March 23, 2020

Loans Modified Due To COVID-19 Generally Not Treated As TDRs, Agencies Clarify

Loan modifications for borrowers affected by the coronavirus pandemic will not generally be required to be treated as troubled debt restructurings, federal and state banking agencies said. The American Bankers Association had advocated with regulators and the Financial Accounting Standards Board for this sort of action, which ABA President and CEO Rob Nichols said would “assist banks that are already stepping up and responding to the needs of individual and business customers during this difficult time.”
The agencies said they had confirmed with FASB staff that “short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.” These include short-term — for example, six months — modifications like payment deferrals, fee waivers and repayment term extensions.
Meanwhile, the agencies said that examiners will “exercise judgment” in reviewing loan modifications and “not automatically adversely risk rate credits that are affected by COVID-19,” including those that are designated as TDRs. Otherwise good single-family mortgage loans modified for COVID-19 reasons will likewise not be considered restructured or modified under risk-based capital rules. The guidance also addresses past-due reporting, nonaccrual status, charge-offs and the eligibility of modified loans as discount window collateral.

Amid Local Lockdowns, Treasury Issues Documentation For Bankers

With more states and cities implementing stay-at-home or shelter-in-place orders to combat the spread of COVID-19, the Treasury Department has issued documentation that essential financial services employees can carry to demonstrate that they must go to work. The documentation should be accompanied by guidance from the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency designating financial services as a critical infrastructure sector.
The essential critical infrastructure workforce for the banking sector includes workers who are needed to:
  • process and maintain systems for processing financial transactions and services, such as payments, wholesale funding, insurance services and capital markets activities
  • provide consumer access to banking and lending services, including ATMs, and to move currency and payments
  • support financial operations, such as those staffing data and security operations centers
All bank employees designated as essential critical infrastructure workers should carry copies of these documents to show to local officials enforcing lockdown orders. Banks also should provide employees with documentation on bank letterhead confirming that they are essential personnel.

ABA Launches New Coronavirus Response Network

The American Bankers Association launched the Coronavirus Response Network, a discussion group for bankers to engage directly with one another about the operational challenges they are facing with respect to the coronavirus pandemic. This forum — for ABA members only — is intended to bring bankers together to find solutions to these common challenges so that banks can continue to prioritize the health and safety of staff and customers while also continuing to provide financial services to their communities.

ABA, Financial Groups Ask SEC To Exercise Authority With CECL Delay

Amid the growing economic fallout from the coronavirus pandemic and public health response, the American Bankers Association and several other financial trade groups urged the Securities and Exchange Commission to use its statutory authority over public company accounting rules to delay implementation of the Current Expected Credit Loss approach.
“Banks have strong capital and liquidity — and over the past decade the regulators have taken multiple actions to strengthen the financial system,” the groups said, noting that CECL “take[s] capital out of the system during a moment when it is most needed. A long-term delay of CECL will allow us to deploy that capital today in support of our customers and the economy.”
While the SEC has designated the Financial Accounting Standards Board as the standard-setter for public company accounting, the groups reminded the SEC of its “plenary authority” under federal securities laws to overturn or delay CECL. FDIC Chairman Jelena McWilliams last week urged FASB to pause CECL implementation in response to the crisis.

ABA Emphasizes Promoting Loan Growth, Protecting Borrowers in Coronavirus Relief Bill

As negotiations continued on Capitol Hill this weekend over the latest coronavirus aid package, a group of financial services trade associations, including the American Bankers Association, urged lawmakers include provisions that would enhance and incentivize the U.S. Small Business Administration’s 7(a) loan program in the final bill. The groups emphasized that “As in past periods of economic crisis, banks and credit unions turn to the 7(a) loan program as one of the most valuable tools to continue serving small business borrowers.”

While the Senate’s Small Business Task Force has been working to create a new “Small Business Interruption Loan Program,” the associations cautioned that this new program should not come at the expense of the “tried and true” enhancements for 7(a) loans. They recommended several changes to the existing program, including fee waivers for small business borrowers and lenders, increased federal guaranty, increased deferment flexibility and increased maximum loan size for all 7(a) and Express loans, among other things.

In addition, ABA and the Independent Community Bankers of America sent a letter to the leaders of House and Senate Agricultural Committees urging them to make adjustments to the Farm Service Agency loan programs to address the short-term and potentially long-term effects of the coronavirus pandemic. 

Specifically, the groups called for:
  • a temporary increase of guaranteed loan limits to $2.5 million
  • an increase in funding for guaranteed loan programs
  • the reduction or suspension of origination fees
They also asked lawmakers to:
  • temporarily require the U.S. Department of Agriculture to streamline loan approvals
  • temporarily suspend environmental assessment requirements and pass the Enhancing Credit Opportunities in Rural America Act, an ABA-supported bill that would end taxation of interest earned from agricultural real estate loans
Finally, they called for additional changes to the FSA Direct Loan Program.

