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On March 11, 2020 the World Health Organization declared Coronavirus Disease 2019 (COVID-19) a global pandemic. Businesses are being forced to close their doors, resulting in hundreds of thousands of unemployed consumers struggling to pay bills. The rise in unemployment rate from 3.5% in March to the current high of nearly 15% will result in a huge increase in personal bankruptcies. The business failure rate is also dramatically increasing. In the coming months banks will experience increased loan delinquencies, loan losses and lawsuits from struggling borrowers grasping at any possibility to save themselves from financial ruin.
On March 13 the federal bank regulatory agencies released statements encouraging financial institutions to take prudent steps to assist customers and communities affected by the COVID-19. The agencies recognize that efforts to work with customers and communities affected by the Pandemic can be consistent with safe and sound banking practices and in the public interest. The agencies further clarified that a financial institution’s prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism. (Emphasis added.)
While we have not faced a health crisis of this magnitude in the U.S. in over 100 years, we have worked through hard times as recently as 2008. The regulators had encouraging words at that time about assisting customers in need. However, post-crisis many banks paid a price taking action that was later deemed imprudent.
Financial institutions acted swiftly in a time of crisis, at the onset of the pandemic, taking actions to alleviate financial hardship for their customers; and they continue to do so as the pandemic continues. These relief actions include:
- Expediting new loans in the form of:
- Small dollar short term loans;
- Overdraft lines or overdraft plans;
- Home equity lines;
- Cash out mortgage loans; and
- Reverse mortgages.
- Providing relief on existing loans through:
- Refinanced loans;
- Skip-a-pay program;
- Payment forbearance;
- Waiver of late payments; and
- Other loss mitigation options.
- Instituting a temporary ban on foreclosures, repossessions and evictions.
The federal bank regulatory agencies have published dozens of new and revised regulations, as well as compliance aids at a dizzying rate. Keeping track of the changes is a monumental task.
What is a COVID Hangover?
The old saying – “no good deed goes unpunished” applies here. Banks have done an incredible job of meeting customer needs during the first few months of the Pandemic. As customers, both consumer and commercial, struggle to survive the economic impact of the Pandemic legal disputes will arise. Every step in the process of making special accommodations for borrowers will be scrutinized by opposing counsel, from making PPP loans, to extending loans and offering skip-a-pay options. Errors will be detected, suits will be filed, and losses will result.
What is the Cure for the Hangover?
Bankers need to understand:
- Each of the recent regulatory actions. Bankers have been so busy dealing with day-to-day activities many have not kept up with the changes. It is hard to comply with a requirement of which you have no knowledge.
- Whether a change is permanent or temporary. If a change is temporary how long will the change stay in place?
- Whether the requirements were waived or merely modified. Some lenders have mistakenly concluded that a requirement was eliminated, when it was actually just modified.
- What actions to take if the expected second wave of COVID-19 occurs.
- How to document actions taken in response to COVID-19.
- How to prepare for the next compliance examination.
This two-hour recording explores the problems that lead to the COVID-19 Hangover and evaluates the steps that lead to the cure. The litanies of regulatory changes are reviewed. The compliance issues are cataloged. Financial institutions attending this webinar will be equipped with information to prepare for the next phase of the pandemic and for compliance examinations that will assess their performance during the pandemic.
Upon completion of the recording you’ll understand:
- Risk management
- Steps to improve your Pandemic Plan before the second wave of the virus arrives.
- Compliance issues related to making prudent efforts to modify the terms on existing loans for affected customers ;
- Compliance issues related to new lending efforts, such as PPP loans;
- Compliance concerns by law/regulation
- Appraisal/Valuation Issues
- Adverse action related to PPP loans
- Right of Rescission
- TRID Delays
- Section 35 – HPML appraisals
- CFPB statement on billing errors
- FAQS for open-end credit and COVID-19
- MIRE issues;
- Force Place
- FEMA’s extension of the grace period for flood insurance renewals and the agencies response to FEMA’s action
- Requests for information
- Force-placed insurance
- Early Intervention
- Continuity of contact
- Loss mitigation
- Fair Lending
- Equal treatment in workouts
- Community development credit for Coronavirus activities;
- Fair Credit Reporting Act
- Impact of the CARES Act on credit reporting;
- Equal treatment in workouts
- Lending to Insiders – Regulation O modifications for PPP loans;
- Protecting Tenants at Foreclosure Act;
- Changing Deposit Account Terms;
- Regulation D
- Elimination of the six-per-month limit;
- FinCEN FAQs on BSA requirements for PPP loans.
- IRS Qs & As on Coronavirus-related relief for IRAs and retirement plans;
- Paycheck Protection Program
- Interim final rules;
- Servicing Issues;
- Delinquencies, workouts and loss mitigations options
- HUD and FHFA suspensions of foreclosures and evictions; and
- Other issues related to evictions, repossessions, and foreclosures.
- Legal Issues
- E-Sign and other remote closing issues
- State Law issues;
- Managing delays resulting from:
- Unavailability of appraisers;
- Title companies/attorneys not available to conduct closings;
- Third party document preparation companies not able to produce documents in the timeframe required by TRID;
- Clerks not available to file legal documents – security agreements, mortgages and deeds of trust, and releases; and
- Insurance agents not available.
This informative recording is designed for loan department management, lenders, deposit operations management and personnel, compliance officers, auditors, risk managers and anyone else involved in originating, servicing, and collecting loans or other pandemic relief offerings.