WASHINGTON — The Federal Home Loan banks will begin accepting loans made through the Small Business Administration’s Paycheck Protection Program as collateral when making advances to their members, the Federal Housing Finance Agency said Thursday.
The move aims to provide additional liquidity for small and community banks to “support the small businesses in their communities,” the FHFA said in a statement. It is designed to serve smaller members who don't have access to the Federal Reserve's Paycheck Protection Program Liquidity Facility.
The PPP launched on April 3 with $349 billion in funding designed to help employees of small businesses harmed by the coronavirus outbreak. The funds go to private commercial banks that in turn make loans available to businesses.
Although the SBA stopped taking applications 13 days later, when the funding ran out, the Senate recently passed a bill to authorize an additional $310 billion for the program. The House is expected to vote on the measure this week.
The Home Loan banks will be able to accept loans made under the SBA program as collateral, as long as the loans are in compliance with certain safety and soundness requirements outlined by the FHFA.
The FHFA is mandating that Home Loan Bank System members have a Camels rating of 3 or better in order to pledge PPP loans as collateral. The agency has limited the amount of loans that FHLB members can pledge to no more than $5 billion.
On Wednesday, the FHFA also announced that Fannie Mae and Freddie Mac would begin purchsing loans in forbearance in an effort to keep the mortgage market running smoothly as the coronavirus has caused lenders to tighten standards.