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  • FHFA proposes amendments to strengthen Suspended Counterparty Program

    Agency Rule-Making & Guidance

    On July 7, the FHFA issued a notice of proposed rulemaking and announced that it is seeking feedback on a proposed rule to amend the Suspended Counterparty Program (SCP) regulation. The SCP regulation currently requires FHFA-regulated entities to report to FHFA if they became aware of certain forms of misconduct committed within the past three years by individuals or institutions they do business with. The SCP regulation also grants FHFA the authority to issue orders directing the regulated entities to cease or refrain from doing business with certain counterparties.

    According to FHFA Director Sandra L. Thompson, the proposed rule aims to strengthen FHFA’s ability to protect its regulated entities from business risks associated with misconduct, enabling them to continue serving as reliable sources of liquidity. The proposed rule would specifically authorize the suspension of business between regulated entities and counterparties who are found to have committed misconduct in the context of civil enforcement actions in connection with the management or ownership of real property. Furthermore, the proposed rule would allow FHFA to immediately suspend business without prior notice when misconduct has resulted in debarment, suspension, or limited denial of participation imposed by a federal agency. Comments on the proposed rule are due within 60 days of publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FHFA Risk Management

  • Agencies propose ROV guidance

    Agency Rule-Making & Guidance

    On June 8, the CFPB joined the Federal Reserve Board, FDIC, NCUA, and the OCC to request comments on proposed interagency guidance relating to reconsiderations of value (ROV) for residential real estate valuations. The proposed guidance advises financial institutions on policies that would afford consumers an opportunity to introduce evidence that was not previously considered in the original appraisal. The proposal references the occurrence of “deficiencies” in real estate valuations, which can be due to errors or omissions, valuation methods, assumptions, or other factors. According to the proposed guidance, these kind of valuation deficiencies can “prevent individuals, families, and neighborhoods from building wealth through homeownership by potentially preventing homeowners from accessing accumulated equity, preventing prospective buyers from purchasing homes, making it harder for homeowners to sell or refinance their homes, and increasing the risk of default.” Also noted is the risk non-credible valuations pose to financial institutions, which may lead to loan losses, violations of law, fines, civil money penalties, damages, and civil litigation.

    The proposed guidance (i) provides direction on how ROVs overlap with appraisal independence requirements and compliance with relative laws and regulations; (ii) identifies how financial institutions can implement and improve existing ROV policies while remaining compliant with regulations, preserving appraiser independence, and being responsive to consumers; (iii) explains how deficiencies can pose risk to financial institutions and describes how ROV policies should be factored into risk management functions; and (iv) provides examples of ROV policies, procedures, control systems, and complaint processes to address deficient valuations.

    Comments on the proposed guidance are due within 60 days of publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues Bank Regulatory CFPB FDIC Federal Reserve NCUA FHFA OCC Mortgages Consumer Finance

  • Agencies propose new standards for AVMs

    Agency Rule-Making & Guidance

    On June 1, the CFPB joined the Federal Reserve Board, OCC, FDIC, NCUA, and FHFA in issuing a notice of proposed rulemaking (NPRM) to implement quality control standards mandated by the Dodd-Frank Act concerning automated valuation models (AVMs) used by mortgage originators and secondary market issuers. Specifically, institutions that engage in certain credit decisions or make securitization determinations would be required to adopt quality control standards to ensure a high level of confidence that estimates produced by an AVM are fair and nondiscriminatory. Other requirements would necessitate institutions to protect against data manipulation and avoid conflicts of interest. Institutions would also be required to conduct random sample testing and reviews and comply with applicable nondiscrimination laws. The agencies acknowledged that while advances in AVM technology and data availability may contribute to lower costs and reduce loan cycle times, institutions’ reliance on AMV technology must not be used as an excuse to evade the law.

    CFPB Director Rohit Chopra explained that, while AVMs rely on mathematical formulas and number crunching to produce estimates (and are often used to “check” human appraisers or used in place of an appraisal), they can still embed the human biases they are meant to correct. This is due in part to the data fed into the AVMs, the algorithms used within the machines, and biases and blind spots attributed to the individuals who develop the models, Chopra warned, commenting that AVMs can actually “make bias harder to eradicate in home valuations because the algorithms used cloak the biased inputs and design in a false mantle of objectivity.”

