InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
HUD outlines plan for reducing the racial homeownership gap
On April 14, HUD released its first ever Equity Action Plan (the Plan) to address procurement and resources for the agency’s Office of Fair Housing and Equal Opportunity in coordination with President Biden’s 2021 Executive Order 13985 on “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.” Among other things, the Plan requests funding increases to process, investigate, and resolve fair housing complaints and “to improve capacity to pursue Secretary-initiated investigations and compliance reviews” that do not necessarily stem from public complaints. The Plan also outlines HUD’s approach to reducing the racial homeownership gap, including future rulemakings to implement the Fair Housing Act’s mandate to Affirmatively Further Fair Housing (covered by InfoBytes here) as well as other actions to promote equity. HUD also plans to engage in a range of actions in partnership with federal and non-federal organization to maximize homeownership for creditworthy first-time homebuyers and preserve homeownership for existing homeowners. This includes (i) “improving the efficiency of the [Federal Housing Administration] program by leveraging technologies and removing perceived bias of the program so individuals, lenders, and others can use it more with first time, lower income home buyers”; (ii) increasing outreach to non-traditional lenders; and (iii) considering ways “to increase the availability of small-dollar mortgage loans by addressing the financial and operational barriers limiting origination of these loans.” HUD intends to continue to monitor data on borrowers to determine statistical changes in Black and Hispanic households that access FHA-insured loans and the rest of the mortgage market, and will track FHA lending activity in underserved markets.
Biden nominates Michael Barr as Fed Vice Chair for Supervision
On April 15, President Biden nominated Michael Barr to serve as Vice Chair for Supervision of the Federal Reserve. Barr is currently a law and public policy professor at the University of Michigan, and previously served as the assistant secretary for financial institutions in the Treasury Department where he had a key role in the creation of the Dodd-Frank Act. Barr’s nomination comes after Biden’s first nominee for Vice Chair, Sarah Bloom Raskin, withdrew her nomination after facing bipartisan opposition.
Biden orders agency action on medical debt
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.
Yellen sets out principles for regulating digital assets
On April 7, Treasury Secretary Janet Yellen outlined a broad set of principles for regulating digital assets during remarks delivered at American University’s Kogod School of Business Center for Innovation. Yellen said that the approach she described largely reflects priorities outlined in an Executive Order issued by President Biden last month, which presented a “whole-of-government” strategy to coordinate a comprehensive approach for ensuring responsible innovation in digital assets policy (covered by InfoBytes here). Emphasizing that “regulatory frameworks should be designed to support responsible innovation while managing risks—especially those that could disrupt the financial system and economy,” Yellen cautioned that regulatory frameworks must appropriately reflect these risks as banks and other traditional financial firms enter this space. Moreover, she added that “new types of intermediaries, such as digital asset exchanges and other digital native intermediaries, should be subject to appropriate forms of oversight.”
During her remarks, Yellen discussed the risks and benefits to consumer protection and financial stability associated with the growth in digital assets. While Yellen did not provide specific instructions, she outlined general principles that she believes should guide the creation of a new framework for regulating digital assets. Stressing that regulations should be “tech neutral” and “based on risks and activities, not specific technologies,” Yellen explained that consumers and businesses should be protected from fraud regardless of whether assets are stored on a balance sheet or a distributed ledger. She also stressed the importance of ensuring that the growth of digital assets does not disproportionately impact vulnerable communities or exacerbate social, racial, or economic inequities. Yellen stated that, over the next six months, Treasury will collaborate with the White House and other agencies to produce reports and recommendations addressing opportunities and challenges posed by these emerging technologies.
OFAC prohibits new investment in Russia and blocks Russia’s largest bank, executive order foreshadows more Russian export bans
On April 6, OFAC announced that President Biden issued a new E.O., Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression, which bans “all new investment in the Russian Federation by U.S. persons, wherever located, as well as the exportation, reexportation, sale, or supply, directly or indirectly, from the U.S., or by a U.S. person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation.” According to OFAC, the prohibitions come after recently issued E.O. 14066 and 14068 that prohibit certain imports and exports involving Russia, and are consistent with commitments made by the G7 leaders to ensure that their citizens are not underwriting Putin’s war.
OFAC also announced full blocking sanctions, pursuant to Executive Order (E.O.) 14025, on Sberbank, Russia’s largest state-owned bank and Alfa-Bank, Russia’s largest private bank, in addition to targeting family members of President Vladimir Putin and Foreign Minster Sergey Lavrov, as well as Russian Security Council members who are complicit in the war against Ukraine.
Earlier this week, OFAC also announced sanctions, in collaboration with the DOJ, FBI, Drug Enforcement Administration, Internal Revenue Service Criminal Investigation, and Homeland Security Investigations, against the world’s largest and most prominent darknet market. According to OFAC, the designation was enhanced by international collaboration with the German Federal Criminal Police, who seized the designated entity’s servers in Germany and $25 million worth of bitcoin. Additionally, OFAC identified more than 100 virtual currency addresses connected to the entity’s operations that have been used to conduct illicit transactions. OFAC also noted that Treasury will publish an updated National Strategy to Combat Illicit Finance, which will highlight planned Treasury efforts to continue to combat the virtual currency misuse. As a result of the sanctions, all property and interests in property belonging to the sanctioned entities in the U.S. are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC noted that U.S. persons are prohibited from participating in transactions with the sanctioned persons, which includes “the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.”
