March 31, 2020 

Treasury Issues Guidelines, Application Form for SBA Paycheck Protection Program

Applications to begin April 3

The Treasury Department today issued much-anticipated guidance (scroll to Assistance for Small Businesses) for the Paycheck Protection Program, which starting this week will provide up to $350 billion in fully forgivable loans to help small businesses maintain payrolls during the coronavirus pandemic. The loans are fully guaranteed by the Small Business Administration, but the SBA will waive all SBA guaranty fees. PPP loans are made for two years at a 0.5% fixed rate with payments deferred for six months.

All banks, as well as a broad range of nonbanks, are eligible to make PPP loans. Existing SBA-certified lenders will be given delegated authority; others must be approved before making loans. Banks that have not yet been certified with the SBA should submit an application to delegatedauthority@sba.gov. The SBA will quickly verify that banks applying are federally regulated, and new applicants will be able to process applications as soon as Friday, according to a senior administration official.

To underwrite PPP loans, lenders will need to verify that the borrower was in operation on Feb. 15, 2020, and that it had employees for whom it paid salaries and payroll taxes. The lender also will have to verify the dollar amount of average payroll costs. The SBA will not review loan applications, according to a senior administration official, but lenders will receive an SBA loan number and verify that the applicant has not already received a PPP loan.

The SBA will pay the lender a processing fee calculated on the loan balance, ranging from 1% for loans of more than $2 million to 5% for loans of $350,000 or less. PPP loans may be sold in the secondary market, and the SBA will not collect fees for guarantees sold. The guidance includes fee caps for agents assisting with loan applications.

Small businesses and sole proprietorships — generally, those with 500 or fewer employees — may apply for PPP loans starting Friday, April 3; independent contractors and self-employed workers can apply starting Friday, April 10. PPP loans will be fully forgiven when used for payroll costs, interest on mortgages, rent and utilities, with at least three quarters of the forgiven amount being used for payroll; forgiveness is based on employers maintaining headcount or quickly rehiring and maintaining salary levels.

MBA has put together a document highlighting the differences between the Paycheck Protection Program and the Economic Injury Disaster Loan. It has been updated to reflect information from the Treasury.

Ginnie Mae Announces Plans To Intervene In Agency MBS Market

With many borrowers now taking advantage of nationwide forbearance programs as they struggle to make their monthly mortgage payments, Ginnie Mae announced it will take action to ensure liquidity in the mortgage-backed securities market during the coronavirus pandemic.
 
“We have heard from our issuer and servicing partners that borrower forbearance arrangements that are nationwide in scope could place an enormous strain on issuers” of MBS, wrote Ginnie Mae’s Seth Appleton in a blog post. “This strain would be caused by the immediate need to advance required pass-through payments to investors, or other entities entitled to receive payments, and the later reimbursement of those advances by borrowers or the agencies who insure the loans (HUD, VA and USDA under the Ginnie Mae program).”
 
Accordingly, the GSE will “within the next two weeks” set up a pass-through assistance program through which issuers could request an advance from Ginnie Mae to address funding shortfalls and enable them to continue making scheduled payments to investors. The blog post noted that borrowing under the PTAP should be done as a last resort, and that “Ginnie Mae will choose to make these advances only where doing so will further the program mission and the American taxpayers who stand behind it.”

ABA, Industry Groups Comment On DOL Rulemaking

Littler Mendelson, a law firm specializing in employment issues, wrote to the U.S. Department of Labor to convey feedback from the American Bankers Association and other industry trade groups on how DOL should implement the Families First Coronavirus Response Act, which was signed into law in mid-March. The law provides paid leave for employees (of employers with fewer than 500 employees) who cannot work because they need to care for a child out of school or whose childcare provider is unavailable. It also provides for two weeks of paid sick leave for employees quarantining because of the coronavirus.
 
With the DOL expected to issue an interim final rule or other final agency action to implement the FFCRA by the law’s April 1 effective date, the groups urged DOL to “clarify that an employee whose employer has provided the employee with the option to work a flexible schedule is not ‘unable to work (or telework)’” under the paid Family and Medical Leave Act provisions in the FFCRA. The letter also addressed employers’ ability to require documentation and verification that an employee who takes leave provided under the FFCRA is taking the leave for a qualifying reason.
 
The DOL issued a set of frequently asked questions to provide clarity to employers.

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