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FHFA raises annual CFI cap
On January 22, the Federal Housing Finance Agency published its annual adjustment to the cap on average total assets used to determine whether a Federal Home Loan Bank member qualifies as a community financial institution (CFI). The new cap is $1,224,000,000. Under the Federal Home Loan Bank Act, insured depository institutions that qualify as a CFI receive certain advantages in qualifying for bank membership and the ability to receive and collateralize long-term advances. The adjustment took effect January 1.
Federal Reserve vice chairman discusses supervision
On January 17, Federal Reserve Vice Chair for Supervision Randal K. Quarles spoke before the American Bar Association Banking Law Committee meeting in Washington, D.C. on bank supervision and ways to improve transparency, efficiency, and effectiveness. With respect to supervision, Quarles said that the Fed’s communication with supervised banks could be improved and made several specific proposals in the areas of large bank supervision, transparency improvements, and overall supervisory process improvements. In terms of large bank supervision, Quarles discussed how banks are added to the list of complex institutions overseen by the Large Institution Supervision Coordinating Committee (LISCC), particularly with respect to decreases in foreign banking organizations’ (FBOs) size and risk profiles. According to Quarles, over the past decade, four foreign banks have significantly shrunk their presence in the U.S. and reduced risk within their U.S. operations. As a result, these banks’ “estimated systemic impact” is now much smaller than that of the U.S. global systemically important banks. Moving these FBOs to a lower category, he noted, would allow the firms to be supervised alongside other foreign and domestic firms with similar risk profiles. However Quarles emphasized that any changes in these four FBOs’ supervisory portfolios “would have no effect on the regulatory capital or liquidity requirements that currently apply.” Quarles also discussed the Fed’s stress capital buffer proposal—which “will give banks significantly more time to review their stress test results and understand their capital requirements before we demand their final capital plan”—noting that the Fed continues to research ways to “reduce the volatility of stress-test requirements from year to year.”
Concerning transparency, Quarles stated, among other things, that he supports submitting significant supervisory guidance documents with Congress for the purposes of the Congressional Review Act, as it already does with new rules. Quarles also proposed the creation of a database of all significant agency rules and interpretations and seeking public comments on significant supervisory guidance before it is issued. Finally, Quarles said the Fed hopes to maintain “firm and fair supervision” by (i) increasing the ability of supervised firms to share confidential supervisory information; (ii) adopting a rule on the use of guidance in the supervisory process; (iii) restoring the “‘supervisory observation’ category for lesser safety and soundness issues”; and (iv) limiting the use of future Matters Requiring Attention to violations of law, violations of regulation, and material safety and soundness issues.
Kraninger outlines plan to extend GSE patch, previews QM Rule
According to sources, on January 17, CFPB Director Kathy Kraninger sent a letter to prominent members of Congress announcing plans to extend the qualified mortgage patch—which exempts loans eligible for purchase by Fannie Mae and Freddie Mac (GSEs) from the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income (DTI) ratio—for a short period beyond its current January 2021 expiration. As previously covered by a Buckley Special Alert, the Bureau issued an Advance Notice of Proposed Rulemaking last July to solicit feedback on, among other things, whether the DTI limit should be altered and how Regulation Z and the Ability to Repay/QM Rule should be amended to minimize disruption from the so-called GSE patch expiration. Kraninger notes in her letter that the Bureau plans to propose an amendment to the QM Rule to replace DTI ratios as a factor in mortgage underwriting with an alternative measure of credit risk. One alternative, Kraninger says, could be to use pricing thresholds based on the difference between the loan’s annual percentage rate and the average prime offer rate for a similar loan. The Bureau is also considering adding a “seasoning” approach through a separate rulemaking process to give safe harbor to certain loans when the borrower has made timely payments for a certain period, Kraninger states. Sources report that the Bureau plans to issue a Notice of Proposed Rulemaking no later than May.
FHFA seeks comments on PACE loans
On January 16, the FHFA issued a notice requesting public comment on prospective policy changes to its residential energy retrofitting programs, or Property Assessed Clean Energy (PACE) programs. According to the request for comment, PACE programs are “financed through special state legislation enabling a ‘super-priority lien’ over existing and subsequent first mortgages.” Because the loans are only recorded in tax rolls and not in land records, they do not show up in title searches. This may potentially cause problems for prospective buyers and mortgage lenders. Additionally, the programs are not uniform across states and the GSEs cannot buy properties encumbered by PACE loans.
Comments must be received by March 16.
Fed provides FAQs for tailoring rules
On January 13, the Federal Reserve Board (Fed) issued SR 20-2, “Frequently Asked Questions on the Tailoring Rules” (FAQs) applicable to bank holding companies, savings and loan companies, U.S. intermediate holding companies with $100 billion or more in total assets, and certain depository institutions. In October, as previously covered by InfoBytes, the Fed and the OCC released a jointly developed framework that set out four categories to be used to classify these banking entities for the purposes of determining regulatory capital and liquidity requirements based on risk. The FAQs provide guidance on the tailoring rules, including answers to questions about Liquidity Coverage Ratio (LCR) requirements, recognition of Accumulated Other Comprehensive Income, compliance requirements for foreign banking organizations with less than $100 billion in U.S. assets, and the interpretation of “quarterly” in relation to stress testing frequency.