ABA Highlights Industry Response To Coronavirus In Letter To Waters

In a letter to House Financial Services Committee Chairwoman Maxine Waters, D-Calif., the American Bankers Association highlighted bank efforts to provide assistance and relief to borrowers and small business owners facing economic hardships because of the coronavirus pandemic. 
“Banks are well-positioned to assist their customers and many are already offering a variety of services to individual borrowers and small business owners, including but not limited to: fee waivers; deferred payments for credit cards, auto loans and mortgages; loan modifications; low-rate and zero-rate loans and other accommodations,” said Rob Nichols, ABA president and CEO. “Banks will explore every option to assist borrowers and will also work with credit reporting agencies to ensure that customers’ credit reports reflect their hardships during this challenging period.” 
While it is unknown how long the pandemic will last, Nichols added that “large, regional, midsize and community banks will continue to offer prudent assistance to customers and employees directly affected.”

Legislation Enacted To Provide Paid Leave During Pandemic

To protect workers affected by the coronavirus pandemic, President Trump signed legislation that would provide for paid leave for employees who cannot work for coronavirus-related reasons. The Families First Coronavirus Response Act, which is effective through Dec. 31, provides employees at firms with fewer than 500 employees who have been on the job for at least 30 days with the right to take up to 12 weeks of job-protected leave to quarantine or to care for a symptomatic family member or child whose school is closed due to the coronavirus.
The first 10 days of leave is unpaid; the remainder is paid at two-thirds of the employee’s regular pay. The law also gives the secretary of labor authority to exempt small businesses with fewer than 50 employees if the leave provision would jeopardize the viability of the business. The law allows employers to take a credit against payroll taxes of 100% of the amount of paid leave wages, up to certain maximums.
The law also provides for two weeks’ emergency sick leave, paid at the employee’s regular rate of pay, if the employee must quarantine or seek a diagnosis or preventive care for coronavirus. If the employee is caring for a family member who is quarantining or seeking a diagnosis or care for coronavirus, or the employee is caring for a child whose school is closed, then the employee receives two weeks’ leave paid at two-thirds of the employee’s regular rate of pay.

Article Highlights Common Practices For Banks Responding To Coronavirus

With bankers now facing unprecedented challenges as a result of the coronavirus pandemic, a new article from ABA Banking Journal highlights some common practices banks are employing to keep their workers safe while they continue to serve their customers. The article offers nuts-and-bolts suggestions for banks, focusing specifically on four key areas: sanitation practices, customer service, employee well-being and bank management. 

FHLBs Issue Guidance For Mortgage Partnership Finance Program Participants 

The Federal Home Loan Banks’ Mortgage Partnership Finance program released a statement outlining temporary policies to enable servicers to assist borrowers affected by the coronavirus pandemic. MPF participants are expected to abide by all federal or state laws and proclamations that may apply to borrowers affected by the virus, the FHLBs said. 
The policies also pointed institutions and servicers to guidelines when originating, delivering or servicing various types of loans under the MPF program. For example, MPF Xtra loans must follow the disaster relief policies and guidance issued by Fannie Mae. 
The statement also noted that servicers must suspend all foreclosure sales and evictions for the next 60 days, unless the property has been determined to be vacant or abandoned. It also addresses forbearance, credit bureau reporting and more.

FHFA Announces New Measures To Ensure Liquidity In Mortgage Markets

To help ensure liquidity in the secondary mortgage market, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to engage in additional dollar roll transactions that would provide investors in mortgage-backed securities with short-term financing of their positions. These transactions must be undertaken via auction or similar mechanism, and eligible collateral is limited to agency MBS.

The agency also said it would allow Fannie and Freddie to exercise greater flexibility with respect to appraisal requirements and employment verification requirements for mortgage transactions through May 17, 2020. FHFA noted, however, that “lenders should continue to utilize sound underwriting judgment to ensure these alternatives are appropriate to the borrower’s circumstances.”

Specifically, FHFA said it would allow the GSEs to “leverage appraisal alternatives to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.” In addition, FHFA said the GSEs may obtain employment verification via an email from an employer, a recent year-to-date paystub from the borrower or a recent bank statement showing payroll deposit in the event that a verbal verification of employment cannot be obtained.

These are the latest steps taken by FHFA to ensure the flow of liquidity and operational efficiency through the market during the coronavirus pandemic. Last week, the agency announced a 60-day suspension of foreclosures and evictions and forbearance options for borrowers experiencing financial difficulties due to the pandemic.

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