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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.
On August 12, HUD announced a Memorandum of Understanding (MOU) with FHFA regarding fair housing and fair lending coordination. The MOU—a “first-of-its-kind collaborative agreement”—will expire in December 2025, and is intended to enhance enforcement of the Fair Housing Act and the agencies’ oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. According to HUD, the agencies “anticipate that the MOU will lead to stronger oversight that will help advance vigorous fair housing enforcement that can begin to redress our nation’s history of discriminatory housing practices.”
On July 1, FHFA issued a supervisory letter providing guidance to the Federal Home Loan Banks (FHLBanks) regarding Division of Bank Regulation expectations on the use of alternative reference rates to ensure ongoing “safe and sound FHLBank operations.” According to the letter, FHLBanks should consider, among other things, whether the reference rate: (i) is based on actual daily market transactions; (ii) accurately correlates with the bank’s funding costs; and (iii) is considered the most robust or reflective option of market activity available. In addition, the letter advises FHLBanks to consider whether they have the “necessary information about the underlying transactions and methodology supporting a candidate reference rate to monitor its representativeness over time.” The letter advises that FHLBanks should avoid “rates that contain shortcomings that exist in LIBOR and other recently discontinued or soon to be discontinued reference rates.” FHFA also instructs FHLBanks to provide advance notice to their Examiners-in-Charge if they intend to use an alternative reference rate not already in use.
On June 3, the FHFA published a final rule for the housing goals of the Federal Home Loan Banks (FHLBs) to help underserved borrowers. The final rule’s changes include: (i) eliminating the retrospective evaluation using HMDA data and establishing a single prospective mortgage purchase housing goal at 20 percent of the number of each FHLB’s total Acquired Member Assets mortgage purchases; (ii) establishing a separate small member participation housing goal with a target goal of at least 50 percent; (iii) eliminating the existing $2.5 billion volume threshold and allowing banks to propose alternative target levels for housing goals, subject to public comment and FHFA approval; (iv) capping the extent FHLBs can use loans to higher-income borrowers to meet their housing goals; (v) establishing a process through which FHLBs could propose alternative goals to the prospective goals set in the final rule; and (vi) simplifying and clarifying eligibility criteria for housing goals to enable federally backed loans sold by small institutions to FHLBs to count for goal purposes. The final rule takes effect 60 days after publication in the Federal Register. Written requests from FHLBs proposing alternative target levels are due September 15, 2020. Enforcement will be phased in over three years and will apply to the 2021 - 2023 calendar years.
On April 23, the Federal Housing Finance Agency (FHFA) announced that Federal Home Loan Banks (FHLB) will begin to accept Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as collateral for advances to provide liquidity to community banks and other small lenders. FHFA issued a letter to FHLBs advising that banks may accept PPP loans from members subject to certain conditions including: (i) CAMELS rating must be at least a three, or credit rating in the top 60 percent; (ii) members downgraded after pledging PPP loans as collateral will have additional conditions placed on the collateral; and (iii) if the member does not replace PPP loans after downgrade with alternate eligible collateral, the FHLB will take possession of the collateral and impose haircuts based on member rating. The letter also sets out additional conditions regarding discounts, caps and limits. Among these conditions: (i) FHLBs must have at least a 10 percent collateral discount on 100 percent or less of unpaid principal balance (UPB); (ii) PPP collateral is capped at 20 percent of a member’s “lendable pledged collateral”; and (iii) a member may not pledge PPP loans for more than $5 billion of lendable collateral.
On April 15, the CFPB and the Federal Housing Finance Agency (FHFA) announced the launch of the joint Borrower Protection Program to address mortgage servicer performance during the Covid-19 emergency. The two regulators will share information about how responsive mortgage servicers are to requests for assistance from consumers who are not able to keep current on monthly mortgage payments. Under the program the CFPB will provide complaint and analytical tool information to the FHFA, which in turn will share loss mitigation data on mortgage servicers with the CFPB. Through the Borrower Protection Program, the CFPB and FHFA hope to combat confusing or misleading information from loan servicers to borrowers about their options, including forbearance, as prescribed in the CARES Act.
For more InfoBytes coverage on loan forbearance under the CARES Act, click here.
On March 24, the FHFA published a final rule amending its stress testing requirements consistent with changes made by section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule adopts amendments proposed last December (covered by InfoBytes here) without change, increasing the minimum threshold for FHFA-regulated entities to conduct stress tests from $10 billion to $250 billion in total consolidated assets, removing the requirements for Federal Home Loan Banks to conduct stress tests, and reducing the number of stress test scenarios from three to two by removing the “adverse” scenario. The final rule took effect March 24.
On January 22, the Federal Housing Finance Agency published its annual adjustment to the cap on average total assets used to determine whether a Federal Home Loan Bank member qualifies as a community financial institution (CFI). The new cap is $1,224,000,000. Under the Federal Home Loan Bank Act, insured depository institutions that qualify as a CFI receive certain advantages in qualifying for bank membership and the ability to receive and collateralize long-term advances. The adjustment took effect January 1.
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.
On September 28, FHFA released Advisory Bulletin AB 2018-08, which provides guidance to Fannie Mae and Freddie Mac, the Federal Home Loan Banks, and the Office of Finance (regulated entities) on the evaluation and management of risks associated with third-party provider relationships. (FHFA defines a third-party provider relationship as a “business arrangement between a regulated entity and another entity that provides a product or service.”)
The bulletin sets forth the structure and describes the features of the third-party provider risk management programs that FHFA expects regulated entities to establish. With respect to governance, the bulletin recommends such programs address: (i) the responsibilities of the board and senior management; (ii) policies, procedures, and internal standards; and (iii) the implementation of a reporting system to ensure management and the board are adequately informed. The bulletin also specifies that an effective program include policies and procedures that cover each of the following phases of a third-party provider relationship life cycle: (i) Risk Assessment; (ii) Due Diligence in Third-Party Provider Selection; (iii) Contract Negotiation; (iv) Ongoing Monitoring; and (v) Termination. The bulletin suggests that regulated entities should ensure that their third-party risk management corresponds with the level of risk and complexity of their third-party relationships and notes that not every aspect of the bulletin may apply to every relationship.
- Jedd R. Bellman to provide an “Attorney exemption/medical debt update” at the North American Collection Agency Regulatory Association annual conference
- Kathryn L. Ryan to discuss “What should crypto regulation look like: Legislation, regulation and consumer issues” at WCL's First Annual Virtual Currency Law Institute
- Elizabeth E. McGinn to discuss “How to mitigate and manage third-party risks: Leveraging tools and best practices” at The Knowledge Group’s webcast
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The evolving regulatory landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- Jeffrey P. Naimon to discuss “Truth in lending” at ABA’s Consumer Financial Services Basics 2022 virtual conference
- Sherry-Maria Safchuk to discuss “For your eyes only: Privacy updates for 2022-2023” at CCFL’s Annual Consumer Financial Services Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference