Weekly RoundUp April 22, 2020

Financial Services Weekly Roundup: April (Liquidity) Showers Bring May Borrower Protection

Editor's Note

In this Issue: Senate Votes to Expand Paycheck Protection Program; FHFA (Finally) Addresses Liquidity Concerns for Mortgage Servicers. Yesterday, the U.S. Senate unanimously passed legislation providing $484 billion in additional funding to combat the COVID-19 pandemic, including approximately $320 billion to provide additional funding for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The U.S. House of Representatives is expected to pass the legislation on Thursday and President Trump is expected to sign it shortly thereafter. On the same day that the Senate acted, the Federal Housing Finance Agency (FHFA) made the long sought announcement of a four month advance obligation limit for servicers of single-family mortgage loans owned by Fannie Mae and Freddie Mac. Last week, in a joint effort to combat the negative financial impacts of the COVID-19 pandemic, the Consumer Financial Protection Bureau (CFPB) and the FHFA introduced the Borrower Protection Program, which will enable the CFPB and FHFA to share information to protect borrowers in an effort to allow each agency to better answer questions for borrowers, analyze data to educate customers and provide further support during the COVID-19 pandemic. The CFPB also raised the loan-volume coverage thresholds for financial institutions reporting data under the Home Mortgage Reporting Act (HMDA). These and other developments are discussed below.

We also invite you to visit Goodwin’s Coronavirus Knowledge Center and Consumer Financial Services Industry COVID-19 Hub, which are updated regularly, to learn how cross-industry teams at Goodwin are helping clients fully understand and assess the ramifications of COVID-19 and navigate the potential effects of the outbreak on their businesses. The Knowledge Center includes new thought leadership, some of which is reproduced below, on topics such as Goodwin’s role in assisting with new regulations and programs like the Main Street Lending Program and the UK’s new “Future Fund” financing package for start-ups, and the latest developments in small-business dollar loans to provide relief for businesses facing financial hardships during the pandemic.

Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

Senate Passes Updated Stimulus Bill with Additional $320 Billion in Funding for Paycheck Protection Program

On April 21, the U.S. Senate unanimously passed legislation providing $484 billion in additional funding to combat the COVID-19 pandemic. Under the terms of the bill, approximately $320 billion is appropriated to provide additional funding for the PPP, $60 billion is appropriated to provide additional funding for the SBA’s Economic Injury Disaster Loan (EIDL) program, $75 billion is appropriated to hospitals, and approximately $25 billion is appropriated to implement a new nationwide coronavirus testing program to facilitate reopening the economy. Of the $320 billion appropriated to the PPP, a minimum of $30 billion is reserved for community development financial institutions, banks and credit unions with less than $10 billion in assets and another $30 billion is allocated to banks and credit unions with assets between $10 billion and $50 billion. These figures do not serve as a cap on lending by these institutions but rather a minimum for each category - institutions in these categories may originate PPP loans above these levels. The U.S. House of Representatives is expected to pass the legislation on Thursday and President Trump is expected to sign it shortly thereafter.

FHFA Announces Four Month Advance Obligation Limit for Loans in Forbearance to Address Servicer Liquidity Concerns

On April 21, the FHFA announced the alignment of Fannie Mae's and Freddie Mac's (Enterprises) policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans. Once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. This applies to all Enterprise servicers regardless of type or size.

In addition, to support homeowners and mortgage lenders, the FHFA announced that it will permit the Enterprises to purchase single-family mortgages in forbearance that meet specific eligibility criteria. Eligible loans will be priced to mitigate the heightened risk of loss to the Enterprises from these loans. According to the FHFA, “Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending."

CFPB and FHFA Announce Borrower Protection Program

On April 15, the CFPB and the FHFA announced their joint initiative, the Borrower Protection Program (Program), which will enable the CFPB and FHFA to share information to protect borrowers during the COVID-19 pandemic. Through the Program, the CFPB will make complaint information and analytical tools available to the FHFA and the FHFA will provide information to the CFPB regarding forbearances, modifications, and other mitigation initiatives taken by Fannie Mae and Freddie Mac. The CFPB and FHFA hope that the program will help provide information that will allow each agency to better answer questions for borrowers, analyze data to educate customers and provide further support during the COVID-19 pandemic.

