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White House releases 2020 budget proposal; key areas include appropriations and efforts to combat terrorist financing
On March 11, the White House released its fiscal 2020 budget request, A Budget for a Better America. The budget was accompanied by texts entitled Major Savings and Reforms (MSR), which “contains detailed information on major savings and reform proposals”; Analytical Perspectives, which “contains analyses that are designed to highlight specified subject areas or provide other significant presentations of budget data that place the budget in perspective”; and an Appendix containing detailed supporting information. Funding through appropriations and efforts to combat terrorist financing remain key highlights carried over from last year. Notable takeaways of the 2020 budget proposal are as follows:
CFPB. In the MSR’s “Restructure the Consumer Financial Protection Bureau” section, the budget revives a call to restructure the Bureau, and proposes legislative action to implement a two-year restructuring period, subject the CFPB to the congressional appropriations process starting in 2021, and “bring accountability” to the Bureau. Among other things, the proposed budget would cap the Federal Reserve’s transfers to the Bureau at $485 million in 2020.
Financial Stability Oversight Council (FSOC). The 2020 budget proposal requests that Congress establish funding levels through annual appropriations bills for FSOC (which is comprised of the heads of the financial regulatory agencies and monitors risk to the U.S. financial system) and its independent research arm, the Office of Financial Research (OFR). Currently FSOC and OFR set their own budgets.
Flood Insurance. The Credit and Insurance chapter of the budget’s Analytical Perspectives section discusses FEMA initiatives such as modifying the National Flood Insurance Program (NFIP) to become a simpler, more customer-focused program, and “doubling the number of properties covered by flood insurance (either the NFIP or private insurance) by 2022.” Separately, the budget proposal emphasizes that the administration believes that “flood insurance rates should reflect the risk homeowners face by living in flood zones.”
Government Sponsored Enterprises. Noted within the MSR, the budget proposes doubling the guarantee fee charged by Fannie Mae and Freddie Mac to loan originators from 0.10 to 0.20 percentage points from 2020 through 2021. The proposal is designed to help “level the playing field for private lenders seeking to compete with the GSEs” and would generate an additional $32 billion over the 10-year budget window.
HUD. The budget proposes to eliminate funding for the Community Development Block Grant program, stating that “[s]tate and local governments are better equipped to address local community and economic development needs.” The proposal would continue to preserve access to homeownership opportunities for creditworthy borrowers through FHA and Ginnie Mae credit guarantees. The budget also requests $20 million above last year’s estimated level to help modernize FHA’s information technology systems and includes legislative proposals to “align FHA authorities with the needs of its lender enforcement program and limit FHA’s exposure to down-payment assistance practices.”
SEC. As stated in both the budget proposal and the MSR, the budget again proposes to eliminate the SEC’s mandatory reserve fund and would require the SEC to request additional funds through the congressional appropriations process starting in 2021. According to the Appendix, the reserve fund is currently funded by collected registration fees and is not subject to appropriation or apportionment. Under the proposed budget, the registration fees would be deposited in the Treasury’s general fund.
SIGTARP. As proposed in the MSR, the budget revives a plan that would reduce funding for the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) “commensurate with the wind-down of TARP programs.” According to the MSR, “Congress aligned the sunset of SIGTARP with the length of time that TARP funds or commitments are outstanding,” which, Treasury estimates, will be through 2023. The reduction reflects, among other things, that less than one percent of TARP investments remain outstanding. This will mark the final time payments are expected to be made under the Home Affordable Modification Program.
Student Loan Reform. As with the 2019 budget proposal, the 2020 proposed budget seeks to establish a single income-driven repayment plan that caps monthly payments at 12.5 percent of discretionary income. Furthermore, balances would be forgiven after a specific number of repayment years—15 for undergraduate debt, 30 for graduate. In doing so, the proposal would eliminate subsidized loans and the Public Service Loan Forgiveness program, auto-enroll “severely delinquent borrowers,” and create a process for borrowers to share income data for multiple years. With certain exceptions, these proposals will only apply to loans originated on or after July 1, 2020.
Treasury Department. The budget states that combating terrorist financing, proliferation financing, and other types of illicit financing are a top priority for the administration, and $167 million has been requested for Treasury’s Office of Terrorism and Financial Intelligence to “continue its work safeguarding the financial system from abuse and combating other national security threats using economic tools.” The proposed budget also requests $125 million for the Financial Crimes Enforcement Network to administer the Bank Secrecy Act and its work to prevent the financing of terrorism, money laundering, and other financial crimes. An additional $18 million was proposed for strengthening and protecting Treasury’s IT systems.
