MBA State Relations Committee Update Federal Highlights
Advocacy News and Information from the Latest Issue of the MBA State Relations Committee Update
The U.S. Supreme Court ruled in a 7-2 opinion that the Consumer Financial Protection Bureau’s (CFPB) appropriations mechanism is constitutional, reversing a previous decision by the U.S. Court of Appeals for the 5th Circuit. The Court's decision in the case, Community Financial Services Association (CFSA) v. Consumer Financial Protection Bureau, rejects an argument by CFSA that the CFPB’s funding structure ran afoul of the Constitution’s Appropriations Clause. MBA’s Broeksmit in a press statement said, “MBA is relieved that the Supreme Court avoided a ruling that would have disrupted the housing and mortgage markets and harmed the economy and consumers.” Last year, MBA filed a joint amicus brief, which took no position on whether the Bureau is constitutionally funded but instead focused the Court’s attention on how to avoid disrupting the housing and mortgage markets. The brief suggested that if the Bureau’s funding structure is ruled unconstitutional, the Court should sever those funding provisions and preserve the Bureau’s past actions until Congress corrects the constitutional appropriations problems. There is no immediate impact on real estate finance rules from today’s decision. MBA’s summary can be read here.
The Financial Stability Oversight Council (FSOC) approved and released a “Report on Nonbank Mortgage Servicing.” The report includes several recommendations to Congress and state regulators to address what it considers “key vulnerabilities” within the nonbank mortgage servicing space. These include recommendations for Congress to create an emergency fund financed by IMBs; provide the Federal Housing Finance Agency (FHFA) with authority to directly supervise IMBs; and expand Ginnie Mae’s Pass-Through Assistance Program (PTAP). Other recommendations included encouraging state regulators to require recovery and resolution planning by large IMBs, enhanced information sharing with FHFA, and adopting enhanced prudential standards in states that have not yet done so. MBA’s Broeksmit released a statement after the report, stating, “We share FSOC’s goals of a safe, stable, and sustainable financial services marketplace, but some of the report’s recommendations are unnecessary. Years of punitive regulatory capital treatment have already limited the willingness and ability of depository institutions to participate in the mortgage lending and servicing markets. While we support national standards for capital and liquidity requirements, layering duplicative supervision requirements or supervisory entities onto a heavily regulated market will add significant cost and complexity.” While some of the recommendations could be beneficial by providing liquidity support to IMBs, others – especially the call for an IMB emergency fund, direct FHFA supervisory authority over IMBs, and even higher state-level capital requirements – are not only unnecessary but would likely increase costs for borrowers. Read MBA's recent letter to Treasury Secretary Janet Yellen on this topic. MBA will continue to engage with the FSOC agencies, Ginnie Mae, state regulators, and others to identify effective solutions that do not undermine the IMB business model.
Federal Reserve (Fed) Vice Chair Michael Barr, Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg, and Acting Office of the Comptroller of the Currency (OCC) Michael Hsu testified before both the House Financial Services (HFSC) and Senate Banking, Housing, and Urban Affairs (SBHUAC) Committees. The hearings came on the heels of a long-anticipated report released by law firm Cleary Gottlieb Steen & Hamilton examining allegations concerning sexual harassment and interpersonal misconduct at the FDIC. As anticipated, both HFSC and SBHUAC Republicans reiterated their pleas for Gruenberg to resign. See a full summary of both the House and Senate hearings here and here. Several lawmakers’ questions also focused on the ongoing status of the regulators’ Basel III “Endgame” proposal. Similar to previous hearings, many Republicans criticized aspects of the proposal and urged regulators to withdraw it. Additionally, some Democrats reiterated concern with certain provisions, including its impact on mortgage credit availability and the treatment of tax equity investments. Notably, Vice Chair Barr refrained from echoing Fed Chair Jerome Powell’s previous statement about a re-proposal being a “live option,” while signaling there would be “broad and material changes” to the rule. Vice Chair Barr also highlighted that the Fed’s Quantitative Impact Study (QIS) on the proposal will be released “relatively soon.” Republicans and Democrats both questioned the regulators on last week’s FSOC report on nonbank mortgage servicers. Rep. Brad Sherman (D-CA) asked HFSC Chairman Patrick McHenry (R-NC) to schedule an additional hearing specifically focusing on the Cleary report and Chair Gruenberg's oversight of the FDIC. MBA will continue to advocate strongly for our industry’s preferred outcomes on the Basel III proposal – and in reaction to the recent FSOC report.
