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Fed Updates Main Street Underwriting Guidelines in Effort to Reassure Lenders

  • Federal Reserve updates its FAQs to offer more guidance to lenders participating in the Main Street Lending Program
  • Only about $2 billion of the $600 billion available has been issued as lenders show reticence to take on risk
  • Update also issues guidance on loans issued to multiple co-borrowers

The Federal Reserve has updated its guidance on issuing funds through its Main Street Lending Program in an effort to reassure lenders who may be reluctant to take on risk during the current economic climate.

The Fed’s revised FAQs say lenders should consider the applicant’s condition before the COVID-19 pandemic as well as their post-pandemic business prospects. The new guidance also clarifies supervisory expectations for lenders issuing Main Street loans and urged them to factor in payment deferral options.

The $600 billion Main Street program was established using funds from the Coronavirus Aid, Relief and Economic Security Act. It is designed to offer loan options, typically with five-year terms and options such as deferred principal and interest payments, to small or medium-sized businesses and nonprofits that were in sound financial condition before the pandemic and currently “lack access to credit on reasonable terms.”

Only about $2 billion in loans have been approved through the program, as lenders have been concerned about keeping 5 percent of each loan on their books. The Fed, which is purchasing the other 95 percent of each loan, has sought to encourage lenders to take on some risk through the program while also keeping the amount of risk low enough to encourage loan approvals.

This week, the Main Street program will also update its functionality to begin approving loans for multiple co-borrowers. The Fed also updated its FAQs to provide additional guidance for these types of loans.

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