OFAC announces sanctions against Venezuela’s state-owned oil company; President Trump issues related Executive Order
On January 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against Venezuela’s state-owned oil company pursuant to Executive Order 13850 (E.O. 13850). According to OFAC, the designation follows a determination made by the Secretary of the Treasury that persons who operate in the oil sector of the Venezuelan economy are subject to sanctions pursuant to E.O. 13850, which was issued in order to “help prevent further diverting of Venezuela’s assets by Maduro and preserve these assets for the people of Venezuela.” As a result, all assets belonging to the company subject to U.S. jurisdiction are blocked, and U.S. persons generally are prohibited from dealing with the company. However, OFAC concurrently issued eight new General Licenses (GL), and amended GL 3, in order to authorize certain transactions with the company and identified subsidiaries, including those necessary to wind down operations or existing contracts. Specifically, GL 7 and GL 12 permit Venezuelan oil to be imported into the U.S. through April 28, provided any payments made to the company or its majority-owned subsidiaries (minus certain identified exceptions) be made into a blocked, interest-bearing account located in the U.S.
In a separate action the same day, President Trump issued an Executive Order to, among other things, expand the definition of “Government of Venezuela” to include the Central Bank of Venezuela, the state-owned oil company, and “any person who has acted or purported to act directly or indirectly for or on behalf of” the Government of Venezuela, including members of the Maduro regime. The E.O. is issued in conjunction with E.O.s 13692, 13808, 13827, 13835, and 13850. In connection with the issuance of the new E.O., OFAC published a FAQ explaining E.O.’s impact on Venezuela-related sanctions, which all remain in effect.
Visit here for additional InfoBytes coverage of Venezuela actions and E.O.s.
President Trump issues new Venezuela Executive Order targeting gold sector; OFAC publishes related FAQs
On November 1, President Trump issued Executive Order 13850 (E.O. 13850) authorizing the imposition of sanctions on persons who operate in Venezuela's gold sector “or in any other sector of the Venezuelan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State.” The sanctions come in response to the actions of Venezuelan President Maduro’s regime and associated persons in allegedly “plunder[ing] Venezuela's wealth for their own corrupt purposes.” Among other things, the sanctions specifically block the acquisition or retention of property and interests in the United States by persons who “operate in the gold sector of the Venezuelan economy” or “have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity or transaction” involving deceptive practices or corruption in conjunction with the Venezuelan government.
The same day, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) released a set of FAQs connected to the issuance of E.O. 13850, stating that it “expects to use its discretion to target in particular those who operate corruptly in the gold or other identified sectors of the Venezuela economy, and not those who are operating legitimately in such sectors.”
President Trump issues Executive Order authorizing sanctions in the event of foreign interference in U.S. elections
On September 12, President Trump announced the issuance of Executive Order 13848 (E.O.), which authorizes sanctions against foreign persons found to have engaged in, assisted, or otherwise supported foreign interference in U.S. elections. Should an intelligence assessment determine such activity has occurred, Section 2 of the E.O. requires that transactions in property and interests of such interfering persons that are in the U.S. or under control of a U.S. person be blocked, and Section 3 of the E.O. directs the Secretaries of State and Treasury—in consultation with the heads of other appropriate agencies—to recommend to the President additional sanctions against “the largest business entities licensed or domiciled in a country whose government authorized, directed, sponsored, or supported election interference, including at least one entity from each of the following sectors: financial services, defense, energy, technology, and transportation.” Such additional sanctions may include, with respect to the targeted entities, (i) blocking all transactions related to property and interests subject to U.S. jurisdiction; (ii) prohibitions on U.S. financial institutions making loans or extending credit to identified entities; (iii) prohibitions on transfers of credit or payments between, by, or through financial institutions for the benefit of such an entity; and (iv) prohibitions on U.S. persons investing in equity or debt of such entities.
President Trump issues Iran-related executive order reimposing previously lifted sanctions; OFAC updates Iran-related FAQs
On August 6, President Trump announced the issuance of Iran-related Executive Order 13846 (E.O. 13846), which reimposes nuclear-related sanctions that were lifted in connection with the United States’ participation in the Joint Comprehensive Plan of Action (JCPA) of July 14, 2015. As previously covered in InfoBytes, President Trump announced his decision to withdraw from the JCPA on May 8. Newly issued E.O. 13846 reimposes certain sanctions, effective August 7, concerning persons—including foreign financial institutions—who facilitate or provide “financial, material, or technological support for” areas including Iran’s trade in U.S. bank notes and precious metals, its automotive sector, and its currency. Sanctions targeting Iran’s energy sector, as well as transactions between foreign financial institutions and the Central Bank of Iran, will resume effective November 5. E.O. 13846 also revokes and supersedes several previously issued E.O.s.
