MBA State Relations Committee Update Federal Highlights
Advocacy News and Information from the Latest Issue of the MBA State Relations Committee Update
The Federal Housing Finance Agency (FHFA) announced a 90-day delay in the effective date of the new Loan Level Price Adjustments (LLPA) for certain borrowers with debt-to-income (DTI) ratios above 40 percent. The new effective date will be for deliveries on or after August 1, 2023. In addition, lenders will not be subject to post-purchase price adjustments related to this DTI ratio-based fee resulting from post purchase quality control reviews for loans acquired by the Enterprises between August 1, 2023, and December 31, 2023. In a statement announcing the delay, FHFA Director Sandra Thompson said, “FHFA has decided to delay the effective date of the DTI ratio-based fee by three months to August 1, 2023, to ensure a level playing field for all lenders to have sufficient time to deploy the fee." FHFA also stated that during this time they intend to remain engaged with the industry to address "operational concerns." In a press statement, MBA President and CEO Bob Broeksmit, CMB, said, “While we appreciate the delay, we are disappointed that FHFA’s statement did not recognize the need to consider alternatives to using a debt-to-income pricing adjustment.” MBA considers DTI-based LLPA to be unworkable and has urged FHFA to eliminate the DTI-based LLPA or delay its implementation to consider alternative solutions. The primary concern continues to be the adverse impact of the fee on the consumer experience, and MBA is disappointed that the announcement does not propose alternatives to ease the negative impacts on lenders and their customers. The extended effective date allows for the necessary time to reconsider this policy, and MBA will continue its ongoing engagement with FHFA to push for the elimination of the DTI-based LLPA or to find a workable alternative solution.
MBA launched CONVERGENCE Philadelphia, its third city-based pilot program to promote and increase minority homeownership. CONVERGENCE Philadelphia will be led by MBA and three cornerstone partners: Radian, TD Bank, and Wells Fargo. The multiyear commitment will involve key community and industry stakeholders working together to identify and address homeownership barriers for people and communities of color. CONVERGENCE Philadelphia joins initiatives underway in Memphis, Tennessee, and Columbus, Ohio. MBA's President and CEO Bob Broeksmit, CMB, said, “MBA is developing stronger and more effective affordable housing partnerships to close the minority homeownership gap and create meaningful change in underserved communities. CONVERGENCE Philadelphia will bring together a local network of housing leaders, non-profits, and other stakeholders to collaborate on sustainable housing opportunities in the city. We are grateful for the generous support from Radian, TD Bank, and Wells Fargo and will work together with housing advocates and city leaders to strengthen existing programs and develop new solutions that increase affordable homeownership opportunities for Black, Hispanic, and other diverse households.”
House Ways and Means Committee members Rep. Vern Buchanan (R-FL) and Rep. Jimmy Panetta (D-CA) reintroduced bipartisan legislation, the Middle-Class Mortgage Insurance Premium Act of 2023 (H.R. 1384), which would make permanent the mortgage insurance (MI) tax deduction and increase the income cap for eligibility. Last November, MBA joined a coalition of housing organizations in sending a letter to the House Ways and Means Committee and Senate Finance Committee urging members to make the MI premium tax deduction permanent and increase the income level for the phaseout. Affordability remains a persistent barrier to homeownership across the country due to high interest rates, strong home-price appreciation, and limited housing supply, and mortgage insurance helps bridge the down payment gap for millions of borrowers. Low down payment mortgages have proven critical for many first-time, low- and moderate-income (LMI), and minority homebuyers to secure financing and attain the dream of homeownership. The MI deduction expired at the end of 2021 and the Fiscal Year (FY) 2023 omnibus did not address tax extenders. MBA and our coalition partners continue to urge policymakers on the tax-writing committees (House Ways and Means Committee and Senate Finance Committee) to consider this bipartisan legislation for inclusion in any potential tax package that could come together this Congress.
