COVID-19 Impact on Consumers, Businesses and Structured Finance - - PowerPoint PPT Presentation
COVID-19 Impact on Consumers, Businesses and Structured Finance March 30, 2020 COVID-19 Impact: Consumers, Businesses and Structured Finance Introduction: SFA on COVID-19 Kristi Leo, President View from Capitol Hill Leslie Sack,
March 30, 2020
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Introduction: SFA on COVID-19
View from Capitol Hill
TALF 1.0 vs. TALF 2.0
Impact of COVID-19 on Securitization Markets
SFA: Next Steps
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Fed lending facilities Securitization Collateral
ABS Issuers
TA TALF: Term Asset-Backed Securities Loan Facility CPF PFF: Commercial Paper Funding Facility TALF includes ABS b backed b by a auto to l loans a and leases, s student t loans, c credit t card r receivables, equipment l t loans, f floorplan l loans, i insurance premiu ium f finance l loan
in s small b ll busin iness loans t that a are g guaranteed b by S SBA and e eligi gible servicing a g advance r receivables CPFF includes ABCP CP
Primary Dealers
PDC DCF: Primary Dealer Credit Facility Includes AB ABCP, Agencies, MBS, ABS (In the case of ABS, only AAA-rated CMBS, CLOs and CDOs)
Banks/Depository Institutions
Discount W t Window Includes ABCP BCP, , Agenci cies, MBS, A , ABS ( (In t the ca case o
ABS BS, o , only AAA-rated C CMBS, C CLOs a and CDO DOs) s)
Investors: Money Market Mutual Funds
MMLF: F: Money Market Mutual Fund Liquidity Facility Includes Age gencies a and A ABCP
Dealers and Investors
Agency cy M MBS BS & & CMBS MBS P Purch chase P Programs Includes the purchase of Age gency d debt
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Fed’s use of section 13(3) during 2008-09 financial crisis was successful in maintaining financial stability
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Lending must be made in connection with “a program or facility with broad-based eligibility”
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Cannot “aid a failing financial company” or “borrowers that are insolvent”
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Cannot have “a purpose of assisting a single and specific company avoid bankruptcy”
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Cannot establish a section 13(3) program without the prior approval of the secretary of Treasury
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Within seven (7) days after the Fed authorizes a program, it must provide Congress with a detailed report
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GAO to audit any of the Fed’s emergency lending programs
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Include “legacy securities”
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Expand eligible asset classes
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Allow senior-most securities with rating of at least investment grade
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Operational efficiencies
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Clarifications on term differences from TALF 2008
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Request technical fix to maximum facility size
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Reduce/Eliminate upfront free
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Facilitate the CARE Act funding of SBA Paycheck Protection Program
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Institute uniform delay of CECL final implementation date
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IRS guidance on tax implications of forbearance programs (REMICs and Grantor Trusts)
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Clarity on CRT deals and accounting for wide-scale forbearance
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Expand PMCCF and SMCCF to include other collateral
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Industry Participant Committees Our industry participant committees are a key component of our governance structure by:
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Providing a forum for individual constituency groups to separately discuss a wide-range of industry matters
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Evaluating relevant policy, regulatory, legislative and market developments to provide the participant group’ perspective in building Association consensus positions
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Engaging in select advocacy, with Association staff, to promote Association consensus positions
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As such, membership in these participant committees are open to primary members in the related participant class or who are outside counsel who regularly advise the related participant class.
ABCP
https://structuredfinance.org/join-a-committee-
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H.R. 748 748 — The C he Corona navir irus us Aid, id, Relie lief, a and E d Econo nomic ic S Secur urit ity (CARES) A ) Act
– Major $2 trillion stimulus package – $454 billion for Federal Reserve programs and facilities – Direct payments to individuals and families – Became law o
3/27/ 7/20 20
Init itia ial s l suppo pport a and d vaccine d e dev evel elopmen ent Paid lea eave, unem nemplo loymen ent a and f d food d assi ssistance Ma Major e economic ic s stim imulu ulus packa kage H.R. 6074 6074 — Coronavirus Prepa eparedne ness & & Respo ponse e Supp pple lemental A l Appr ppropria iatio ions ns A Act
‒ $8.3 billion in COVID-19 response funding for developing a vaccine and preventing further spread of the virus ‒ Became law o
3/6/ 6/20 20
H.R. 6201 6201 — Familie ilies F First Corona navir irus R Respo ponse A e Act
‒ $100 billion in worker assistance, including emergency paid sick leave, food assistance, and unemployment payments ‒ Became law o
3/18/ 8/20 20
Phase
Phase
Phase
House Democrat Origination Senate Republican Origination House Democrat Origination
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Pass ssed Senate te 3/25/ 5/20 20 Amend nded ed 3/23/ 3/20 20 To To President nt 3/27/ 7/20 20 Pass ssed House 3/27/ 7/20 20 Sig igned in into la law 3/27/ 7/20 20
for not protecting individuals from eviction, foreclosure, or forbearance, and blocked a key procedural vote
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With 4 Republican Senators self-quarantined and no provision for remote voting, the majority margin was slim.
bill making it the largest economic relief bill in U.S. history, but 24 hours were needed to resolve remaining differences and hash out technical drafting errors in the bill.
concerns on unemployment provisions, resulting in a threat to block the bill. Senator Bernie Sanders (I-VT) then threatened to block the legislation if the Republicans got their way.
unanimous consent, which was later changed to a voice vote. Another dangerous political drama emerged when Rep. Thomas Massie (R-KY) threatened to force a recorded vote March 27 and further stall passage.
return to Capitol Hill from their home districts.