FDIC extends deadline for comments on innovation pilot programs
On January 14, the FDIC again published a notice and request for comments in the Federal Register on innovation pilot programs. The FDIC first solicited comments on innovation pilot programs in November, with comments due by January 6. As no comments were submitted, the agency is once again requesting comments on the programs, which, as previously covered by InfoBytes, it hopes will spur collaboration “with innovators in the financial, non-financial, and technology sectors to, among other things, identify, develop, and promote technology-driven innovations among community and other banks in a manner that ensures the safety and soundness of FDIC-supervised and insured institutions.”
Comments must be received by February 13.
OCC seeks bank-specific data to inform CRA modernization
On January 10, the OCC issued a request for public input (RFI) to aid the OCC and the FDIC in determining how their joint notice of proposed rulemaking might be revised to ensure the final rule achieves the purpose of the Community Reinvestment Act (CRA). A previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The RFI “seeks bank-specific data and information to supplement currently-available data and to inform potential revisions to modernize and strengthen the CRA regulatory framework,” and specifically requests four types of bank data covering the past three years: (i) retail domestic deposit activities; (ii) total qualifying activity data; (iii) data on qualifying retail loans originated and sold within 90 days; and (iv) other retail loan data by census tract. Comments on the RFI are due March 10.
Federal Reserve governor proposes alternative approach to CRA modernization
On January 8, Federal Reserve Governor Lael Brainard discussed the Fed’s approach to the Community Reinvestment Act (CRA) modernization process, explaining why the agency chose not to join the notice of proposed rulemaking (NPR) issued in December by the OCC and the FDIC. As previously covered by a Buckley Special Alert, the NPR generally focuses on expanding and delineating the activities that qualify for CRA consideration, providing benchmarks to determine what levels of activity are necessary to obtain a particular CRA rating, establishing additional assessment areas based on the location of a bank’s deposits, and increasing clarity, consistency, and transparency in reporting. The NPR was published in the Federal Register on January 9, with comments due March 9.
According to Brainard, “it is more important to get the reforms done right than to do them quickly.” This includes, Brainard emphasized, “giving external stakeholders sufficient time and analysis to provide meaningful feedback on a range of options for modernizing the regulations.” Specifically, the Fed’s proposed approach for measuring banks’ CRA compliance uses “a set of tailored thresholds that are calibrated for local conditions” through the creation of two tests: (i) a retail test, applicable to all retail banks, that “would assess a bank’s record of providing retail loans and retail banking services in its assessment areas”; and (ii) a community development test, applicable to large banks, wholesale banks, and limited-purpose banks, “that would evaluate a bank’s record of providing community development loans, qualified investments, and services.” Banks would then be provided a dashboard related to its retail lending activity, as well as metrics concerning its community development performance.
Brainard also commented that separating evaluations into two different tests is important because “an approach that combines all activity together runs the risk of encouraging some institutions to meet expectations primarily through a few large community development loans or investments rather than meeting local needs.” She explained that having separate tests would ensure that performance metrics are tailored for banks of different sizes and business models, and would “provide greater scope to calibrate the evaluation metrics to the opportunities available in the market, which can differ for retail lending and community development financing.” Further, Brainard stated that using metrics based on a bank’s retail output on the number of loans rather than the dollar volume would help to measure how well a bank is serving the needs of both low- to moderate-income communities and “avoid inadvertent biases in favor of fewer, higher-dollar value loans.”
HUD unveils new version of AFFH rule
On January 7, HUD published its proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule. According to HUD, the proposed AFFH rule will provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.”
In August of 2018, HUD suspended requirements under the 2015 rule for HUD grant recipient communities to submit assessments of fair housing. Additionally, as previously covered in InfoBytes, HUD solicited comments on amendments to the 2015 AFFH regulations, which, according to the agency, “proved ineffective, highly prescriptive, and effectively discouraged the production of affordable housing.” The proposed rule suggests a change to the definition of AFFH to “advancing fair housing choice within the program participant’s control or influence,” and seeks to move the focus away from anti-segregation planning and toward creation of affordable housing options.
According to the proposed rule, fair housing choice includes (i) “[p]rotected choice, meaning absence of discrimination”; (ii) “[a]ctual choice, meaning not only that affordable housing options exist,” but that state and local governments are encouraged to educate the public on their rights; and (iii) “[q]uality choice, meaning that the available and affordable housing is decent, safe, and sanitary, and, for persons with disabilities, accessible as required under civil rights laws.”FTC notes data security order improvements
On January 7, the Director of the FTC’s Bureau of Consumer Protection noted that the Commission has made “three major changes” in its data security orders to “improve data security practices and provide greater deterrence” by focusing on specificity, accountability, and responsibility. The first change increases the specificity of data security orders to “make the FTC’s expectations clearer” and “improve order enforceability.” The second change increases the accountability of the third-party assessors who review the comprehensive data security programs that the orders exact, by requiring assessors to include specific evidence for each determination and to accommodate requests from the FTC to review the assessments. The third change emphasizes executive responsibility. Yearly, companies will be required to present their data security programs to board and senior company executives who must certify the company’s compliance to the FTC. The announcement also pointed to a number of 2019 orders to demonstrate the “significant improvements” the agency has made with the three changes.