Data from Black Knight showed that the number of homeowners delaying payments increased by a steep 79,000 in the past week, reversing a three-week trend that saw forbearance requests decline, The Hill reported. "Overall, the number of active forbearance plans is up 79K from last week — erasing roughly half of the improvement seen since the peak of May 22 — with rises seen over each of the past five business days," the company said of the latest data. The CARES Act passed by Congress in March allowed homeowners experiencing financial difficulty due to the COVID-19 pandemic to request forbearance for government-backed mortgages for up to 180 days without being subject to penalties and late fees. But interest continues to accrue on the loans, and the full principal still has to be paid back. Black Knights said that the delayed payments amount to more than $1 trillion in unpaid principal and represent 8.8 percent of all mortgages. The total number of loans in forbearance neared 4.7 million.
Banks have pulled back sharply on lending to U.S. consumers during the coronavirus crisis. One reason: They can’t tell who is creditworthy anymore, the Wall Street Journal reported. Millions of Americans are out of work and behind on their debts. But, in many cases, the missed payments aren’t reflected in their credit scores, nor are they uniformly recorded on borrowers’ credit reports. The confusion stems from a provision in the government’s coronavirus stimulus package. The law says lenders that allow borrowers to defer their debt payments can’t report these payments as late to credit-reporting companies. From March 1 through the end of May, Americans deferred debt payments on more than 100 million accounts, according to credit-reporting firm TransUnion, a sign of widespread financial distress. The credit blind spot has further clouded the outlook for lenders. Lenders that are having a tough time spotting risky loan applicants are approving fewer borrowers for credit cards, auto loans and other consumer debt. They are also hunting for new data sets that could indicate who is in financial trouble and how much they need to set aside to cover soured loans. The Federal Reserve last week said that the biggest U.S. banks could be saddled with as much as $700 billion in loan losses in a prolonged downturn. “Without accurate information, their only option is to pull back on credit,” said Michael Abbott, head of banking for North America at consulting firm Accenture PLC.
Millions of Americans face a cash cliff this summer as emergency unemployment benefits instituted by the CARES Act — which lifted U.S. consumer incomes by a record 10.8 percent in April — expire, Reuters reported. The loss of that safety net looms in the weeks ahead, well before a sustained recovery is likely to take hold from the sudden and deep recession brought on by the novel coronavirus. Personal income dropped 4.2 percent in May, data Friday showed. The $600 supplement Congress added to weekly unemployment benefits is due to expire on July 31. Without new support, recipients face a substantial loss of income — particularly devastating for those who worked in hard-hit sectors like hospitality where new jobs are scarce. During high unemployment and a still-raging pandemic, the end of enhanced jobless benefits could drag on consumer spending, set off a wave of missed rent and mortgage payments and translate to a slower recovery, economists said.
A “blanket approval” issued by the Trump administration allows lawmakers, Small Business Administration staff, other federal officials and their families to bypass long-standing rules on conflicts of interest to seek funds for themselves, adding to concerns that coronavirus aid programs could be subject to fraud and abuse, the Washington Post reported. Under normal circumstances, lawmakers and some federal employees who apply for small business funds in some cases have to seek approval of a little-known SBA body called the Standards of Conduct Committee. The rule applies to officials who are business owners, officers, directors or shareholders with a more than 10 percent business interest, plus any “household members” of those officials. But in a rule the administration issued April 13, the administration disclosed that the approval requirement had been suspended for all entities seeking funds from the $660 billion program “so that further action by the [ethics committee] is not necessary.” Policy experts and government watchdogs said the blanket waiver could allow officials to write the rules to benefit themselves. Because the administration has not yet released any information about the individual borrowers, it is unknown how many members of Congress or SBA officials have benefited from the nearly $700 billion program. SBA spokesman Jim Billimoria said that the administration issued the blanket waiver because it treated PPP similarly to loan programs that the agency provides in the wake of natural disasters and because agency officials were concerned that there could be a large volume of waiver requests. The Standards of Conduct Committee is made up of the deputy general counsel, acting chief operating officer and associate administrator of human resources.
The mountain of cash held by private-equity firms is turning out to be a mirage for companies they own that are struggling due to the coronavirus pandemic, the Wall Street Journal reported. The buyout industry has spent years building up its dry powder, or money that investors have committed to private-equity funds that hasn’t yet been spent. That pile was at a record $1.45 trillion globally as of June, excluding venture-capital funds, according to data provider Preqin Ltd. Yet all this dry powder has done little to soften the pandemic’s blow to companies owned by buyout firms. From retailers to restaurants and rental companies, businesses owned by private equity have toppled into bankruptcy since coronavirus lockdowns began in the U.S. in March. Thirty-four U.S. private-equity-backed companies filed for bankruptcy from March 1 through June 14, according to data provider PitchBook Inc., including well-known names such as Hertz Global Holdings Inc., Neiman Marcus Group Inc. and J.Crew Group Inc. The private-equity owners of some bankrupt companies had no shortage of cash to spend. Ares Management Corp., which bought Neiman Marcus in 2013 alongside the Canada Pension Plan Investment Board, was sitting on more than $33 billion of dry powder shortly before the luxury retailer filed for bankruptcy last month. Ares declined to comment, and the CPPIB didn’t respond to a request for comment.
