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  • Senate Banking Democrats urge CFPB to keep certain ATR/QM standards

    Federal Issues

    On September 17, nine Democratic Senate Banking Committee members wrote to the CFPB in response to its Advanced Notice of Proposed Rulemaking (ANPR) soliciting feedback on amending Regulation Z and the Ability to Repay/Qualified Mortgage Rule (ATR/QM Rule) to minimize disruption from the so-called GSE patch expiration, previously covered by a Buckley Special Alert. The GSE patch confers Qualified Mortgage status for loans purchased or guaranteed by Fannie Mae and Freddie Mac (GSEs) while those entities operate under FHFA conservatorship. The letter urges the Bureau to ensure two things when reexamining the regulation: (i) borrowers maintain the same level of access to responsible, affordable mortgage credit; and (ii) all mortgage underwriting decisions are based on a borrower demonstrating an ability to repay and rely on documentation and use verified income. The Senators request that the CFPB use the ANPR “as an opportunity to ensure the ATR and QM regulations facilitate a mortgage market that provides access to safe, sustainable mortgage credit for all creditworthy borrowers.”

    Federal Issues CFPB Senate Banking Committee U.S. Senate Ability To Repay Qualified Mortgage

  • Senate Banking Committee discusses housing finance reform proposals

    Federal Issues

    On September 10, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Housing Finance Reform: Next Steps” to discuss the federal government’s plans for reforming and strengthening the mortgage market. As previously covered by InfoBytes, the Department of Treasury and HUD released complementary proposals on September 5 discussing plans to end the conservatorships of Fannie Mae and Freddie Mac (GSEs) and reform the housing finance system. The Committee heard from Treasury Secretary Steven Mnuchin, HUD Secretary Ben Carson, and FHFA Director Mark Calabria. Committee Chairman Mike Crapo (R-ID) opened the hearing by stating a preference for comprehensive legislation to end the conservatorship of the GSEs but stressed that the agencies should “begin moving forward with incremental steps that move the system in the right direction.” Democratic members of the Committee stated their oppositions to the proposals, with Senator Sherrod Brown (D-Ohio) arguing that the Treasury’s plan “will make mortgages more expensive and harder to get,” make it more difficult for small lenders to compete, and roll back tools designed to help underserved families.

    Treasury Secretary Mnuchin defended his agency’s proposal, and noted that while he prefers that Congress take the lead on ending the GSE conservatorships and plans to work with Congress on a bipartisan basis to enact comprehensive housing finance reform legislation, he also sees the need to concurrently develop administrative actions to protect taxpayers and foster competition. Among other things, Mnuchin discussed steps to remove the net worth sweep, which requires the GSEs to send nearly all their profits to the Treasury, arguing that ending the sweep will allow the GSEs to retain their earnings and build up capital.

    FHFA Director Calabria emphasized that plans released by the Treasury and HUD are “broadly consistent” with his top priorities, which include developing capital standards for the GSEs to match their risk profiles that would “begin the process to end the [GSE] conservatorships,” as well as reforms to reduce the risks in the GSEs’ portfolios. All three witnesses agreed with Crapo’s assessment that the GSEs in their current form “are systemically important companies [and] that they continue to be too big to fail.” Calabria further emphasized that while he believes only Congress can reach a comprehensive solution, he believes the agencies can also make significant steps.

    HUD Secretary Carson commented that a central principle of HUD’s housing finance plan is to improve coordination between HUD and FHFA to allow qualified borrowers access to responsible and affordable credit options, with HUD, the Department of Veterans Affairs, and the Department of Agriculture acting as the sole sources of low-down-payment financing for borrowers outside of the conventional mortgage market. Carson further noted that reform will “reduce the Federal Government’s outsized role in housing finance.”

