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Travel plans didn’t just take a back seat during the chaotic ride of 2020 – for many, they were left on the side of the road.  

Restrictions and limitations remain in place, but PTO hasn’t disappeared in the same way travel capability has. As a result, using vacation time has taken on a new meaning without taking a trip abroad or getting the whole family together for the holidays. With people having worked their way through the pandemic, a new concern is whether 2021 will continue this trend of people abandoning their vacation time in favor of more hours spent at their desks and home offices.  

The Year Vacations Stopped 

Taking time off was never banned by any means. The initial global shutdown combined with the unprecedented amount of people working remotely in the spring simply had many asking a very rational question: ‘Why would I take time off from working at home just to spend more time at home?’ Gwen Schnitzler, assistant vice president, human resources director at Forward Bank, Marshfield, saw a fair amount of this throughout the year. 

“Last year we definitely saw a decrease in PTO usage,” she said. “Some people may have planned trips they had to cancel because they couldn’t travel or didn’t feel comfortable doing so. Some questioned why they would take time off if there’s nowhere to go. There were a lot of factors contributing to this decrease.”  

A lack of places to go was only the starting point for this trend. For other employees, uncertainty in the future and health concerns played a larger role in their willingness to take time off than anything else. 

“With so many unknown factors related to COVID, we had a lot of employees holding on to their PTO,” said Ann Knutson, senior vice president, human resources director of Bank Five Nine, Oconomowoc. “People weren’t sure how this was all going to unfold. Even with FFCRA, people were reluctant to use all of their paid time off.” 

With so much uncertainty and a hold put on travel, it made sense that banks began reconsidering how to accommodate for this evolving scenario. Molly Bauer, Bank of Wisconsin Dells vice president, human resources officer, noted that properly responding to this created necessary reassurance for the individuals preparing for any unpredictable occurrence. They ultimately decided to do what they noticed other banks were doing. 

“We increased our carryover amounts for 2021,” said Bauer. “Then, time not used by the end of June goes into our ‘extended leave bank’ which can be used for illness-related events.”  

Each bank took its own approach to the situation based off the needs of its employees. Forward Bank realized early on that even if 2021 did provide a glimpse of hope, many of their employees might very well continue viewing the situation with caution. The fear was that the additional time off would simply go unused.  

“Under normal circumstances, employees can already carry over a week,” said Schnitzler. “We thought about extending that, but then understood how in a way we were almost prolonging the problem.” 

Instead, Forward Bank offered employees the option to cash out up to two weeks of PTO. The option was announced in the summertime, which allowed everyone to fully think about what they wanted to do and plan for it. For those who opted to use this choice, the payment was made on the Friday after Thanksgiving.  

“It gave the people who didn’t think they’d use that PTO a way to cash out instead,” Schnitzler added. “We timed it around the holidays so if employees wanted to put that toward holiday-related expenses they could.” 

She noted that the idea was well-received, even by those who decided not to take advantage of it. People were just happy to have that element of choice during a year that vacations allowed for anything but.  

A Good Time to Take Time Off 

Although these changes helped to make life easier, there hasn’t been much of an argument to carry this concept over into the new fiscal year. For some, this is a matter of life finally beginning to return to normal. For others, there is a concern that employees are not taking the time off they deserve. Many employees point to the recent growth in work spurred by essential tasks such as PPP as reason for sticking around. 

“Things got really busy, really quick,” said Schnitzler. “Of course, we still accommodated for when people wanted to take time off. But with mortgages, PPP loans, and the knowledge that even if time was to be taken off there weren’t a lot of options for recreation, the majority of people decided they would just keep working.” 

This became especially difficult for employees still working remotely. Now that their home had doubled as their office, taking time off simply meant spending more time in the place that they work. Schnitzler added that especially now with workloads leveling out a bit, it’s good to view spending time not working as an important part of the work itself, regardless of where or how you end up using that PTO.  Whether you’re simply recharging or looking to spend more quality time with your family, taking that time away from work is crucial for your health and well-being.  

“If you’re at a point where you feel like you have so much going on and can’t possibly take time away, that is exactly the time to use some vacation,” said Knutson. “This prevents burnout and encourages creativity. When people are away from work, they’re able to think about how they might take a new approach to their work style. They can think about developing new workflows. And it helps you keep in mind that life isn’t just about work.” 

