Cheat sheet: 7 measures in House coronavirus bill that matter to banks

By Hannah Lang, Neil Haggerty and Brendan Pedersen

WASHINGTON — The $3 trillion coronavirus relief bill that the House passed late Friday is unlikely to become law, but provisions addressing the economic fallout of the pandemic — such as extending the Paycheck Protection Program and expanding Federal Reserve lending facilities — could be on the table in negotiations with the Senate.

The Democrats' ambitious Health and Economic Recovery Omnibus Emergency Solutions Act — or HEROES Act — would also suspend negative credit reporting, freeze consumer debt collection, expand the moratorium on evictions and foreclosures, and provide a safe harbor for banks that service state-legal cannabis businesses. Yet those measures face an uphill battle in the GOP-controlled Senate.

But observers say the House legislation will help advance discussions with Senate Republicans who have been hesitant to provide any additional coronavirus relief. Federal Chairman Jerome Powell pleaded to Congress Tuesday to provide additional fiscal stimulus to the economy.

“This here is the start of negotiations and I think the biggest boost to phase four came when Jerome Powell this week said more fiscal stimulus is needed,” said Ed Mills, a policy analyst at Raymond James.

James Lucier, managing director at Capital Alpha Partners, said some components of the House bill have the potential to become law, particularly as it relates to PPP.

“They will probably ... extend the life of the Paycheck Protection loan program and reconfigure it,” Lucier said. “But other than kind of the core policy goals, I think the details are fungible.”

Other provisions of note in the legislation include forbearance for all covered mortgage loans, $100 billion in emergency rental assistance, and additional support for community development financial institutions and minority depository institutions.

The legislation also makes use of the Fed’s ability to prop up lending facilities. It would make nonprofits eligible to participate in the Main Street Lending Facility, and keep the Fed’s Municipal Liquidity Facility operational through the end of 2021. The House would also set up a Fed facility for debt collectors that lose income due to forbearance provisions.

Senate Majority Leader Mitch McConnell indicated that any additional coronavirus stimulus will be narrowly focused on the pandemic.

“This is not a time for aspirational legislation, this is a time for practical response to the coronavirus pandemic,” Senate Majority Leader Mitch McConnell said in a press release. “And so, we're going to insist on doing narrowly targeted legislation.”

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Debt collection facility

Observers were surprised to see House Democrats include a Fed facility for debt collectors included in the HEROES Act.

The facility would be required to make long-term, low-cost loans to debt collectors to compensate them for documented financial losses due to forbearance of debt payments.

“It is a surprising provision for Democrats who are not normally big fans of debt collectors,” said Karen Petrou, managing partner at Federal Financial Analytics. “It is a backstop for debt collectors who are otherwise eligible for PPP loans or for that matter Main Street loans.”

But the HEROES Act also includes a moratorium on debt collections during the pandemic and 120 days thereafter. Some analysts say the Fed facility for debt collectors was likely included to appease the debt collection industry and bolster the argument for a debt collection moratorium.

“It’s Democrats admitting that if collections have to stop, the collection companies which employ a lot of people in terms of call centers and the like, will go out of business,” said Brandon Barford, an analyst at Beacon Policy Advisors. “So it’s a way to keep a necessary part of the industry alive to speak, but to be really helpful to consumer. There’s no way that Republicans are going to agree to a moratorium on debt collections. There’s no way that Democrats would agree to a facility to help debt collectors absent of that moratorium.”
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Expansion of Fed’s Main Street program

Under the legislation, the Fed would be required to make nonprofit organizations eligible for loans through the Main Street Lending Program. The lending facility was created under the previous coronavirus relief law to provide financial assistance to companies with up to 15,000 or $5 billion in annual revenue.

The Fed has said that it is exploring making nonprofits eligible for loans, but has not publicly said how or if it would do so.

The HEROES Act would instruct the Fed to create a low-cost loan option just for nonprofits, as well as a low-cost loan option with no minimum loan size for both nonprofits and small businesses.

Currently, the minimum loan size through the program is $500,000 — a figure that some are concerned could translate into significant debt for borrowers.

The bill also directs the Fed to give nonprofits the flexibility to defer payments on loans.
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Additional mortgage relief

The bill would amend the previous stimulus package so that borrowers of any “covered mortgage loan” would be eligible for forbearance for up to a year if they affirm that the coronavirus has affected them financially.

A “covered mortgage loan” is defined in the legislation as any credit transaction that is secured by a mortgage or deed of trust on a one- to four-unit dwelling. Previously, only borrowers of federally backed mortgages were eligible for 12 months of forbearance.

The bill would also automatically put any borrower who became delinquent after March 13 into a 60-day forbearance plan once that borrower misses a mortgage payment for 60 days. Those borrowers would subsequently be able to request additional forbearance for up to 360 days.

Currently, borrowers are required to request forbearance through their mortgage servicer if they are experiencing financial hardship. Some have expressed concern that borrowers might not know about the forbearance option. Others have posited that borrowers may find it hard to contact their servicers, who are flooded with requests.

The HEROES Act would also allow multifamily mortgage borrowers to request forbearance for up to a year; currently those borrowers can skip payments for only 90 days.

The legislation provides a national uniform foreclosure and eviction moratorium for one year. The previous stimulus bill permitted a moratorium on only federally backed mortgages, and the duration of that moratorium was supposed to be 60 days. Some government agencies have already said they would extend it for their borrowers.