The Federal Deposit Insurance Corp. is moving to boost the way it monitors for risks at thousands of U.S. banks, potentially scrapping quarterly reports that have been a fixture of oversight for more than 150 years yet often contain stale data, the Wall Street Journal reported. The FDIC today is expected to kick off a competition among 20 data and technology firms to develop a new reporting prototype that could provide the agency with more timely and targeted data about banks’ credit exposures and deposit information. The move is focused primarily around modernizing the data the FDIC collects from more than 3,200 community banks the agency oversees. Eventually, the new system might displace the voluminous “call” reports the firms are required to file 30 days after each quarter, which run 60 pages and contain more than 2,200 data fields. “What we would like to do is frankly make the call reports obsolete, and not because we wouldn’t have the data but because we would have better data and we would have more timely data,” FDIC Chairman Jelena McWilliams said in an interview. The competition is part of a broader push to modernize the way government watchdogs surveil risks in the market. Proponents say it could also boost consumer protection, help combat financial crime and ensure the banking system serves an inclusive set of customers. The effort to modernize the FDIC’s systems predates the coronavirus pandemic, yet the outbreak has demonstrated bank reporting can be out of date. For instance, the agency wasn’t able to brief the public on the first-quarter health of the industry until earlier this month. And that briefing didn’t include data past March, relatively early in the pandemic-triggered downturn. Though the agency collects some daily data from the largest U.S. banks, officials say keeping tabs on smaller institutions is especially cumbersome and outmoded, comparing the quarterly call reports to seeing a doctor but having to wait four months for lab work.
Restaurants and retailers have applauded recent changes in the government’s $670 billion small business rescue program that make it easier for companies battling the COVID-19 pandemic to qualify for loan forgiveness. But the increased flexibility has come late for scores of small businesses that followed the Paycheck Protection Program’s original rules — and quickly used up most or all of their money, the Wall Street Journal reported. Rising numbers of COVID-19 cases in Florida, Texas and other Sunbelt states have disrupted many reopening plans. The PPP has provided a lifeline for many small companies struggling to stay afloat during the pandemic. It also encouraged businesses to make spending decisions that sometimes weren’t in their best interests, some owners say. To qualify for forgiveness, many prioritized speed over efficacy. Now, with much of the money spent and the economy still hobbled, some are finding that they would have been better off had they not followed the program’s original requirements in an effort to make sure their loans would be forgiven and instead gambled that the rules would change. Changes to the PPP that were signed into law in early June extended the time frame for using PPP funds to 24 weeks from eight weeks and allowed businesses to spend 60 percent instead of 75 percent of their loan on payroll and still qualify for forgiveness. The looser requirements followed complaints the program wouldn’t provide much help to restaurants, retailers and other small businesses that remained closed or were slow to reopen, or to companies that had high costs for rent and other fixed expenses. The new rules came two months after the program’s launch. By then, 4.5 million PPP loans totaling $511 billion had been approved, according to the Small Business Administration. Nearly half of businesses that received PPP loans before the end of May have already passed the original eight-week deadline for spending the money to qualify for loan forgiveness, according to a recent survey from the National Federation of Independent Business. Read more. (Subscription required.)
In related news, Americans will soon get a first full look at which businesses received $515 billion of taxpayer funds when the government, after initial resistance by President Donald Trump’s administration, releases borrower data for one of its highest-profile pandemic aid efforts, Reuters reported. The colossal data set for the Paycheck Protection Program, to be released by the Treasury Department and Small Business Administration in the coming days, will provide transparency for a first-come-first-served program that from the outset was plagued by technology, paperwork and fairness issues. That could make life uncomfortable for borrowers that broke the spirit or letter of the rules, and for banks that shoveled the money out the door. The aim of the $660 billion program was to help cash-strapped companies keep workers employed and make rent. The Treasury and SBA said they will release a swath of information, including the names, addresses, loan amount ranges and jobs supported for businesses that received $150,000 or more. That should account for roughly 75 percent of the dollars granted, but only 15 percent of the 4.7 million loans. The agencies have not said when they will release the data. Read more.
Oil and gas producer Sable Permian Resources filed for chapter 11 protection in the Southern District of Texas, hit by a slump in oil prices as the COVID-19 pandemic hurts fuel demand, Reuters reported. The Houston-based company said it had secured debtor-in-possession (DIP) financing of $150 million to fund its operations during the restructuring and that it was working with advisers and stakeholders on a range of alternatives. The company was created last year when Aubrey McClendon’s American Energy - Permian Basin LLC, a company he founded in 2014 shortly after being ousted from Chesapeake Energy Corp., merged with its parent company in an attempt to avoid bankruptcy. Chesapeake Energy is itself widely expected to file for bankruptcy under the weight of too much debt and the drop in energy demand and prices.
Rite Aid Corp. is asking some of its creditors for a few more years of patience while it tries to turn around the struggling drugstore chain, Bloomberg News reported. Bondholders are being asked to swap $750 million of Rite Aid’s unsecured 2023 notes for securities that wouldn’t be paid back for three more years, according to a statement. They’d also have to accept a haircut on their holdings. In return, the new notes would be secured by Rite Aid’s assets and pay a higher interest rate. The debt swap was disclosed as part of a first-quarter earnings release that included a net loss from continuing operations of $72.7 million. Rite Aid withdrew its forecasts, citing effects of the coronavirus pandemic on its business. The proposed swap would exchange the unsecured 2023 notes that pay interest of 6.125 percent for secured notes that come due in 2026 and pay 8 percent. Participating bondholders would receive $800 in new notes and $194 in cash for every $1,000 of face value if they tender early. Rite Aid, based in Camp Hill, Pennsylvania, is also asking bondholders for permission to create more secured debt.