Additionally, OFAC issued several Russia-related general licenses: (i) General License 8B authorizes certain “transactions related to energy” through June 24; (ii) General License 9B authorizes “transactions related to dealings in certain debt or equity”; (iii) General License 10B authorizes “certain transactions related to derivative contract”; (iv) General License 21 authorizes “the wind down of Sberbank CIB USA, Inc”; (v) General License 22 authorizes “the wind down of transactions involving public joint stock company Sberbank of Russia”; and (vi) General License 23 authorizes the wind down of transactions involving joint stock company Alfa-Bank.”
Find continuing InfoBytes coverage on the U.S. sanctions response to Russia’s invasion of Ukraine here.
President Biden extends moratorium on student loan payments
On April 6, President Biden extended the moratorium on collecting student loans until August 31, explaining that the extension “will assist borrowers in achieving greater financial security and support the Department of Education’s efforts to continue improving student loan programs.” The Department of Education released a statement noting that it will continue to assess the financial impacts of the Covid-19 pandemic on student loan borrowers and assist them, which includes “allowing all borrowers with paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.” In response to the extension, Secretary of Education Miguel Cardona stated that the Department of Education will continue "to ensure that all borrowers have access to repayment plans that meet their financial situations and needs.”
Biden urges private-sector businesses to strengthen cyber defenses
On March 21, President Biden issued a fact sheet warning private-sector businesses of potential retaliatory Russian cyberattacks. Biden reiterated previous “warnings based on evolving intelligence that the Russian Government is exploring options for potential cyberattacks” against the U.S. in “response to the unprecedented economic costs [] imposed on Russia alongside our allies and partners.” The fact sheet urges companies to execute specific measures to strengthen their cyber defenses such as (i) mandating multi-factor authentication to make it harder for attackers to access systems; (ii) deploying modern security tools on computers and devices to continuously look for and mitigate threats; (iii) patching and protecting systems against known vulnerabilities and changing passwords so previously stolen credentials cannot be used by malicious actors; (iv) backing up and encrypting data so it cannot be used if stolen; (v) educating employees on common tactics used by attackers and encouraging the reporting of “unusual behavior”; and (vi) engaging proactively with the FBI or the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) “to establish relationships in advance of any cyber incidents” (see CISA’s “Shields Up” guidance here). “I urge our private-sector partners to harden your cyber defenses immediately by implementing the best practices we have developed together over the last year,” Biden stated. “You have the power, the capacity, and the responsibility to strengthen the cybersecurity and resilience of the critical services and technologies on which Americans rely.”
PAVE task force delivers plan on appraisal bias
On March 23, HUD delivered the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan to President Biden. Created in June 2021 to address racial bias in home lending and appraisals and establish actions to root out inequity, PAVE Task Force members include HUD Secretary Marcia L. Fudge and White House Domestic Policy Advisor Susan Rice, the U.S. Attorney General, the Secretaries of Agriculture, Labor, and Veterans Affairs, the Comptroller of the Currency, the Chairmen of the Federal Reserve Board, FDIC, NCUA, Directors of the CFPB and FHFA, and the Executive Director of the Appraisal Subcommittee of the FFIEC.
According to the announcement, the Action Plan to Advance Property Appraisal and Valuation Equity (the Plan) will represent “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.” According to the Task Force’s executive summary, “[o]n average, homes in majority-Black neighborhoods are valued at less than half of those in neighborhoods with few or no Black residents.” The summary also reports that the impact of undervaluation on homebuyers, sellers, and communities can sometimes result in higher down payments for home buyers, often causing sales to fall through, while low valuations in a refinance transaction can reduce the cash-out available and sometimes affect the refinance interest rate and mortgage insurance premiums paid by the homeowner. The Task Force further notes that since the Fair Housing Act was passed more than 50 years ago, “the racial wealth gap is wider than ever: in 2021, the Black homeownership rate reached only 44 percent, while the white homeownership rate reached 74 percent.”
The Plan will focus primarily on actions to substantially reduce racial bias in home appraisals, as well as steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.” Among other things, the Plan states that Task Force members will exercise broad oversight and compliance authority to strengthen “guardrails against unlawful discrimination in all stages of residential valuation.” Agencies will also issue guidance on FHA and ECOA’s application to the appraisal industry and update appraisal-specific policies to “ensure that appraisers or regulated institutions’ use of appraisals are directly included in supervisory [FHA] and ECOA compliance requirements, and are considered in every review of relevant existing and future policies and guidance.” Relevant agencies have also committed to addressing potential bias in the use of technology-based valuation tools through a rulemaking related to automated valuation models (AVMs), including the addition of a nondiscrimination quality control standard in the proposed rule. In consultation with Congress, Task Force members will also pursue legislation to modernize the governance structure of the appraisal industry.
