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Financial Services Law Insights and Observations


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  • GSEs issue Equitable Housing Finance Plans

    Federal Issues

    On June 8, Fannie Mae and Freddie Mac (GSEs) released their Equitable Housing Finance Plans for 2022-2024 (available here and here), affirming their commitment to addressing racial and ethnic disparities in homeownership and wealth. The plans were developed following FHFA’s September 2021 request for public input, which invited comments to help the GSEs prepare their first plans and to aid FHFA in overseeing the plans (covered by InfoBytes here). Among other things, the plans (which will be updated annually) include activities to (i) address future consumer education initiatives for renters and homeowners; (ii) help tenants build credit profiles and enable better access to financial services; (iii) expand counseling services to support housing stability; (iv) launch technology to increase access to sustainable credit and fair home appraisals; and (v) deploy Special Purpose Credit Programs to address barriers to sustainable homeownership, focusing particularly on consumers living in formerly redlined and underserved areas with majority Black populations. FHFA’s press release also announced the establishment of a new pilot transparency framework for the GSEs, which will require Fannie and Freddie to publish and maintain a list of pilot programs and “test-and-learn activities” on their public websites to help FHFA determine whether such activities address disparities identified in the plans.

    Earlier in the week, FHFA released its inaugural Mission Report describing housing finance activities taken in 2021 by the GSEs and Federal Home Loan Banks related to targeted economic development and affordable, equitable, and sustainable housing. The report highlighted, among other things, that the gap between mortgage acceptance rates for minority and white borrowers “remains persistent,” with Black and Latino borrowers representing 6.3 percent and 14.2 percent of all mortgages purchased by the GSEs, respectively, in the fourth quarter of 2021. The report also discussed fair lending geographical trends as well as data on multifamily and single-family loan acquisitions.

    Federal Issues FHFA Fannie Mae Freddie Mac GSEs Fair Lending Consumer Finance Mortgages Underserved Disparate Impact FHLB

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  • FHFA publishes final rule on GSE capital plans

    Federal Issues

    On June 1, the FHFA announced a final rule requiring Fannie Mae and Freddie Mac (GSEs) to submit annual capital plans and provide prior notice for certain capital actions “consistent with the regulatory framework for capital planning for large bank holding companies.” As previously covered by InfoBytes, in December 2021, FHFA issued the noticed of proposed rulemaking. These capital plans must include several mandatory elements, including (i) “[a]n assessment of the expected sources and uses of capital over the planning horizon that reflects the [GSE]’s size, complexity, risk profile and scope of operations, assuming both expected and stressful conditions”; (ii) “[e]stimates of projected revenues, expenses, losses, reserves and pro forma capital levels,” along with any additional capital measures the GSEs deem relevant; (iii) “[a] description of all planned capital actions over the planning horizon”; (iv) a discussion of stress test results and how the capital plans will account for these results; and (v) a discussion of any anticipated changes to a GSE’s business plan that may likely have a material impact on the GSE’s capital adequacy or liquidity. The final rule noted that the FHFA intends to review the capital plans for comprehensiveness, reasonableness, and relevant supervisory information, and plans to review the GSE’s regulatory and financial reports, as well as the results of any conducted stress tests and any other information required by FHFA or related to the GSE’s capital adequacy. Should the GSEs determine that there has been or will be a material change to their risk profile, financial condition, or corporate structure since the submission of the last plan (or if directed by FHFA), they must resubmit their capital plans within 30 days. The final rule also incorporates the determination of the stress capital buffer into the capital planning process, which will be provided to the GSEs by August 15 of each year, along with an explanation of the results of the supervisory stress test. The final rule is effective 60 days after publication in the Federal Register. Under the final rule, each GSE will submit its first capital plan by May 20, 2023.

    Federal Issues Agency Rule-Making & Guidance FHFA Fannie Mae Freddie Mac GSEs Capital Planning Federal Register

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  • FHFA announces new public disclosure requirements for GSEs

    Agency Rule-Making & Guidance

    On May 26, FHFA announced a final rule that amends the Enterprise Regulatory Capital Framework by introducing new public disclosure requirements for Fannie Mae and Freddie Mac (GSEs). The final rule adds new quarterly quantitative and annual qualitative disclosures related to risk management, corporate governance, capital structure and capital requirements and buffers under the standardized approach. The final rule also aligns the GSEs’ disclosure requirements with many of the public disclosure requirements for large banking organizations under the regulatory capital framework adopted by banking regulators, and is intended to ensure the GSEs operate in a safe and sound manner “in particular during periods of financial stress.” “By allowing market participants to assess key information about the [GSEs] risk profiles and associated levels of capital, this final rule will promote transparency and encourage sound risk management practices at the [GSEs],” acting Director Sandra L. Thompson said. 

