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VA issues lender guidance on Covid-19
On June 30, the Department of Veterans Affairs issued Circular 26-20-25 (and subsequently issued Circular 26-20-25, Change 1), which provides guidance on the impact of the CARES Act foreclosure protections on VA-guaranteed purchase and refinance transactions. The circular states that for purchase and cash-out refinance loans, the “VA will not consider a Veteran as an unsatisfactory credit risk, based solely upon the fact that the Veteran received some type of credit forbearance or experienced some type of deferred payment during the COVID-19 national emergency.” With regard to Interest Rate Reduction Refinance Loans (IRRRL), the Circular notes that the VA is waiving certain prior approval requirements for delinquent loans if (i) the lender is approved to close loans on an automatic basis; (ii) the loan being refinanced is under CARES Act forbearance protections; (iii) the borrower is no longer experiencing the financial hardship caused by the Covid-19 pandemic; and (iv) the borrower qualifies for other IRRRL credit standards. Moreover, the Circular details additional IRRRL considerations for lenders, including maximum loan amounts, loan seasoning, and valuation requirements. Lastly, the Circular encourages lenders to waive origination fees and consider discount points and premium pricing offsets for veterans impacted by the Covid-19 pandemic.
NYDFS discusses state CRA exams and Covid-19 considerations
On June 30, NYDFS issued two industry letters aimed at reminding New York regulated banking institutions of their responsibilities under New York State’s Community Reinvestment Act (New York CRA) with respect to minority-and women-owned businesses, as well as opportunities to receive NYCRA credit for Covid-19 pandemic activities.
The first industry letter discusses the state’s recent amendments to the New York CRA, which were effective January 11, 2020, and require NYDFS to consider “several aspects of banking institutions’ activities with respect to minority- and women-owned businesses.” These include, among other things, (i) “‘the banking institution’s participation, including investments, … in technical assistance programs for small businesses and minority- and women-owned businesses’”; and (ii) “‘banking institution’s origination of … minority-_and women-owned business loans within its community or the purchase of such loans originated in its community.’” NYDFS notes that later this year, it will begin to request information regarding programs related to minority- and women-owned businesses in order to begin evaluating banks under the new amendments. NYDFS also provided a spreadsheet with sample requests for guidance.
The second industry letter describes the circumstances in which regulated institutions may receive New York CRA credit for activities taken in response to the Covid-19 pandemic, which the announcement notes is consistent with the guidance federal regulators have issued on the same topic (covered by InfoBytes here and here).
Special Alert: Supreme Court preserves CFPB through severance
The U.S. Supreme Court on Monday issued its long-awaited opinion in Seila Law LLC v. Consumer Financial Protection Bureau, with a 5-4 split along ideological lines holding that the structure of the CFPB is unconstitutional. Specifically, the clause in the underlying statute that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In a plurality opinion representing three of the justices in the majority, the court further held that the removal provision could — and should — be severed from the statute establishing the CFPB, rather than invalidating the entire statute. While various aspects of the decision could lead to further constitutional challenges, the reasoning of the opinion was based in large part on the preservation of a regulatory framework that is now almost a decade old.
Chief Justice Roberts issued an opinion holding the removal provision unconstitutional but finding that it could be severed from the remainder of the statute. The first portion of the opinion was joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, and therefore is the opinion of the court. The severance analysis, however, was joined only by Justices Alito and Kavanaugh. Justice Thomas, in a separate opinion joined by Justice Gorsuch, concurred on the constitutional question but dissented on severance. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, issued a third opinion dissenting from the court’s opinion on the constitutional question but concurring in the judgment that “if the agency’s removal provision is unconstitutional, it should be severed.” (Kagan Dissent, at 37). Justice Kagan’s opinion did not offer any further analysis of the severance issue, nor did she state that she concurred in Chief Justice Roberts’s opinion on that issue. Therefore, none of the three opinions commanded a majority of the court on the severance issue.
California governor issues executive order extending previous relief orders
On June 30, the California governor signed Executive Order N-71-20 (previously discussed here), which extends authorization for local governments to halt evictions for renters impacted by the Covid-19 pandemic through September 30. Among other things, the executive order also extends the deadlines in connection with certain licenses, including real estate licenses, which we previously covered here.
Massachusetts Securities Division issues emergency notice easing filing requirements for securities filings
On June 29, the Massachusetts Securities Division issued an emergency notice providing temporary relief from signature and notarization requirements in corporate finance filings, and from certain additional requirements relating to the registration of financial professionals. Specifically, the division will not require manual signatures or notarizations for securities applications and securities notice filings, among others, and will instead accept (i) evidence of electronic signatures or (ii) copies of signed documents. With respect to certain financial professionals, the division has also provided relief relating to (i) physical signatures required on Forms U4, (ii) the submission of Criminal Offender Record Information forms in connection with an application for registration, and (iii) annual update filings and document delivery requirements.
