Federal Reserve Takes Additional Actions to Support the Economy
The Federal Reserve announced on April 9 a $2.3 trillion package of additional support for the economy through new loan programs and bolstering existing ones. This action by the Federal Reserve aims to assist households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.
According to the Fed’s press release, the action specifically will:
- Bolster the effectiveness of the Small Business Administration Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses;
- Provide $600 billion in loans through its Main Street Lending Program to small and medium-sized businesses;
- Provide up to $500 billion will be offered to state and local governments to avoid budget shortfalls and maintain spending on critical relief programs; and
- Offer $850 billion to households, employers, and companies through the bank's corporate credit facilities and Term Asset-Backed Securities Loan Facility.
Under the Main Street New Loan Facility (MSNLF) and the Main Street Expanded New Loan Facility (MSENLF) the Federal Reserve is providing up to $600 billion of loans to small and medium size businesses. These facilities are complementary to the previously announced Payroll Protection Program (PPP) run by the SBA and will target companies who were unable to access the PPP due to the size of their businesses. Loans made under MSLNLF or the MSENLF will be made by depositories to businesses that have up to 10,000 employees and less than $2.5 billion in revenue.
Unlike the SBA PPP program, these loans are not forgivable and must be repaid in four years at an interest rate of SOFR + 2.5% - 4.0%. However, the goal of the lending program is to provide liquidity to companies so that they are able to stay in business and keep paying their employees. Companies must borrow a minimum of $1 million under either facility and borrow up to $25 million under the MSNLF or up to $150 million under the MSENLF subject to certain limitations. The program is available until September 30, 2020, and loan payments are deferred for one year. Depositories who extend the loan will have to make underwriting decisions on the extension of the funds that were not fully described in the announcement.
Since both of these facilities are new and businesses have a variety of needs, the Federal Reserve and Treasury is soliciting comments through April 16 on potential modifications.
The PPP program has had an overwhelming response from businesses and some banks are struggling to process applications but once made the loans are consuming their liquidity to make further loans. This announcement formalized a program whereby the Federal Reserve will buy loans from the banks in order to provide the needed liquidity to make further loans.
The Fed’s announcement also included an expansion of the Term Asset-Backed Securities Loan Facility (TALF) both in size and scope that now includes some CMBS securities. NMHC has asked for broader coverage of the TALF to support new issuance of CMBS as a source of financing for the multifamily industry. States and municipalities will get additional financial support through an expansion of a previously announced facility that should bolster their ability to support local businesses.
NAA and NMHC are closely monitoring the roll out of these programs and will continue to provide input to the Federal Reserve and the Treasury.