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04.29.2020 | Legal Update

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Federal Developments

1. President Signs New COVID-19 Relief Bill into Law, Funding Additional PPP Loans
2. Answers to Frequently Asked Questions for Banks Affected by COVID-19 Updated
3. Agencies Revise Guidance on Loan Modifications for COVID-19 Affected Customers
4. Federal Banking Agencies Approve Temporary Changes to CBLR Framework
5. Interim Final Rule Adjusts Capital Rules for PPP Lending Facility
6. Banks Permitted to Temporarily Defer Certain Real Estate-Related Appraisals
7. CFPB Raises Data Reporting Thresholds Under the Home Mortgage Disclosure Act
8. Federal Banking Agencies Issue Revised Transition Period for CECL Methodology

Massachusetts Developments

1. Foreclosure/Eviction Relief Law Requires Mortgage Lenders to Provide Forbearances
2. Virtual Notarization Bill Signed into Law by Governor Baker

Other Developments

1. Savings Deposits
2. Bank Control
   
   

Federal Developments

1. President Signs New COVID-19 Relief Bill into Law, Funding Additional PPP Loans

The Paycheck Protection Program and Health Care Enhancement Act was signed into law by President Donald Trump on April 24, providing $484 billion in additional funding for key programs under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including the Paycheck Protection Program (PPP) and small business disaster loans and grants. The new law provides an additional $321 billion in funding for the PPP, with $60 billion set aside for small, midsize, and community banks and other lenders, including minority-owned lenders. The Small Business Administration (SBA) resumed taking PPP applications on April 27 from existing certified SBA lenders. Click here for the text of the law.

2. Answers to Frequently Asked Questions for Banks Affected by COVID-19 Updated

The federal banking agencies have issued a number of updates to their guidance in the form of answers to frequently asked questions (FAQs) for banks affected by the COVID-19 public health emergency. The FAQs have been updated on April 10, 14, 17, and 23. Among other things, the FAQs updated as of April 14 explain the agencies’ customer due diligence expectations for PPP loans. According to the guidance, if a PPP loan is being made to an existing customer and the necessary information was previously verified, the bank does not need to re-verify the information. If a bank has not yet collected beneficial ownership information on an existing customer in connection with a PPP loan, the bank does not need to collect and verify beneficial ownership information unless otherwise indicated by the bank’s risk-based approach to Bank Secrecy Act compliance, according to the updated FAQs. Click here for a copy of the updated FAQs.

3. Agencies Revise Guidance on Loan Modifications for COVID-19 Affected Customers

The federal financial institution regulatory agencies, in consultation with state financial regulators, have issued revised guidance on working with borrowers affected by the COVID-19 public health emergency, including additional information about loan modifications. The revised guidance issued on April 7 clarifies that agency examiners will not criticize depository institutions for prudent efforts to modify terms of existing loans for affected customers, consistent with safety and soundness principles. The revised guidance also provides supervisory interpretations on troubled debt restructurings (TDRs), and past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital. Click here for a copy of the revised guidance.

4. Federal Banking Agencies Approve Temporary Changes to CBLR Framework

The federal banking agencies approved two interim final rules on April 6 to provide temporary relief to community banking organizations that elect to use the community bank leverage ratio (CBLR) framework. The first rule implements Section 4012 of the CARES Act by temporarily lowering the CBLR from 9% to 8% beginning in the second quarter of 2020 and effective until the end of the year. The second rule provides for a graduated transition of the CBLR back to 9%. Under the interim final rules, the CBLR will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The interim final rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1% below the applicable CBLR. Both interim final rules became effective on April 23. Click here and here for copies of the interim final rules.

5. Interim Final Rule Adjusts Capital Rules for PPP Lending Facility

The federal banking agencies have approved an interim final rule, which became effective on April 13, that modifies the agencies’ capital rules to neutralize the regulatory capital effects of participating in the Federal Reserve’s PPP lending facility because there is no credit or market risk associated with PPP loans pledged to the lending facility. Under the PPP lending facility, each of the Federal Reserve Banks will extend non-recourse loans to eligible financial institutions to fund loans guaranteed by the SBA under the PPP established by the CARES Act. The interim final rule also clarifies that a 0% risk weight applies to loans covered by the PPP for capital purposes. Click here for a copy of the interim final rule.

6. Banks Permitted to Temporarily Defer Certain Real Estate-Related Appraisals

The federal banking agencies have issued an interim final rule that allows banks to temporarily defer real estate-related appraisals and evaluations under the agencies’ interagency appraisal regulations during the COVID-19 public health emergency. The interim final rule released on April 14 allows banks to defer appraisals and evaluations for up to 120 days after closing certain residential or commercial real estate loan transactions. Transactions involving acquisition, development, and construction of real estate are excluded from this interim rule. The agencies advised banks to use best efforts to obtain credible valuations of real property collateral before any loan closing, consistent with applicable safety and soundness principles. The interim final rule became effective on April 17 and will expire on December 31, 2020, unless extended by the federal banking agencies. The agencies, together with NCUA and the CFPB, in consultation with the Conference of State Bank Supervisors, have also issued joint guidance that outlines other flexibility in industry appraisal standards and in the agencies’ appraisal regulations, and describes temporary changes to Fannie Mae and Freddie Mac appraisal standards that can assist lenders during the COVID-19 public health emergency. Click here for a copy of the interim final rule and here for a copy of the joint guidance.

