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On September 15, FHFA issued a notice requesting public comment on a proposed rule that would amend the regulatory capital framework for Fannie Mae and Freddie Mac (collectively, “GSEs”). The proposed rule would amend the prescribed leverage buffer amount (PLBA) and the capital treatment of credit risk transfers (CRT) to encourage more distribution of credit risk between the GSEs and private investors. Specifically, FHFA is proposing to: (i) change the fixed PLBA equal to 1.5 percent of a GSE’s adjusted total assets to a dynamic PLBA of 50 percent of the GSE’s stability capital buffer; (ii) “replace the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure”; and (iii) eliminate the requirement that a GSE is required to apply an overall effectiveness adjustment to its retained CRT exposures in line with the framework’s securitization framework. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
On September 14, the U.S. Treasury Department and FHFA announced the suspension of certain requirements that were added on January 14 to the Preferred Stock Purchase Agreements (PSPAs) between Treasury and Fannie Mae and Freddie Mac (collectively, “GSEs”). According to the announcement, “FHFA will continue to measure, manage, and monitor the financial and operational risks of the Enterprises to ensure that they operate in a safe and sound manner and consistent with the public interest.” In addition, during the suspension, the FHFA will review the requirements and consider other revisions, and notes that the suspensions “do not affect the [GSEs] ability to build or retain capital.”
On August 18, FHFA proposed new housing goals for Fannie Mae and Freddie Mac (GSEs) for 2022 to 2024, which are intended to ensure the reasonable promotion of “equitable access to affordable housing that reaches low- and moderate-income families, minority communities, rural areas, and other underserved populations.” Specifically, FHFA proposes two new single-family home purchase subgoals, which will replace the current low-income areas subgoal. The first new subgoal targets minority communities to improve access to fair and sustainable mortgage financing in communities of color. According to FHFA’s announcement, mortgages will qualify under this subgoal if (i) “the borrower has an income at or below area median income (AMI)”; and (ii) “the property is in a census tract where the median income is below AMI and minorities make up at least 30 percent of the population.” Under the proposed rule, the first new subgoal would establish a benchmark level of 10 percent for GSE purchases of mortgage loans on properties in minority census tracts “made to borrowers with incomes no greater than 100 percent of AMI.” The second new subgoal targets low-income neighborhoods and would establish a benchmark level of 4 percent for GSE purchases of “mortgage loans on properties in low-income census tracts that are not minority census tracts,” in addition to “mortgage loans on properties in low-income census tracts that are minority census tracts, made to families with incomes greater than 100 percent of AMI.” Acting Director Sandra L. Thompson noted that the GSEs’ “housing goals over the next three years should support equitable access to sustainable affordable housing opportunities in a safe and sound manner that bolsters the health of communities.”
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 August 16, FHFA issued Advisory Bulletin AB 2021-02, which provides guidance regarding federal home loan banks’ investments in Agency Commercial Mortgage-Backed Securities (CMBS) that are issued and guaranteed by either the U.S. government (Ginnie Mae), or by government-sponsored entities Fannie Mae and Freddie Mac. The Bulletin recommends risk management practices, such as establishing certain limits to address the risks associated with unexpected prepayments of CMBS investments. FHFA also “encourages early adherence” to the guidance, but states that “by December 31, 2021, all Banks should have appropriate Agency CMBS concentration risk limits in place.” Guidance in the Bulletin includes, among other things: (i) pre-purchase analytics; (ii) the minimum risk-adjusted spread requirement; (iii) concentration limits; (iv) reporting; and (v) prepayment projections.
On July 1, FHFA released a policy statement on its commitment to “comprehensive” fair lending oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (collectively, “regulated entities”), in addition to expanding FHFA’s fair lending program. The statement describes FHFA’s position on monitoring and information gathering, supervisory examinations, and administrative enforcement regarding ECOA, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act. FHFA noted the purpose of the policy statement is “to provide a foundation for possible future interpretations and rulemakings by the agency for its regulated entities.” FHFA also issued an order on fair lending reporting that requires Fannie Mae and Freddie Mac to submit quarterly fair lending reports and data. Comments on the policy statement are due 60 days after publication in the Federal Register.
On June 30, FHFA announced changes to loan modification terms for borrowers impacted by the Covid-19 pandemic with mortgages backed by Fannie Mae or Freddie Mac who need payment reduction. According to FHFA, flex modification terms will be adjusted for Covid-19 hardships, which will make “interest rate reduction possible for eligible borrowers, regardless of the borrower’s loan-to-value ratio.” Previously, only borrowers with mark-to-market loan-to-value ratios (which compare the balance remaining on a mortgage to the current market value of a home) greater than or equal to 80 percent were eligible for an interest rate reduction. FHFA acting Director Sandra L. Thompson noted that more families qualifying for interest rate reduction will “prevent unnecessary foreclosures, help strengthen the Enterprises’ books of business, and make sustainable homeownership a reality for more families currently living with the uncertainty of forbearance.”
