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Legal Issues

CARES Act: Banking Industry - April 2, 2020

The new CARES Act authorizes the Secretary of the Treasury to dispense up to $500 billion in loans, loan guarantees, and other investments to support eligible businesses, states, and municipalities. In addition, it amends several existing laws to support banks, mortgage lenders, and credit unions as they support businesses affected by COVID-19.

Banking Considerations

The new law amends the Dodd-Frank Wall Street Reform and Consumer Protection Act to approve a program to guarantee obligations of solvent insured depository institutions and their holding companies. This guarantee program will terminate no later than December 31, 2020. It also permits the National Credit Union Administration Board to vote to increase the share insurance coverage provided by the National Credit Union Share Insurance Fund for non-interest-bearing transaction accounts in federally insured credit unions through December 31, 2020.

It also provides temporary relief for community banks by instructing the federal banking agencies to issue interim rules that set the Community Bank Leverage Ratio at 8% and provide a reasonable grace period to satisfy that ratio should a qualifying community bank fall below 8%. These interim rules will remain effective until the end of the declared national emergency or until December 31, 2020, whichever is sooner.

Financial institutions are allowed to suspend generally accepted accounting principles for COVID-19 related loan modifications in order to prevent modifications from being classified as troubled debt restructuring. This suspension is applicable for the term of the loan modification but only applies to loans that were not more than 30 days past due as of December 31, 2019.

The requirement to comply with the Financial Accounting Standards Board Accounting Standards Update No. 2016-13 (“Measurement of Credit Losses on Financial Instruments”) is temporarily suspended until the end of the declared national emergency or until December 31, 2020, whichever is sooner.

Consumer Credit Reporting

If a financial institution agrees to make an accommodation that would defer one or more partial or full payments, modify a loan or contract, or otherwise provide consumers with debt relief for an account that was previously current, the financial institution should continue to report the account as current so long as the consumer complies with the accommodation. This applies to any COVID-19 related accommodations made beginning January 31, 2020 through 120 days after the termination of the declared national emergency

Mortgage Forbearance Requests

Borrowers with federally backed mortgage loans who are experiencing financial hardship due to COVID-19 may request forbearance on their payments regardless of delinquency status. To request forbearance, the borrower must submit a request to his or her servicer and affirm that the request is due to financial hardship resulting from COVID-19. No additional documentation is required. The forbearance will be granted for up to 180 days with the possibility of requesting an extension for an additional 180 days. During the forbearance period, no additional fees, penalties or interest (other than those already calculated in the borrower’s regular payment schedule) will accrue on the account.

For federally backed multifamily mortgage loans, borrowers experiencing COVID-19 related hardship may submit oral or written requests for forbearance only if the loan was paid current as of February 1, 2020. When a servicer receives an oral or written request for forbearance from the multifamily borrower, the servicer must document the financial hardship and provide forbearance for 30 days. This forbearance can be extended for up to two more 30-day periods if the borrower provides the request at least 15 days prior to the end of the prior forbearance period. This right to request a forbearance or extension is in effect until the end of the declared national emergency or until December 31, 2020, whichever is sooner. During the forbearance period, the multifamily borrower may not charge tenants in the related property any late fees or penalties and may not evict or begin the eviction process for any tenant solely based on nonpayment of rent.

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