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FHFA issues final rule on new credit score models
On August 13, the FHFA announced its final rule on the validation and approval of third-party credit score model(s) that can be used by Fannie Mae and Freddie Mac (the GSEs), implementing Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule defines a four-phase process for a GSE to validate and approve credit score models: (i) solicitation of applications from credit score model developers; (ii) submission and review of applications; (iii) credit score assessment; and (iv) business assessment, which, among other things, evaluates the impact of using the credit score model on industry operations and mortgage market liquidity. Additionally, the final rule lays out timing and notices for GSE decisions under the process. After a GSE approves or disapproves of an application, within 45 days the FHFA must approve or disapprove of the GSE’s proposed determination. If any applications are approved, the credit score solicitation will be made publicly available. The rule will take effect 60 days after it is published in the Federal Register.
FHFA delays URLA implementation, removes language preference question
On August 8, at the direction of the FHFA, Fannie Mae and Freddie Mac (GSEs) announced that the mandatory use of the redesigned Uniform Residential Loan Application (URLA) will no longer begin on February 1, 2020. FHFA has directed the GSEs to make specific modifications to the URLA form, including, most notably, the removal of the language preference question. The question, along with the home ownership education and housing counseling question, will now be a part of a separate voluntary consumer information form. The announcement does not provide information on the new implementation dates.
FHFA now says agency structure is constitutional, under Calabria
On July 9, the FHFA sent a letter to the U.S. Court of Appeals for the 5th Circuit notifying the court that the agency has a new Director, Mark Calabria, and that the FHFA has reconsidered its position regarding the constitutionality of its structure, presently concluding the Housing Economic Recovery Act’s (HERA) for-cause removal provision is constitutional. As previously covered by InfoBytes, in July 2018, the 5th Circuit concluded that the FHFA’s single-director structure violates Article II of the Constitution because the director is too insulated from removal by the president. In August 2018, while the agency was still under the leadership of Mel Watt, it petitioned the court for an en banc rehearing, challenging the constitutionality holding. Subsequently, in January, then acting Director, Joseph Otting, filed a supplemental brief stating the agency will no longer defend the constitutionality of the FHFA’s structure. Now, under the leadership of Director Calabria, the agency asserts that it reconsidered the issue, and respectfully requests that the appellate court uphold the agency’s structure as constitutional.
Legislation eliminates VA conforming loan cap
On June 25, President Trump signed HR 299, the “Blue Water Navy Vietnam Veterans Act of 2019.” Among other changes, the bill (i) adjusts the loan fees applicable to the Department of Veterans Affairs’ (VA) home loan guaranty program by providing a new loan fee table; and (ii) eliminates the program limit on the guaranty amount, which is based on the Freddie Mac conforming loan limit determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act. The bill will allow VA borrowers to borrow above the conforming loan limit, currently set at $484,350, for loans guaranteed on or after January 1, 2020.
Calabria requests chartering authority, increase in FHFA powers
On June 11, the Federal Housing Finance Agency (FHFA) issued its 2018 Report to Congress, which, in part, provides information regarding FHFA's oversight of Fannie Mae and Freddie Mac (the GSEs) and describes FHFA actions as conservator the GSEs.
Most notably, in his letter to Congress introducing the report, FHFA Director Mark Calabria urged Congress to act on housing finance reform, noting that the conservatorship over the GSEs was “established as a short-term measure to address instability” during the financial crisis and now is of “unprecedented duration and scope.” Calabria encouraged Congress to work with the FHFA and the Administration to enact housing finance reform to ensure the GSEs are “well-capitalized, well-regulated, and well-managed to withstand any future downturn in the economy.” Additionally, Calabria requested that Congress provide FHFA with chartering authority similar to that of the OCC to increase competition in the secondary mortgage market. (As previously covered by InfoBytes here and here, Calabria and the Administration have encouraged housing finance reform that would end the GSE conservatorships and increase private sector participation in the mortgage market.) Lastly, Calabria argued for strengthening FHFA’s powers, similar to that of other federal financial safety and soundness regulators, including by granting the agency the authority to oversee third parties that do business with the GSEs, such as nonbank mortgage servicers.
