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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.
On April 25, the Federal Housing Finance Agency (FHFA) issued advisory bulletin AB 2018-02 to provide guidance for Federal Home Loan Banks (FHL Banks) on the use of models and methodologies when assessing mortgage asset credit risk. The advisory bulletin applies to FHL Banks that acquire Acquired Member Asset loans, mortgage-backed securities (MBS), and collateralized mortgage obligations. Exclusions from application of the guidance include certain mortgage-related assets that are guaranteed by, or operating with the capital support of, the U.S. government, including Fannie Mae and Freddie Mac. When selecting a credit risk model that is “sufficiently robust to produce meaningful loss estimates,” FHFA advises FHL Banks to consider the following when complying with regulatory requirements: (i) mortgage asset credit risk model selection; (ii) macroeconomic stress scenarios; (iii) stress scenario determinations; and (iv) credit enhancements. The guidance permits the exclusion of legacy private label MBS from application of the guidance where the stress loss estimates would be de minimis, and provides methods for determining estimated credit losses associated with securities that cannot be modeled.
The new guidance supplements general FHFA guidance on model risk management and takes effect January 1, 2019.
On July 26, the FDIC released an update to its Affordable Mortgage Lending Guide, Part II: State Housing Finance Agencies (Guide) and Quick Links: State Links for Housing Finance Agencies. The Guide provides information for community banks about the programs and products offered by each State Housing Finance Agency (HFAs), and discusses, among others things: (i) first-lien mortgage products; (ii) down payment and closing cost assistance; (iii) mortgage tax credit certificates; and (iv) mortgage lending homeownership education and counseling programs. Updates to the Guide include program updates to 40 out of the 54 HFAs and changes to the State HFA Product Matrix. A review of Part II, completed July 1, 2017, reflects the FDIC’s commitment to provide the most up-to-date borrower and loan criteria information available.
On June 13, Representatives Randy Hultgren (R-Ill.) and Gwen Moore (D-Wis.) introduced legislation to strengthen the Federal Home Loan Bank (FHLB) System by ensuring access to mortgage credit and affordable housing assistance for millions of consumers. As set forth in a June 15 press release issued by Rep. Hultgren’s office, the Housing Opportunity Mortgage Expansion (HOME) Act (H.R. 2890) would allow lenders to regain membership in the FHLB System provided they (i) joined before the Federal Housing Finance Agency (FHFA) proposed its recently finalized membership rule, and (i) are able to “demonstrate a commitment to residential mortgage activities.”
As previously discussed in InfoBytes, FHFA’s final rule added a revision intended to help streamline membership applications. However, Hultgren asserts that the rule “restricts FHLB membership eligibility” by excluding “captive insurers” under its definition of an “insurance company” thereby prohibiting membership. The HOME Act, Hultgren states, “would clarify that companies with a history and mission of supporting residential housing should be able to continue to serve our communities.”
On June 5, the Federal Housing Finance Agency (FHFA) issued a final rule amending its regulations to allow certain state-chartered credit unions without Federal share insurance to obtain Federal Home Loan Bank memberships. The final rule is substantially the same as the proposed rule issued by the FHFA in September 2016 with the exception of an added revision intended to help streamline credit union Bank membership applications. The amendment was adopted in order to implement a provision of the Fixing America's Surface Transportation Act and goes into effect July 5, 2017.
FHFA Includes New Classifications for Reporting Adverse Examination Findings; Amends FOIA Regulations
On March 14, the Federal Housing Finance Agency (“FHFA”) issued an Advisory Bulletin establishing classifications of adverse examination findings for Fannie Mae, Freddie Mac, Federal Home Loan Banks (“FHLBs”), and the FHLB’s Office of Finance (AB 2017-01). Effective for the 2017 examination cycle, the bulletin establishes three designated “classifications,” which can be used by examination staff to communicate adverse examination findings more effectively. The three classifications are meant both to identify priorities for remediation and also to guide FHFA in the development of supervisory strategies. These supervisory strategies include: (i) Matters Requiring Attention—both high-priority critical supervisory matters that pose substantial risk to safety and soundness and deficiencies that, if not corrected, have the potential to escalate and negatively affect a regulated entity or the Office of Finance; (ii) Recommendations—advisory suggestions regarding changes to a policy, procedure, practice, or control; and (iii) Violations—non-compliance with laws, regulations, or orders that requires action by a regulated entity or the Office of Finance to correct, if possible.
On March 15, FHFA issued an interim final rule, amending its FOIA regulations (12 CFR Part 1202) in an effort to bring its internal policies into accord with guidelines established through the FOIA Improvement Act of 2016 (Pub. L. No. 114-185) and the “OPEN FOIA Act of 2009” (Pub. L. No. 111-83, 123 Stat. 2142, 2184 (2009)). The new FOIA rules – which are effective as of March 15—require agencies to, among other things, provide a minimum of 90 days (rather than 30 days) for requesters to file an administrative appeal; and provide notification to requesters about the availability of dispute resolution services.