A hearing with Treasury Secretary Janet Yellen before the Senate Finance Committee on the President’s Fiscal Year 2024 budget featured much discussion on the health of the U.S. banking system. Secretary Yellen said that the banking system is sound and resilient, but faced numerous questions on the future of deposit insurance, bank supervision, and the shortcomings of Silicon Valley Bank. Related to real estate, Chairman Ron Wyden (D-OR) stated in his opening remarks that there appears to be bipartisan interest in tax credits to boost the supply of affordable housing. A summary of the hearing can be found here. The hearing was the first opportunity for Senators to question Secretary Yellen regarding the recent failure of Silicon Valley Bank and Signature Bank. Senators also discussed the economic impact of inflation and the harmful consequences of not raising the debt ceiling. Both the Senate Banking Committee and House Financial Services Committee are expected to hold oversight hearings on the federal regulators’ response to the recent bank failures.
The Biden Administration released the Analytical Perspective and Appendix portion of its proposed budget for FY 2024. The additional documents provide a more detailed look at the recently released proposal. As noted during our high-level review last week, the proposed budget emphasizes programs for first-time home buyers, renter protections, and recommends increases in certain corporate taxes. MBA staff have put together an analysis of the relevant housing and tax portions of the proposed budget. The President's budget proposal is a blueprint of the administration's priorities provided to Congress as it begins its budget and appropriations process. The Congressional budget process begins shortly, starting with possible efforts to pass a budget resolution, and then followed by expected work on appropriations bills.
MBA submitted comments responding to the Department of Housing and Urban Development’s (HUD) proposed rule regarding the Section 184 Indian Home Loan Guarantee Program (Section 184 Program). HUD’s proposed rule seeks to codify the standards governing the Section 184 Program into rules. MBA’s comments recommend against this action and instead advise HUD to mirror the Section 184 Program after the Federal Housing Administration’s (FHA) program by creating a handbook to allow for greater regulatory flexibility. The Indian Home Loan Guarantee Program is an essential tool to provide affordable homeownership opportunities to borrowers residing on tribal land. The proposed rule clarifies policies governing Native American participation in the Section 184 Program, as well as origination and servicing requirements for lenders. MBA will continue engaging with HUD to provide member feedback in response to proposed rules.
The Consumer Financial Protection Bureau (CFPB) announced a review of Regulation Z’s Mortgage Loan Originator Rules. The review is required for all rules with significant impact on small entities, including the Mortgage Loan Originator Rules, pursuant to the Regulatory Flexibility Act. The CFPB has asked for comments on the impact of the Mortgage Loan Originator Rules on small entities. Specifically, the CFPB has requested comments on the continued need for the rules, the complexity of the rules, the extent to which the rules overlap with other applicable law, the degree to which the mortgage market has changed, and other information relevant to the CFPB’s review. This presents an opportunity for MBA to reiterate suggested changes for the Mortgage Loan Originator Rule, with a likely starting point referring to past our comments in a prior Bureau RFI, which can be found here (beginning on page 3). MBA will continue to monitor this review process and will work with members to submit a response.
The House Financial Services Committee’s Subcommittee on Housing and Insurance held a hearing on options to expand flood insurance coverage. The primary focus of the hearing was aimed at addressing the issue of flood insurance coverage for consumers who reside outside of National Flood Insurance Program (NFIP) Special Flood Hazard Areas (SFHA). Lawmakers on the panel also discussed the need to reauthorize the NFIP on a long-term basis. There have been almost two dozen short-term reauthorizations for the NFIP since the last long-term reauthorization of the program (the “Biggert-Waters” reforms) was enacted in 2012. For years, Congress has debated the need for reforms to modernize the financially beleaguered flood insurance program, with policymakers divided over the appropriate level of public subsidy needed. Members on both sides of the aisle discussed affordability issues, especially in LMI communities, as well as the importance of consumer education, pointing to the proportion of flood damage that occurs in areas deemed “low risk.” A detailed hearing summary is here. The subcommittee will likely hold additional hearings in the coming months, and another brief reauthorization is likely before the program lapses on September 30, 2023, pending bicameral negotiations tied to the FY 2024 budget and appropriations process. MBA will continue to advocate for a long-term NFIP reauthorization, with uniformity and consistency in private flood insurance requirements for all types of mortgages.
