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On July 20, the Senate Committee on Banking, Housing, and Urban Affairs (Committee) held a hearing entitled, “Housing Finance Reform: Maintaining Access for Small Lenders.” Frequent topics of discussion in the hearing included, among other things, housing finance reform, secondary market access, affordable housing, access to credit in rural areas, mortgage insurance, and mortgage backed securities issued by government-sponsored enterprises (GSEs), operating under conservatorship since 2008.
Sen. Mike Crapo (R-Idaho), Chairman of the Committee, remarked in his opening statement that “small lenders play a critical role in the mortgage market,” and that a need exists to preserve access to the secondary market. However, Sen. Crapo asserted that although GSEs are currently earning profits, a risk exists for taxpayers if there is a market downturn. “A mortgage market dominated by two huge government-sponsored companies in conservatorship is not a long-term solution, and is not in the best interest of consumers, taxpayers, lenders, investors, or the broader economy,” Sen. Crapo stated.
Sen. Sherrod Brown (D-Ohio), ranking member of the Committee, released an opening statement in which he stated, “[S]mall lenders are often the only lenders willing to go the extra mile to underwrite mortgages . . . in cities’ urban core and in rural communities. . . . As we continue to debate the role of the GSEs, private capital, and large financial institutions in providing access to affordable mortgages, we cannot create a system that allows the GSEs or new players to use a business model that serves only the largest lenders, the highest income borrowers, or the well-off pockets of our country.”
The coalition of consumer groups and small lenders present at the hearing supported GSE reform, sought additional support for small lenders, and called for prompt government action relative to housing finance reform.
The July 20 hearing—a video of which can be accessed here—included testimony from the following witnesses:
- Ms. Brenda Hughes, Senior Vice President and Director of Mortgage and Retail Lending, First Federal Savings Bank of Twin Falls, on behalf of the American Bankers Association (testimony)
- Mr. Tim Mislansky, Senior Vice President and Chief Lending Officer, Wright-Patt Credit Union and President and CEO, myCUmortgage, LLC on behalf of the Credit Union National Association (testimony)
- Mr. Jack E. Hopkins, President and CEO, CorTrust Bank, N.A., on behalf of the Independent Community Bankers of America (testimony)
- Mr. Charles M. Pruvis, President and CEO, Coastal Federal Credit Union, on behalf of the National Association of Federally-Insured Credit Unions (testimony)
- Mr. Wes Hunt, President, Homestar Financial Corporation, on behalf of the Community Mortgage Lenders of America (testimony)
- Mr. Bill Giambrone, President and CEO, Platinum Home Mortgage and President, Community Home Lenders Association (testimony)
On July 19, Representative Patrick McHenry (R-N.C.), the Vice Chairman of the House Financial Services Committee, and Representative Gregory Meeks (D-N.Y.) introduced legislation designed to make it unlawful to change the rate of interest on certain loans after they have been sold or transferred to another party. As set forth in a July 19 press release issued by Rep. McHenry’s office, the Protecting Consumers’ Access to Credit Act of 2017 (H.R. 3299) would reaffirm the “legal precedent under federal banking laws that preempts a loan’s interest as valid when made.”
Notably, a Second Circuit panel in 2015 in Madden v. Midland Funding, LLC overturned a district court’s holding that the National Bank Act (NBA) preempted state law usury claims against purchasers of debt from national banks. (See Special Alert on Second Circuit decision here.)The appellate court held that state usury laws are not preempted after a national bank has transferred the loan to another party. The Supreme Court denied a petition for certiorari last year. According to Rep. McHenry, “[t]his reading of the National Bank Act was unprecedented and has created uncertainty for fintech companies, financial institutions, and the credit markets.” H.R. 3299, however, will attempt to “restore consistency” to lending laws following the holding and “increase stability in our capital markets which have been upended by the Second Circuit’s unprecedented interpretation of our banking laws.”
