Stepping Up

Bankers stepped up to the plate to help allay financial concerns caused by the pandemic. The banking industry is offering a variety of support for customers and small business owners that include fee waivers, deferred payments for credit cards, auto loans and mortgages, loan modifications, low- and zero-rate loans, etc.

Working with the Governor, four national banks, 200 state-charted banks and credit unions formally agreed to a 90-day grace period for payments and a 60-day moratorium on foreclosures or evictions for customers impacted by the COVID-19 virus. Also, financial institutions will forgo or refund mortgage-related late fees, and other fees such as early CD withdrawals. No reports will be made to credit reporting bureaus for borrowers taking advantage of mortgage relief.

There is no income provision for applying for mortgage relief. Borrowers will have to provide documentation that they have been affected by COVID-19. Lenders will work to reduce paperwork as much as possible to expedite relief.

The Governor indicated that he would continue conversations with the lending industry on other provisions.

The Governor’s announcement came as the final details of the Coronavirus Aid, Relief, and Economic Security Act (CARES) federal plan came together, was voted on, and signed by the President. CARES included mortgage relief for financial hardship for 180 days initially and may be extended for another 180 days. During that time, no fees, penalties or interest will accrue. Renters are protected from eviction, as well, by property owners with federally backed loans who apply for mortgage relief.

Small businesses will get some relief under the federal plan. Under the Paycheck Protection Program small businesses (500 or less employees) are eligible for loans from the Small Business Administration (SBA). Loans may be used for the following business costs:

  1. Payroll costs
  2. Group healthcare benefit costs
  3. Employee salaries, commissions, other similar compensation
  4. Interest payments for mortgages
  5. Rent
  6. Utilities and
  7. Interest on any other debt obligations that were incurred before the covered period.

No personal guarantees or collateral are required for covered loans, and interest rates will not exceed 4%. The SBA will reimburse authorized lenders for processing the loans.

Under SBA, a portion of a borrower’s loan will be forgiven in an amount equal to payroll costs (excluding compensation costs over $100,000 per year), interest payments on mortgages, rent payments, and utility payments between February 15, 2020 and June 30, 2020.

Also, the SBA will cover all loan payments for existing SBA borrowers for six months. New borrowers have the same relief if a loan is granted within six months after the CARES bill was signed. There is also a provision for disaster loans for small businesses.

There is already talk of a fourth phase of federal relief.

Valerie Nera, Policy Advocate