Colorado enacts bill limiting certain debt collection activity
On June 29, the Colorado governor signed Bill 20-211, which places limitations on certain debt collections. Among other things, the bill prohibits a judgment creditor from initiating a new extraordinary collection action (i.e. a garnishment, attachment, levy or execution to collect or enforce a judgment on a debt) from the date of the bill through November 1, 2020, unless certain requirements set forth in the bill are met. These requirements include, but are not limited to, providing at least 10 days advance written notice to the debtor of their right to temporarily suspend the collection action if they are facing financial hardship due to the Covid-19 emergency.
Tennessee extends authorization of remote notarization through August 29
On June 29, the governor of Tennessee issued Executive Order No. 52, extending authorization for remote notarization and witnessing of documents through August 29. The order extended the terms initially authorized in Executive Order No. 26 and previously extended by Executive Order No. 37.
OCC highlights key risks for federal banking system, says compliance risk elevated due to Covid-19
On June 29, the OCC released its Semiannual Risk Perspective for Spring 2020, which reports on key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. In particular, the OCC focused this report on the financial impacts of the Covid-19 pandemic on the federal banking industry, emphasizing that weak economic conditions stemming from the shutdown will stress financial performances in 2020, and that banks should monitor elevated compliance risks that may occur as a result of their responses to the pandemic, including participating in the Paycheck Protection Program as well as forbearance and deferred payment programs. The report highlighted that the surge in consumer demands, government programs, and the modifications to operations due to remote work and the “short timelines for implementing changes placed additional strains on banks already operating in a stressed environment.” However, the report noted that, “[s]ome banks are leveraging innovative technologies and third parties, including fintech firms, to help manage these challenges,” and that “[b]ank risk management programs should maintain effective controls for third-party due diligence and monitoring and other oversight processes, operational errors, heightened cyber security risks, and potential fraud related to stimulus programs.” The report highlighted several areas of concern for banks, including (i) credit risk increases; (ii) interest rate risk, including risks related to the LIBOR cessation; (iii) operational risks related to banks’ Covid-19 response; (iv) heightened cyber risks; and (v) compliance risks related to Bank Secrecy Act/anti-money laundering laws, consumer compliance, and fair lending.
Small business owners previously excluded from PPP granted application extension
On June 29, the U.S. District Court for the District of Maryland issued a memorandum to address two similar suits, which will provide several small business owners with criminal records three additional weeks to apply for loans through the Paycheck Protection Program (PPP). The court ruled that previous versions of the Small Business Administration’s (SBA) rule that excluded felony convictions of applicants or owners of applicants were “arbitrary and capricious” because the rules contained no explanation for the criminal history exclusion. The ruling extends the PPP application deadline for the business owners to July 21 following the SBA’s issuance of an interim final rule (IFR)—effective June 24 (covered by InfoBytes here)—that, according to the court, “provides a reasoned explanation for a more limited criminal history exclusion.” The court rejected the SBA’s argument that the case is now moot, stating that even though the business owners are now eligible to apply for PPP loans, they “still face difficulties in applying at the last minute either because banks are no longer accepting applications or because banks are still using old forms with the prior criminal history exclusion. Therefore, the plaintiffs continue to face ongoing harm because of the allegedly unlawful prior iterations of the rule.”
However, the court disagreed with one of the business owner’s claim that the criminal history exclusion violates the CARES Act, finding that the SBA is within its rights to consider borrowers’ ability to repay PPP loans. “While the court agrees that the PPP functions differently than the SBA’s other loan programs, it is not unreasonable to consider ability to repay, because if the loans are not used for specified purposes, then they are not forgivable,” the court wrote. The court also declined to extend the PPP application deadline to all newly eligible individuals who were previously excluded, stating that “past harm cannot justify an injunction extending the application deadline,” since it is unclear “what harm to [the business] resulting from prior iterations of the criminal history exclusion will continue past June 30.”
Fannie Mae announces updated protections for renters and multifamily property owners impacted by Covid-19
On June 29, Fannie Mae announced updated protections for renters in multifamily units and multifamily property owners impacted by Covid-19. Fannie Mae’s Delegated Underwriting and Servicing lenders have the authority to extend existing forbearances by three months for multifamily property owners, for a total period of up to six months. If extended, at the conclusion of the forbearance period, the borrower may qualify for up to 24 months to repay the missed payments. For Fannie Mae-financed multifamily properties with a new or extended forbearance, the borrower is required to provide certain tenant protections during the repayment period, including allowing the tenant flexibility to repay back rent over time and giving the tenant at least a 30-day notice to vacate.