    Federal Issues Senate Banking Committee Housing Finance Reform Mortgages Department of Treasury HUD GSE FHFA

  • Agency officials urge Congress to create central repository to combat money laundering

    Federal Issues

    On May 21, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Combating Illicit Financing By Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.” The Committee heard from the same panel of witnesses who testified in November on the need for modernization of the Bank Secrecy Act/Anti-Money Laundering regime. (Covered by InfoBytes here.) Committee Chairman Mike Crapo opened the hearing by stressing the need to discuss ways in which beneficial ownership information collected in an effort to deter money laundering and terrorist financing through anonymous shell companies can be made more useful. Panelists from the Financial Crimes Enforcement Network, the FBI, and Office of the Comptroller of the Currency all emphasized the importance of creating a regime in which beneficial ownership is collected at the corporate formation stage and, for foreign entities, upon the time of registration with U.S. states to conduct business or upon establishing an account with a U.S. financial institution.

    Federal Issues Senate Banking Committee FinCEN Beneficial Ownership Financial Crimes Department of Treasury OCC FBI Of Interest to Non-US Persons Anti-Money Laundering Combating the Financing of Terrorism CDD Rule Hearing

  • Democratic senators concerned with CFPB retiring HMDA search tool

    Federal Issues

    On April 29, nine Democratic Senators, led by Sherrod Brown (D-Ohio), wrote to the CFPB expressing “deep concern” regarding the Bureau’s plan to retire its tools for public exploration of HMDA data—HMDA Explorer Tool and the Public Data Platform API. In the letter, the Senators argue that retiring the tools with no plan for adequate replacements “threatens to undermine the statutory purposes of HMDA and does not live up the commitments to transparency and accountability” that Director Kraninger promised to uphold during her nomination hearing. The Senators cite to the Bureau’s decision to move the Office of Fair Lending and Equal Opportunity from the Supervision and Enforcement section to the Office of the Director and argue that “[r]reductions in available data and its accessibility, combined with weakened [fair lending] enforcement, is a disservice to the consumers the CFPB was created to protect.” The letter urges the CFPB to reverse course and requests that the Bureau provide a “detailed briefing” on the decision by May 10.

    In the notice regarding the tools’ retirement, the Bureau states that the FFIEC “will publish a query tool for the 2018 data in the coming months.”

    Federal Issues HMDA CFPB FFIEC Senate Banking Committee Congressional Inquiry

  • White House calls for end to GSE conservatorships; Senate holds housing finance hearings

    Federal Issues

    On March 27, the White House released a Memorandum on Federal Housing Finance Reform, which directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Specifically, the memo states that the U.S. housing finance system is “in urgent need of reform,” as taxpayers are “potentially exposed to future bailouts” and programs at HUD have outdated operations and are “potentially overexposed to risk.” The President directs the Treasury and HUD to create specific plans addressing a number of reforms “as soon as practical.” Among other things, the directives include:

    • Treasury to reform GSEs. With the ultimate goal of ending the conservatorships, the memo directs Treasury to develop proposals to, among other things, (i) preserve access to 30 year fix-rate mortgages for qualified homebuyers; (ii) establish appropriate capital and liquidity requirements for the GSEs; (iii) increase private sector participation in the mortgage market; (iv) evaluate the “QM Patch” with the HUD Secretary and CFPB Director; and (v) set conditions necessary to end conservatorships.
    • HUD to reform programs. In addition to outlining specific objectives, the memo directs HUD to achieve three goals: (i) ensure that the FHA and the Government National Mortgage Association (GNMA) assume the primary responsibility for providing housing finance support for low income or underserved families; (ii) improve risk management, program, and product design to reduce taxpayer exposure; and (iii) modernize the operations of the FHA and GNMA.