Encouraging employees to take time off comes with several benefits. It can help them gain perspective, recalibrate, and have a positive effect on mental and physical health.  

“The past year speaks a lot about our workforce and the fact that so many people are willing to keep powering through, especially last year when things were so crazy,” Schnitzler said. “Seeing that dedication in this industry is amazing.” 

But at the end of the day, she noted that dedication doesn’t mean giving up the PTO you’ve earned. Allowing yourself some extended time to relax is part of the reward for hard work, not the antithesis of it. 

“It’s really as simple as this,” she added. “We don’t give people vacation time with the expectation that they’re not going to use it.”  

Returning to the Office 

Taking the opportunity to clear the mind outside of the day-to-day responsibilities of work is a necessary part of self-care, but prioritizing this time off doesn’t change the fact that the spread of COVID is still an issue. Making sure guidelines are set in place upon return to the office gives workers the time off they deserve while preventing any further spread. This might look different at each bank, and it doesn’t have to require any extraordinary planning. 

“We’ve just been following CDC and local health department guidelines,” Knutson said. “We are not scientists, we are not doctors, we are not medical professionals, and we don’t want to pretend like we are. I think that’s important because we don’t want to step outside of our expertise. We have to be able to rely on the experts.” 

Knutson noted that when you follow the professional advice that’s out there, you have the experts to lean on. And though planning is crucial, it’s equally as important to not overreach when it comes to people’s lives. Managing risk does not mean asking workers to quarantine after returning from seeing their in-laws in Illinois, and having a plan can be as simple as asking employees to be honest with where they’ve been and if they believe they’ve been exposed to the virus. 

“The banking industry is one that likes to make quick decisions once we have as many facts as we possibly can,” she continued. “This way we can make a more accurate decision upfront and won’t have to change our position at a later date.”  

Another concern is whether employers might discourage people from enjoying themselves by placing harsh restrictions on their ability to work once they come back. If allowing a few days of remote work isn’t an option, setting allotted time aside for employees to quarantine if necessary when returning from a trip is one way to incentivize vacation and stay safe in the process.  

“[Bank of Wisconsin Dells] has set up a bank of the equivalent of 10 days of paid time for anything that we require you to be out for, such as travel quarantine or extra days for illness,” said Bauer. “This is in addition to our PTO plan and the FFCRA time.”  

With all these factors considered, it is still uncertain whether people will end last year’s trend of skipping out on vacation time. While there are still plenty of things to remain cautious of, there is also reason to be optimistic that bankers are re-evaluating the importance of their time off.  

“We don’t know what the future is going to look like,” admitted Schnitzler, “but we’ve seen employees begin to feel more comfortable with traveling again. The virus is still out there, but there are a lot more precautions in place and I think people are really becoming more comfortable.” 

As Knutson sees it, employees are preparing for some much-needed time out of the office, whether it be for travel plans or to simply unwind.   

“I’m finding and hearing that more people are planning on taking PTO for vacation purposes,” she said. “It seems that so many people are beginning to look past the current situation and realizing that they just need some time to relax after such a long, difficult, and unexpected year.” 

By, Alex Paniagua

SBA has announced that the PPP will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on Mon., Jan. 11 and Second Draw PPP Loans on Wed., Jan. 13. The definition of community financial institutions can be found below. 

The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on Jan. 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.  
 
Read the SBA announcement here.

New PPP FAQs to Reflect Changes Made by Economic Aid Act 
A new series of frequently asked questions (FAQs) has been created to address revisions to SBA’s PPP as made by the Economic Aid Act. The information is in addition to the recap previously released in the WBA Omnibus Law Summary. Any item updated or revised by the Economic Aid Act has been highlighted.   

WBA will continue to update the FAQ document, as necessary. A separate FAQ document to address SBA’s PPP Second Draw Loans interim rule is currently in the works and will be made available as soon as possible.   
 
Read the FAQ

Heather MacKinnon, WBA VP – Legal, contributed to the contents of this article. 

New DOL Guidance Regarding FFCRA  
As previously mentioned in last week’s release of the WBA Omnibus Law Summary, WBA stated it would share any guidance issued by the Department of Labor (DOL) regarding paid sick leave and expanded family and medical leave under FFCRA. DOL has since issued guidance. The guidance comes in the form of new FAQs added to DOL’s existing FFCRA guidance. The two questions (#104 and 105) may be found at the end of the listing, designated by a 12/31/2020, date.  

