[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7809 Introduced in House (IH)]
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116th CONGRESS
2d Session
H. R. 7809
To require the Secretary of the Treasury to establish a HOPE Preferred
Equity Facility to guarantee certain financial investments of
commercial borrowers affected by COVID-19, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 29, 2020
Mr. Taylor (for himself, Mr. Lawson of Florida, and Mr. Barr)
introduced the following bill; which was referred to the Committee on
Financial Services
_______________________________________________________________________
A BILL
To require the Secretary of the Treasury to establish a HOPE Preferred
Equity Facility to guarantee certain financial investments of
commercial borrowers affected by COVID-19, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Helping Open Properties Endeavor Act
of 2020'' or the ``HOPE Act of 2020''.
SEC. 2. HOPE PREFERRED EQUITY FACILITY.
(a) Establishment.--The Secretary of the Treasury shall establish a
HOPE Preferred Equity Facility to provide financial assistance to
borrowers of commercial mortgages in the form of a guarantee of a
purchase by a financial institution of a preferred equity instrument
issued by a borrower. The Secretary shall guarantee 100 percent of any
such purchase made under this section.
(b) Eligibility of Borrowers.--A borrower is eligible to receive
financial assistance under this section if, as determined by the
financial institution--
(1) the borrower's revenue during any consecutive 3-month
period between March 1, 2020, and February 28, 2021, from the
property securing the commercial mortgage is at least 25
percent less than the revenue from such property during the
same consecutive 3-month period in the previous year;
(2) the borrower had not received written notice of
monetary default on the commercial mortgage within the previous
year and failed to cure such notice as of March 1, 2020;
(3) either--
(A) the debt service coverage ratio with respect to
the commercial mortgage was at least 1.3 times on an
annual basis during 2019; or
(B) the debt service coverage ratio with respect to
the commercial mortgage was at least 1.3 times on an
annual basis during both 2017 and 2018;
(4) the property securing the commercial mortgage is not
owner-occupied, except to manage the property or de minimis
occupancy as otherwise provided by the Secretary;
(5) the borrower or a parent company of the borrower has
not acquired the subject property after March 1, 2020, through
a foreclosure process; and
(6) the borrower has not already received financial
assistance under this section with respect to the applicable
property securing the commercial mortgage.
(c) Requirements on Preferred Equity Instruments.--
(1) In general.--With respect to a preferred equity
instrument purchased by a financial institution from a
borrower, the purchase of which is guaranteed under this
section--
(A) the instrument shall be subordinate to
perfected loans and unsecured debt;
(B) the amount paid for such instrument shall be in
an amount, as determined by the financial institution,
that does not exceed 10 percent of the outstanding
amount owed on the commercial mortgage;
(C) the purchase amount of the instrument shall be
made available by the financial institution to the
borrower in an account that the borrower may draw down,
in amounts and at times to be determined by the
borrower for any purpose the borrower determines may
help the property, during the 1-year period following
the date such purchase is made;
(D) the instrument shall be unsecured by the
subject property securing the commercial mortgage;
(E) the instrument shall provide no right of
foreclosure and no approval rights;
(F) the instrument shall, except as provided under
paragraph (2), have an annual interest rate of 3
percent calculated on a monthly basis on all amounts
that have been drawn from the account described in
subparagraph (B), of which 0.5 percent shall be
transferred to the Secretary of the Treasury for
purposes under subsection (g)(4);
(G) any portion of the instrument may be redeemed
by the borrower at any time with the financial
institution, without penalty;
(H) the instrument shall require payments to first
be due after the end of the 2-year period beginning on
the earlier of--
(i) the date on which all funds in the
account described under subparagraph (B) have
been drawn down by the borrower; or
(ii) the end of the 1-year period beginning
on the date the purchase is made;
(I) the instrument shall fully amortize over the 7-
year period beginning on the date payments are first
due;
(J) the instrument shall require immediate
redemption if there is more than a 50 percent change in
the ownership of the borrower, except via death,
compared to the date on which the instrument is
purchased;
(K) the instrument shall be approved in advance by
the Secretary; and
(L) the proceeds from such purchase may be used
for--
(i) expenses of the parent company related
to the administration of oversight of such
borrower, ownership or operation of such
borrower, or to a subsidiary entity of the
parent company for same or similar expenses;
(ii) the benefit and operation of the
property securing the commercial mortgage;
(iii) payments of the preferred equity
interest, including payments for principal,
interest, insurance, taxes, utilities, fees,
operating expenses, and payroll expenses; and
(iv) lender-required reserves such as
capital expenditure reserves.