    Similarly, on March 26 and 27, the Senate Banking Committee held a two-part hearing (here and here) on housing finance reform. The hearing reviewed the legislative plan released by Chairman Mike Crapo (R-ID) in February. As previously covered by InfoBytes, the plan would, among other things, end the GSEs conservatorships, make the GSEs private guarantors, and allow other nonbank private guarantors to enter the market. Additionally, the plan would (i) restructure FHFA as a bipartisan board of directors, which would charter, regulate, and supervise all private guarantors; (ii) place a percentage cap on all outstanding mortgages for guarantors; and (iii) replace current housing goals and duty-to-serve requirements with a fund intended to address housing needs of underserved communities. In his opening statement at the hearing, Crapo said that, “approximately 70 percent of all mortgages originated in this country are in some way touched by the federal government” and “the status quo is not a viable option” for the housing finance market. Ranking Member Sherrod Brown (D-Ohio) emphasized that “any changes we consider must strengthen, not weaken, our ability to address the housing challenges facing our nation and make the housing market work better for families.”

    Over the two days, the Senators and witnesses discussed the positive objectives of Crapo’s plan while recognizing hurdles that exist in implementing housing finance reform. While many Senators and witnesses expressed support for a requirement that private guarantors serve a national market, others suggested that regionalized or specialized guarantors could have advantages, including reaching underserved markets. Many Democrats stressed the importance of keeping a catastrophic government guarantee in place, while Republicans emphasized the need for legislative reforms to be implemented as soon as possible. With respect to equal access for small lenders, Senators discussed the concern over credit unions being able to sell loans in a multiple guarantor market.

    Federal Issues White House Trump Housing Finance Reform GSE Fannie Mae Freddie Mac Affordable Housing FHA HUD Mortgages U.S. Senate Senate Banking Committee

  • CFPB defends MLA and Payday Rule position in Senate hearing

    Federal Issues

    On March 12, Director of the CFPB, Kathy Kraninger, testified at a hearing held by the Senate Banking, Housing, and Urban Affairs Committee on the CFPB’s Semi-Annual Report to Congress. While Kraninger’s opening statement and question responses were similar to her comments made last week during a House Financial Services Committee hearing (detailed coverage here), notable highlights include:

    • Fair Lending. Kraninger did not provide a status update on the Bureau’s pre-rulemaking activities as they relate to whether disparate impact is cognizable under ECOA, but emphasized that the Bureau is committed to the fair lending mission.
    • Data Collection. In response to concerns over the Bureau’s history of expansive data collection, Kraninger noted that data collection is an especially important tool for rulemaking, but stated that going-forward she would ensure the Bureau only collects the information needed to carry out the Bureau’s mission, noting that the less personally identifiable information that is collected, the less that requires protection. She acknowledged the Bureau is reviewing the comments submitted in response to its fall 2018 data governance program report (covered by InfoBytes here) and stated the Bureau remains committed to reviewing the internal processes it has for collecting and using data.
    • Military Lending Act (MLA). Kraninger stated that she disagrees with the Democratic Senator’s broad interpretation of Section 1024(b)(1)(C) of the Dodd-Frank Act allowing for the Bureau to examine for compliance with the MLA because that interpretation would permit the Bureau to examine for anything that is a “risk to consumers,” including things like safety and soundness, which is not currently under the Bureau’s purview. While she acknowledged that the Bureau has the direct authority to enforce the MLA, she repeatedly rejected the notion that this would also give the Bureau the authority to supervise for the MLA, as Dodd-Frank separates the Bureau’s enforcement and supervision powers.
    • Payday Rule. Kraninger repeatedly emphasized that the reconsideration of the underwriting standards in the Payday Rule was to determine if the legal and factual basis used to justify certain practices as unfair and abusive was “robust” enough. She acknowledged that the Bureau will be reviewing all the comments to the proposal and that the evidence used for the original Rule will be part of the record for the reconsideration.
    • GSE Patch. In response to questions regarding the 2021 expiration of the Qualified Mortgage (QM) Rule’s 43 percent debt-to-income ratio exception for mortgages backed by Fannie Mae and Freddie Mac (GSEs), Kraninger acknowledged the “non-QM” market hasn’t materialized over the last few years, as was originally anticipated. However, Kraninger was reluctant to provide any further details, noting that she would not be making any “dramatic changes” to the mortgage market. Additionally, she acknowledged that the GSE patch has the potential to expire at the end of the conservatorship as well.
    • CFPB Structure. Kraninger did not specify whether she believes the Bureau should be led by a board, rather than a single director, or whether the Bureau should be under appropriations. Specifically Kraninger stated that she would “welcome any changes Congress made that would increase the accountability and transparency of the Bureau,” and would “dutifully carry out” legislation that would place the Bureau under appropriations if the President signed it.
    • Student Lending. Kraninger stated that the Bureau intends to re-engage with the Department of Education on a Memorandum of Understanding (MOU) to assist with complaint and information sharing once a new Student Loan Ombudsmen has been hired. The MOUs were previously terminated by the Department in August 2018 (covered by Infobytes here).

