Congress seeks more SBA funding; FHFA head rejects mortgage servicer fears

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Seeking more funds

The Trump administration and Congressional leaders “said they hope to move within days to approve hundreds of billions of dollars in new funding for small-business loans, citing widespread demand for assistance from firms hit by shutdowns related to the coronavirus pandemic,” the Wall Street Journal reports. “Heavy requests for the previously approved $350 billion in loans are pushing Republican and Democratic lawmakers to consider augmenting the Paycheck Protection Program less than a week after it started accepting loan applications. President Trump said he supported providing an additional $250 billion in funding for loans. Senate Majority Leader Mitch McConnell said he was aiming to pass a bill by the end of this week.”

“Lenders have been inundated with applications for the funds since the program launched on Friday.” Wall Street Journal, Financial Times, American Banker

“Lenders say they are being hamstrung by the SBA’s slow-moving systems,” the New York Times said. “Some lenders simply can’t get access to the agency’s online application system — which went down for more than an hour on Monday — to submit borrower information quickly and at high volumes. Requests for more logins, which would allow more bank employees to input borrower data to process loans faster, have been ignored or denied.”

“Many banks are worried that the SBA has provided them with paperwork that fails to give them legal cover to make loans under the program. They fear that the SBA might later have a technical objection to some portion of their loans, meaning they could end up being unable to recoup the sums they’re handing out to customers. What’s more, with no plan in place for banks to sell the loans and recoup some of the costs of providing cash to borrowers, smaller banks are simply running out of money.”

“The Paycheck Protection Program has received lender approvals equal to a fifth of its original funding authorization,” American Banker reports. “Lenders have submitted about 265,000 applications for $71 billion in loans, Small Business Administration officials said.

Wall Street Journal

Not my problem

The head of the Federal Housing Finance Agency dismissed claims by nonbank mortgage servicers that they are facing a financial crisis as homeowners who lose their jobs stop making mortgage payments. “I’ve seen zero [evidence] to suggest that there’s a systemic crisis across the nonbank servicers,” Mark Calabria told the Journal. “If this goes on for a year, maybe. But I think the frustration here is a lot of just misrepresentation.”

Calabria “said his agency isn’t seeing the alarming levels of forbearance requests estimated by some industry groups, which have suggested that up to 25% or more of borrowers would seek payment relief. At present, the figure is closer to 2% for Fannie and Freddie borrowers, he said, citing industry statistics through April 1.” He also saw no role for Fannie Mae and Freddie Mac, which his agency regulates, “to bail out people in the industry. Their countercyclical role is to provide mortgage credit, and I see no evidence that that is not happening.”

Financial Times

Unprepared

The European Central Bank said euro zone banks “entered the coronavirus crisis in a weakened state, with the sector’s profitability declining in 2019 for the first time in three years.” Return on equity at the 113 banks supervised by the ECB fell to 5.2% last year from 6.2% in 2018. “The least profitable banks by country were in Germany, where the 21 banks tracked by the ECB had an average return on equity of only 0.08%. That was well below the profitability of Italian banks, which are commonly seen as the sector’s weakest link but had an average return on equity of 4.85% last year.”

“The falling profitability of eurozone banks drags the sector even further behind its U.S. rivals, which last year on average reported returns on equity that were more than twice as high,” the FT said. “It also underlines the increased vulnerability of Europe’s banking sector to the economic and financial turmoil caused by the measures taken to contain the coronavirus pandemic.”

Undeterred

Royal Bank of Scotland is going ahead with the restructuring of its NatWest Markets investment banking unit despite the coronavirus crisis, laying off more than 130 people, “with many staff served their redundancy notices via video call.” Other banks have put similar moves on hold until the crisis passes.

Elsewhere

Overruled

A federal appeals court in New York ruled Monday that Goldman Sachs “must face a shareholder class action accusing the bank of hiding conflicts of interest, including behind-the-scenes dealings with a prominent hedge fund manager, when creating risky subprime securities before the 2008 financial crisis.” In a 2-to-1 decision, the court said “Goldman failed to overcome a legal presumption that shareholders relied on its pledges to guard against conflicts, when deciding to buy the bank’s stock.”

A Goldman spokeswoman “said the bank intends to ask the entire appeals court to review the decision.”

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Crisis Management Coronavirus SBA Small business lending FHFA Mark Calabria Goldman Sachs
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