The Department of Housing and Urban Development (HUD) announced a final rule increasing the maximum allowable term for Federal Housing Administration (FHA)-insured loan modifications from 360 months to 480 months. FHA quickly implemented the new policy by releasing Mortgagee Letter (ML) 2023-06, Establishment of the 40-Year Loan Modification Loss Mitigation Option. In a press statement, MBA President and CEO Bob Broeksmit, CMB, said, “This additional tool will allow mortgage servicers to help struggling FHA borrowers stay in their homes through a more affordable and sustainable mortgage payment.” He also said the addition of the 40-year option to FHA’s loss mitigation toolkit better aligns FHA policy with the GSEs' loss mitigation framework, a long-standing MBA priority and a recommendation in our new white paper on the future of loss mitigation. Per ML 2023-06, servicers are required to implement the new program requirements no later than May 8, 2023.
The House Financial Services Subcommittee on Financial Institutions and Monetary Policy held a hearing focused on potential reforms to the Consumer Financial Protection Bureau (CFPB). The hearing featured several industry panelists as well as Minnesota State Attorney General Keith Ellison. Legislative proposals to reform the Bureau were discussed including subjecting the agency to Congressional Appropriations, requiring CFPB rulemakings to go through a cost benefit analysis, creating a separate CFPB inspector general, and replacing the single director with a 5-member bipartisan commission. A complete summary of the hearing can be found here. Last year the 5th Circuit Court ruled that the funding structure of the CFPB is unconstitutional and the Supreme Court of the United States (SCOTUS) is expected to consider the case later this year. The SCOTUS ruling could determine not only fate of the Bureau but could also have implications for the Bureau’s mortgage related rulemakings such as qualified mortgage (QM) and ability-to-repay (ATR). MBA is monitoring the upcoming SCOTUS decision and working with Congress and other industry stakeholders to find a viable solution to ensure continuity for mortgage market participants.
Federal Reserve Chair Jerome Powell testified before the House Financial Services Committee and Senate Banking Committee this week and warned lawmakers that the central bank may have to push interest rates higher than previously expected to curb inflation. Lawmakers questioned Chair Powell on a wide range of issues including inflation, the debt ceiling standoff, bank capital standards, and the U.S. dollar’s status as the world’s reserve currency. A summary of both hearings can be found here. Powell’s inflation warning comes after a series of economic indicators that show the economy is running hotter than expected despite action from the Fed. Powell added that Fed policymakers may have to raise interest rates more aggressively at its next meeting in two weeks if new data on employment and inflation show similar strength.
The House Committee on Ways and Means held a markup of the Default Prevention Act (H.R. 187), which would allow the Treasury Secretary to continue to borrow and pay interest and principal on the debt, while prioritizing some federal payments over others. The markup, held the same day President Biden announced his Fiscal Year (FY) 2024 budget, sets the stage for a potential vote in the full House of Representatives, absent a bipartisan, bicameral agreement on the debt ceiling. House Republicans have said they want a two-year budget agreement to cut government spending in exchange for voting to increase the borrowing limit (no specific cuts have been outlined yet). House Republicans passed this legislation on separate occasions in 2013 and 2015. Both a Democratic-controlled Senate and Republican-controlled Senate declined to consider the proposal in the years 2013 and 2015, respectively. During the markup, Republicans present defended the measure, arguing it would protect the creditworthiness of the U.S. should the two parties not reach a deal on the debt ceiling. Conversely, Democrats strongly criticized the bill, arguing it would be impossible to implement and not actually shield the economy from the catastrophic effects of default. Given the more than $10.3 trillion in mortgage debt backed by the federal government through Fannie Mae, Freddie Mac, Ginnie Mae, and other federal agencies, the housing and real estate markets are particularly susceptible to any resulting instability resulting from the debt limit debate. MBA and our real estate coalition partners will undoubtedly be asked – by both the White House and key lawmakers – to engage on this highly-charged topic. The Treasury Department has indicated it can continue taking “extraordinary measures” to meet U.S. obligations up until early June.
The Senate Finance Committee held a hearing titled, “Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families.” The hearing provided a forum for senators to highlight different tax policies they support to expand investment in single-family housing, including S.657, the Neighborhood Homes Investment Act (NHIA) and a new tax credit for first-time homebuyers worth up to $15,000. A summary of the hearing can be found here. Prior to the hearing Senators Cardin (D-MD), Young (R-IN), Wyden (D-OR), Moran (R-KS), and Brown (D-OH) reintroduced the NHIA, which is endorsed by the MBA. MBA will continue discussions with House and Senate members to push for action on potential bipartisan tax legislation that helps to increase the supply of affordable housing.