On July 21, the Treasury Department announced that on Friday, July 28, Secretary Steven T. Mnuchin will preside over an executive session of the Financial Stability Oversight Council (FSOC). According to a Treasury press release, the preliminary agenda includes:
- a discussion about Volcker Rule recommendations presented in the Treasury’s June 2017 report, “A Financial System That Creates Economic Opportunities: Banks and Credit Unions”;
- an update on annual reevaluation requirements for designating nonbank financial companies; and
- a discussion regarding pending litigation brought against FSOC.
Consistent with FSOC’s transparency policy, the meeting may be made available via live webcast and can be viewed after it occurs. Meeting minutes for the most recent FSOC meetings are generally approved at the next meeting and posted online soon afterwards.
Meeting minutes for past meetings are available here.
Readouts for past meetings are available here.
On July 19, Representative Blaine Luetkemeyer (R-Mo.) reintroduced legislation designed to overhaul the process used to manage systemic risk by basing the regulation of financial institutions on risk rather than asset size alone. As set forth in a press release issued by Rep. Luetkemeyer’s office, the Systemic Risk Designation Improvement Act of 2017 would replace the $50 billion threshold for designating a bank holding company as a Systemically Important Financial Institution (SIFI) with a series of standards for evaluating risk. The legislation would require the Federal Reserve to evaluate an “institution’s size, interconnectedness, substitutability, global cross-jurisdictional activity, and complexity” before designating it as a SIFI. The legislation was previously introduced in the House, but discussion was delayed to provide Rep. Luetkemeyer with time to propose a method for funding the proposed changes, which are estimated to cost more than $115 million. (See previous InfoBytes summary here.)
“This legislation supports economic growth throughout the country because it will free commercial banks to make loans while allowing financial regulators the ability to apply enhanced standards on banks based on actual risk posed to the financial system–rather than on arbitrary asset size alone," Luetkemeyer pronounced.
On July 20, the Senate Committee on Banking, Housing and Urban Affairs and the House Financial Services Committee each announced Congressional Review Act Joint Resolutions of Disapproval against the CFPB’s Arbitration Agreements final rule issued July 10. In a press release issued by the Senate Committee, 24 Republican senators—including Chairman Mike Crapo (R-Idaho)—expressed concern that the anti-arbitration measure will discourage cost-effective dispute resolution and push consumers into class action lawsuits causing more harm than good. House Republicans outlined similar concerns in a press release issued the same day. H.J. Res. 111, co-sponsored by all 34 Republican members of the House Financial Services Committee, will seek to nullify the rule, which they believe “punish[es] consumers with decreased access to financial products, increased costs for such products, or both.”
The Congressional Review Act allows Congress to overturn agency rules by a simple majority if moved within 60 days from the rule’s publication.
House Appropriations Committee Approves Fiscal Year 2018 Funding Bills Affecting Housing and Urban Development, and Cybersecurity
On July 17, the House Appropriations Committee (Committee) approved the fiscal year 2018 transportation, housing and urban development funding bill by a vote of 31-20. Of the total $56.5 billion in funding provided by the bill, $38.3 billion is allocated to the Department of Housing and Urban Development (HUD) for community planning and development, which is $487 million below fiscal year 2017 but $6.9 billion above President Trump’s request. According to Committee Chairman Rodney Frelinghuysen, the bill “includes responsible funding to ensure communities across the nation have access to necessary community development funds, and [will] provide housing to those who need it the most – including the poor, elderly, and disabled.”
- A summary of the bill is available here.
- A copy of the legislative text of the bill is available here.
- A copy of the bill report is available here.
On July 18, the Committee approved the fiscal year 2018 homeland security bill by a vote of 30-22. The bill allocates $703 million to cybersecurity programs, which is $18 million less than President Trump’s request but $33 million above fiscal 2017 levels.