The full HFSC considered and approved 11 bills during a full-day legislative “markup.” The broad slate of bills approved by the panel included proposals designed to ease regulations on banks, fence in the Securities and Exchange Commission (SEC), and potentially boost housing supply. MBA shared a letter in advance of the markup with all HFSC member offices to reveal our specific industry views regarding: the Yes in My Back Yard (YIMBY) Act legislation designed to help eliminate discriminatory land use policies and remove barriers that depress affordable housing production; two titles within one bill that would limit the scope of the CFPB’s Section 1071 small business reporting rule requirements; another bill that would more clearly define the abusiveness standard under CFPB’s UDAAP authorities; a proposal to expand access to banking activities (including mortgage services) through the establishment of de novo financial institutions; and, a bill to compel the Treasury Department’s Director of the Community Development Financial Institutions (CDFI) Fund to testify annually before Congress. All of the MBA-supported bills were cleared by the panel (the YIMBY Act was approved unanimously). Find additional markup summary details here. Examine two additional joint industry letters signed by MBA and other trade groups in support of the YIMBY Act here and here. MBA will continue to weigh in on and seek to advance our industry’s priority policies – including trigger leads legislation – in the few remaining HFSC markups expected to be held before the end of the 118th Congress.
FHFA released a Request for Input (RFI) on the mission of the Federal Home Loan Banks’ (FHLBanks). Specifically, FHFA is seeking input on three key areas: (1) updating the regulatory statement of the FHLBank System’s mission to better reflect its appropriate role in the housing finance system; (2) developing metrics and thresholds to evaluate mission achievement; and (3) identifying how the FHLBanks could incorporate incentives for members with a strong and demonstrable connection to the FHLBank System’s mission. In November 2023, FHFA released its FHLBank System at 100: Focusing on the Future report, its comprehensive review of the FHLB System in anticipation of the System’s centennial in 2032. MBA stressed the importance of expanding FHLB membership and maintaining the types of collateral that members can pledge under the current system in an October 2022 comment letter. MBA will review the RFI and work with members to provide a response by the July 15, 2024, deadline.
MBA and four other trade associations submitted a joint trades letter to FHFA providing recommendations related to the release of historical data for FHFA’s Alternative Credit Score Initiative. The letter was submitted in advance of the publication of the VantageScore 4.0 historical dataset that the FHFA plans to release in the third quarter. Based on member and industry feedback, MBA has concerns that the information could be insufficient to meet the data analytics needs of members. The letter highlights potential issues as well as provides recommendations for FHFA to consider prior to publishing the data. The analysis of the historical data is a critical first step in the credit score initiative. MBA hopes that by providing early, proactive, and constructive feedback to FHFA and the GSEs, industry stakeholders will be able to receive a useful historical dataset to perform their analysis and testing. MBA along with the other trade associations have requested the opportunity to meet with FHFA to discuss the recommendations and concerns outlined in the joint trades letter.
MBA expressed concern with the implementation timeline of the recently released Veterans Affairs Servicing Purchase (VASP) program in a letter to the Department of Veterans Affairs (VA). MBA's letter makes two recommendations: 1) to set clear expectations with Veterans that servicers are working diligently to implement the VASP program before the mandatory compliance deadline, and 2) extend the mandatory compliance deadline beyond October 1, 2024, (not May 31) to provide six months once complete guidance is available. VASP is VA’s loss mitigation response to today’s high-interest rate environment. With VASP, servicers can provide distressed borrowers with a below-market 2.5% interest rate modification, with VA purchasing the loan. Execution of VASP requires a complex servicing transfer process and new loss mitigation guidance. VA’s recent press release suggested that VASP will be available for all 40,000 Veterans beginning May 31, 2024, thereby creating an expectation for Veterans and the public that servicers will have VASP up and running by the end of the month. However, key operational and technical questions remain, and servicers are concerned with the lack of guidance available to implement the VASP program by the October 1 mandatory compliance deadline, particularly guidance for servicing transfers and loss mitigation (that only became available this week). As stated in the letter, “Mortgage servicers are committed to the successful launch and long-term viability of the VASP program and realize its potential to help struggling Veterans. Achieving these goals and setting up an effective VASP program will require all stakeholders to execute a complex loss mitigation and servicing transfer process.” MBA will remain engaged with the VA team to ensure that servicers receive the necessary information to successfully transfer VASP loans to VA’s contractor and carry out new required loss mitigation guidance to limit the operational gaps that exist. MBA continues to pursue regularly scheduled meetings to discuss the necessary details for implementation.
