Alert: Full Details of the Senate Passed $2 Trillion Stimulus Deal

On March 25, 2020, the Senate unanimously passed deal on a nearly $2 trillion emergency stimulus package to confront the economic impacts of the coronavirus pandemic. The legislation was part of a deal the White House and Congressional negotiators made earlier in the day. The bill is expected to move quickly on Capitol Hill.

 Key provisions for CRE include:

• Forbearance for multifamily borrowers with a federally backed mortgage (GSE, HUD);
• Eviction moratorium for certain rental units with a federally related mortgage or other assistance;
• CECL implementation paused for banks until year-end 2020;
• Codifies Troubled Debt Restructuring (TDRs) relief;
• $350 billion in forgivable loans to small business;
• $454 billion in support of the Federal Reserveb s lending facilities;
• Tax relief on payroll taxes, net operating losses, and qualified improvement property.

Below, we provide additional detail on provisions of interest to CREFC members:

 Support for Small Businesses

• $350 billion for loan guarantees under the SBAb s section 7(a) to small businesses with fewer than 500 employees.
• Loans will cover the period from February 15, 2020 to June 30, 2020.
• The maximum loan amount to $10 million and the size is tied to payroll costs incurred by the business.
• Allowable uses of the loans include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments.
• Loans used for payroll, mortgage, and rent will be forgiven.
• Sole-proprietors, independent contractors, and other self-employed individuals are eligible.
• Businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries are eligible.

To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Allows forgiveness for additional wages paid to tipped workers. Canceled indebtedness will not be taxed. Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest.

 Support for Individuals

 For individuals the package provides direct payments to lower- and middle-income Americans of $1,200 for each adult, as well as $500 for each child. For the vast majority of Americans, no action on their part will be required in order to receive a rebate check based on a taxpayerb s 2019 tax return if filed, or their 2018 return. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.

 Unemployment insurance is expanded to provide extra $600 a week on top of state benefits, which currently vary in length and amount. Eligibility would be expanded to cover more workers (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.

 Early withdrawal penalty from qualified retirement accounts are waived for coronavirus-related purposes made on or after January 1, 2020.

 Foreclosure & Eviction Moratoriums on Agency Multifamily Loans

 Of note, the bill provides up to 90 days of forbearance for multifamily borrowers with a federally backed multifamily mortgage loan who have experienced a financial hardship. Borrowers receiving forbearance may not evict or charge late fees to tenants for the duration of the forbearance period. Applicable mortgages include loans to real property designed for 5 or more families that are purchased, insured, or assisted by Fannie Mae, Freddie Mac, or HUD. The authority provided under this section terminates on the earlier of the termination date of the national emergency concerning the coronavirus or December 31, 2020.

 The bill also prohibits landlords of certain rental unit for 120 days from initiating legal action to recover possession of a rental unit or to charge fees, penalties, or other charges to the tenant related to such nonpayment of rent. This applies to multifamily properties where the mortgage on that property is insured, guaranteed, supplemented, protected, or assisted in any way by HUD, Fannie Mae, Freddie Mac, the rural housing voucher program, or the Violence Against Women Act of 1994.

 Temporary Accounting and Regulatory Relief

• Suspends troubled debt restructurings (TDRs) categorization for loan modifications related to COVID-19 (the federal banking agencies had previously provided guidance allowing this treatment).
• Allows banks the option to delay current expected credit loss (CECL) accounting rule implementation through December 31, 2020 or the end of the current pandemic emergency.

Support for Economy

• $500 billion to the Treasury's ESF to support additional liquidity facilities:
• $25 billion for passenger air carriers
• $4 billion for cargo air carriers; and
• $17 billion for businesses important to maintaining national security.
• $454 billion, for loans, loan guarantees, and investments in support of the Federal Reserveb s lending facilities to eligible businesses, states, and municipalities. The Federal Reserve 13(3) lending is a critical tool that can be used in times of crisis to help mitigate extraordinary pressure in financial markets that would otherwise have severe adverse consequences for households, businesses, and the U.S. economy.
• All direct lending must meet the following criteria:
• Alternative financing is not reasonably available to the business;
• The loan is sufficiently secured or made at an interest rate that reflects the risk of the loan and, if possible, not less than an interest rate based on market conditions for comparable obligations before the coronavirus outbreak;
• The duration of the loan shall be as short as possible and shall not exceed 5 years;
• Borrowers and their affiliates cannot engage in stock buybacks, unless contractually obligated, or pay dividends until the loan is no longer outstanding or one year after the date of the loan;
• Borrowers must, until September 30, 2020, maintain its employment levels as of March 24, 2020, to the extent practicable, and retain no less than 90 percent of its employees as of that date;
• A borrower must certify that it is a U.S.-domiciled business and its employees are predominantly located in the U.S.;
• The loan cannot be forgiven; and
• In the case of borrowers critical to national security, their operations are jeopardized by losses related to the coronavirus pandemic.

Any lending through a 13(3) facility established by the Federal Reserve under this Section must be broad-based, with verification that each participant is not insolvent and is unable to obtain adequate financing elsewhere. Loan forgiveness is not permissible in any such credit facility.

Treasury will endeavor to implement a special 13(3) facility through the Federal Reserve targeted specifically at nonprofit organizations and businesses between 500 and 10,000 employees, subject to additional loan criteria and obligations on the recipient, such as:

• The funds received must be used to retain at least 90 percent of the recipientb s workforce, with full compensation and benefits, through September 30, 2020;
• The recipient will not outsource or offshore jobs for the term of the loan plus an additional two years;
• The recipient will not abrogate existing collective bargaining agreements for the term of the loan plus an additional two years; and
• The recipient must remain neutral in any union organizing effort for the term of the loan.

Key Tax Provisions

• Allows deferral of employer payroll taxes, which must be repaid over the following two years;
• Allows net operating loss (NOL)in 2018, 2019, or 2020 can be carried back five years and will temporarily be allowed to fully offset income;
• Technical fix on allowing qualified improvement property costs to be immediately written-off rather than having to depreciate over a 39-year life of the building (this is a fix of an error in the 2017 tax law).

Support to combat the virus

 The legislation provides $340 billion to stem the outbreak, including $150 billion Coronavirus Relief Fund for state, local, and tribal governments. Hospitals and veteransb health care receive $117 billion. $11 billion for vaccines, therapeutics, diagnostics, and other preparedness needs; $4.3 billion for the Centers for Disease Control; $16 billion for the Strategic National Stockpile; and $45 billion for the Federal Emergency Management Agencyb s disaster relief fund. Airports would get $10 billion and Amtrak $1 billion. The funding adds to the $8 billion boost provided three weeks ago.

 The Senate is expected to act on the legislation soon. House members are out of town, so the chamber may work to pass the bill via a unanimous consent action. CREFC is monitoring the legislative process and providing input from our members. Please contact Justin Ailes, Christina Zausner, or David McCarthy with any questions or feedback.