On July 17, Senate Committee on Banking, Housing & Urban Affairs Chairman Mike Crapo (R-Idaho) and Ranking Member Sherrod Brown (D-Ohio) released the text of the National Flood Insurance Program Reauthorization Act of 2017, which would reform the National Flood Insurance Program (NFIP) and extend it another six years. Among the provisions covered in the bill are: (i) risk mitigation, particularly in repeatedly flooded communities; (ii) compliance cost increases; (iii) predisaster hazard mitigation programs; (iv) flood risk disclosure requirements for sellers or lessors of real estate; (v) flood mapping program improvements; and (vi) various program improvements, including requirements for federal banking regulators to conduct annual compliance studies on mandatory purchase requirements in special flood hazard areas, and directions for “FEMA to annually study NFIP participation in areas outside of special flood hazard areas.”
“We have held multiple hearings and worked on a bipartisan basis to hear thoughts and concerns from the Program's stakeholders, regulators and from Banking Committee members,” Crapo and Brown stated in a joint release. “This bill represents the many areas where we have found agreement, and we look forward to working with our colleagues to address outstanding issues.”
On July 17, FTC staff submitted its comments to the FCC in response to the FCC’s Notice of Proposed Rulemaking on Restoring Internet Freedom (NPRM), in favor of returning broadband enforcement authority to FTC. (See previous InfoBytes coverage here.) The NPRM would reverse a 2015 FCC decision, which changed the classification of broadband internet access service from an “information service to a common carrier service,” and resulted in a loss to the FTC’s authority. Currently, the FTC cannot regulate common carrier activities. FTC staff argued that with the exception of broadband providers, FTC jurisdiction covers virtually all other internet entities. Having one agency with enforcement authority over all internet entities would allow for “consistent standards and consistent application of those standards.” The result, the staff encouraged, would be the creation of a “level playing field for all companies operating in the Internet ecosystem.”
Acting FTC Chairman Maureen K. Ohlhausen endorsed the staff comments and offered support for the NPRM to reverse the 2015 Title II classification of broadband internet access service as a way to “restore the FTC’s ability to protect broadband consumers under its general consumer protection and competition authority.” However, FTC Commissioner Terrell McSweeny dissented, stating that “[u]nless Congress repeals the common carrier exemption in the FTC Act, the FTC could continue to face challenges to its authority over common carriers.” Consequently, “[r]epealing these rules would be harmful for consumers and the marketplace . . . . Rather than roll[ing] back protections, we should augment them with renewed FCC vigor and a change to anachronistic barriers to FTC enforcement.”
On July 13, Representative David Kustoff (R-Tenn.) introduced legislation intended to decrease costs and delays when obtaining a mortgage by reducing appraisal requirements. As set forth in a July 13 press release issued by Rep. Kustoff’s office, the Securing Access to Affordable Mortgage Act of 2017 (H.R. 3221) would (i) ease “unfair” appraisal requirements, which would benefit rural communities where there is a demonstrated lack of qualified appraisers, and (ii) assist prospective homebuyers by decreasing costs and delays. H.R. 3221 would increase access to affordable mortgages by excluding loans of $250,000 or less from property appraisal requirements through new exemptions under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the Truth in Lending Act.
As previously discussed in InfoBytes, earlier this year several financial agencies jointly issued an Interagency Advisory to address concerns regarding the shortage of certified and licensed appraisers, particularly in rural areas.
House Appropriations Committee Approves Fiscal 2018 Funding Bill Designed to Overhaul Existing Financial Regulations
On July 13, the House Appropriations Committee approved the fiscal year 2018 financial services funding bill by a vote of 31-21. The bill totaling $20.231 billion—$1.284 billion below fiscal year 2017 and $2.483 billion less than President Trump’s budget request—incorporates several provisions of the Financial CHOICE Act designed to, among other things, overhaul existing financial regulations and restructure the CFPB. The bill provides funding for the Treasury Department, Judiciary, SEC, Federal Reserve, CFPB, and other related agencies. According to the press release issued by the committee, the bill “provides the funding necessary for federal regulators to do their jobs in a timely and appropriate manner, while stopping burdensome regulations before they can damage [the] economy irreparably.”
A summary of the bill is available here.