In the coming months, the Task Force will assess: (i) the “expanded use of alternatives to traditional appraisals as a means of reducing the prevalence and impact of appraisal bias”; (ii) the use of “range-of-value estimates instead of point estimates as a means of reducing the impact of racial or ethnic bias in appraisals”; (iii) the “potential use of alternatives and modifications to the sales comparison approach that may yield more accurate and equitable home valuation”; and (iv) “public sharing of a subset of historical appraisal data to foster development of unbiased valuation methods.”
CFPB Director Rohit Chopra stated that the Bureau will take an active leadership role in the Appraisal Subcommittee and will work “to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate.”
Acting Comptroller of the Currency Michael J. Hsu also announced that the OCC plans to enhance its supervisory methods for identifying discrimination in property valuations and will take steps to ensure consumers are aware of their rights regarding appraisals. The agency also intends to “support research that may lead to new ways to address the undervaluation of housing in communities of color caused by decades of discrimination.”
Additionally, acting FDIC Chairman Martin J. Gruenberg noted that the agency is committed to taking several concrete actions, including collaborating with Task Force members to exercise authorities “to support a more equitable state appraisal certification and licensing system.”
Biden signs $1.5 trillion omnibus package
On March 15, President Biden signed H.R. 2471 the “Consolidated Appropriations Act, 2022” (Act) into law. According to House Appropriations Committee Chair Rosa DeLauro’s press release, the Act is an omnibus spending measure that provides $1.5 trillion in discretionary resources across the 12 fiscal year 2022 appropriations bills. Among other things, the Act includes the “Cyber Incident Reporting for Critical Infrastructure Act of 2022,” which establishes requirements for reporting ransomware incidents on critical infrastructure to the DHS Cybersecurity and Infrastructure Security Agency (CISA). Specifically, Division Y Section 2242, establishes that companies must report incidents to CISA 72 hours after the covered entity reasonably believes that a cyber incident has occurred, or within 24 hours if a ransomware payment has occurred. If a company fails to meet the reporting requirements, the Act permits the cyber security director to “obtain information about the cyber incident or ransom payment by engaging the covered entity directly to request information about the cyber incident or ransom payment, and if the Director is unable to obtain information through such engagement, by issuing a subpoena to the covered entity, pursuant to subsection (c), to gather information sufficient to determine whether a covered cyber incident or ransom payment has occurred.” The Act also establishes that if CISA determines that the incident requires regulatory enforcement action or criminal prosecution, such information may be provided to the Attorney General or the appropriate regulator, who may utilize such information for a regulatory enforcement action or criminal prosecution. Within 24 months, CISA is directed to publish a notice of proposed rulemaking (NPRM) in the Federal Register to implement the Act, followed by the issuance of a final rule within 18 months of the NPRM. The final rule will outline the criteria of reporting and provide the effective dates for the reporting requirements. The Act also directs CISA to carry out an outreach and education campaign to inform covered entities about the rule’s requirements. Though the bill establishes that a court shall dismiss a cause of action against a person or entity for submitting a report, the liability protections “shall only apply to or affect litigation that is solely based on the submission of a covered cyber incident report or ransom payment report to the [Sector Risk Management] Agency.”
The Act also includes the “Adjustable Interest Rate (LIBOR) Act,” which establishes “a clear and uniform process, on a nationwide basis, for replacing LIBOR in existing contracts the terms of which do not provide for the use of a clearly defined or practicable replacement benchmark rate, without affecting the ability of parties to use any appropriate benchmark rate in new contracts,” among other things. Additionally, the Act includes rental assistance programs and climate restoration grants, which, according to a statement by HUD Secretary Marcia L. Fudge, “provides funding to improve the energy efficiency of housing and increase resilience to climate impacts.”
OFAC sanctions Russians connected to human rights violations and Belarusian leader engaged in corruption
On March 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Russia Magnitsky Act against four individuals and one entity. According to OFAC, the sanctioned individuals and entity were involved in concealing events surrounding the death of renowned Russian whistleblower, Sergei Magnitsky, or were connected to gross violations of human rights against a Russian human rights defender. OFAC also re-designated, pursuant to Executive Order 13405, the head of a corrupt government in Belarus who used his authorities to benefit his inner circle and regime, and newly designated his wife for being a senior level official engaged in public corruption.
As previously covered by InfoBytes, President Biden issued E.O 13405, “Blocking Property of Additional Persons Contributing to the Situation in Belarus,” which expanded the scope addressing the national emergency declared in E.O. 13405, “finding that the Belarusian regime’s harmful activities and long-standing abuses aimed at suppressing democracy and the exercise of human rights and fundamental freedoms in Belarus—including illicit and oppressive activities stemming from the August 9, 2020, fraudulent Belarusian presidential election and its aftermath, such as the elimination of political opposition and civil society organizations and the regime’s disruption and endangering of international civil air travel—constitute an unusual and extraordinary threat to the national security and foreign policy of the United States.” As a result of the sanctions, all property and interests in property belonging to the sanctioned entities subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” OFAC noted that U.S. persons are prohibited from participating in transactions with these persons, which includes “the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person or the receipt of any contribution or provision of funds, goods or services from any such person.”