As the metastasizing COVID-19 public health crisis has threatened to turn into an economic disaster, lenders have had to move quickly to help their small business borrowers find ways to stay solvent.
“We’re in an evolving mode here,” Cape Cod Five Co-President Bert Talerman said March 17. “We’re working hard to get a feel for what’s going on and expect to plan to work with our business customers – whether it’s a combination of providing credit as appropriate, or maybe being able to slow payment requirements, interest–only and things like that for a short period of time. Those are all possibilities here.”
In Worcester, Webster Five’s Christopher Watson began a 48-hour campaign on March 16. The senior vice president and senior business lending officer at Webster Five, Watson and his 24-person lending team started checking in with each of Webster Five’s business customers, from mom-and-pop store owners, to manufacturers, to firms with multi-million-dollar real estate projects in Boston.
Loan Payments Shifted
Some of the larger companies had adequate cash flow, having saved for a rainy day, Watson said, but most small businesses were hurting from the sudden drop in customer demand.
“It’s the small business owner that really doesn’t have the ability to save for a rainy day,” Watson said. “They need the most help; they’ll lean on us more, and that’s what we’re here for.”
Massachusetts had more than 669,000 small businesses in 2019, with 1.5 million employees working at these companies, out of a state workforce of 3.73 million.
Even before Massachusetts completed the process for declaring a disaster, Watson’s team had advised business borrowers needing long-term cash flow to prepare to apply for an SBA loan.
The SBA announced Wednesday night that small businesses affected by COVID-19 could start applying for disaster assistance loans.
For businesses with just short-term cash needs, Webster Five will let them skip two or three loan payments, tacking the missed months onto the end of the loan program. To help all borrowers – businesses, consumers and homeowners – the bank tweaked its system to waive the 60-day late payment fee, Watson said.
As restaurant workers, day care staff and others lose their jobs, Watson expects another round of concerns from businesses, including owners of apartment buildings with tenants unable to pay rent.
Watson said customers have been appreciative of Webster Five’s proactive approach.
“We’re all in it together,” Watson said. “This is obviously something that is beyond anyone’s control, so we all need to work together and feel the pain together.”
‘Unprecedented Risk’ in Mortgage Market
The coronavirus crisis struck just as many banks were ramping up to meet anticipated high demand for residential mortgages amid the lowest interest rates ever seen.
Mortgage volumes were already high in 2020. But the outbreak has brought some key steps in the process to a standstill.
Debbie Sousa, executive director of the Massachusetts Mortgage Bankers Association, spent hours on phone calls and in virtual meetings, trying to figure out how the industry would continue to operate.
“It’s a tough time right now,” Sousa said on March 18. “Not only do we have high volumes, but now we have unprecedented risk from COVID-19, and that is having such a huge impact on the industry.”
Problems include: appraisers unable or unwilling to enter homes where families might be quarantined or self-isolating; older adults unable to receive in-person counseling – required by the state – for a reverse mortgage; concerns about in-person meetings with attorneys needed for signatures and notaries; and registries of deeds that have closed or have limited or no ability to receive electronically filed documents.
Some of these issues have been resolved by federal or state regulators, like allowing external appraisals or home sales without smoke detector inspections. Other issues – the state requirement for in–person notarizations – require legislative action or an emergency declaration from Gov. Charlie Baker.
In hopes of finding temporary solutions for the industry, Sousa has been speaking with elected officials, federal and state regulators and other groups working on these issues.
“We have got to figure out what we are going to do to band-aid this,” Sousa said. “We know the problems; we know the solutions to most of the problems; we just need to figure out ways to get the implementation done.”
Moving into the traditional spring homebuying season, Cape Cod Five’s Talerman said market volatility and consumer confidence could further affect mortgage lending.
“The world looks very different than it did just a few days ago,” Talerman said. “I think it’s hard not to say that in an environment where folks are being asked to curb public activities – in the very short run – that probably isn’t so good for the real estate purchase market.”
Updated 10:18 a.m., March 24, 2020: This story has been updated to include recent regulatory actions on home appraisals and smoke detector inspections.