The questions outline that an employer is no longer required to provide FFCRA leave after December 31, 2020, but that the coverage is now voluntarily until March 31, 2021. The FAQs also confirm employers are still responsible for FFCRA leave that occurred prior to December 30, 2020. Lastly, the guidance also provides a link to an IRS website if employers have questions about claiming the refundable tax credit for qualified FFCRA wages. The DOL guidance may be viewed here.

PPP Definition of Community Financial Institution
While the phrase "community financial institutions" may be familiar due to your bank’s relationship with the Federal Home Loan Banks, this phrase is used uniquely in connection with the new law. Per the Economic Aid Act, a Community Financial Institution (CFI) is one of the four types of lenders:   

  • Community Development Financial Institution (CDFI) 
  • Minority Depository Institution (MDI) 
  • Community Development Corporation (CDC) 
  • Microlender Intermediary  

The source for this definition is 15 USC 636 (xi). Unfortunately, it does not include banks regardless of size unless a bank is also a CDFI or MDI. 

WBA understands the portal will likely open for all banks the week of January 18. There is no public confirmation of this yet; however, WBA is encouraging its members to be prepared for the likely broader opening of the portal that week.

By, Alex Paniagua

Chairman Sanfelippo and Members of the Committee:   

My name is Michael Semmann, Executive Vice President and Chief Operations Officer for the Wisconsin Bankers Association, the state’s largest financial industry trade association. WBA represents 225 commercial banks and savings institutions, their nearly 2,300 branch offices and 28,000 employees.

On behalf of its membership, WBA supports 2021 Assembly Bill 1, specifically the provisions protecting Wisconsin businesses from liability claims related to contraction or exposure to COVID-19 in the workplace.

Wisconsin’s financial institutions are on the economic frontlines of this crisis and have been since its inception. Before government programs were even developed, financial institutions across the state were already proactively engaging with their customers to determine the impact the COVID-19 pandemic was having on their financial well-being.

Over the course of the last ten months, and from the moment emergency health declarations were made at the state and federal level, WBA began hearing concerns from customers about their financial stresses. WBA continues to hear stories of economic hardship as people continue to take steps both on their own and in response to various actions to help mitigate the spread of the virus.  

The pandemic has indeed created challenging situations for individuals and businesses. Banks, as a steadfast and essential industry, have worked overtime as a resource in these uncertain times, especially through the execution of the Paycheck Protection Program (PPP). Wisconsin banks helped facilitate nearly 90,000 loans to small businesses worth over $9.9 billion – ranking the state as  18th best in the country by volume. Throughout the pandemic, drive-thru lanes and lobbies have remained open and staffed by personnel dedicated to customer service.

Wisconsin’s banks have a unique perspective in the state economy and admirably stepped up to help Wisconsin consumers. They have been part of the solution to the hardships this pandemic has created. A key component of our state’s economic recovery is for banks to continue to serve their customers smoothly and help them maintain access to their finances in the months ahead. If banks are taking the necessary precautions and actions to keep their customers and employees safe, they should be shielded from predatory lawsuits. AB 1 accomplished this and many other goals.

WBA appreciates the efforts by the committee to address liability retroactively without affecting suits which have already been filed, and extend protection of individuals, businesses, schools, and universities from liabilities related COVID-19. We applaud the efforts to ensure compliance with applicable statutes, rules, and guidance should be substantial and not absolute.

Those who aid in the state and the public during a pandemic or other emergency should have assurance that their actions and good intentions are met with in-kind action by government. Wisconsin businesses, non-profits, schools, and homeowners need a measure of consistency and security as we turn the page to 2021 and look to emerge from the COVID-19 pandemic.

I want to thank the members of this committee, along with the other members in the Assembly and Senate for working on this important legislation to ensure everyone in Wisconsin can move forward with confidence.

For more information, contact WBA’s Mike Semmann at 608-441-1206, msemmann@wisbank.com or John Cronin at 608-441-1215, jcronin@wisbank.com. 

By, Alex Paniagua

The Families First Coronavirus Response Act (FFCRA) has not been extended. This means that after December 31, 2020, employers with fewer than 500 employees are no longer required to provide special paid sick leave and expanded family medical leave related to COVID-19. 

