New coronavirus funding stalls; mortgage lenders pressure Mnuchin

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Stalemate

Congressional Republicans and Democrats “fell short of an agreement on the next round of coronavirus emergency aid Thursday as a $350 billion loan program for small businesses ran out of money. In public comments Thursday, neither side showed signs of conceding ground,” the Wall Street Journal reports.

“In a call with lawmakers, President Trump indicated that he was open to considering other funds with the small-business loan program,” Sen. Roy Blunt, R-Mo., told the paper. “Apparently the president’s open to discussing another topic or two.”

“More money is expected to come, but when is an open question,” the New York Times says. “Congressional leaders and the Trump administration are discussing adding hundreds of billions of dollars to replenish the program, but have failed to reach an agreement. On Thursday, staff of the Democratic leadership held talks with Treasury staff about ways to break the impasse, but Senator Mitch McConnell, the majority leader, said no progress had been made, and he adjourned the Senate until next week.”

Fintech companies “were eager to participate” in the program,” the Journal says, “but some aspects of the government programs rendered much of the industry less effective. A new Federal Reserve facility that will finance billions of dollars of the loans excludes lenders that aren’t banks. What’s more, fintech lenders got a late start compared with banks. The Treasury Department and Small Business Administration didn’t start letting the fintech companies into the first-come, first-served lending program until after roughly half of the funds had already been claimed.”

“With the Paycheck Protection Program’s initial funds depleted, lenders are stepping up efforts to press for more money,” American Banker reports.

Eye on mortgage firms

Treasury Secretary Steven Mnuchin “is under growing pressure from industry officials and members of Congress to ease strains on mortgage companies as millions of borrowers skip their monthly payments amid the coronavirus outbreak. The Treasury secretary is a key figure because he must agree to let the Federal Reserve set up a program to backstop the companies. Industry officials believe the central bank supports such a plan, while Treasury officials are seen as more lukewarm,” the Journal says.

Treasury Secretary Steven Mnuchin
Treasury Secretary Steven Mnuchin

“Industry officials and policy makers say their concern isn’t just that some mortgage firms will fail without help, but that uncertainty over the costs of servicing loans could tighten lending standards to the point that only borrowers with pristine credit would obtain home financing.”

Meanwhile, “another storm is brewing” in the market for warehouse lines of credit, “which are used by non-banks to originate loans before selling them to private investors or to government-backed agencies,” the Financial Times reports. “Traders, mortgage companies and regulators are scrambling to work out how this process will be affected by a predicted surge in non-payments as the coronavirus outbreak squeezes incomes and pushes unemployment to record levels.”

"In a normal world, warehoused loans have very low default rates because the mortgages are brand new, and people can typically make their first few months’ payments," the Financial Times says. "But this is not a normal world. U.S. officials have told mortgage holders that they can take a 90-day holiday from servicing loans without facing any penalties. That raises the specter of warehoused loans going into default before they can be sold — creating problems for both agency and non-agency originators.”

New York Times

Cutting back

Facebook and its partners Thursday “rolled out a less ambitious design” for their Libra cryptocurrency in “response to a global outpouring of opposition” to the project. “No longer is the group focused on making Libra the basis of a new global financial system where Facebook could essentially play the roles of a central bank and Wall Street,” the paper says.

“The Libra project will now focus on creating a more traditional payment network in which coins will be tied to a local currency, somewhat like the digital dollars in a PayPal account. While Libra will also have a coin backed by multiple national currencies, which was the focus of the initial design documents, that will be less prominent.”

Elsewhere

New U.K. money app

Santander launched a money service app in the U.K. that will enable users to transfer of up to 3,000 pounds ($3,740) for free, Reuters reports. The Spanish bank said PagoFX, “a low-cost international money transfer service, would allow U.K. residents with a debit card issued by any U.K. bank or financial entity to send money abroad from their smartphone with low costs and using real-time foreign exchange rates.” The service will be rolled out to sole traders and small and medium-sized companies in the U.K. “in the near future.”

Unhappily abstaining

Activist investor Sherborne Investors “said it would withhold its vote to reappoint Barclays CEO Jes Staley in the bank’s annual general meeting to prevent fresh boardroom turmoil as the bank grapples with the COVID-19 fallout,” Reuters reports. Sherborne, the bank’s largest investor with a 5.8% stake, said Staley is “unsuitable to continue” as a director of the bank but decided “with great reluctance” not to vote against him because of the “complexity of the management situation” presented by the pandemic. However, Sherborne “called on the board to announce an orderly succession timetable for Staley.”

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