HOPE Act of 2020

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. 1. Short title This Act may be cited as the Helping Open Properties Endeavor Act of 2020 HOPE Act of 2020 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 (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 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) (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 (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 (3) Commercial mortgage The term commercial mortgage (4) Financial institution The term financial institution (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) 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 (6) Secretary The term Secretary

Summary: Helping Open Properties Endeavor Act of 2020 or the HOPE Act of 2020 This bill establishes an equity facility in the Department of the Treasury to assist commercial mortgage borrowers. Specifically, Treasury must guarantee the purchase by financial institutions of certain equity instruments backed by a commercial mortgage. The bill defines commercial mortgage as a mortgage loan secured by an interest in real property owned for rental income. Borrowers with reduced revenues from their commercial property may qualify for an amount not to exceed 10% of the outstanding amount owed on their commercial mortgage. The bill sets forth eligibility requirements for borrowers, as well as requirements for the equity instruments, including rates, fees, repayment, and the rights of purchasers.