However, the recently signed Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA or COVID Relief Bill) does extend certain FFCRA tax credits for employers through March 31, 2021.  As a result, employers who, between January 1, 2021 and March 31, 2021, voluntarily provide paid sick leave and expanded family medical leave will receive tax credits in same fashion had the leave been provided before December 31, 2020.   

The tax credit extension does not change or increase the amount of paid sick leave or expanded family medical leave available under FFCRA. If an employee has used all available FFCRA paid sick leave and expanded family medical leave in 2020, the employee does not receive additional FFCRA leave despite the extended tax credit period. Also, the qualifying COVID related reasons for when an employee may take leave, the caps on the amount of pay an employee may be entitled to receive, and all documentation requirements of FFCRA remain the same.  

Management should consider whether to continue to offer the coverage, should notify staff, and update any FFCRA coverage notices accordingly. Careful recordkeeping should also be maintained to ensure FFCRA-related leave limits are not inadvertently exceeded. WBA is hopeful the Department of Labor will release updated guidance regarding the voluntary coverage, including to clarify that carryover of expanded family medical leave from 2020 into 2021 is permissible if an employer’s FMLA year resets during the extended period and the employee has unused FFCRA-related leave. WBA will share any updated guidance if it becomes available. 

By, Ally Bates

Volatile is a commonly used word to describe agricultural milk and grain prices. The definition of volatile is stated to be “liable to change rapidly and unpredictably, especially for the worse”. The ebbs and flows of the Class III milk price over the last 20 years is a perfect example of this definition. The lowest Class III milk price during the last two decades occurred in 2002 with an average price of $10.42. Compare this to the highest Class III milk price which occurred in 2014 at $22.34. In 2020 alone, monthly average Class III milk price has experienced swings from $17.05 beginning of the year, dropping to $12.14 in May, and rebounding to $24.54 in July. If 2020 has taught us anything, it is that we need to expect and be prepared for the unexpected. In our current world, so much is out of our control so it will be critical to help our producers control the risks that they can. 
 
In 2021, controlling margins will be a key to success going forward. If you have not started conversations regarding what commodity price risk our farmers are taking off the table for 2021, start today. Now more than ever, it is important for our farmers to know and understand their cost of production. Market volatility can present opportunities to lock in profits over the cost of production. Using programs such as MPP, DRP, forward contracts, or hedging strategies with a commodity broker to take some income risk off the table is likely prudent given the unknowns in the markets today. Disciplined and intentional marketing strategies will play a key role in ensuring long-term viability for our farm customers.
 
Because of the rebound in commodity prices in the second half of 2020, along with PPP, CFAP, CFAP 2.0 and WHIP government programs healing or enhancing balance sheets, do your farms have a false sense of security? In addition to addressing price volatility with a solid marketing plan, the most effective way to prepare for the unknown is to maintain balance sheet liquidity. When times are good, and there’s money in the checkbook, complacency can set in. It is important that we are working with our farm customers to ensure that there is a focus on maintaining balance sheet cushion as it is very possible market volatility will continue. 
 
Many people have difficulty dealing with change and uncertainty, and 2020 has brought an unprecedented amount of both. Market volatility is one element of change and uncertainty that can be causing stress on our farmers but is not the only thing. When listening to a farmer do you ever hear a voice of uncertainty? This is a common sign of a person going through mental strain. What can we do as bankers to assist our farmers with stress and mental health? What do you as a banker do to stay mentally and physically strong, and how can this help a farmer cope with their stress? These are daily questions that we all deal with. One of the most important things we can do for our farmers is to actively listen to them. We can be trusted advisors with our financial and analytical acumen, but now more than ever, the human element and relationships we have are critically important. 
 
As a banker I have worn several different hats over the last 20 years. At times I am viewed as a trusted advisor, cheerleader, coach, and psychologist, and often simultaneously. Regardless of what hat I am wearing, I emphasize to my farmers that no matter what is happening in the checkbook or their perceived stress, they must always continue to believe in themselves and their farms.  
 
As always, stay safe.
 
Craig Rogan is vice president, ag banking officer with Investors Community Bank in Stevens Point and serves on the WBA Agricultural Bankers Section Board.
 

By, Lori Kalscheuer

A new coalition aiming to stop the spread of COVID-19 is bringing together the WBA and all three of Wisconsin’s major professional sports teams.   

