#2020-42, December 11, 2020

MBA, ABA and State Banking Trade Associations ask Congress to Extend CARES Act TDR Relief

The Association joined the American Bankers Association (ABA) and 50 other state banking trade associations on a letter to Congress asking them to extend the troubled debt restructuring (TDR) relief provisions in the CARES Act.  The provisions, which are scheduled to expire this month, allow banks to suspend generally accepted accounting principles for COVID-19 related loan modifications.

The letter notes that when a loan is classified as a TDR, a bank is often required to hold twice the regulatory capital of current loans and is ineligible for consideration as collateral at the Federal Reserve.  Many times, the TDR classification also forces the bank to take remedial steps against a loan, including foreclosure.

In related news, a group of Republican members of Congress also recently wrote to the House leadership asking for the TDR provisions to be extended, stating that allowing them to expire "would have a drastic and adverse impact on the ability of consumers and businesses to access credit now and a TDR classification would further hurt their ability to access credit in the future."

To read the state association letter, click here.

SBA Guidance Indicates that Banks Must File 1099/1098 for CARES Act Loan Subsidies

Earlier this week, the Small Business Administration (SBA) issued a Q&A document regarding several tax issues related to payments made on behalf of borrowers to lenders for existing SBA 7(a), 504 and microloans.  As we have reported previously, the CARES Act required the SBA to make payments covering six-months of principal, interest and any associated fees small businesses may owe on these loans.

The guidance notes that lenders must file a Form 1099-MISC indicating the amount of principal, interest and any fees paid by SBA to the lender on behalf of the borrower.  In situations where lenders received payment subsidies for loans for which a Form 1098, Mortgage Interest Statement is due, SBA also said that form should be filed by the lender.

To view the Q&A, click here.

CFPB Issues Final QM Standard Rule

This week, the Consumer Financial Protection Bureau (CFPB) issued a final rule making several changes to the Qualified Mortgage (QM) standard.  The rule defines both the general QM category and a new “seasoned” QM standard for certain portfolio loans.

Under the rule, to receive the QM safe harbor the annual percentage rate on a covered transaction must not exceed the annual prime offer rate for a comparable transaction by 1.5 percentage points.  Loans with an APR that exceeds the APOR by 1.5 to 2.25 percentage points will receive a QM rebuttable presumption of ability to repay, with higher pricing thresholds set for smaller loan amounts, manufactured home loans and certain other transactions. 

For the general QM requirements, the rule also eliminates the 43 percent debt-to-income threshold and the underwriting definition contained in Appendix Q while retaining the product feature and underwriting requirements and points-and-fees limits.  The rule also mandates that lenders consider the consumer’s income or assets, debt obligations and DTI ratio or residual income.

To read more, click here.