In response to E.O. 13846, OFAC released updates to its FAQs concerning the additional sanctions, along with amendments to existing FAQs concerning the Iran Freedom and Counter-Proliferation Act of 2012. FAQs related to revoked E.O. 13622, Section 4 of E.O. 13628, and E.O. 13645 have been archived.
See here for previous InfoBytes coverage on Iranian sanctions.
On July 31, President Trump signed the “National Flood Insurance Program (NFIP) Extension Act of 2018” into law (see Public Law 115-225/S. 1182). The NFIP was set to expire that day. The short-term extension, which the Senate passed earlier that day, reauthorizes the NFIP through November 30, and provides Congress additional time to establish a long-term financial solution.
Visit here for continuing InfoBytes coverage on the NFIP.
On July 10, President Trump issued an Executive Order (EO) excepting Administrative Law Judges (ALJs) from the federal government’s competitive hiring service. The EO is in response to the recent Supreme Court decision in Lucia v. SEC, which held that ALJs are “inferior officers” subject to the Appointments Clause of the Constitution. (Previously covered by InfoBytes here.) The EO allows federal agencies to hire ALJs without going through the Office of Personnel Management (OPM) competitive selection process, which will give agencies the ability to select candidates who meet the agency’s specific needs— providing greater “flexibility and responsibility for ALJ appointments,” according to the White House announcement. The announcement emphasizes that the EO “reduces the legal uncertainty” over new ALJ appointments under the Appointments Clause in order to safeguard agencies’ enforcement of federal laws.
Agencies issue statement on the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act
On July 6, the Federal Reserve Board, FDIC, and OCC issued an interagency statement regarding the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/P.L. 115-174, which was signed into law by President Trump on May 24. The joint statement describes the interim positions the federal agencies will take with regard to amendments within the Act, including, among other things, (i) extending the deadline to November 25 for all regulatory requirements related to company-run stress testing for depository institutions with less than $100 billion in total consolidated assets; (ii) enforcing the Volcker Rule consistently with the Act’s narrowed definition of banking entity; and (iii) increasing the total asset threshold for well-capitalized insured depository institutions to be eligible for an 18-month examination cycle. The agencies intend to engage in rulemakings to implement certain provisions at a later date. The accompanying OCC and the FDIC releases are available here and here.
The Federal Reserve Board also issued a separate statement describing how, in accordance with the Act, the Board will no longer subject certain smaller, less complex banking organizations to specified regulations, including stress test and liquidity coverage ratio rules. The Act raised the threshold from $50 billion to $100 billion in total consolidated assets for bank holding companies to be subject to Dodd-Frank enhanced prudential standards. The Board intends to collect assessments from all assessed companies for 2017 but will not collect assessments from newly exempt companies for 2018 and going forward. Additionally, the statement provides guidance on implementation of certain other changes in the Act, including reporting high volatility commercial real estate exposures.
On July 5, the CFPB issued a statement regarding the implementation of the partial HMDA exemptions in the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174, which was signed into law by President Trump on May 24. As previously covered by InfoBytes, the Act provides an exemption from HMDA’s expanded data reporting requirements for banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages (the provision would not apply to nonbanks and would not exempt institutions from HMDA reporting altogether). Although the statement emphasizes that the Act will not affect the format of the Loan/Application Register (LAR) for HMDA data collected in 2018—which should still be formatted in accordance with the Filing Instructions Guide issued in February (covered by InfoBytes here)—the Bureau stated that it intends to provide guidance later this summer on the Act, including an exemption code for institutions that are not reporting a particular field due to the Act’s partial exemptions.
Additionally, the statement reiterated the Bureau’s December 2017 announcement that it will not require resubmissions for 2018 HMDA data, unless there are material errors; and penalties will not be assessed with respect to errors in the 2018 data. The CFPB notes that institutions should focus the 2018 data collection on identifying areas for improvement in their HMDA compliance management systems for future years. The Bureau further advised that it expects that supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts.”
On June 21, the White House announced a government reorganization plan titled, “Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations.” The plan covers a wide-range of government reorganization proposals, including several related to the federal government’s involvement in mortgage finance. Among other things, the White House is proposing to end the conservatorship of Fannie Mae and Freddie Mac (GSEs) and fully privatize the companies. The plan notes that a “[f]ederal entity with secondary mortgage market experience would be charged with regulatory oversight” of the GSEs, but does not state whether this would be done by the Federal Housing Finance Agency (FHFA), the GSEs current primary regulator. According to the proposal, this structure would ensure the government’s role “is more transparent and accountable to taxpayers,” as HUD would assume the primary responsibility for affordable housing, and the GSEs would solely focus on secondary market liquidity.
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program