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Sources: Summaries and bill text provided by Congressional legislative offices, Joint Committee on Taxation, and Center for a Responsible Federal Budget estimates.
Levered up 10x, the CARES Act provides the Federal Reserve $4.5 t trillio illion i in liquid quidit ity to keep credit flowing and make direct loans to U.S. businesses through newly created lending facilities. Provisions Included in the CARES Act Cost ($B)
Expa pands nds & & E Extends nds U Une nempl ployment nt B Bene nefits Boosts all unemployment benefits by $600/week, cover additional workers, provides an additional 13 weeks of benefits, etc. Direc ect P Paymen ents/Reb ebates es Provides tax rebates of $1,200/adult ($2,400/couple) & $500/child, phased out above $75,000 of income ($150,000/couple) Provi vides S s Small B Busi siness L ss Loans & s & G Grants $377 $377 Suppo upports L Loans ns & & L Loan G n Gua uarant ntees f for L Large B Bus usine nesses & & G Governm nment nts $454 b billion f for l loans t to b businesses, s states, & & m municipalities v via n new F Federal Res eser erve 1 e 13(3) f facility State, L Local & & T Triba bal G Governm nment nt F Fundi unding ng $150 $150 Inc ncreases H Health- h-Related S d Spe pendi nding ng $180 $180 Suppo upports t the he S Social S Safety N Net $42 $42 Increase ses F s FEMA D Disa sast ster A Assi ssist stance $45 $45 Inc ncreases E Educ ducation S n Spe pendi nding ng $32 $32 Suppo upports t the he T Trans nspo portation P n Provide ders & & I Indus ndustries $72 $72 Reduc duces I Indi ndividua dual T Taxes $20 $20 Cuts B s Busi siness T ss Taxes $280 $280 Othe her s spe pendi nding ng $25 $25 $260 $260 $290 $290 $510 $510
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Fede deral R l Reser erve P Programs a and F d Facilit ilitie ies
emergency actions included the following:
consumers and businesses weather a period of economic slowdown.
least” $700 billion of Treasury securities and Agency Mortgage-backed securities.
support borrowing by commercial banks.
support the flow of credit in several markets. The Federal Reserve’s programs include: – Money Market Mutual Fund Liquidity Facility – Commercial Paper Funding Facility – Primary Dealer Credit Facility – Primary Market Corporate Credit Facility – Secondary Market Corporate Credit Facility – Term Asset-Backed Securities Loan Facility Additional information on federal facilities is available here.
Ter erms a and C d Cond ndit itio ions ns f for L Loans ns or L Loan G n Guarantees es
the Secretary, there are substantial conditions attached to loans or loan guarantees.
created, organized, and have a significant presence in the United States.
repurchases or issuing of dividends for one year following repayment of any obligation under these programs.
compensation for one year following repayment of any obligation.
companies require the government takes an equity interest in the business. In the case of a non-publicly traded business, either an equity interest or senior debt interest can serve as collateral for the loan.
guidance on Title IV of the CARES Act.
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Forec eclo losur ure Mo e Moratorium ium a and nd Right t to Requ quest Forbea earance
“Federally-backed mortgage loan” to request forbearance, regardless of delinquency status and without penalties, fees, or interest, by submitting a request to the borrower’s servicer and affirming financial hardship due to COVID-19.
extended for an additional period of up to 180 days at the request of the borrower (the initial or extended forbearance can be shortened). It is worth noting the bill provides the structure for 12 months of forbearance but does not supply additional liquidity for mortgage servicers.
“Federally-backed multifamily mortgage loan” that was current on February 1, 2020 may also request a forbearance for up to 30 days, with two additional 30- day extensions.
Dela lay o
urrent E Expec pected C d Credit edit L Loss ( (CECL) Standa ndard Imple plementatio ion n
FASB’s CECL standard for insured depository institutions or bank holding companies through December 31, 2020 or the declared end of the national emergency.
have all institutions (including but not limited to banks, non-banks, captive finance companies such as auto finance companies, etc.) included in a provision delaying implementation of the CECL standard.
depositories and bank holding companies, SFA and industry allies remain committed to exploring regulatory and additional legislative alternatives for a uniform delay of CECL for all institutions.
comply with original implementation date.
