extends temporary relief from delinquency threshold requirement through July 2021
On December 7, Ginnie Mae issued APM 20-17 extending the temporary exclusions announced in APM 20-06 (previously covered here) for issues in calculating delinquency ratios. Specifically, Ginnie Mae will continue to exclude any delinquencies occurring on or after April 2020 when calculating the ratio. Ginnie Mae will provide this exclusion automatically through July 31, 2021 to issuers who were compliance with the delinquency rate thresholds as demonstrated by their April 2020 investor accounting report, reflecting March 2020 servicing data.
Oklahoma extends working from home guidance
On December 7, the Oklahoma Department of Consumer Credit extended, for the sixth time, its interim guidance to regulated entities on working from home (see here, here, here, here, here, and here for previous coverage). The guidance sets forth data security standards required for regulated entities with employees working from home and also provides that the department will expedite and waive fees for change of address applications in the event that a licensed location is compromised by Covid-19 or is undergoing decontamination. The guidance was extended through March 31, 2021.
DFPI: Certain Bitcoin ATMs not subject to MTA licensure
Recently, California’s Department of Financial Protection and Innovation (DFPI) released new opinion letters covering aspects of the Money Transmission Act (MTA) related to Bitcoin automated teller machines (ATMs). Each of the three letters (available here, here, and here), which contain slightly different fact patterns, explain that the Bitcoin ATMs described by the applicant companies are not subject to licensure under the MTA because they are not considered to be engaging in the business of money transmission. In each instance, the transaction would only be between the consumer using the kiosk and the company, the transaction would be completed instantly, and no third parties would be involved in the transmission of the Bitcoin to the customer’s virtual wallets. DFPI reminded each company that while it was not a subject of their inquiry, if they choose to offer virtual currency other than Bitcoin, they may have obligations under California’s broker-dealer laws to the extent that any of those virtual currencies are securities.
Nebraska Dept. of Banking and Finance updates guidance on temporary branch relocations
The Nebraska Department of Banking and Finance recently updated its March 12, 2020 guidance regarding temporary branch relocations (previously discussed here). The Department will continue to temporarily allow licensed and sponsored mortgage loan originators (MLOs), loan processors, underwriters, and other staff to work from an unlicensed branch upon notification by the sponsor, and approval by the department. Licensed mortgage bankers who have staff working from unlicensed locations must submit an updated list of those employees to the Department through the NMLS on, or before, March 1, June 1, September 1, and at renewal, in 2021. In addition, licensed MLOs must take certain data security measures and not allow customers to come to the unlicensed location. The guidance is effective January 1, 2021.