Players from the Brewers, Bucks, and Packers have voiced their support for the “Stop the COVID Spread!” coalition and have recently been featured in advertisements encouraging Wisconsin residents to do their part in slowing the spread of the virus.    

“We know that everyone must do their part to stop the rapid spread of COVID-19 in our state and we are pleased to join this effort through a public service announcement and encourage Wisconsinites to join our team in wearing masks, social distancing and washing your hands. It’s time to get in the game Wisconsin!” said Packers President and CEO Mark Murphy. 

The coalition has released its second public education announcement which features Green Bay Packers players Adrian Amos, Kenny Clark, and Marquez Valdes-Scantling. Leaders of all three organizations have also spoken on behalf of the coalition and Wisconsin’s role in the efforts.   

Learn more about the coalition and their efforts to defeat this public health crisis at: https://www.wha.org/stopthecovidspread

By, Ally Bates

The below article is the Special Focus section of the August 2020 Compliance Journal. The full issue may be viewed by clicking here.

The Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and National Credit Union Administration (NCUA) (collectively, the agencies) recently issued a joint statement to provide prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers as loans near the end of initial loan accommodation periods applicable during the Coronavirus Disease 2019 (COVID event). The principles are consistent with the agencies’ Interagency Guidelines Establishing Standards for Safety and Soundness and are generally applicable to both commercial and retail loan accommodations. The principles are intended to be tailored to a financial institution’s size, complexity, and loan portfolio risk profile, as well as the industry and business focus of its customers. The following is a summary of the release.  

In the new guidance, the agencies recognize that while some borrowers will be able to resume contractual payments at the end of an accommodation, others may be unable to meet their obligations due to continuing financial challenges. The agencies also recognize that some financial institutions may face difficulties in assessing credit risk due to limited access to borrower financial data, COVID event-induced covenant breaches, and difficulty in analyzing the impact of COVID event-related government assistance programs. 

The agencies provide several principles to illustrate prudent practices for financial institutions in working with borrowers as loans near the end of accommodation periods, including: prudent risk management practices, well-structured and sustainable accommodations, consumer protection, accounting and regulatory reporting, and internal control systems.   

As outlined by the agencies, prudent risk management practices include identifying, measuring, and monitoring the credit risks of loans that receive accommodations. Sound credit risk management practices include applying appropriate loan risk ratings or grades and making appropriate accrual status determinations on loans affected by the COVID event. Further, the agencies believe effective management information systems and reporting helps to ensure that bank management understands the scope of loans that received an accommodation, the types of initial and any additional accommodations provided, when the accommodation periods end, and the credit risk of potential higher-risk segments in the portfolios.  

When working with borrowers who continue to experience financial challenges after an initial accommodation, the agencies believe it may be prudent for a financial institution to consider additional accommodation options to mitigate losses for the borrower and the financial institution. The effectiveness of accommodations improves when they are based on a comprehensive review of how the hardship has affected the financial condition and current and future performance of the borrower.  

When considering whether to offer additional accommodation options to a borrower, the agencies stated it is generally appropriate for the institution to assess each loan based upon the fundamental risk characteristics affecting the collectability of that particular credit. The new guidance further identifies what financial institutions should consider in its evaluation of the borrower’s financial condition and repayment capacity. The agencies also note that the COVID event may have a long-term adverse impact on a borrower’s future earnings and therefore bank management may need to rely more heavily on projected financial information for both commercial and retail borrowers when making underwriting decisions as supporting documentation may be limited, and cash flow projections may be uncertain.  
The agencies also encourage financial institutions to provide consumers with available options for repaying any missed payments at the end of their accommodation to avoid delinquencies or other adverse consequences. The agencies also encourage institutions, where appropriate, to provide consumers with options for making prudent changes to the terms of the credit product to support sustainable and affordable payments for the long term. Eight examples of generally effective approaches to risk management in this context are included in the guidance.  

The new guidance also includes a discussion regarding accounting and regulatory reporting that financial institutions need to consider for all loan modifications, including additional modifications for borrowers who may continue to experience financial hardship at the end of the initial accommodation period. Institutions are reminded to consider regulatory reporting instructions, section 4013 of the CARES Act regarding temporary relief from troubled debt restructuring, and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised).  

Lastly, the guidance sets forth the importance of internal control functions, commensurate with the size, complexity, and risk of a financial institution’s activities. The internal control functions typically include appropriate targeted testing of the process for managing each stage of the accommodation. Included in the new guidance are six examples of the type of activity the agencies believe can be confirmed through prudent testing by a financial institution’s internal control functions.  