    Federal Issues CFPB Senate Banking Committee House Financial Services Committee Fair Lending ECOA Disparate Impact Payday Rule Privacy/Cyber Risk & Data Security GSE Military Lending Act

  • Senate Banking Committee seeks data privacy feedback

    Privacy, Cyber Risk & Data Security

    On February 13, Senate Committee on Banking, Housing, and Urban Affairs Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH) invited stakeholder feedback on “the collection, use and protection of sensitive information from financial regulators and private companies” as a means of informing potential future legislation. In a press release issued by the committee, Crapo noted, “Given the exponential growth and use of data, and corresponding data breaches, it is worth examining how the Fair Credit Reporting Act should work in a digital economy, and whether certain data brokers and other firms serve a function similar to the original consumer reporting agencies.” He further stressed the importance of understanding how consumer data is compiled and protected, and how consumers are able to access and correct sensitive information. The release sought answers to five questions designed to help examine ways in which legislation, regulation, or the implementation of best practices can (i) provide consumers better control over their financial data, as well as timely data breach notifications; (ii) ensure consumers receive disclosures concerning both the type of information being collected and its purpose for collection; (iii) provide consumers control over how their data is being used—including the sharing of information by third-parties; (iv) protect consumer data and ensure the accuracy of reported information in a consumer’s credit file; and (v) allow consumers the ability to “easily identify and exercise control of data that is being . . . collected and shared” as a determining factor when establishing whether a consumer is eligible for, among other things, credit or employment.

    Privacy/Cyber Risk & Data Security Senate Banking Committee Federal Legislation Consumer Protection Fair Credit Reporting Act

  • Senator Crapo unveils plan for housing finance reform

    Federal Issues

    On February 1, Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID) released an outline for a sweeping legislative overhaul of the U.S. housing finance system. Most notably, the plan would end the Fannie Mae and Freddie Mac (GSEs) conservatorships, making the GSEs private guarantors while also allowing other nonbank private guarantors to enter the market. Highlights of the proposal include:

    • Guarantors. The GSEs would be private companies, competing against other nonbanks for mortgages, subject to a percentage cap. The multifamily arms of the GSEs would be sold and operated as independent guarantors. Consistent with current GSE policy, the eligible mortgages would, among other things, be subject to loan limits set by FHFA and would be required to have an LTV of no more than 80 percent unless the borrower obtains private mortgage insurance.
    • Regulation of Guarantors. FHFA, structured as a bi-partisan board of directors, would charter, regulate, and supervise all private guarantors, including the former GSEs. FHFA would be required to create prudential standards that include (i) leverage requirements; (ii) if appropriate, risk-based capital requirements; (iii) liquidity requirements; (iv) overall risk management requirements; (v) resolution plan requirements; (vi) concentration limits; and (vii) stress tests. Guarantors would be allowed to fail.
    • Ginnie Mae. Ginnie Mae would operate the mortgage securitization platform and a mortgage insurance fund. Additionally, Ginnie Mae would provide a catastrophic government guarantee to cover tail-end risk, backed by the full-faith and credit of the U.S.
    • Transition. In addition to a cap on the percent of all outstanding eligible mortgages, the legislation would require guarantors to be fully capitalized within an unspecified number of years after enactment.
    • Affordable housing. Current housing goals and duty-to-serve requirements would be eliminated and replaced with a “Market Access Fund,” which is intended to address the homeownership and rental needs of underserved and low-income communities.

