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Special Alert: The Fed’s Main Street Lending Program: Fitting relief for fintechs and nonbank lenders?
The Federal Reserve Board’s recently announced the Main Street Lending Program, intended to provide financing for a range of small and mid-sized businesses, may provide much needed federal relief for fintech firms and nonbank lenders that has otherwise been lacking.
These firms generally have not qualified for the federal assistance efforts to date. The Fed designed its initial wave of programs — such as the Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF) for companies with investment-grade credit, or programs for companies involved in the broad commercial paper and money markets or certain securitizations — for larger, well-established corporations. At the other end of the spectrum, the Payroll Protection Program (PPP) is tied to preexisting Small Business Administration eligibility standards. Businesses “engaged in lending,” which includes finance companies, factoring companies, and “other business whose stock in trade is money,” generally are ineligible for the PPP.[1] Even if that eligibility rule were not a showstopper, many fintechs and nonbank lenders, particularly portfolio companies of private equity or venture capital funds, are precluded from the PPP by the SBA’s broad “affiliation rule,” which provides, for example, that applicants must include the number of employees of each of its affiliates.[2]
CFPB and FHFA announce Borrower Protection Program
On April 15, the CFPB and the Federal Housing Finance Agency (FHFA) announced the launch of the joint Borrower Protection Program to address mortgage servicer performance during the Covid-19 emergency. The two regulators will share information about how responsive mortgage servicers are to requests for assistance from consumers who are not able to keep current on monthly mortgage payments. Under the program the CFPB will provide complaint and analytical tool information to the FHFA, which in turn will share loss mitigation data on mortgage servicers with the CFPB. Through the Borrower Protection Program, the CFPB and FHFA hope to combat confusing or misleading information from loan servicers to borrowers about their options, including forbearance, as prescribed in the CARES Act.
For more InfoBytes coverage on loan forbearance under the CARES Act, click here.
CFPB releases resources for servicemembers affected by Covid-19
On April 15, the CFPB issued a blog post providing resources for servicemembers, veterans, and military families impacted by the Covid-19 pandemic. The Bureau discusses military aid societies where servicemembers and military families can apply for emergency grants and zero-interest loans, and hardship duty pay and other allowances afforded to military families affected by the Stop Movement Order that halted domestic travel by military personnel. The Bureau also provides information for managing mortgage payments and student loans, and reminds active-duty servicemembers, military spouses and National Guard personnel and reservists on active duty for more than 30 consecutive days of their rights under the Servicemembers Civil Relief Act and the Military Lending Act. These will include being able to terminate contracts under certain conditions and to receive protections for many types of consumer credit and loans. The blog post also highlights recent changes made to existing programs due to challenges presented by Covid-19, including the expansion of online access for veterans to file benefit claims and the continuation of GI Bill program funding.
Brown and Waters urge housing market stability during Covid-19 pandemic
On April 15, Senator Sherrod Brown (D-OH) and Congresswoman Maxine Waters (D-CA) sent a letter to Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin urging the agencies to use the authority granted under Title IV of the CARES Act to meet the needs of the housing market and ensure the stability of nonbank mortgage servicers as homeowners and renters struggle to make timely mortgage and rent payments. Brown and Waters stress that the “government must be prepared to respond quickly to prevent a liquidity shortfall in the single-family and multifamily mortgage markets, and to ensure that consumers are equitably served by that response.” They caution that while Ginnie Mae has announced measures to meet its servicers’ liquidity needs (covered by InfoBytes here), these changes “may be insufficient to address all of the liquidity challenges.”
OCC announces FEMA's flood insurance payment deadline extension
On April 15, the OCC released a statement addressing the Federal Emergency Management Agency’s (FEMA) extension to the grace period for renewing flood insurance policies from 30 days to 120 days due to the Covid-19 pandemic. FEMA’s guidance in Bulletin W-20002 relates to National Flood Insurance Program policies with expiration dates from February 13, 2020 to June 15, 2020, and states that coverage will not lapse if the policy premium is paid prior to the end of the extended grace period. FEMA’s bulletin indicates that the payment grace period was extended “to allow additional time for policyholders who may be struggling financially during this unprecedented time to pay insurance premiums by ensuring that their policies are not canceled for nonpayment of premium due to circumstances beyond their control.” Likewise, the OCC statement “recognizes the serious impact the COVID-19 emergency may have on consumers” and conveys that it will not take enforcement or supervisory action against banks for “reasonable delays in complying with” the OCC’s force placement of flood insurance regulations. The OCC reminds banks that if flood insurance is force placed during the extended grace period, the banks must refund the cost of the overlapping coverage to the borrower.
Freddie Mac issues selling guidance related to Covid-19
On April 14, Freddie Mac issued Guide Bulletin 2020-11 to Freddie Mac sellers setting forth selling guidance related to Covid-19. The bulletin contains guidance relating to property eligibility, temporary flexibility with respect to the seller’s post-funding quality control review regarding targeted sampling of loans that become 60 days or more past due in the first six months, and revisions to requirements regarding maximum contracts and aggregate cash commitment volume for certain contracts. The bulletin also updates the list of permitted states for remote online notarization and provides additional clarifications regarding notarizations.
Fannie Mae updates appraisal guidance on impact of Covid-19
On April 14, Fannie Mae updated certain elements of Lender Letter 2020-04 regarding the impact of Covid-19 on appraisals. The letter applies to all Fannie Mae Single-Family Sellers. Fannie Mae has updated its guidance regarding flexibilities for condominium project reviews, virtual inspections for appraisals and renovation loans, new construction loans, HomeStyle renovation loans in forbearance, use of lender variances and temporary appraisal flexibilities, and additional form instructions for appraisals.
HUD issues guidance on HECM assignment claims during Covid-19
On April 14, HUD issued Mortgagee Letter 2020-12 to inform mortgagees of alternative documentation options and delayed documentation delivery deadlines for submitting Home Equity Conversion Mortgage (HECM) claims for during the Covid-19 related closures. In particular, alternative documentation is permitted to document that taxes are current, HOA and condominium dues are not delinquent, and the borrower will occupy the property as a principal residence. The guidance addresses delayed delivery of original notes, mortgages, and assignments to the Secretary. It also reminds mortgagees of the required repurchase of the HECM if the HECM did not meet all criteria at the time of assignment claim payment.
Washington DFI issues guidance to investment advisers on CARES Act loans
The Washington Department of Financial Institutions issued guidance for state-registered investment advisers regarding CARES Act loans. Should a firm obtain a CARES Act loan, DFI will not consider it a net worth deficiency if certain criteria outlined in the guidance are met. However, if it is determined that some or all of the loan will not be forgiven, the firm must immediately notify the DFI and reclassify the loan as a liability.
SEC issues a statement on the importance of disclosures to investment company investors
On April 14, the SEC Division of Investment Management issued a statement on the importance of delivering timely and material information to investors of investment companies. Investment company issuers are reminded of their statutory obligations to update the information in their prospectuses, including the required underlying certified financial statements. Investment companies also are encouraged to consider the impact of Covid-19-related events when drafting their disclosures, including risk disclosures. The statement also includes the SEC’s expectations regarding timely delivery of disclosures to fund investors.