As financial institutions work to determine whether certain borrowers need additional accommodations due to the effects of the COVID event, and in preparation of federal and state examinations resuming, the new guidance provides examples of prudent risk management and consumer protection principles that each financial institution need weigh. Additionally, the new guidance provides factors to consider when working through accounting and regulatory reporting requirements as it relates to each particular credit. The new interagency statement may be viewed at: www.ffiec.gov/press/PDF/Statement_for_Loans_Nearing_the_End_of_Relief_Period.pdf

By, Ally Bates

FOR IMMEDIATE RELEASE                                                                                                            July 30, 2020 
For more information, contact: 
Eric Skrum, Wisconsin Bankers Association  
608-441-1216 | eskrum@wisbank.com 
Twitter: @wisbank 

Statement on Governor Evers’ executive order requiring face coverings from Rose Oswald Poels, president/CEO of the Wisconsin Bankers Association  

“Governor Evers’ executive order requiring face coverings offers certainty to banks and businesses across the state. For those financial institutions that had been operating in multiple jurisdictions under differing rules, this provides a uniform set of parameters for everyone to operate under. 

We also want to remind the public that each bank will have different procedures for identifying customers using their lobby. While complying with the governor’s executive order, customers may be asked to:  

  • Lower their mask for a few seconds while facing a security camera  
  • Lower their mask for a few seconds to allow staff to identify them  
  • Answer security/identification verification questions (similar to using phone banking services)  
  • Use the drive-through if they are unwilling or unable to comply with the bank’s guidelines for masks  

We encourage consumers to contact their bank directly with specific questions about wearing masks and/or other face coverings in the branch.” 

 ### 

The Wisconsin Bankers Association is the state’s largest financial industry trade association, representing nearly 235 commercial banks and savings institutions, their nearly 2,300 branch offices and 23,000 employees. 

By, Ally Bates

The below article is the Special Focus section of the July 2020 Compliance Journal. The full issue may be viewed by clicking here.

The Bureau of Consumer Financial Protection (CFPB) issued an interim final rule in late June to amend Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), to temporarily permit mortgage servicers to offer a loss mitigation option based on the evaluation of an incomplete loss mitigation application. This article provides a summary of the interim rule.  

Background and Rationale for New Rule 

A general understanding of the current compliance requirements of loss mitigation and recent mortgage servicing activity which has resulted due to the pandemic is necessary to better understand the nuances for the newly created mitigation option under the interim final rule. As a requirement of the Dodd-Frank Act, Regulation X (Reg X) was revised in 2013 to create a uniform set of procedures that mortgage servicers must follow when offering loss mitigation options to borrowers who have failed to meet the contractual obligations of their mortgage loan. The loss mitigation procedures are found in Reg X section 1024.41.  

Under current Reg X loss mitigation procedures, servicers are required to first obtain a complete loss mitigation application from the borrower before evaluating a borrower for a loss-mitigation option, such as a loan modification or short sale. Reg X defines a “complete loss mitigation application” to mean an application in connection with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower. A servicer is required to exercise reasonable diligence in obtaining documents and information to a complete loss mitigation application; failure to do so could result in compliance exam violations and potential civil money penalties.  

Reg X compliance requirements aside, financial institutions have now had to deal with various responses to the national emergency due to the novel coronavirus disease (COVID-19) including actions taken by mortgage owners, investors, and insurers of mortgage loans under payment forbearance programs. In particular, the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Company (Freddie Mac), Federal Housing Administration (FHA), Federal Home Loan Bank Chicago, and other owners or insurers of mortgage loans previously announced forbearance loan programs to assist borrowers with mortgage payments knowing many would not be able to work due to the steps taken under the COVID-19 national emergency. These parties also then created payment deferral programs for borrowers once they exit forbearance to help those borrowers who are unable to afford full reinstatement or a repayment plan at that time.  

Additionally, section 4022 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows borrowers who are experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency and who have a federally-backed mortgage to have access to payment forbearance programs if the borrower submits a request to their mortgage servicer and affirms that they are experiencing a financial hardship during the COVID-19 emergency. Unfortunately, the CARES Act does not specify how borrowers who received a CARES Act forbearance must repay forborne payments. 

