HOPE Act of 2020

I 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 Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Helping Open Prop- 4 erties Endeavor Act of 2020’’ or the ‘‘HOPE Act of 5 2020’’. 6 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 7809 IH SEC. 2. HOPE PREFERRED EQUITY FACILITY. 1 (a) ESTABLISHMENT.—The Secretary of the Treas- 2 ury shall establish a HOPE Preferred Equity Facility to 3 provide financial assistance to borrowers of commercial 4 mortgages in the form of a guarantee of a purchase by 5 a financial institution of a preferred equity instrument 6 issued by a borrower. The Secretary shall guarantee 100 7 percent of any such purchase made under this section. 8 (b) ELIGIBILITY OF BORROWERS.—A borrower is eli- 9 gible to receive financial assistance under this section if, 10 as determined by the financial institution— 11 (1) the borrower’s revenue during any consecu- 12 tive 3-month period between March 1, 2020, and 13 February 28, 2021, from the property securing the 14 commercial mortgage is at least 25 percent less than 15 the revenue from such property during the same 16 consecutive 3-month period in the previous year; 17 (2) the borrower had not received written notice 18 of monetary default on the commercial mortgage 19 within the previous year and failed to cure such no- 20 tice as of March 1, 2020; 21 (3) either— 22 (A) the debt service coverage ratio with re- 23 spect to the commercial mortgage was at least 24 1.3 times on an annual basis during 2019; or 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 7809 IH (B) the debt service coverage ratio with re- 1 spect to the commercial mortgage was at least 2 1.3 times on an annual basis during both 2017 3 and 2018; 4 (4) the property securing the commercial mort- 5 gage is not owner-occupied, except to manage the 6 property or de minimis occupancy as otherwise pro- 7 vided by the Secretary; 8 (5) the borrower or a parent company of the 9 borrower has not acquired the subject property after 10 March 1, 2020, through a foreclosure process; and 11 (6) the borrower has not already received finan- 12 cial assistance under this section with respect to the 13 applicable property securing the commercial mort- 14 gage. 15 (c) REQUIREMENTS ON PREFERRED EQUITY IN- 16 STRUMENTS.— 17 (1) IN GENERAL.—With respect to a preferred 18 equity instrument purchased by a financial institu- 19 tion from a borrower, the purchase of which is guar- 20 anteed under this section— 21 (A) the instrument shall be subordinate to 22 perfected loans and unsecured debt; 23 (B) the amount paid for such instrument 24 shall be in an amount, as determined by the fi- 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 7809 IH nancial institution, that does not exceed 10 per- 1 cent of the outstanding amount owed on the 2 commercial mortgage; 3 (C) the purchase amount of the instrument 4 shall be made available by the financial institu- 5 tion to the borrower in an account that the bor- 6 rower may draw down, in amounts and at times 7 to be determined by the borrower for any pur- 8 pose the borrower determines may help the 9 property, during the 1-year period following the 10 date such purchase is made; 11 (D) the instrument shall be unsecured by 12 the subject property securing the commercial 13 mortgage; 14 (E) the instrument shall provide no right 15 of foreclosure and no approval rights; 16 (F) the instrument shall, except as pro- 17 vided under paragraph (2), have an annual in- 18 terest rate of 3 percent calculated on a monthly 19 basis on all amounts that have been drawn from 20 the account described in subparagraph (B), of 21 which 0.5 percent shall be transferred to the 22 Secretary of the Treasury for purposes under 23 subsection (g)(4); 24 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 7809 IH (G) any portion of the instrument may be 1 redeemed by the borrower at any time with the 2 financial institution, without penalty; 3 (H) the instrument shall require payments 4 to first be due after the end of the 2-year pe- 5 riod beginning on the earlier of— 6 (i) the date on which all funds in the 7 account described under subparagraph (B) 8 have been drawn down by the borrower; or 9 (ii) the end of the 1-year period begin- 10 ning on the date the purchase is made; 11 (I) the instrument