The Senate Banking Committee held a hearing titled, "Consumer Protection: Examining Fees in Financial Services and Rental Housing." This lightly-attended hearing was largely focused on so-called "junk fees" in the form of credit card "late" fees and checking account overdraft fees. The Consumer Financial Protection Bureau's (CFPB) enforcement actions were another primary hearing topic - along with discussions about the range of fees that multifamily tenants may face (in addition to their rent). A full summary of the hearing may be found here. The CFPB has criticized rental application and payment fees, mortgage closing costs, discount points, title insurance, and other regulated fees and costs as being designed to prey upon consumers and maximize company profits. MBA will continue to educate both regulators and lawmakers that products or services required by one specific government agency - and/or disclosed pursuant to law - should not be called into question by the CFPB.
MBA joined nearly a dozen other groups thanking U.S. Reps. Mark Alford (R-MO), Lou Correa (D-CA), Tracey Mann (R-KS), and Brittany Pettersen (D-CO) for launching the Bipartisan Congressional Real Estate Caucus. In the joint statement from the trade groups applauding the announcement, MBA specifically thanked the four House Members for "stepping up to lead the group" and helping "more Americans achieve their dream of housing choice - be that sustainable homeownership or affordable rental opportunities." Due to the lack of adequate housing supply, there is an eagerness for housing development in specific markets across the country. The Real Estate Caucus's efforts will attempt to draw congressional attention to policies that support and promote the growth of the real estate industry. MBA will continue to work with our coalition partners - and the newly formed Caucus - to advocate for the enactment of policies that address housing affordability challenges and encourage sustainable real estate development.
The Federal Housing Finance Agency (FHFA) released its annual report on single-family guarantee fees (g-fees) charged by the Fannie Mae and Freddie Mac (the GSEs). The report, which covers 2022 loan acquisitions, shows average g-fees across product types, loan purposes, loan-to-value ratios, credit scores, and lender sizes. The average g-fee across all loans was 61 basis points in 2022 – up 4 basis points from 2021. Average g-fees increases were consistent across lenders of varying sizes. For mortgage-backed security swaps, average g-fees were 62 basis points for large lenders, 61bps for medium lenders, and 51 basis points for small lenders. With respect to the cash window, average g-fees were 56 basis points for large lenders and 60 basis points for medium lenders and 58 basis points for small lenders. FHFA stated that these increases were driven by a higher percentage of home purchase loans and a “modest increase in the aggregate risk profile” due to higher loan-to-value ratios and a higher rate environment compared to 2021. The annual report on g-fees is required by law and is a key component of long-running efforts championed by MBA to promote greater transparency in GSE pricing. Throughout its GSE reform advocacy campaign, MBA has pursued the elimination of “volume discounts” or other g-fee adjustments based on a lender’s size, business model, or charter type. MBA will continue to engage with FHFA and the GSEs on issues related to pricing and will work to ensure g-fee parity across lender groups.
The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and FHFA adopted a Notice of Proposed Rulemaking (NPR) to address incentive-based compensation arrangements, as required under section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (section 956). The National Credit Union Administration (NCUA) is expected to take action on the NPR in the near future and the U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement section 956 in its rulemaking agenda. This NPR is intended to advance stakeholder engagement needed to develop a final incentive-based compensation rule. Section 956 requires the appropriate Federal regulators to jointly prescribe regulations or guidelines pertaining to incentive-based compensation practices at certain financial institutions that have $1 billion or more in assets. FHFA along with the other agencies acting on the NPR will make it available on their respective website and will accept comments. Once the NPR is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. MBA will review and further analyze the proposal in the coming weeks.