MBA State Relations Committee Update Federal Highlights
Advocacy News and Information from the Latest Issue of the MBA State Relations Committee Update
The Senate Banking Committee held a hearing titled, “Perspectives on Challenges in the Property Insurance Market and the Impact on Consumers.” A summary of the hearing can be found here. MBA submitted a letter/statement for the record ahead of the hearing on top industry priorities, including the need to reauthorize the National Flood Insurance Program (NFIP) – set to expire on September 30, 2023 – addressing the rising costs and declining availability of private property insurance coverage, and reforms to the Federal Housing Administration (FHA)-insured Multifamily Program. MBA will work with members of Congress on both sides of the aisle to stress the importance of avoiding a lapse in the NFIP program while stressing the need for a long-term authorization to protect residential and commercial real estate markets and provide stability for the companies and agents that sell and administer the NFIP.
MBA submitted comments to the Financial Accounting Standards Board (FASB) last Friday on its proposed Accounting Standards Update (ASU) that are intended to improve the accounting for financial assets acquired in a business combination or purchase. The proposal would generally eliminate the current two-method approach to accounting for qualifying acquired financial assets and replace it with the simpler the purchased credit deteriorated (PCD) method of accounting. MBA agrees with FASB that the current two-method accounting creates unnecessary complexities and comparability issues under GAAP. However, there is concern that the proposed application of a “seasoning” requirement would exclude mortgage loans acquired less than 90 days from origination from the PCD method. If left unchanged, the rule would exclude entities/purchasers that acquire mortgage assets from IMBs, banks, and other originators from getting the benefit of the new simplified accounting method for all purchased financial assets. MBA recommended that FASB eliminate the “seasoning” requirement for home mortgage loans, or in the alternative, modify the proposal to make clear that the mortgage banking business model is illustrative of the “facts and circumstances” that the flexibility in the rules is intended to apply to. MBA will continue to work with FASB to ensure that the final rules do not unintentionally impact mortgage secondary market activities.
FHA announced that it is releasing a waiver relieving FHA-approved lenders of the obligation to report declined loans in the FHA Connection (FHAC) system. At present, when a lender denies a borrower's application for an FHA-insured mortgage, the denial details are required to be recorded in FHAC and linked to the borrower's case number for a duration of six months. Reporting borrower denials has been found not to enhance risk management and is frequently the reason why other lenders decline an applicant, even if that borrower may meet the criteria for a loan in other respects. MBA members and staff have urged FHA leadership to eliminate this reporting requirement on numerous occasions in the past. The waiver will apply to all cases pending endorsement on or after September 11, 2023.
The Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and the Office of the Comptroller of the Currency (OCC) (the Banking Regulators) released proposed, long-term debt requirements for large banks (the “Proposal”). The Proposal applies to G-SIBs as well as banks with $100 billion or more in total assets. The Proposal requires covered banks to issue and maintain long-term subordinated debt equal to at least 6% of the bank’s risk weighted assets, and also equal to at least 3.5% of total assets. For banks that are subject to the Supplemental Leverage Ratio, long-term debt must exceed 2.5% of total leverage. According to the Banking Regulators, this Proposal would have provided “additional loss absorption capacity and reduced costs to the depositor class, including the DIF” if it had been in place prior to this past March’s large bank failures. The Proposal aligns closely with the October 2022 ANPR and largely conforms with expectations. While the rule does not have specific mortgage market provisions, it will significantly raise costs for large regional banks and comes on the heels of the large capital increases in the proposed Basel III “end game” rules. The combined impact of these rules – which is not analyzed in either rule – could substantially reduce the ability of larger banks to meet credit needs across many sectors of the economy, including real estate finance markets. Comments on the Proposal are due on November 30, 2023, with a three-year phase-in after final rules are issued (which aligns with the Basel proposal). MBA will continue to work with members and other industry stakeholders to formulate recommendations on the Basel rule and to ensure there is calibration between the two rules to mitigate the impact on single-family and commercial/multi-family financing markets.
MBA joined the Housing Policy Council (HPC) and the National Consumer Law Center and reiterated the need for the Department of Veterans Affairs (VA) to provide a public process for review and comment on the VA’s forthcoming foreclosure prevention solution, the Veterans Assistance Servicing Purchase (VASP) program. Together, the coalition requests the opportunity for the VA to post a proposed policy document by September 21, 2023. The letter further escalates the previous call for the VA to follow a public process. The lack of specific, written program details limits the industry’s ability to provide valuable feedback to ensure the program delivers what is promised to veterans and can be implemented by servicers. As MBA stated in its letter, “all stakeholders need a common starting point from which to provide comments to ensure the program will meet the desired objectives and expectations.” Without additional information, the industry is unable to assess the borrower impact and the potential costs or risks for servicers (compliance, operational, financial, and reputational). MBA will continue to monitor and communicate developments on VASP to members.
MBA responded to the Department of Housing and Urban Development's (HUD) request for input on the proposed information collection for the Informed Consumer Choice Disclosure and Application for Federal Housing Administration (FHA)-insured mortgages. MBA focused on HUD's request for comment on obstacles encountered during the information collection process for originating FHA loans, and the challenges associated with FHA's current mandate that lenders manually review documents before submission, a task that could be easily automated. Additionally, MBA alerted HUD to the existence of regulatory guidance from the OCC received by MBA members that contradicts FHA's underwriting requirements and increases cost for borrowers and lenders. Assisting FHA in identifying costly and redundant procedures should help with costs and improve efficiency for FHA lenders and borrowers. MBA will continue to monitor and communicate developments on VASP to members.