    Agency Rule-Making & Guidance FHFA GSEs Fannie Mae Freddie Mac Disclosures Risk Management

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  • Senate confirms Sandra Thompson as FHFA director

    Federal Issues

    On May 25, the U.S. Senate voted along party lines to confirm Sandra L. Thompson as Director of the FHFA. Thompson has served as acting Director since June following the U.S. Supreme Court’s split decision in Collins v. Yellen, which held that it was unconstitutional for FHFA’s leadership structure to allow the President to fire the FHFA director only for cause. (Covered by InfoBytes here.) According to President Biden’s nomination announcement, Thompson brings “over four decades of government experience in financial regulation, risk management, and consumer protection,” including previously serving as Deputy Director of FHFA’s Division of Housing Mission and Goals where she oversaw the agency’s housing and regulatory policy, capital policy, financial analysis, and fair lending space, as well as all mission activities for the GSEs and the Federal Home Loan Banks. Thompson also worked for more than 23 years at the FDIC where she served in a variety of leadership positions. Her most recent position at the FDIC was Director of the Division of Risk Management Supervision. Thompson also led the FDIC’s “examination and enforcement program for risk management and consumer protection at the height of the financial crisis” and “the FDIC’s outreach initiatives in response to a crisis of consumer confidence in the banking system.”

    Federal Issues FHFA Biden U.S. Senate

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  • FHFA joins global green initiative

    Federal Issues

    On May 11, FHFA announced its membership in the Network of Central Banks and Supervisors for Greening the Financial System, affirming its “commitment to making tangible progress toward addressing the impact of climate change on the nation's housing finance system.” Recognizing the increased risks to property presented from climate change, FHFA acting Director Sandra L. Thompson advised FHFA-regulated entities last year to designate climate change as a priority concern and actively consider its effects in decision-making processes. NGFS is an international group comprised of central banks and financial supervisors working to enhance the role of the financial system in managing risks and mobilizing capital for green and low-carbon investments in the context of environmentally sustainable development. The Federal Reserve Board, OCC, and FDIC, and the U.S. Treasury Department’s Federal Insurance Office have already joined NGFS.

    Federal Issues FHFA Climate-Related Financial Risks Risk Management

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  • FHFA: SCIF mandatory for loans sold to GSEs

    Federal Issues

    On May 3, FHFA announced that Fannie Mae and Freddie Mac (GSEs) are requiring lenders to use the Supplemental Consumer Information Form (SCIF) as part of the application process for loans that will be sold to the GSEs. According to the announcement, the SCIF is intended to collect information on the borrower’s language preference, and on any homebuyer education or housing counseling that the borrower received, so that lenders can increase their understanding of borrowers’ needs throughout the home buying process. The changes will require lenders to present the SCIF questions to borrowers and to report any data collected from the SCIF to the GSEs purchasing the loan. Lenders will be required to adopt these changes and reporting requirements for loans with application dates on or after March 1, 2023. The announcement also noted that response by borrowers on the preferred language question in the SCIF will be voluntary. The SCIF will be available via Mortgage Translations later this summer.

    Federal Issues FHFA GSEs Fannie Mae Freddie Mac Consumer Finance Mortgages

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  • Biden orders agency action on medical debt

    Federal Issues

    On April 11, the Biden administration released a Fact Sheet regarding an initiative to decrease “malicious” and “predatory” billing and collection practices related to medical debts, including holding medical providers and debt collectors “accountable for harmful practices.” According to the Fact Sheet, the administration has ordered several agencies to take actions intended to “lessen the burden of medical debt and increase consumer protection.” The Fact Sheet provides “guidance to all agencies to eliminate medical debt as a factor for underwriting in credit programs,” and states, among other things, that the: (i) FHFA is reviewing the credit models that Fannie Mae and Freddie Mac use; (ii) USDA is discontinuing “the inclusion of any recurring medical debts into borrower repayment calculations”; and (iii) VA is reviewing its underwriting guidelines to ensure it minimizes or eliminates medical debt reporting as a proxy for creditworthiness. Additionally, the Fact Sheet noted that the Department of Health and Human Services is requesting data from over 2,000 providers on medical bill collection practices, lawsuits against patients, financial assistance, financial product offerings, and third party contracting or debt buying practices. The Fact Sheet also noted that the CFPB “will investigate credit reporting companies and debt collectors” in regard to “patients’ and families’ rights,” which includes targeting “coercive credit reporting” and determining whether medical debts should be included in consumer credit reports.

    Federal Issues Biden Consumer Finance Medical Debt FHFA Freddie Mac Fannie Mae USDA Department of Veterans Affairs Department of Health and Human Services

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  • FHFA suspends foreclosure for borrowers applying for HAF funds

    Federal Issues

    On April 6, FHFA announced that servicers with mortgages backed by Fannie Mae and Freddie Mac are required to suspend foreclosure activities for up to 60 days if the servicer is notified that a borrower has applied for mortgage assistance under the Treasury Department’s Homeowner Assistance Fund (HAF). As previously covered by InfoBytes, the HAF was created to provide direct assistance for mortgage payments, property insurance, utilities, and other housing-related costs to help prevent delinquencies, defaults, and foreclosures after January 21, 2020.