shall fully amortize over 12 the 7-year period beginning on the date pay- 13 ments are first due; 14 (J) the instrument shall require immediate 15 redemption if there is more than a 50 percent 16 change in the ownership of the borrower, except 17 via death, compared to the date on which the 18 instrument is purchased; 19 (K) the instrument shall be approved in 20 advance by the Secretary; and 21 (L) the proceeds from such purchase may 22 be used for— 23 (i) expenses of the parent company re- 24 lated to the administration of oversight of 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 7809 IH such borrower, ownership or operation of 1 such borrower, or to a subsidiary entity of 2 the parent company for same or similar ex- 3 penses; 4 (ii) the benefit and operation of the 5 property securing the commercial mort- 6 gage; 7 (iii) payments of the preferred equity 8 interest, including payments for principal, 9 interest, insurance, taxes, utilities, fees, op- 10 erating expenses, and payroll expenses; and 11 (iv) lender-required reserves such as 12 capital expenditure reserves. 13 (2) FAILURE TO MAKE PAYMENTS.— 14 (A) IN GENERAL.—If a borrower fails to 15 make payments due on a preferred equity in- 16 strument, the purchase of which is guaranteed 17 under this section— 18 (i) during the first year in which pay- 19 ments are due, the interest rate on the in- 20 strument shall increase to 3.5 percent for 21 the remainder of the loan, beginning at the 22 end of the first year; 23 (ii) during the second year in which 24 payments are due, the interest rate on the 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 7809 IH instrument shall increase to 4.5 percent for 1 the remainder of the loan, beginning at the 2 end of the second year; 3 (iii) during the third year in which 4 payments are due, the interest rate on the 5 instrument shall increase to 5.5 percent for 6 the remainder of the loan, beginning at the 7 end of the third year; 8 (iv) during the fourth year in which 9 payments are due, the interest rate on the 10 instrument shall increase to 6.5 percent for 11 the remainder of the loan, beginning at the 12 end of the fourth year; 13 (v) during the fifth year in which pay- 14 ments are due, the interest rate on the in- 15 strument shall increase to 7.5 percent for 16 the remainder of the loan, beginning at the 17 end of the fifth year; 18 (vi) during the sixth year in which 19 payments are due, the interest rate on the 20 instrument shall increase to 8.5 percent for 21 the remainder of the loan, beginning at the 22 end of the sixth year; 23 (vii) during the seventh year in which 24 payments are due, the interest rate on the 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 7809 IH instrument shall increase to 9.5 percent for 1 the remainder of the loan, beginning at the 2 end of the seventh year; and 3 (viii) after the last year in which pay- 4 ments are due under the amortization 5 schedule, the interest rate on the instru- 6 ment shall increase to 13 percent perma- 7 nently, beginning at the end of such year. 8 (B) CURE PERIOD.—Before any interest 9 rate increase required under subparagraph (A), 10 the financial institution shall provide notice to 11 the borrower within five calendar days. The 12 borrower shall have a 30-day cure period before 13 such increase takes effect, beginning on the 14 date of such notice. 15 (C) INCREASED INTEREST OWED TO 16 TREASURY.—With respect to any interest owed 17 on a preferred equity instrument under sub- 18 paragraph (A) above 2.5 percent, such interest 19 shall be owed to the Department of the Treas- 20 ury. 21 (D) TREATMENT OF FINANCIAL INSTITU- 22 TION FAILURE TO ASSESS INTEREST.—If the fi- 23 nancial institution fails to assess interest re- 24 quired under this paragraph on the borrower, 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 7809 IH or fails to notify the borrower of such required 1 interest for a period of 3 months or more, the 2 financial institution shall only be eligible to re- 3 ceive half of the service fee described under 4 subsection (d)(1) for the period of such failure. 5 (d) PAYMENTS TO FINANCIAL INSTITUTIONS.— 6 (1) SERVICING FEE.—The Secretary shall pay 7 each financial institution that purchases a preferred 8 equity instrument, the purchase of which is guaran- 9 teed under this section, an annual servicing fee in an 10 amount equal to 1 percent of the outstanding 11 amount on such instrument, paid annually. 