In FAQ #31 posted on April 23, 2020, the US Small Business Administration offered the following clarification (italics added):

31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all

Today, the Federal Housing Finance Agency (“FHFA”) announced an eagerly awaited policy allowing Fannie Mae and Freddie Mac (the “Agencies”) to address one aspect of the liquidity crisis for mortgage servicers facing mounting advance obligations due to forbearances. Going forward, once a servicer of single-family mortgage loans pooled into an Agency mortgage-backed security has advanced four months of missed payments on a loan in forbearance, it will have no further obligation to advance scheduled payments of principal and interest.[1] The FHFA reports that this applies to all Agency servicers.

This answers one of the four main questions that servicers have asked about forbearance required under the CARES Act in the context of Agency servicing advances. Whether a servicer has to advance for forborne payments is the first question. If so, for how long, is the second question. Third, when will a servicer be reimbursed by the Agencies for such advances. Last, will the Agencies, directly or through the Federal Reserve Board or Department of Treasury, provide a liquidity facility or financing for required advances?
Continue Reading Fannie and Freddie to Relax Servicer Advance Requirements for Loans in Forbearance

On April 9, 2020, the U.S. Federal Reserve announced revised preliminary terms for the Term Asset-Backed Securities Loan Facility (“TALF 2020”). Certain CLO securities that are rated AAA by at least two rating agencies and are not rated below AAA by any other rating agency will be eligible collateral for loans under this program. In

The Federal Reserve issued a revised term sheet  on April 9, 2020, for the Term Asset-Backed Securities Loan Facility (“TALF 2020”) that was initially announced on March 23, 2020. This Legal Update summarizes the revised terms and conditions applicable to TALF 2020 and updates a Legal Update we previously issued on March 24, 2020.

Any day now, maybe even today, Ginnie Mae will announce the details on its Pass-Through Assistance Program (“PTAP”), through which Ginnie Mae will provide a liquidity facility for issuers that need help meeting their obligation as issuers to pass-through payments of regularly scheduled payments of principal and interest, regardless of whether the loans are subject to forbearance.  While quickly trying to finalize PTAP program documents, on Monday April 7th, Ginnie Mae announced that it would recognize servicing advance financing facilities under its Acknowledgement Agreement. Previously, Ginnie Mae would not recognize a servicing advance receivable as  an independent component of mortgage servicing rights related to loans pooled into Ginnie Mae securities (“MSRs”).  This new recognition improves the ability of servicers to finance a valuable income stream, which has proven increasingly costly as the COVID-19 pandemic has greatly challenged liquidity in the housing market. But this recognition comes with limitations, which we detail below.

BACKGROUND

Like Fannie Mae and Freddie Mac, Ginnie Mae permits its servicers, called “issuers,” to grant a security interest in their MSRs to secure a commercial loan. Each also used its version of a master form Acknowledgment Agreement to spell out the relative rights and obligations of the servicer, the secured creditor and Ginnie Mae. Unlike Fannie Mae and Freddie Mac, however, Ginnie Mae does not permit a servicer to grant a security interest in its MSRs to one secured creditor and a security interest in its servicing advance receivables to another; only one Acknowledgment Agreement by servicer is permitted by Ginnie Mae.

This difference in treatment is in part due to the fact that, unlike Fannie Mae and Freddie Mac, Ginnie Mae does not itself reimburse servicers for advances. Servicers instead must instead look to subsequent mortgagor payments and mortgage insurance and guaranty proceeds on the underlying pooled mortgage loans. Moreover, a secured creditor is afforded a very “skinny” cure right, if a Ginnie Mae servicer defaults in its pass-through obligations. If the secured creditor fails to cure the monetary default (within one business day), its security interest is automatically extinguished. Ginnie Mae will neither reimburse the secured creditor for its outstanding debt, either directly or indirectly though net sales proceeds, nor require the successor servicer to remit to the secured creditor reimbursement of servicing advances as and when received.


Continue Reading Modest Improvements: Ginnie Mae’s Servicing Advance Facility Recognition

The SBA’s Paycheck Protection Program, a $349 billion loan guaranty program established by the CARES Act to provide deferrable, forgivable loans up to $10 million to small business owners addressed in more detail in prior Mayer Brown posts regarding the statutory provisions and the SBA’s Interim Final Rule, launched April 3, 2020. In the initial days after the program launch, hundreds of thousands of applications were submitted, but borrowers and lenders alike continued to have questions about key aspects of the program.

On April 6, 2020, the SBA clarified certain issues in new
Continue Reading SBA Issues New Official FAQs for the Paycheck Protection Program (PPP) Addressing Borrower Eligibility, Affiliation, Underwriting, and Updates to Previously Submitted Applications

As discussed in a previous post, Section 4003 of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, authorizes $500 billion of liquidity to support businesses, states and municipalities “related to losses incurred as a result of coronavirus.”  It can be expected that a portion of the liquidity authorized by Section 4003

The Small Business Administration (SBA) released an interim final rule the evening of April 2 outlining key provisions of the SBA’s Paycheck Protection Program (PPP) and the provisions of the CARES Act relating to loan forgiveness. The rule is effective immediately.

Some highlights of the rule include:

Increase in interest rate. The interest rate on any PPP loan will be
Continue Reading SBA Releases Guidance on PPP Small Business Loans