Given the actions by Fannie Mae, Freddie Mac and other investors/insurers to utilize forbearance and deferral programs and the requirements under the CARES Act, mortgage servicers need to reconcile those actions and requirements with the Reg X loss mitigation compliance rules to ensure no compliance violations are cited.  

As stated above, Reg X requires mortgage servicers to offer loss mitigation options only after the servicer has evaluated a complete loss mitigation application. To further ensure servicers comply with the requirement, Reg X section 1024.41(c)(2)(i) contains what is generally referred to as the “anti-evasion” rule whereby mortgage servicers cannot evade the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based upon the evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application except for in only two instances: 

  1. borrower delays completing a loss mitigation application for a significant period of time; and
  2. for a “short-term” mitigation plan.  

The programs being offered by mortgage owners/insurers and under the CARES Act were typically programs that would not fall within the Reg X 1024.41(c)(2) exceptions to allow a mortgage servicer to offer a loss mitigation option after review of an incomplete loss mitigation application.  

The federal banking supervisory agencies attempted to bring clarity to the issue in a joint statement issued on April 3, 2020. In that statement, the agencies, in recognizing the impact the COVID-19 emergency was having on borrowers and on the operations of mortgage servicers, explained that, when a borrower requests a CARES Act forbearance and reaffirms that the borrower has experienced financial hardship during the COVID-emergency, it constitutes an incomplete loss mitigation application under Reg X. The agencies further stated that although receipt of an incomplete loss mitigation application generally triggers a mortgage servicer’s good faith obligations under Reg X sec. 1024.41, the joint statement provided that a CARES Act forbearance qualifies as a short-term payment forbearance program under Reg X, so certain loss mitigation requirements under Reg X do not apply. This position, however, was only in a jointly issued statement, not in Regulation.

In recognizing the unique environment created as a result of COVID-19 and all that has been outlined above, CFPB has amended the Reg X loss mitigation rules to create a third exception. New Reg X section 1024.41(c)(2)(v) allows a mortgage servicer to offer a loss mitigation option that meets certain criteria based on the evaluation of an incomplete application, and that servicers need not comply with certain Reg X requirements once a borrower accepts that option. To participate, the interim final rule requires certain criteria be met as is outlined next; CFPB structured its criteria to align with Fannie Mae/Freddie Mac COVID-19 payment deferral and other comparable programs, including FHA’s COVID-19 partial claim. 

Eligibility Requirements of New Exception 

The interim final rule conditions eligibility for the new exception on the loss mitigation option satisfying three criteria:  

  • First, the loss mitigation option must permit a borrower to delay paying certain amounts until the mortgage loan is refinanced, the mortgaged property is sold, the term of the mortgage loan ends, or for a mortgage insured by FHA, the mortgage insurance terminates.  

    These amounts include, without limitation, all principal and interest payments forborne under the payment forbearance program made available to borrowers experiencing a financial hardship due directly or indirectly to COVID-19 emergency, including one made pursuant to the CARES Act.   

    These amounts also include, without limitation, all other principal and interest payments that are due and unpaid by the borrower experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency.  

    For this criterion, the term of mortgage loan means the term of the mortgage loan according to the obligation between the parties in effect when the borrower is offered the loss mitigation option.
     

  • Second, any amounts that the borrower may delay paying through the loss mitigation option do not accrue interest; servicer does not charge any fee in connection with the loss mitigation option; and the servicer waives all existing late charges, penalties, stop payment fees, or similar charges promptly upon the borrower’s acceptance of the loss mitigation option. The interim final rule provides no definition or clarity by what is meant by “or similar charges” under this criterion. 
     
  • Third, the borrower’s acceptance of the loss mitigation offer must resolve any prior delinquency.  

Reg X Mitigation Steps Servicer is Exempt From Under New Rule  

If a borrower accepts an option offered pursuant to the new exception, the servicer is not required to continue the reasonable diligence efforts under Reg X section 1024.41(b)(1) or send the acknowledgment notice Reg X section 1024.41(b)(2) would otherwise require for those who are not considered a small servicer under Reg X loss mitigation rules.  

Items Mortgage Servicers Should Consider 

There are a number of items compliance officers of mortgage servicers may want to consider in connection with CFPB’s interim final rule. First being that the rule was effective July 1st. Is the bank ready to implement the interim final rule should it determine the interim rule is a desired process? If bank decides the option is something it will implement, for which mortgage loans will the option be made available? The interim rule allows the new mitigation option for Fannie Mae or Freddie Mac loans as well as other loans, including bank’s own portfolio loans.  