With the forbearance provisions already enacted, many have questioned how long mortgage servicers can stay afloat without receiving payments.

The HEROES Act seeks to address that by explicitly making mortgage servicers eligible to receive funding appropriated to the Treasury Department, but does not outright instruct the Fed to create a liquidity facility for mortgage servicers.

While the intent of this provision is unclear, it may serve to clarify that mortgage servicers would be eligible for loans under already-established Fed or Treasury programs.

Congress would also require the Fed to establish a credit facility for residential rental property owners “to temporarily compensate such owners for documented financial losses caused by reductions in rent payments.”

The facility would offer long-term, low-cost loans and would allow residential rental property owners to defer payments on those loans until after six months from the date the HEROES Act is enacted.

The bill would also extend to June 1, 2022, an exemption for Fannie Mae- and Freddie Mac-backed loans from the Consumer Financial Protection Bureau’s “qualified mortgage” underwriting rules. The current exemption, known as the QM patch, is set to expire January 2021.
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Suspension of negative credit reporting

Under the previous pandemic aid bill — the Coronavirus Aid, Relief and Economic Security Act — lenders must report borrowers as current to the credit bureaus even if they have entered into forbearance or payment deferral plans.

The new bill would build on those protections by suspending negative reporting related to the coronavirus for the duration of the national emergency plus 120 days. It would also ban all reporting of medical debt related to the coronavirus to credit reporting agencies.

The bill would also require credit bureaus to provide consumers with free credit reports and credit scores for up to a year upon request, and would restrict the use of new credit scoring models that would identify more borrowers as less creditworthy compared to current models.
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Changes to PPP

The CARES ACT allows businesses to apply for a Paycheck Protection Program loan until June 30, but the HEROES Act would extend that deadline to Dec. 31, and would make hospitals, nonprofits of all sizes and certain local news media eligible for the program.

The legislation would also give businesses 24 weeks after receiving PPP funds — instead of eight weeks — to spend the money, and would waive the requirement that 75% of the loan be used toward payroll costs in order for the loan to be forgiven. Many businesses with high overhead costs had complained that the payroll threshold was onerous.

Additionally, the bill proposes to set aside a certain percentage of funding for small businesses with fewer than 10 employees and requires that any money returned to the program be used to make loans to businesses with fewer than 10 employees as well.

However, the HEROES Act would not make any additional funding available for Paycheck program, which is noteworthy as the Small Business Administration has reported that more than half of the second round of PPP funding has already been depleted.
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New protections for stimulus checks

The HEROES Act introduces new protections for the $1,200 stimulus checks mailed last month, heeding calls from consumer groups and banks that the relief funds should be protected from debt garnishment.

Amending the CARES Act, the legislation proposed by House Democrats would add garnishment to the list of benefit protections for the first stimulus payment as well as potential future payments.

“Any applicable payment shall not be subject to transfer, assignment, execution, levy, attachment, garnishment, or other legal process, or the operation of any bankruptcy or insolvency law, to the same extent as payments described in section 207 of the Social Security Act,” according to the text of the bill. It would require the Treasury Department to encode payments sent to banks in a similar way that other protected federal benefits are, such as Social Security payments.

But the provision is not retroactive, analysts point out, and it remains unclear just how helpful the measure would be with more than 100 million payments already delivered by the IRS.

For people who have already had their stimulus payments garnished, “it doesn’t do much,” said Kiran Sidhu, policy counsel for the Center for Responsible Lending.
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Aid for community development and minority-owned institutions

The HEROES Act introduces several measures intended to shore up financial institutions with a focus on community development and minority-owned lenders.

For starters, the bill would provide a sizable bump in funding to the Community Development Financial Institutions Fund, a Treasury-managed investment vehicle that gives loans and grants to organizations that specialize in making targeted, smaller loans in communities across the country.

The $2 billion appropriated by the HEROES Act toward the CDFI Fund is significant. In 2018, the fund reported distributing a total of just over $11 billion in lending and investments.

Of that $2 billion, the HEROES Act would require that at least $800 million be set aside to be used by minority-owned lending institutions, which would include depository institutions as well as CDFI loan funds.

The proposed measure comes after Democrats already requested that the SBA and Treasury make Paycheck Protection funds available for community development financial institutions.

"The SBA and Treasury must also use their administrative authority to proactively engage with MDIs and CDFIs, including Native and minority-led CDFIs, SBA microlenders and CDCs that wish to participate as PPP lenders, Democratic lawmakers including Rep. Nydia Velazquez of New York said in an April 27 letter. “As part of this effort, SBA and Treasury must remove barriers to participation for these critical lenders, particularly for non-bank CDFIs."

Separate from the Treasury’s CDFI Fund, the HEROES Act contains a second attempt to galvanize minority-owned community finance outfits by creating Minority Depository Institutions Advisory Committee, which would work with bank regulators to provide support for such institutions through “partnerships, technical assistance, and Federal deposits,” according to the bill’s summary.

The bill also mints a new kind of bank designation: “impact banks,” defined as any bank with assets of less than $10 billion if “the total dollar value of the loans extended by such depository institution to low-income borrowers is greater than or equal to 50 percent of the assets of such bank,” according to the bill’s text. Such banks would be certified by federal bank regulators after an application process.