FHFA officially launches the Uniform Mortgage-Backed Security
On June 3, the Federal Housing Finance Authority (FHFA) officially launched the Uniform Mortgage-Backed Security (UMBS), a common security through which Fannie Mae and Freddie Mac mortgage-backed securities will be issued. FHFA Deputy Director Robert Fishman noted that the new UMBS will bring “additional liquidity and efficiency to the market.” Moreover, “[b]y addressing structural issues and trading disparities, the UMBS will benefit taxpayers and the nation's housing finance system.” As previously covered by InfoBytes, in March 2018, FHFA announced the UMBS, stating that it would replace all current offerings of mortgage-backed securities that occur in the to-be-announced (TBA) forward market. The FHFA also indicated that the UMBS would be issued using the Common Securitization Platform (CSP) through the Enterprises’ joint venture, Common Securitization Solutions (CSS).
FHFA director Calabria stresses urgency in housing finance reform
On April 15, Mark Calabria was sworn in as the new Director of the FHFA and stressed the importance of mortgage finance reform in his first remarks in the role. Calabria warned that the current mortgage finance system remains “vulnerable,” noting that “[a]fter years of strong house price growth, too many remain locked out of housing, while others are dangerously leveraged. We must not let this opportunity for reform pass.” Calabria also acknowledged the March memo released by the White House, outlining the Administration’s plan for federal housing finance reform (covered by InfoBytes here) which, among other things, directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Calabria stated that he looks forward to working with the Administration on such reforms.
Agencies adopt interim final rule facilitating transfers of legacy swaps
On March 15, five federal agencies—the FDIC, FHFA, Federal Reserve Board, OCC, and Farm Credit Administration (collectively, the “Agencies”)—adopted an interim final rule amending the agencies’ regulations that require swap dealers and security-based swap dealers under the Agencies’ respective jurisdictions to exchange margin with their counterparties for swaps that are not centrally cleared (Swap Margins Rule). The interim final rule seeks to address the situation where the United Kingdom withdraws from the European Union without a negotiated agreement and entities located in the U.K. transfer existing swap portfolios that face counterparties located in the E.U. over to affiliates located in the U.S. or the E.U. Specifically, the interim final rule provides that certain swaps under this situation will not lose their “legacy” status—will not trigger the application of the Swap Margin Rule—if carried out in accordance with the conditions of the rule. The interim final rule is effective immediately and the Agencies are accepting comments for 30 days after publication in the Federal Register.
FHFA issues rule on GSE uniformity in TBA market
On February 28, the Federal Housing Finance Authority (FHFA) issued a final rule that requires government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs) to harmonize programs, policies, and practices affecting the cash flows of To-Be-Announced (TBA)-eligible mortgage-backed securities (MBS). The final rule—which codifies requirements that take effect May 6—takes into account commenter feedback by, among other things, making explicit the consequences of misalignment and directing the GSEs to lower the maximum mortgage note rate eligible for MBS inclusion. The final rule applies to both the GSEs’ current offerings of TBA MBS, as well as to the new uniform MBS, which the GSEs will start issuing June 3 (previously covered by InfoBytes here).
FHFA issues capital requirements for FHL Bank
On February 20, FHFA published a final rule setting capital requirements for Federal Home Loan Banks (FHL Banks). The final rule carries over without material change most of the existing Federal Housing Finance Board regulations, but substantively revises certain portions of the regulations. Specifically, the final rule, among other things, (i) removes the requirement that FHL Banks calculate credit risk capital charges and unsecured credit limits based on ratings issued by a Nationally Recognized Statistical Rating Organization (NRSRO), and instead requires FHL Banks to use their own internal rating methodology; (ii) revises the percentages used in the tables to calculate the credit risk capital charges for advances and non-mortgage assets; and (iii) revises the table numbers to align with the Federal Register’s new formatting standards. The rule is effective on January 1, 2020.