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[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7809 Introduced in House (IH)]

<DOC>

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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