12 (2) PAY FOR ORIGINATION.— 13 (A) IN GENERAL.—The Secretary shall pay 14 a financial institution described under para- 15 graph (1) at a rate, based on the covered 16 amount, of— 17 (i) 5 percent for a covered amount of 18 not more than $350,000; 19 (ii) 3 percent for a covered amount of 20 more than $350,000 and less than 21 $2,000,000; and 22 (iii) 1 percent for a covered amount of 23 not less than $2,000,000. 24 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 10 •HR 7809 IH (B) EXCEPTION IN CASES OF LOSS.—If 1 the borrower defaults on 90 percent or more of 2 the amount drawn down, the financial institu- 3 tion shall repay any reimbursement amount 4 paid pursuant to subparagraph (A). 5 (C) COVERED AMOUNT DEFINED.—In this 6 paragraph, with respect to a preferred equity 7 instrument, the term ‘‘covered amount’’ means 8 the full amount made available to the borrower 9 at the time the instrument is purchased, re- 10 gardless of whether the borrower has drawn 11 down the entire amount. 12 (e) PROTECTION OF GOVERNMENT INTERESTS.— 13 With respect to a borrower who issues a preferred equity 14 instrument, the purchase of which is guaranteed under 15 this section, until such time as the instrument is re- 16 deemed, the parent company of the borrower may not re- 17 move value from the borrower, including— 18 (1) by paying any dividend; 19 (2) with respect to any affiliated property of the 20 borrower for which there is a manager, if the man- 21 ager and the borrower are related, by increasing any 22 fee paid to the manager compared to the amount of 23 such fee before such instrument is purchased; 24 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 11 •HR 7809 IH (3) with respect to an affiliate of the owner 1 property, by procuring the performance of services 2 or selling goods that are not ordinary, necessary, 3 and at market rates; or 4 (4) by lending money to any owner of the bor- 5 rower or to any related person. 6 (f) TREASURY AUTHORITY AND DUTIES.— 7 (1) APPROVAL DEADLINE.—The Secretary shall 8 approve or deny any preferred equity instrument 9 submitted under this section to the Secretary within 10 30 calendar days of such submission. 11 (2) PURCHASE AND SALE AUTHORITY.—With 12 respect to a preferred equity instrument, the pur- 13 chase of which is guaranteed under this section, the 14 Secretary may, at the Secretary’s discretion— 15 (A) purchase the preferred equity instru- 16 ment from the applicable financial institution 17 any time after the end of 7-year period begin- 18 ning on the date payments are first due with 19 respect to the instrument; 20 (B) sell any preferred equity instrument 21 purchased by the Secretary under subparagraph 22 (A); and 23 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 12 •HR 7809 IH (C) contract with a private servicer to serv- 1 ice any preferred equity instrument purchased 2 by the Secretary under subparagraph (A). 3 (3) TRANSFER OF NOTES AND PAPERS.—When 4 the preferred equity instrument is redeemed by the 5 Secretary, a digital copy of all notes and papers 6 shall be provided to the Secretary upon request of 7 the Secretary. Upon request of the Secretary, an 8 original document shall be provided. 9 (4) ADMINISTRATIVE COSTS.—The Secretary 10 shall use amounts described under subsection 11 (c)(1)(E) for administrative costs of carrying out 12 this section. 13 (5) RULEMAKING.—Not later than 30 days 14 after the date of the enactment of this Act, the Sec- 15 retary shall issue such rules or guidance as the Sec- 16 retary determines necessary to carry out this sec- 17 tion. 18 (g) FINANCIAL INSTITUTION REQUIREMENTS AND 19 AUTHORITIES.— 20 (1) DEADLINE FOR MAKING FUNDS AVAIL- 21 ABLE.—A financial institution submitting a pre- 22 ferred equity instrument to the Secretary under this 23 section shall, if the Secretary approves such instru- 24 ment, make funds available to the borrower in con- 25 VerDate Sep 11 2014 22:37 Aug 15, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H7809.IH H7809 pamtmann on DSKBC07HB2PROD with BILLS 13 •HR 7809 IH nection with such instrument not later than [Text truncated for display. 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