7. CFPB Raises Data Reporting Thresholds Under the Home Mortgage Disclosure Act

The CFPB has issued a final rule that amends its Regulation C to relax Home Mortgage Disclosure Act (HMDA) reporting requirements by increasing the threshold for reporting data about closed-end mortgage loans. Under the final rule, depository institutions that originated fewer than 100 closed-end mortgage loans in either of the two preceding calendar years will not have to report such data effective as of July 1, 2020. The CFPB also set the permanent threshold for reporting data about open-end lines of credit at 200 open-end lines of credit effective as of January 1, 2022, upon the expiration of the current temporary threshold of 500 open-end lines of credit. Absent the adoption of the final rule, the open-end threshold would have reverted to 100 open-end lines of credit upon the expiration of the temporary threshold. Click here for a copy of the final rule.

8. Federal Banking Agencies Issue Revised Transition Period for CECL Methodology

The federal banking agencies have issued an interim final rule that provides an optional five-year transition period for the impact of the Current Expected Credit Losses (CECL) accounting methodology on regulatory capital and guidance on the temporary CECL relief provided by the CARES Act. The interim final rule, which became effective on March 31, provides banking organizations that adopt CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay. The agencies’ accompanying guidance, Joint Statement on the Interaction of Regulatory Capital Rule: Revised Transition of the CECL Methodology for Allowances with Section 4014 of the Coronavirus Aid, Relief, and Economic Security Act, clarifies the interaction between the interim final rule and the CARES Act, which provides banking organizations optional temporary relief from complying with the CECL methodology during the COVID-19 public health emergency. According to the joint guidance, no banking organization is required to comply with CECL during the statutory relief period provided by the CARES Act, including banking organizations that otherwise would be required to adopt the CECL methodology in 2020 under U.S. GAAP. Click here for a copy of the interim final rule and here for a copy of the joint statement.

Massachusetts Developments

1. Foreclosure/Eviction Relief Law Requires Mortgage Lenders to Provide Forbearances

Governor Charlie Baker signed into law an emergency foreclosure/eviction relief bill on April 20 that immediately established a temporary moratorium on foreclosures on one-to-four family owner-occupied residential properties in Massachusetts during the COVID-19 public health emergency. The new law, Chapter 65 of the Acts of 2020, provides residential mortgage borrowers that have experienced financial distress from COVID-19 with a temporary right to obtain a forbearance on their mortgage payments for up to 180 days. The Division of Banks has issued guidance in the form of answers to FAQs about the new law that suggests, among other things, that the law requires lenders to grant such a forbearance on residential mortgage payments for whatever period of time has been requested by the borrower, provided that it is not more than 180 days. The new law also includes a temporary moratorium on nonessential evictions for residential dwellings and small business premises during the COVID-19 public health emergency. Click here to access the new law and click here for a copy of the FAQs on the new law.

2. Virtual Notarization Bill Signed into Law by Governor Baker

Governor Charlie Baker signed into law an emergency bill on April 27 which permits notaries in Massachusetts to notarize documents remotely with the assistance of electronic videoconferencing technology during the COVID-19 public health emergency. The new law, known as An Act Providing for Virtual Notarization to Address Challenges Related to COVID-19, temporarily permits people to sign documents at home while a notary and witnesses observe via videoconferencing technology. The new law facilitates the completion of estate planning documents and real estate transactions while allowing for the participants to observe social distancing guidelines issued by public authorities. Click here to access the text of the new law.

Other Developments

1. Federal Reserve Lifts Withdrawal Limits on Savings Deposits

The Federal Reserve announced an interim final rule on April 24 that amended the definition of a “savings deposit” under Regulation D to remove the requirement that certain kinds of transfers or withdrawals that an account holder may make from a savings account is limited to a maximum of six per month. The interim final rule allows banks to immediately suspend enforcement of the six-transfer limit and to allow their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits, in part to allow depositors easier access to funds during the COVID-19 public health emergency. The interim final rule became effective of April 24. Click here for a copy of the interim final rule.

2. Federal Reserve Delays Implementation of Revised Bank Control Framework

The Federal Reserve Board announced on March 31 that it will delay by six months the effective date for its revised framework for determining whether a company controls a banking organization for purposes of the Bank Holding Company Act or the Home Owners’ Loan Act. The delay moved the effective date from the original date of April 1, 2020 to September 30, 2020. Click here for a copy of the Federal Reserve’s announcement.

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