    Chopra went on to explain that inaccurate or biased algorithms can lead to serious harms to consumers, neighborhoods, and the housing market, and may also impact the tax base. A focus common to all the agencies, Chopra said, is ensuring that automated systems and artificial intelligence modeling technologies are developed and used in accordance with federal laws to avert discriminatory outcomes and prevent negative impacts on consumer financial stability.

    Comments on the NPRM are due within 60 days of publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues CFPB FDIC Federal Reserve NCUA FHFA OCC AVMs Mortgages Consumer Finance

  • FHFA requests feedback on single-family pricing framework

    Agency Rule-Making & Guidance

    Recently, the FHFA issued a request for input (RFI) on a single-family pricing framework for Fannie Mae and Freddie Mac (GSEs), including feedback on policy priorities and goals that FHFA should pursue in its oversight of the framework. “Through this RFI, FHFA seeks input on how to ensure the pricing framework adequately protects the [GSEs] and taxpayers against potential future losses, supports affordable, sustainable housing and first-time homebuyers, and fosters liquidity in the secondary mortgage market,” FHFA Director Sandra L. Thompson said in the announcement. The RFI also seeks input on the GSEs’ single-family upfront guarantee fees and whether it is appropriate to continue linking those fees to the Enterprise Regulatory Capital Framework. FHFA explained that guarantee fees are intended to cover the GSEs’ administrative costs, expected credit losses, and cost of capital associated with guaranteeing securities backed by single-family mortgage loans. Comments on the RFI are due August 14.

    Agency Rule-Making & Guidance Federal Issues FHFA Fannie Mae Freddie Mac GSEs Mortgages

  • FHFA rescinds GSE fee based on DTI ratios

    Agency Rule-Making & Guidance

    On May 10, FHFA announced it is rescinding a debt-to-income-based loan-level pricing adjustment announced in January. As previously covered by InfoBytes, FHFA made several changes relating to upfront fees for certain borrowers with debt-to-income (DTI) ratios above 40 percent. The updated and recalibrated pricing grids also included the upfront fee eliminations announced last October to increase pricing support for purchase borrowers limited by income or by wealth, FHFA said at the time. The implementation of the DTI pricing adjustment, which would have affected loans acquired by Fannie Mae and Freddie Mac, was delayed to August 1, but after the mortgage industry and other market participants expressed concerns about implementation challenges, FHFA made the decision to rescind the DTI-ratio based fee to provide additional transparency. The agency will issue a request for public input on the single-family guarantee fee pricing framework shortly.

    Agency Rule-Making & Guidance Federal Issues FHFA Mortgages Consumer Finance Fannie Mae Freddie Mac GSEs

  • FHFA seeks to codify fair lending oversight

    Agency Rule-Making & Guidance

    On April 19, FHFA issued a notice of proposed rulemaking (NPRM) to codify several existing practices and programs relating to the agency’s fair lending oversight requirements for the Federal Home Loan Banks and Fannie Mae and Freddie Mac (GSEs). Intended to provide increased public transparency and greater oversight and accountability to the regulated entities’ fair housing and fair lending compliance, the NPRM seeks to also formalize requirements for the GSEs to maintain Equitable Housing Finance Plans, which are designed to address racial and ethnic disparities in homeownership and wealth and foster housing finance markets that provide equitable access to affordable and sustainable housing (covered by InfoBytes here). The NPRM will also codify requirements for the GSEs to collect and report homeownership education, housing counseling, and language preference information from the Supplemental Consumer Information Form (SCIF). Lenders are required to use the SCIF as part of the application process for loans with application dates on or after March 1, that will be sold to the GSEs (covered by InfoBytes here). Comments on the NPRM are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Issues FHFA Freddie Mac Fannie Mae GSEs FHLB Underserved Fair Lending Consumer Finance

  • FHFA rule targets GSE eligibility in colonias

    Agency Rule-Making & Guidance

    On April 12, FHFA published a final rule amending its Enterprise Duty to Serve Underserved Markets regulation. The final rule, which was adopted without change from the proposed rule issued last year (covered by InfoBytes here), allows Fannie Mae and Freddie Mac (GSE) activities in all colonia census tracts to be eligible for Duty to Serve credit. Specifically, the amendment adds a “colonia census tract” definition to serve as a census tract-based proxy for a “colonia” (as generally applied to “unincorporated communities along the U.S.-Mexico border in California, Arizona, New Mexico, and Texas that are characterized by high poverty rates and substandard living conditions”). The final rule also amends the “high-needs rural region” definition by substituting “colonia census tract” for “colonia,” and revises the definition of “rural area” to include all colonia census tracts regardless of their location, in order to make GSE activities in all colonia census tracts eligible for duty to serve credit. The final rule takes effect July 1.