On June 29, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will not be permitted to make a first notice or filing for foreclosure that would be prohibited by the CFPB’s “Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X” final rule prior to the rule’s effective date. As previously covered by a Buckley Special Alert, the Bureau’s final rule, which takes effect August 31, obligates a servicer to continue specifying, with substantial detail, any loss mitigation options that may help borrowers resolve their delinquencies. GSEs are required to follow the CFPB’s new protections a month before the CFPB rule takes effect, which will protect borrowers from foreclosure and provide certainty for servicers regarding GSE expectations. According to FHFA, “[s]ervicers will still be able to make a notice or filing for foreclosure on abandoned properties and those that had a foreclosure referral prior to March 2020, along with certain other exceptions.” FHFA’s action eliminates the gap between the expiration of its current moratoriums for single family foreclosures and real estate owned (REO) evictions that will expire on July 31 (covered by InfoBytes here) and the effective date of the CFPB’s rule, which is a month later.
On June 23, the U.S. Supreme Court issued a split opinion in Collins v. Yellen (previously Collins v. Mnuchin), holding that FHFA’s leadership structure, which only allows the president to fire the FHFA director for cause, is unconstitutional. The Court’s determination follows its decision in Seila Law LLC v. CFPB (covered by a Buckley Special Alert), in which the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. In Collins, the Court stated, “[a] straightforward application of our reasoning in Seila Law dictates the result here. The FHFA (like the CFPB) is an agency led by a single Director, and the [Housing and Economic Recovery Act of 2008 (Recovery Act)] (like the Dodd-Frank Act) restricts the President’s removal power.”
Last July, the Court agreed to review the U.S. Court of Appeals for the 5th Circuit’s en banc decision (covered by InfoBytes here) issued in a 2016 lawsuit brought by a group of Fannie Mae and Freddie Mac (GSEs) shareholders against the U.S. Treasury Department and FHFA. The shareholders claimed that the Recovery Act, which created the agency, violated the separation of powers principal because it only allowed the president to fire the FHFA director “for cause,” and that FHFA acted outside its statutory authority when it adopted a third amendment to the Senior Preferred Stock Purchase Agreements, which replaced a fixed-rate dividend formula with a variable one requiring the GSEs to pay quarterly dividends equal to their entire net worth minus a specified capital reserve amount to the Treasury Department (known as the “net worth sweep”). Following the en banc rehearing, the appellate court reaffirmed its earlier decision that FHFA’s structure violates the Constitution’s separation of powers requirements. However, the opinions differed on the appropriate remedy, with nine judges concluding that the remedy should be severance of the for-cause provision, not prospective relief invalidating the net worth sweep, stating that “the Shareholders’ ongoing injury, if indeed there is one, is remedied by a declaration that the “for cause” restriction is declared removed. We go no further.”
While the split Court agreed with the 5th Circuit that the agency’s structure violates the Constitution’s separation of powers, the justices left intact the net worth sweep. “Although the statute unconstitutionally limited the President’s authority to remove the confirmed Directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void,” Justice Samuel Alito wrote for the majority. “It is not necessary for us to decide—and we do not decide—whether the FHFA made the best, or even a particularly good, business decision when it adopted the third amendment,” the Court added. “[W]e conclude only that under the terms of the Recovery Act, the FHFA did not exceed its authority as a conservator, and therefore the anti-injunction clause bars the shareholders’ statutory claim.” The Court remanded the case to determine “what remedy, if any, the shareholders are entitled to receive on their constitutional claim.”
Various concurring and dissenting opinions were issued as well. While concurring, Justice Elena Kagan noted that “[s]tare decisis compels the conclusion that the FHFA’s for-cause removal provision violates the Constitution. But the majority’s opinion rests on faulty theoretical premises and goes further than it needs to.” Justice Sonia Sotomayor dissented, writing: “[t]he Court has proved far too eager in recent years to insert itself into questions of agency structure best left to Congress. In striking down the independence of the FHFA Director, the Court reaches further than ever before, refusing tenure protections to an Agency head who neither wields significant executive power nor regulates private individuals.”
Shortly after the ruling, President Biden appointed Sandra L. Thompson as acting FHFA Director, effective immediately. Thompson has served at FHFA since March 2013 as Deputy Director of the Division of Housing Mission and Goals where she oversaw FHFA’s housing and regulatory policy, capital policy, financial analysis, fair lending, as well as all mission activities for the GSEs and the Federal Home Loan Banks. Former Director Mark Calabria issued a statement noting his respect for the Court’s decision and the authority of the president to remove the FHFA director.
On June 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will extend their moratorium on single-family foreclosures and real estate owned (REO) evictions until July 31. The current moratoriums were set to expire June 30. The foreclosure moratorium applies only to homeowners with a GSE-backed, single-family mortgage, and the REO eviction moratorium applies only to properties that have been acquired by the GSEs through foreclosure or deed-in-lieu of foreclosure transactions. Additional details on Covid-19 forbearance plan terms and payment deferrals are covered by InfoBytes here and here. The extensions are implemented in Fannie Mae Lender Letter LL-2021-02 and Freddie Mac Guide Bulletin 2021-23. The same day, the CDC also announced an extension of its current moratorium on residential evictions for non-payment of rent through July 31, also stating in the announcement that “this is intended to be the final extension of the moratorium.”
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