(2) Failure to make payments.--
(A) In general.--If a borrower fails to make
payments due on a preferred equity instrument, the
purchase of which is guaranteed under this section--
(i) during the first year in which payments
are due, the interest rate on the instrument
shall increase to 3.5 percent for the remainder
of the loan, beginning at the end of the first
year;
(ii) during the second year in which
payments are due, the interest rate on the
instrument shall increase to 4.5 percent for
the remainder of the loan, beginning at the end
of the second year;
(iii) during the third year in which
payments are due, the interest rate on the
instrument shall increase to 5.5 percent for
the remainder of the loan, beginning at the end
of the third year;
(iv) during the fourth year in which
payments are due, the interest rate on the
instrument shall increase to 6.5 percent for
the remainder of the loan, beginning at the end
of the fourth year;
(v) during the fifth year in which payments
are due, the interest rate on the instrument
shall increase to 7.5 percent for the remainder
of the loan, beginning at the end of the fifth
year;
(vi) during the sixth year in which
payments are due, the interest rate on the
instrument shall increase to 8.5 percent for
the remainder of the loan, beginning at the end
of the sixth year;
(vii) during the seventh year in which
payments are due, the interest rate on the
instrument shall increase to 9.5 percent for
the remainder of the loan, beginning at the end
of the seventh year; and
(viii) after the last year in which
payments are due under the amortization
schedule, the interest rate on the instrument
shall increase to 13 percent permanently,
beginning at the end of such year.
(B) Cure period.--Before any interest rate increase
required under subparagraph (A), the financial
institution shall provide notice to the borrower within
five calendar days. The borrower shall have a 30-day
cure period before such increase takes effect,
beginning on the date of such notice.
(C) Increased interest owed to treasury.--With
respect to any interest owed on a preferred equity
instrument under subparagraph (A) above 2.5 percent,
such interest shall be owed to the Department of the
Treasury.
(D) Treatment of financial institution failure to
assess interest.--If the financial institution fails to
assess interest required under this paragraph on the
borrower, or fails to notify the borrower of such
required interest for a period of 3 months or more, the
financial institution shall only be eligible to receive
half of the service fee described under subsection
(d)(1) for the period of such failure.
(d) Payments to Financial Institutions.--
(1) Servicing fee.--The Secretary shall pay each financial
institution that purchases a preferred equity instrument, the
purchase of which is guaranteed under this section, an annual
servicing fee in an amount equal to 1 percent of the
outstanding amount on such instrument, paid annually.
(2) Pay for origination.--
(A) In general.--The Secretary shall pay a
financial institution described under paragraph (1) at
a rate, based on the covered amount, of--
(i) 5 percent for a covered amount of not
more than $350,000;
(ii) 3 percent for a covered amount of more
than $350,000 and less than $2,000,000; and
(iii) 1 percent for a covered amount of not
less than $2,000,000.
(B) Exception in cases of loss.--If the borrower
defaults on 90 percent or more of the amount drawn
down, the financial institution shall repay any
reimbursement amount paid pursuant to subparagraph (A).
(C) Covered amount defined.--In this paragraph,
with respect to a preferred equity instrument, the term
``covered amount'' means the full amount made available
to the borrower at the time the instrument is
purchased, regardless of whether the borrower has drawn
down the entire amount.
(e) Protection of Government Interests.--With respect to a borrower
who issues a preferred equity instrument, the purchase of which is
guaranteed under this section, until such time as the instrument is
redeemed, the parent company of the borrower may not remove value from
the borrower, including--
(1) by paying any dividend;
(2) with respect to any affiliated property of the borrower
for which there is a manager, if the manager and the borrower
are related, by increasing any fee paid to the manager compared
to the amount of such fee before such instrument is purchased;
(3) with respect to an affiliate of the owner property, by
procuring the performance of services or selling goods that are
not ordinary, necessary, and at market rates; or
(4) by lending money to any owner of the borrower or to any
related person.
(f) Treasury Authority and Duties.--
(1) Approval deadline.--The Secretary shall approve or deny
any preferred equity instrument submitted under this section to
the Secretary within 30 calendar days of such submission.
(2) Purchase and sale authority.--With respect to a
preferred equity instrument, the purchase of which is
guaranteed under this section, the Secretary may, at the
Secretary's discretion--
(A) purchase the preferred equity instrument from
the applicable financial institution any time after the
end of 7-year period beginning on the date payments are
first due with respect to the instrument;
(B) sell any preferred equity instrument purchased
by the Secretary under subparagraph (A); and
(C) contract with a private servicer to service any
preferred equity instrument purchased by the Secretary
under subparagraph (A).