Federal and State Regulators Release Updates to BSA/AML Examination Manual

On April 15, the members of the Federal Financial Institutions Examination Council (FFIEC) published updated sections and related examination procedures to the BSA/AML Examination Manual (the Manual). The Manual provides instructions to examiners when assessing the adequacy of a bank’s BSA/AML compliance program. The newly published updates to the Manual have been in process for an extended period and do not establish new requirements or indicate a new or increased focus. The updates are intended to emphasize a risk-focused approach to BSA/AML supervision. Sections that were updated include Risk-Focused BSA/AML Supervision, Assessing the BSA/AML Compliance Program, BSA/AML Risk Assessment and Developing Conclusions and Finalizing the Exam. New and revised sections of the Manual are identified by a 2020 date in the Manual’s table of contents and on FFIEC’s BSA/AML InfoBase.

CFPB Issues Final Rule Raising Data Reporting Thresholds Under the Home Mortgage Disclosure Act

On April 16, the CFPB issued a final rule amending Regulation C to establish new loan-volume thresholds for financial institutions that collect and report consumer data under the Home Mortgage Disclosure Act (HMDA). After July 1, 2020, both depository and non-depository financial institutions that originated fewer than 100 closed-end mortgage loans in either of the two preceding calendar years will be exempt from HMDA’s data collection and reporting requirements. After January 1, 2022, depository and non-depository financial institutions that originated fewer than 200 open-end lines of credit in each of the two preceding calendar years will be also be exempt from these requirements.

Federal Reserve Modifies Insider Lending Rules to Permit Certain Bank Directors and Shareholders to Apply for PPP Loans

On April 17, the Board of Governors of the Federal Reserve System (Federal Reserve) issued an interim final rule that excepts from the definition of “extension of credit” for purposes of Section 22(h) of the Federal Reserve Act and the corresponding provisions of Regulation O (governing extensions of credit to executive officers, directors, or principal shareholders, and their related interests), certain loans made between February 15, 2020 and June 30, 2020 that are guaranteed under the PPP. The interim final rule follows the SBA’s April 14 interim final rule, reported in last week’s Roundup, which clarifies that certain directors and shareholders of a PPP lender may obtain a PPP loan from the PPP lender, subject to certain limitations and without favoritism in processing time or application priority. The Federal Reserve’s interim final rule will be administered consistent with SBA’s rules and restrictions. The interim final rule is effective immediately, and public comments on the interim final rule will be accepted for 45 days after its publication in the Federal Register.

U.S. Cares Act: Issues and Possible Solutions With the Main Street Lending Facility

Goodwin lawyers assisted the Association of Corporate Growth in preparing its comments on the Main Street Lending Program for submission to the Federal Reserve. Read the client alert to learn about several major issues that Goodwin has identified with the Main Street Lending Facility and suggested possible solutions to each.

UK Government Announces ‘Future Fund’ Financing Package for Startup-Up Technology and Life Sciences Companies

Goodwin assembled and led a task force of lawyers to help devise the UK’s new “Future Fund,” expected to launch in May 2020, which will provide financing to UK start-ups and scale-ups in the form of a convertible loan which is invested directly by the Government. The Goodwin team was led by Adrian Rainey and Adam Thatcher. Angus Miln, Aaron Archer and Ylan Steiner represented Taylor Wessing LLP, Cooley LLP and Orrick, Herrington & Sutcliffe LLP respectively on the task force. Read the client alert and additional guidance on the Future Fund to learn more about this scheme.

Federal Agencies Encourage Access to Small-Dollar Loans in Light of COVID-19

Just as the Federal Reserve prepares to conduct its annual Survey of Household Economics & Decisionmaking, Americans now face unexpected financial hardships that are far worse than contemplated by the survey’s hypothetical. In response to the financial impact that the COVID-19 outbreak has had and will continue to have on households, regulators are taking further steps to address consumers’ financial needs during the crisis. Read this week’s LenderLaw Watch blog to learn more about these developments related to small-dollar loans and how they will impact financial institutions and consumers.

Goodwin News

Fintech Flash: Gear Up to Help Your Customers Strategically Save

What happens when you don’t have enough savings to make it through a disruptive period? Is there an easier way to build emergency and goal-based savings when unexpected situations occur, such as a job layoff? Thanks to Fintech companies being able to partner with banks, there are AI-enabled solutions that can assist consumers who are facing this type of predicament during the COVID-19 pandemic. Read Goodwin’s latest Fintech Flash issue to learn more.

This week’s Roundup contributors: Josh Burlingham, Alex Callen, Jessica Craig, Christina Hennecken and William McCurdy.