Senate passes PPP 2.0; JPMorgan hashing out return-to-work plan

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The Senate Tuesday passed a $480 billion aid bill that includes $310 billion to replenish the Paycheck Protection Program that ran out of money last week after it loaned out $350 billion to small businesses. “The bill now goes to the House, which is expected to vote on it Thursday,” the Wall Street Journal said.

The owner of a small food-manufacturing business in Colorado that was recently awarded a $3.4 million loan through the program said in a Journal op-ed that the PPP “is completely flawed and will function as a handout to companies that don’t need it. Billions of misspent dollars will never be paid back.”

“The SBA has passed responsibility for disbursing PPP loans to banks, which have every incentive to protect themselves,” he said. “Given the time crunch to award loans, banks were forced to focus on larger existing clients, not the smaller companies that need the money most. PPP loans are shaping up to be a national scandal, in more ways than one.”

Indeed, the Small Business Administration, which runs the PPP, has been roundly criticized for the way it has been managed, including allowing large companies to get loans through the program. But the Journal said the agency “rejected multiple requests on Monday for detailed information about borrowers in the program, saying it needed to prioritize its effort to assist businesses. That decision means that for now the public won’t get a comprehensive look at the $350 billion rescue package intended for Main Street, amid debate over which companies should be getting the money.”

The Journal is also reporting that “a company that agreed two weeks ago to pay a $6.5 million fine for overcharging the Department of Veterans Affairs for wound-care products was approved for a loan under the government’s small-business rescue package. The company, MiMedx Group Inc., recently settled civil accounting-fraud charges with the Securities and Exchange Commission, and its top two former executives are facing criminal accounting-fraud charges.”

The Senate bill would allocate more funds for loans provided by smaller banks, American Banker’s Neil Haggerty says.

Separately, “the personal information of thousands of small businesses applying for federal disaster loans was potentially exposed to other applicants, marking the latest glitch in the rollout of government programs designed to help companies crippled by the coronavirus pandemic,” the Washington Post reported. “Nearly 8,000 applicants to the Economic Injury Disaster Loan program (EIDL) — a long-standing program run by the SBA — may have been affected. In a statement, the SBA said that it “immediately disabled the impacted portion of the website, addressed the issue, and relaunched the application portal.”

“The emergency relief program typically issues loans to small businesses recovering from tornadoes and wildfires. But last month, the SBA expanded the program to include those hit by the coronavirus’s unprecedented economic fallout. EIDL funds are separate from the Paycheck Protection Program.”

Servicing relief

The Federal Housing Finance Agency said “it would cap at four months the period of time mortgage companies are on the hook to make monthly payments on behalf of borrowers who are in arrears,” the Journal reported. “The move provides some relief to the mortgage companies, such as Quicken Loans and Freedom Mortgage, that collect payments from homeowners and pass them on to investors in securities backed by the loans. The companies, which both originate and service home loans, must pay investors even if borrowers stop making payments.”

“After the four-month period, Fannie Mae and Freddie Mac — the government mortgage firms regulated by the agency — will assume that obligation, for up to eight more months, if necessary,” the New York Times said. “The agency and the Treasury Department have faced pressure from mortgage industry lobbyists and legislators on Capitol Hill to come up with a way to make sure mortgage servicing firms do not go bankrupt while providing financial relief to millions of unemployed homeowners.”

“The housing finance system has been grappling since mid-March with how to recoup lost revenue from homeowners who have asked to skip payments,” American Banker’s Kate Berry reports.

Wall Street Journal

Moving targets

Consumer lenders like Ally Financial and Synchrony Financial “are preparing for something pretty bad to happen to borrowers—but perhaps not bad enough.” Executives of the two companies told analysts this week that “in general, they have much better-quality loan books heading into the coronavirus crisis. But investors should also keep in mind that economic forecasts have gotten more dire in the brief time since the end of March. So much ultimately depends not just on the peak severity of the coronavirus crisis, but also how long its effects linger. Investors are still dealing with a moving target when it comes to consumer credit.”

Financial Times

Cushioning the blow

UniCredit, Italy’s largest bank, has increased its reserves for defaulted loans by €900 million “as it forecast a sharp drop in eurozone economic output this year. UniCredit’s move is the first for a major European bank after America’s six largest lenders increased their loan loss provisions earlier this month by a combined $25.4 billion. The lender forecast eurozone gross domestic product will shrink 13% this year, before a 10% rebound in 2021.”

Reforming

China's financial regulator is “stepping up efforts to restructure the country’s banking system and root out unfit shareholders, as smaller lenders struggle in the aftermath of the coronavirus outbreak. The announcement on Wednesday came just days after one bank revealed plans to recapitalize in a state-brokered bailout after its shares collapsed. China’s small and medium-sized banks have struggled with high levels of bad debt for years. But the economic shock from the spread of Covid-19 could worsen credit quality problems as borrowers fail to pay back loans.”

Elsewhere

Reopening plans

JPMorgan Chase said it is “working on a plan to bring thousands of employees who have been working from home for more than five weeks back onsite in stages,” Reuters reported, “the first big bank to announce steps to return to normal as debate grows over reopening the U.S. economy.”

“Two considerations are paramount as we plan for this across the firm: We want to do it at the right time — which may differ by region, country and state — and in a manner that prioritizes your health and safety,” the bank’s Operating Committee said in a memo to employees. “The bank said it does not have a firm timeline for when it will return employees to offices, but that it will follow guidance from government and health authorities.”

Quotable

“Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment.” — Mark Calabria, the head of the Federal Housing Finance Agency, which said Tuesday it would limit to four months the amount of time mortgage servicers must make monthly payments on behalf of borrowers in arrears.

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Paycheck Protection Program SBA FHFA Servicing JPMorgan Chase
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