(3) Transfer of notes and papers.--When the preferred
equity instrument is redeemed by the Secretary, a digital copy
of all notes and papers shall be provided to the Secretary upon
request of the Secretary. Upon request of the Secretary, an
original document shall be provided.
(4) Administrative costs.--The Secretary shall use amounts
described under subsection (c)(1)(E) for administrative costs
of carrying out this section.
(5) Rulemaking.--Not later than 30 days after the date of
the enactment of this Act, the Secretary shall issue such rules
or guidance as the Secretary determines necessary to carry out
this section.
(g) Financial Institution Requirements and Authorities.--
(1) Deadline for making funds available.--A financial
institution submitting a preferred equity instrument to the
Secretary under this section shall, if the Secretary approves
such instrument, make funds available to the borrower in
connection with such instrument not later than 14 calendar days
after such approval.
(2) Sale of instrument to treasury.--A financial
institution may sell a preferred equity instrument to the
Secretary after the end of the 10-year period beginning on the
date on which the financial institution purchased the
instrument at par plus interest less origination fees.
(3) Foreclosure.--In the event of a foreclosure on the
subject property securing a commercial mortgage relating to a
preferred equity instrument, a financial institution shall sell
the preferred equity instrument to the Secretary within 90 days
after the date of foreclosure at par plus interest and
origination fees.
(4) Additional collateral.--A financial institution may
require additional collateral from a borrower, including
personal recourse, corporate recourse, a first lien on another
encumbered property, or a claim on business assets. The
financial institution may not receive a lien on the subject
property.
(h) Other Requirements.--
(1) Public reporting.--A borrower that receives financial
assistance under this Act shall issue a public statement
announcing such receipt immediately after such receipt. The
Secretary periodically shall make publicly available a list of
such borrowers, along with the amount each such borrower
received.
(2) Indemnification.--A preferred equity instrument issued
under this section shall require that an approved guarantor (as
determined by the financial institution) provide a guarantee to
the financial institution and to the Secretary that provides
for indemnification of such financial institution if the
borrower, a parent company of the borrower, or any affiliate of
the borrower, with respect to the property securing the
commercial mortgage, does the following:
(A) Commits fraud, or misappropriates or misapplies
any amounts received from the purchase of such
instrument.
(B) Fails to apply such amounts in accordance with
the requirements of subsection (c)(1)(K).
(C) Fails to comply with the requirements of
subsection (f).
(D) Intentionally wastes the property.
(3) Additional fee.--A financial institution may charge
additional fees to a borrower from which the financial
institution purchases a preferred equity instrument.
(i) Treatment of Instruments by Regulators.--For purposes of
calculating any capital requirement, the appropriate Federal banking
agencies shall treat preferred equity instruments, the purchase of
which are guaranteed under this section, in the same manner as loans
guaranteed under the Paycheck Protection Program under section 7(a)(36)
of the Small Business Act.
(j) Limitation on Financial Assistance Going to Entities Controlled
by Senior Members of the Executive Branch or Members of Congress.--
(1) Prohibition.--A covered entity may not receive
financial assistance under this section.
(2) Definition.--In this subsection, the term ``covered
entity'' has the meaning given that term under section 4019(a)
of the CARES Act (15 U.S.C. 9054(a)).
(k) Funding.--The Secretary shall, without further appropriation,
use amounts made available under section 4003(b)(4) of the CARES Act
(15 U.S.C. 9042(b)(4)) to carry out this section.
(l) Definitions.--In this section:
(1) Appropriate federal banking agency.--The term
``appropriate Federal banking agency''--
(A) has the meaning given that term under section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813);
and
(B) means the National Credit Union Administration,
in the case of an insured credit union (as defined
under section 101 of the Federal Credit Union Act (12
U.S.C. 1752)).
(2) Borrower.--The term ``borrower'' means a borrower of a
commercial mortgage loan.
(3) Commercial mortgage.--The term ``commercial mortgage''
means a mortgage loan secured by an interest in real property
owned for rental income.
(4) Financial institution.--The term ``financial
institution'' means--
(A) a person authorized to make and approve loans
under section 7(a)(36) of the Small Business Act (15
U.S.C. 636(a)(36)) or section 1109 of the CARES Act
(Public Law 116-136);
(B) a national banking association; and
(C) such other persons as the Secretary determines
appropriate.
(5) Parent company.--The term ``parent company'' means any
entity that has control over a borrower.
(6) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
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