CORONAVIRUS RESOURCE CENTER

The federal banking agencies have issued a set of frequently asked questions regarding the Community Reinvestment Act and the COVID-19 pandemic. The 13 FAQs make clear that the agencies will consider COVID-19-affected areas under major disaster declarations as disaster areas for CRA purposes for a period extending six months after the disaster declaration is lifted.

The FAQs state that Paycheck Protection Program loans will be considered “particularly responsive” to community needs when made to businesses with gross annual revenues of $1 million or less or to businesses located in low- to moderate-income geographies or distressed or underserved non-metropolitan, middle-income locales. PPP loans of greater than $1 million may qualify as community development loans if they also have a primary purpose of community development as defined under CRA. PPP loans to small businesses with gross annual revenues of $1 million or less that create or retain jobs for LMI individuals, LMI localities, or that otherwise meet the economic development size and purpose tests would qualify as community development loans.

The agencies emphasize in the FAQs that activities promoting housing stability for low- to moderate-income renters who are experiencing financial hardship due to COVID-19 are considered particularly responsive to the unique challenges presented by the pandemic. These activities include loan forbearance, reduced payments, loan modifications, or restructuring debt for residential rental property owners who in turn agree to offer rent relief to and suspend evictions for low- or moderate-income renters. Similarly, activities that promote stability for low- or moderate-income homeowners who are experiencing financial hardship due to COVID-19 are also considered particularly responsive to the pandemic’s unique challenges.

The FAQs also state that Main Street Lending Program loans meeting certain requirements may also receive favorable CRA consideration.

The federal bank regulatory agencies announced two actions to support the U.S. economy and allow banking organizations to continue lending to households and businesses:

• Allowing early adoption of a new methodology on how certain banking organizations are required to measure counterparty credit risk derivatives contracts (SA-CCR Interim Final Rule); and
• Providing an optional extension of the regulatory capital transition for the new credit loss accounting standard CECL Interim Final Rule.

The "standardized approach for measuring counterparty credit risk" rule, also known as SA-CCR, was finalized by the agencies in November 2019, with an effective date of April 1. It reflects improvements made to the derivatives market since the 2007-2008 financial crisis, such as central clearing and margin requirements. To help improve current market liquidity and smooth disruptions, the agencies will permit banking organizations to early adopt SA-CCR for the reporting period ending March 31.

Additionally, the agencies issued an interim final rule that allows banking organizations to mitigate the effects of the "current expected credit loss," or CECL, accounting standard in their regulatory capital. Banking organizations that are required under U.S. accounting standards to adopt CECL this year can mitigate the estimated cumulative regulatory capital effects for up to two years. This is in addition to the three-year transition period already in place. Alternatively, banking organizations can follow the capital transition rule issued by the banking agencies in February 2019.

The changes will be effective immediately and the agencies will accept comments on the CECL interim final rule for 45 days.

Agencies Issue Advisories to Address Coronavirus-Related Activities

The Office of The Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation have issued separate advisories addressing banking activities and customer relationships during the coronavirus pandemic.

The Federal Reserve release announced a series of actions aimed at supporting the flow of credit to households and price stability.  It encourages institutions to turn to the discount window to help meet credit demands and announced the lowering of the primary credit rate to 0.25 percent.  The FRB also announced that institutions may borrow from the discount window for periods as long as 90 days.  The FRB also has reduced reserve requirement ratios to zero percent effective March 26, the beginning of the next reserve maintenance period.  The FRB also is encouraging banks to use their capital and liquidity buffers as they lend to households and businesses that are affected by the coronavirus.

The FDIC has issued Financial Institution Letter 17-2020 which transmits a statement encouraging banks to work with borrowers that may be under financial stress resulting from the coronavirus pandemic.  The FDIC said it will provide appropriate regulatory and supervisory assistance to affected financial institutions under the agency’s supervision.  The statement enumerates specific actions banks may take to ease customer distress.  The FDIC encourages banks to engage in prudent and proactive actions, such as debt restructuring to address temporary hardships resulting from COVID-19-related issues.  The FDIC said it will work with institutions that may experience challenges fulfilling their regulatory reporting responsibilities.

The OCC has issued Bulletin 2020-15 encouraging banks to work with customers and communities affected by COVID-19.  This bulletin essentially tracks the contents of FDIC FIL-17-2020. 

The OCC has just published OCC Frequently Asked Questions for Bank Customers Regarding COVID-19 as well as Frequently Asked Questions for National Banks and Federal Savings Associations.

Everything the agency publishes related to its response to COVID-19 that applies to a broad audience will be available on http://occ.gov/covid-19.

The two new items are also featured on the Spotlight section of https://www.occ.gov/index.html

To ensure that the institutions that we supervise are receiving this important information, we are asking that the ADC’s and LB EIC’s communicate these updates with your bankers.  We will keep you updated with future bulletins and news releases as well.

The agency is working on a replacement to its subscription email service which previously provided notices to banks directly by email. That service was suspended at the previous month. The replacement is expected in 90 to 120 days.

The Small Business Administration has issued a procedural notice addressing how lenders may sell whole Paycheck Protection Program loans. The notice acknowledges the CARES Act provision permitting the sales of PPP loans. The notice states that SBA’s prior written consent is not required in order to sell PPP loans to lenders that have a signed SBA Form 750, SBA Form 3506, or SBA Form 3507. The originating lender must immediately provide SBA’s Office of Credit Risk Management with notice of any PPP whole loan sale including the name of the purchasing lender. The notice states that the purchasing lender will be the party responsible to SBA with respect to all servicing actions, including requests for advance purchases and loan forgiveness, and will be the party eligible for the guarantee purchase of a PPP loan.

The Consumer Financial Protection Bureau and the Federal Housing Finance Agency have announced the Borrower Protection Program, a new joint venture that enables the agencies to share servicing information to protect borrowers during the COVID-19 emergency.

Under this program, the CFPB will make complaint information and analytical tools available to FHFA via a secure electronic interface, and FHFA will make available to the CFPB information regarding forbearances, modifications and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac.

During the COVID-19 emergency Fannie Mae and Freddie Mac permitted borrowers with a financial hardship due to the pandemic the ability to enter into forbearance - a pause or reduction in their monthly mortgage. Those missed payments must be paid by the borrower. Mortgage servicers are responsible for working with borrowers to set up a repayment plan that works for both parties. The missed payments can be added to the normal monthly payments, paid back all at once, added to the end of the loan, or the borrower can have the term of the loan extended.