    Federal Issues FHFA Fannie Mae Freddie Mac Mortgages Foreclosure Consumer Finance Mortgage Servicing

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  • FHFA orders stress tests for Fannie and Freddie

    Federal Issues

    On March 16, FHFA published orders applicable March 10 for Fannie Mae and Freddie Mac (GSEs) with respect to stress test reporting as of December 31, 2021, under Dodd-Frank as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act. Under Dodd-Frank, certain federally regulated financial companies with total consolidated assets of more than $250 billion are required to conduct periodic stress tests to determine whether the companies have the capital necessary to absorb losses as a result of severely adverse economic conditions. The orders are accompanied by Summary Instructions and Guidance, which include stress test scenarios and revised templates (baseline, severely adverse, and variables and assumptions) for regulated companies to use when reporting the results of the stress tests (orders and instructions are available here). According to the Summary Instructions and Guidance, the GSEs have until May 20 to submit baseline and severely adverse results to FHFA and the Federal Reserve Board, and must publicly disclose a summary of severely adverse results between August 1 and 15.

    Federal Issues FHFA Fannie Mae Freddie Mac GSEs Mortgages Stress Test Dodd-Frank EGRRCPA

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  • 5th Circuit remands shareholders’ net worth sweep claims to lower court


    On March 4, a split U.S. Court of Appeals for the Fifth Circuit, on remand from the U.S. Supreme Court, sent a shareholders’ suit back to the district court for further proceedings consistent with the Supreme Court’s decision in Collins v. Yellen, in which the Supreme Court, relying on its decision in Seila Law LLC v. CFPB, held that FHFA’s leadership structure was unconstitutional because it only allowed the president to fire the FHFA director for cause. (Covered by InfoBytes here.) In Collins, the Supreme Court reviewed the 5th Circuit’s en banc decision stemming from a 2016 lawsuit brought by a group of Fannie Mae and Freddie Mac (GSEs) shareholders against the U.S. Treasury Department and FHFA, in which shareholders claimed that the Housing and Economic Recovery Act of 2008 (Recovery Act), which created the agency, violated the separation of powers principal because it only allowed the president to fire the FHFA director “for cause.” The shareholders also alleged that FHFA acted outside its statutory authority when it adopted a third amendment to the Senior Preferred Stock Purchase Agreements, which replaced a fixed-rate dividend formula with a variable one requiring the GSEs to pay quarterly dividends equal to their entire net worth minus a specified capital reserve amount to the Treasury Department (known as the “net worth sweep”). (Covered by InfoBytes here.) At the time, while the en banc appellate court reaffirmed its earlier decision that FHFA’s structure violated the Constitution’s separation of powers requirements, nine of the judges concluded that the appropriate remedy should be severance of the for-cause provision, not prospective relief invalidating the net worth sweep, stating that “the Shareholders’ ongoing injury, if indeed there is one, is remedied by a declaration that the ‘for cause’ restriction is declared removed. We go no further.”

    The split Supreme Court had affirmed the 5th Circuit’s en banc decision regarding the FHFA’s structure, but left intact the net worth sweep and remanded the case to the appellate court to determine “what remedy, if any, the shareholders are entitled to receive on their constitutional claim.” Justice Samuel Alito, who wrote for the majority, stated that “[a]lthough the statute unconstitutionally limited the President’s authority to remove the confirmed Directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void.”

    On remand, the en banc 5th Circuit majority ordered the district court to decide whether the shareholders suffered compensable harm from the unconstitutional removal provision, observing that the Supreme Court left open the possibility that the unconstitutional restriction on the President’s power to remove the FHFA director could have inflicted compensable harm. Noting that the Supreme Court had sketched “possible causes and consequences of such harm along with the Federal Defendants’ denial of any such harm,” the majority stressed that “it became clear” during oral argument that “the prudent course is to remand to the district court to fulfill the Supreme Court’s remand order.”

    However, five of the appellate judges dissented from the majority decision on the grounds that nothing in the Supreme Court’s decision precluded the 5th Circuit from deciding the harm issue, pointing out that the appellate court could “easily do so in light of [its] previous conclusion that ‘the President, acting through the Secretary of the Treasury, could have stopped [the Net Worth Sweep] but did not.’” The dissenting judges noted that because the shareholders failed to point to sufficient facts to cast doubt on the 5th Circuit’s previous decision, the appellate court “should modify the district court’s judgment by granting declaratory relief in the Plaintiff’s favor, stating that the ‘for cause’ removal provision as to the Director of the FHFA is unconstitutional. In all other respects, we should affirm.”

    Courts Appellate Fifth Circuit Fannie Mae Freddie Mac GSE FHFA Single-Director Structure HERA U.S. Supreme Court

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