    As previously covered by InfoBytes, on January 29, Chairman Crapo released the Senate Banking Committee’s agenda, which also prioritizes housing finance reform.

    Federal Issues Senate Banking Committee Housing Finance Reform Fannie Mae Freddie Mac Ginnie Mae Mortgages GSE FHFA Securitization

  • Senate Banking Committee agenda released

    Federal Issues

    On January 29, the Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID), outlined his upcoming committee agenda, which prioritized housing finance. Specifically, Crapo stated “housing finance reform is the last piece of unaddressed business from the financial crisis,” emphasizing that the continued conservatorship of Fannie Mae and Freddie Mac should be addressed with bipartisan legislation to establish better taxpayer protection and increase competition among mortgage guarantors. Crapo also highlighted, among other things, potential legislative needs for (i) capital markets, specifically legislation that would encourage capital formation and reduce burdens for smaller businesses; (ii) data breaches and solutions to provide consumers greater control over their financial data; (iii) credit bureau reform to make it easier for consumers to interface with credit bureaus generally and dispute inaccuracies; and (iv) improvements in the regulatory landscape covering fintech innovation. Crapo also acknowledged the upcoming expiration of the National Flood Insurance Program in May, noting that the program was extended ten times last Congress, and any significant reforms need to balance taxpayer interest with the assistance of consumers.

    The Committee will continue to provide ongoing oversight over the federal financial regulatory agencies, including whether the regulations, guidance and supervisory expectations are consistent with the intent of the sponsors of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Additionally, the Committee will (i) continue its review of the “benefits of agencies that have a bipartisan commission, rather than a single director; a Congressional funding mechanism; and a safety and soundness focus,” and (ii) conduct oversight into financial companies’ actions with regard to access to credit, including whether companies withhold access to customers and industries they disfavor.

    Federal Issues Senate Banking Committee Fintech GSE Fannie Mae EGRRCPA

  • Democrats request Otting explain comments about ending the GSEs conservatorship

    Federal Issues

    On January 25, top Democratic Congressional leaders, Maxine Waters and Sherrod Brown, wrote to acting Director of the FHFA, Joseph Otting, requesting that he clarify and expand on his reported remarks concerning the administration’s plan to move Fannie Mae and Freddie Mac (collectively, “GSEs”) out of conservatorship. Specifically, Otting reportedly told FHFA employees that he would soon announce a plan to move the GSEs out from under government control and that he was given a “clear mission” outlined by Treasury and the White House of “what they want to accomplish” with the agency. Waters and Brown expressed concern about Otting’s ability to lead the agency independently based on these comments, as well as a recent filing of the agency with the U.S. Court of Appeals for the 5th Circuit stating that the agency would no longer defend the constitutionality of the FHFA’s structure. (Covered by InfoBytes here.) Waters and Brown also requested that Otting submit by February 1 a copy of the “mission that Treasury and the White House have outlined.” In response, Otting stated that he appreciated the Democratic leaders’ interest in housing finance, outlined the statutory duties of the FHFA, and welcomed input as they “begin the journey of evaluating the Enterprises and developing a framework for ending conservatorship.”

    As previously covered by InfoBytes, in June 2018, the White House announced a government reorganization plan titled, “Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations.” The plan covers a wide-range of government reorganization proposals, including a proposal to end the conservatorship of the GSEs and fully privatize the companies.

    Federal Issues FHFA GSE Fannie Mae Freddie Mac House Financial Services Committee Senate Banking Committee

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