Also, note that it is not a requirement that the bank offer this option to its borrowers. The bank can certainly follow its normal loss mitigation process established under Reg X section 1024.41 and proceed to collect a complete loss mitigation application and follow its normal protocol established to meet its reasonable diligence in obtaining documents and information to a complete loss mitigation application from borrowers.  

If implementing the new mitigation option, how will bank record or validate that the borrower’s financial hardship is COVID-19 related? A criterion is that the deferred amounts are not to accrue interest, how will bank code or program its loan operating system to ensure that treatment is applied? What steps will be implemented to ensure those fees that are required to be waived under the rule are waived?  
While the rule is effective now, will bank wait until a final rule is issued before it implements this option? If implementing now, bank will need to reevaluate when the rule is finalized to ensure any change made in the promulgation process are implemented into bank’s own procedures.  

Conclusion 

CFPB has created a new exemption under Reg X loss mitigation rules to allow mortgage servicers to offer a particular loss mitigation option to borrowers so long as the criterion in the interim final rule are met, including waiving fees and bringing the loan current. The rule allows servicers to offer the loss mitigation option without having to first receive a complete loss mitigation application. The interim final rule is effective July 1, 2020 and may be viewed at this link. Comments regarding the new option are due August 14th.  

By, Ally Bates

Thursday, July 23, 2020, SBA issued a new Procedural Notice to lenders outlining the forgiveness process and providing some instructions as to the new portal that is being created for PPP lenders to use for submitting decisions on PPP borrower loan forgiveness applications to SBA and requesting payment of the forgiveness amount determined by the lender.  

The loan forgiveness process outlined in the Procedural Notice is generally repetitive of a culmination of interim final rules previously issued by SBA. The Procedural Notice does clarify that PPP lenders are required to service PPP loans in accordance with 7(a) rules as found in SBA SOP 50 57, as amended. The SOP may be viewed here. After submission of a forgiveness decision to SBA, the lender must continue to service the loan as required. 

SBA has partnered with a financial services technology provider – Goldschmitt-CRI – to make available a secure SaaS platform (the PPP Forgiveness Platform) to accept loan forgiveness decisions, supporting documentation, and requests for forgiveness payments. This platform makes available a user interface for Lenders to upload required data and documentation, monitor the status of the forgiveness request, and respond to SBA in case of an inquiry or if SBA selects the loan for review. SBA will post a link to the PPP Forgiveness Platform on its website. The PPP Forgiveness Platform will go live and begin accepting Lender submissions on August 10, 2020, subject to extension if any new legislative amendments to the forgiveness process necessitate changes to the system.  

All PPP Lender Authorizing Officials (AOs) currently in the CAFS/ETRAN system will receive a welcome email from SBA (PPPForgivenessRequests@SBA.gov) with instructions on how to access this new platform. If an AO does not receive a welcome email, it should contact SBA’s PPP Lender Hotline at 833-572-0502 for instructions. AOs will automatically be empowered to create up to 10 additional users in the platform for purposes of submitting and monitoring forgiveness requests.  

This platform will also allow Lenders to monitor the status of forgiveness payments and support Lender reconciliation. The Lender will use the platform to provide ACH credit information for the account owned by the lender of record (as listed in the SBA ETRAN system) where the lender wishes to receive the PPP forgiveness payments. If the ACH credit information or the routing number is invalid, the Lender will not receive a forgiveness payment.   

Lenders are encouraged to read the full Procedural Notice, which can be found here

In the meantime, WBA will continue its advocacy requesting Congress pass legislation to automatically forgive PPP loans where the loan amount is $150,000 or less. While separate bi-partisan legislation on this matter has been introduced, it is more likely that this automatic forgiveness legislation will be included as part of a CARES 2.0/Phase IV package deal. WBA understands that the Senate Majority Leaders and the Trump Administration have continued negotiations on this today and we are hopeful that something will be released soon. WBA is advocating along with the national trade groups on several aspects of this package deal including automatic forgiveness for loans $150,000 or less and an intermediate forgiveness process for loans under $1 million. Once the full package details are released, WBA will immediately share the information with members.  

By, Ally Bates