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SFA Member and Congressional Engagement
clean up of legislative package Future Congressional Action
SFA staff will continue to monitor legislative and regulatory developments in D.C. Please reach out to the Government Relations team with any questions.
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What is the Term Asset-Backed Securities Loan Facility (TALF)?
‒ Consumers and businesses were unable to access the funding they needed without the flow of credit
between banks, borrowers, and capital markets
Federal Reserve Act
was designed to help market participants meet the credit needs of households and small businesses by providing loans to invest in asset-backed securities (ABS) backed by predefined loan types How Did TALF Work?
collateral of the ABS
‒ The amount of the loan was equal to the market value of the pledged security, less a “haircut” and
administration fee
a single dollar of loss
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50 100 150 200 250 300
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
TALF LF's i impact o t on n new i w issue A ABS ( ($ b billions)
Credit Cards Auto Student Loans Equipment Floorplan Unsecured Consumer Other ABS
TALF Launched TALF Terminated
Source: JPMorgan, Deutsche Bank, Bloomberg
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200 400 600 800 1000 1200 1400 1600 1800 2000
1/4/2008 2/4/2008 3/4/2008 4/4/2008 5/4/2008 6/4/2008 7/4/2008 8/4/2008 9/4/2008 10/4/2008 11/4/2008 12/4/2008 1/4/2009 2/4/2009 3/4/2009 4/4/2009 5/4/2009 6/4/2009 7/4/2009 8/4/2009 9/4/2009 10/4/2009 11/4/2009 12/4/2009 1/4/2010 2/4/2010 3/4/2010 4/4/2010 5/4/2010 6/4/2010 7/4/2010 8/4/2010 9/4/2010 10/4/2010 11/4/2010 12/4/2010
TAL ALF's Impact o
n AAA AAA AB ABS s spr preads
3yr Card 3yr Auto 2yr Subprime Auto 3yr Equip 7yr Private Credit SL
TALF Announced TALF Launched TALF Extended
Source: JPMorgan, Deutsche Bank, Bloomberg
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Collateral asset class Collateral asset sub-class Sum of Loan Amt Auto Commercial and government fleets 2.2 Motorcycle/other recreational vehicles 0.3 Prime retail lease 2.0 Prime retail loan 7.9 Subprime retail loan 0.3 Auto Total 12.8 Commercial Mortgage Legacy 12.0 New Issue 0.1 Commercial Mortgage Total 12.1 Credit Card Prime 13.7 Subprime 12.7 Credit Card Total 26.3 Equipment Loans and Leases 1.6 Equipment Total 1.6 Floorplan Auto 2.5 Non-Auto 1.4 Floorplan Total 3.9 Premium Finance Property and casualty 2.0 Premium Finance Total 2.0 Servicing Advances Residential mortgages 1.3 Servicing Advances Total 1.3 Small Business SBA 504 1.2 SBA 7(a) 1.0 Small Business Total 2.2 Student Loan Private 9.0 Student Loan Total 9.0 Grand Total ($ billions) 71.1
Source: Federal Reserve Bank of New York
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Sector Sub ubsector 0-<1 1-<2 2- 2-<3 3-<4 4- 4-<5
5-<6 <6 6-<7 <7 Auto Prime retail lease
10% 11% 12% 13% 14%
Auto Prime retail loan
6% 7% 8% 9% 10%
Auto Subprime retail loan
9% 10% 11% 12% 13%
Auto Motorcycle/other recreational vehicles
7% 8% 9% 10% 11%
Auto Commercial and government fleets
9% 10% 11% 12% 13%
Auto Rental fleets
12% 13% 14% 15% 16%
Credit Card Prime
5% 5% 6% 7% 8%
Credit Card Subprime
6% 7% 8% 9% 10%
Equipment Loans and leases
5% 6% 7% 8% 9%
Floorplan Auto
12% 13% 14% 15% 16%
Floorplan Non-auto
11% 12% 13% 14% 15%
Premium Finance Property and casualty
5% 6% 7% 8% 9%
Servicing Advances Residential mortgage
12% 13% 14% 15% 16%
Small Business SBA loans
5% 5% 5% 5% 5% 6% 6%
Student Loan Private
8% 9% 10% 11% 12% 13% 14%
Student Loan Gov’t guaranteed
5% 5% 5% 5% 5% 6% 6% ABS A Aver erage L Life ( (yea ears)
Source: Federal Reserve Bank of New York
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Source: Federal Reserve Bank of New York
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Source: Federal Reserve Bank of New York
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Source: Federal Reserve Bank of New York
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Mich chael B Bright, CEO Michael.Bright@structuredfinance.org (202) 524-6301 Kristi Leo Leo, President Kristi.Leo@structuredfinance.org (917) 415-8999 Elen C Callah ahan an, Head of Research Elen.Callahan@structuredfinance.org (347) 529-4553 Je Jen E Ear aryes, Head of Policy Jen.Earyes@structuredfinance.org (202) 524-6302 Leslie lie S Sack, Head of Government Relations Leslie.sack@structuredfinance.org (202) 524-6304