    Agency Rule-Making & Guidance Federal Issues FHFA Underserved Fannie Mae Freddie Mac GSEs Consumer Finance

  • FHFA updates GSE equitable housing finance plans

    Agency Rule-Making & Guidance

    On April 5, FHFA announced updates to Fannie Mae and Freddie Mac’s (GSEs) equitable housing finance plans for 2023. (See plans here and here.) The updates include adjustments to plans first announced last year (covered by InfoBytes here), which faced pushback from several Republican senators who argued that the plans raised “significant legal concerns” and that “no law authorizes FHFA to use a GSE’s assets to pursue affirmative action in housing.” (Covered by InfoBytes here.) The senators also argued that the Biden administration was “conscripting the GSEs as instrumentalities of its progressive racial equity agenda to achieve outcomes it cannot achieve legislatively or even legally.”

    According to FHA’s announcement, the updated plans provide the GSEs with a three-year roadmap to address barriers to sustainable housing opportunities. Updates include (i) taking actions to remove barriers faced by Latino renters and homeowners in Fannie Mae’s plan; (ii) an improved focus on ensuring existing borrowers are able to receive fair loss mitigation support and outcomes through monitoring and developing strategies to close gaps; (iii) providing financial capabilities coaching to build credit and savings; (iv) supporting locally-owned modular construction facilities in communities of color; and (v) increasing the reach of GSE special purpose credit programs to support homeownership attainment and housing sustainability in underserved communities.

    Agency Rule-Making & Guidance Federal Issues FHFA Fannie Mae Freddie Mac GSEs Fair Lending Consumer Finance Underserved Disparate Impact

  • FHFA expands deferral policies for hardships

    Federal Issues

    On March 29, FHFA announced enhanced payment deferral policies for borrowers facing financial hardships. Under the newly enhanced policies, Fannie Mae and Freddie Mac will allow borrowers to defer up to six months of mortgage payments, enabling borrowers “to keep the same monthly mortgage payment by moving past-due amounts to the end of the loan as a non-interest bearing balance, due and payable at maturity, sale, refinance, or payoff.” Fannie and Freddie will work with servicers to implement the enhanced payment deferral policies, which carry a voluntary adoption date of July 1, and a mandatory adoption date of October 1.

    Recognizing that the more than one million Covid-19 payment deferrals completed by Fannie and Freddie during the pandemic helped borrowers stay in their homes, FHFA Director Sandra L. Thompson said the agency is making the payment deferral policies a key part of its standard loss mitigation toolkit that is available to all borrowers with eligible hardships.

    Federal Issues FHFA Consumer Finance Mortgages Covid-19 Loss Mitigation Fannie Mae Freddie Mac Mortgage Servicing

  • FHFA seeks feedback on updated credit score requirements

    Agency Rule-Making & Guidance

    On March 23, FHFA announced a two-phase plan for soliciting stakeholder input on the agency’s proposed process for implementing updated credit score requirements. In October, FHFA announced that the FICO credit score model would be replaced by the FICO 10T and the VantageScore 4.0 credit score models, which were both validated and approved for use by Fannie Mae and Freddie Mac (covered by InfoBytes here). The agency also announced that Fannie and Freddie will now require two credit reports – instead of three – from the national consumer reporting agencies for single-family loan acquisitions. FHFA seeks public input on the projected implementation process to inform the transition to these new credit score models, which the agency estimates will happen in two phases. Phase one, estimated to start Q3 2024, will include the delivery and disclosure of additional credit scores, while phase two will include the incorporation of the new credit score models in pricing, capital, and other processes (estimated to occur in Q4 2025).

    Agency Rule-Making & Guidance Federal Issues FHFA Credit Scores Consumer Finance Freddie Mac Fannie Mae

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