Bankers back CECL delay, FHFA offers relief

Jelena McWilliams

The FDIC Chairman Jelena McWilliams sent a letter March 19 to the Financial Accounting Standards Board urging a delay in the implementation of CECL given the economic environment caused by the COVID-19 pandemic.

Members of Congress joined McWilliams calling the FASB to delay the CECL standard. In a bipartisan letter, Reps. Gregory Meeks (D-N.Y.) and Blain Luetkemeyer (R-Mo.) echoed the need for suspension. 

“There is simply too much uncertainty at this time to implement a foundational change to our financial accounting system,” wrote Meeks and Luetkemeyer, chairman and ranking member, respectively, of the House Financial Services subcommittee on consumer protection and financial institutions. 

“As our country once again faces a potentially deep economic crisis, we call on FASB to suspend CECL implementation, and allow for further study on the economic implications of this new accounting standard,” the Congressmen wrote.

Meeks and Luetkemeyer expressed concern about how lenders will be expected to model future credit losses from the pandemic. “CECL implementation is likely to prove pro-cyclical, deepening the curtailment of credit in an economic slowdown or contraction, including in particular for borrowers with marginal credits and underbanked communities.”

The Independent Community Bankers of America called on FASB to suspend the CECL implementation until 2025, which was outlined in legislation by Senate Banking Committee member Kevin Cramer (R-N.D.)

The Federal Housing Finance Agency announced on March 23 several initiatives to provide relief to lenders, borrowers and renters amid the coronavirus outbreak. In the statement, the FHFA directed Fannie Mae and Freddie Mac to provide alternative flexibilities to satisfy appraisal and employment-verification requirements through May 17. The FHFA also announced that the government-sponsored enterprises will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of the novel coronavirus

The agency also authorized the GSEs to enter into additional dollar-roll transactions, which provide investors in mortgage-backed securities with short-term financing to support liquidity. The FHFA previously directed the GSEs to suspend foreclosures and evictions for at least 60 days and said borrowers affected by the virus will be allowed to suspend a mortgage payment for up to 12 months. 

The American Bankers Association joined financial and mortgage industry trade associations in a letter to the Federal Reserve, the Department of Housing and Urban Development, FHFA, the Consumer Financial Protection Bureau, the U.S. Treasury Department and the White House that expressed the financial industry’s view of the evolving challenges COVID-19 poses to the mortgage markets and to borrowers.

The American Bankers Association, the Consumer Data Industry Association, the Housing Policy Council, the Mortgage Bankers Association, the Structured Finance Association, the National Mortgage Servicing Association and the U.S. Mortgage Insurers wrote to the federal institutions emphasizing the importance of producing a single model forbearance program that produces the same outcomes for consumers across lending programs. The groups also called for universal program guidance from government-sponsored enterprises and government agencies, highlighting the need to waive policies and practices that may add unnecessary delays and friction to forbearance and loan modifications.

“The mortgage industry is committed to ensuring that households in need receive help immediately through payment forbearance that could extend from ninety days to twelve months,” the groups said. 

This assistance would be followed by an appropriate loan modification, with programs that allow consumers to simply resume their previous mortgage payments, without additional costs or penalties, the agencies said. The groups suggested this assistance be complemented by “programs that can provide more substantial payment relief through changes to the rate and term of the mortgages, as necessary, also without additional costs or penalties.”

Community bankers and state leaders are also continuing to look out for small businesses. Governors of Minnesota and Iowa announced emergency loan relief programs for small businesses, and the Independent Community Bankers of America is pushing for the Small Business Administration to enhance the current loan program it enacted in response to the novel coronavirus outbreak.

On March 23, Gov. Kim Reynolds announced the Iowa Small Business Relief Program, which will offer small business grants ranging from $5,000 to $25,000. The program will also offer Iowa Businesses a deferral of sales and use or withholding taxes due, waiving penalties and interest. To be eligible for a grant, businesses must be experiencing business disruption from the pandemic, and have employed between 2 and 25 people prior to March 17.

“Small businesses are the source of thriving main streets and community pride across Iowa,” Gov. Reynolds said. “The Small Business Relief Grant Program is another way we can support our small businesses during this unprecedented time.”

In Minnesota, Gov. Tim Walz established an emergency loan program that will provide from $2,500 to $35,000 in loans to small businesses during the COVID-19 crisis. The program leverages $30 million from special revenue funds at Minnesota’s Department of Employment and Economic Development. These loan programs are separate from the SBA’s emergency loan program.

On March 23, James Bullard, president and CEO of the Federal Reserve Bank of St. Louis, recommended President Trump and Congress declare a “National Pandemic Adjustment Period,” which would extend from now until roughly the end of the second quarter of 2020, depending upon how the virus progresses. 

The three broad goals Bullard proposed to be accomplished during the NPAP is to: Reduce economic activity, prevent destruction of livelihoods and firms, and pay for the pandemic response.

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