MBA Asks Small Business Administration to Relax Eligibility Rules for PPP Loans

The Mortgage Bankers Association, in a letter last week to the Treasury Department and the Small Business Administration, asked SBA to relax a part of its eligibility rule so that small independent mortgage banks can qualify for loans under Section 7(a) of the recently approved Paycheck Protection Program.

Section 1102 of the CARES Act passed by Congress last month temporarily adds a new product, the Paycheck Protection Program, to the SBA 7(a) Loan Program. It is intended to provide economic relief to small businesses nationwide adversely impacted under the Coronavirus Disease 2019 (COVID-19) Emergency Declaration issued by the Trump Administration.

In the letter to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza, MBA President and CEO Robert Broeksmit, CMB, points out currently under the program, mortgage companies primarily engaged in the business of servicing loans are eligible; however, mortgage companies such as independent mortgage banks that make loans and hold them in their portfolio are not eligible. Broeksmit asked Mnuchin and Carranza to clarify the guidance so that IMBs   

“Clearly, mortgage companies that are primarily engaged in servicing are eligible borrowers under the PPP,” Broeksmit wrote. “However, while the guidance states that mortgage companies that originate and sell loans are also eligible borrowers, the requirement that the loans be sold within 14 days of closing creates a situation that could make some of the intended beneficiaries ineligible.”

The letter points out as a general matter, the business model of an independent mortgage bank is origination and subsequent sale of mortgage loans. However, while these companies do not make loans and hold them in their portfolios in the ordinary course of their businesses—in most cases, these loans are sold into the secondary market well within 14 days of closing—there are cases where the loan sales are not completed within 14 days; for example, loans being aggregated for bulk sale, or hard to place loans, may be retained or held on warehouse lines of credit for more than 14 days. 

“Regardless of the time between closing and sale of the loans, the fact is that the in the ordinary course of business the vast majority of loans are sold in less than 14 days, and even those held beyond 14 days are rarely held to maturity,” Broeksmit said. “In fact, the only way for non-depository mortgage bankers to stay in business is to sell virtually all of the loans they originate–most of the time within a few days after closing, but on occasion these loan sales take longer.  

MBA urged Treasury and SBA to issue guidance to clarify the 14-day sale requirement for purposes of determining mortgage company eligibility under the PPP. “We ask that the guidance specifically state that mortgage companies that originate and sell loans ‘in the ordinary course of their business’ would be eligible borrowers under the PPP, without regard to whether every single loan is actually sold with 14 days,” the letter said.”  

Broeksmit said such guidance is “critical for MBA member IMBs that meet the employee threshold requirement under the PPP and need the funds, just like other small businesses, to pay employees during the crisis and continue operations that help support vital real estate housing finance needs for mortgage borrowers.”