MBA Advocacy Update July 24: MBA Pushes Back on FSOC Proposed SIFI Designation Guidance

1. MBA Pushes Back on FSOC Proposed SIFI Designation Guidance

Last Tuesday, MBA submitted comments in response to proposed interpretive guidance and a revised analytical framework released by the Financial Stability Oversight Council (FSOC) regarding its process for assessing risks to the global financial system and evaluating non-bank financial companies for potential designation as systemically important financial institutions (“SIFIs”). The proposals represent a reversal of the “activities-based approach” promulgated during the Trump Administration and make it easier for FSOC to designate non-bank entities and designate activities as systemic risks. MBA does not believe IMBs – individually or as a sector – pose systemic risk to the entire U.S. financial system and highlighted serious flaws in the FSOC guidance and framework.

-Why it matters: FSOC’s proposals signal a renewed effort by the Biden Administration and federal financial services regulators to target non-bank financial companies – including non-bank mortgage servicers – for SIFI designation and subject them to Federal Reserve prudential oversight. Also, in the FSOC nonbank crosshairs are hedge funds, asset managers, and crypto-currency markets. Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, a voting member of FSOC, has repeatedly singled out non-bank mortgage companies as entities he considers to be systemically important.
-What’s next: MBA outlined serious concerns with the guidance and framework and urged changes that would require FSOC to: 1) consider the costs and benefits of non-bank SIFI designation; 2) first look to the tools of existing regulators to address perceived risks; 3) faithfully adhere to statutory process requirements; and 4) consider whether existing regulations are driving core banking activities outside the banking regulatory perimeter before extending Fed oversight to nonbank entities or activities. MBA will continue to engage with the White House, Treasury Department, and FSOC agencies and staff.

For more information, please contact Matt Jones at (202) 557-2933.

2. Interagency Proposed Changes to Bank Capital Requirements Expected Next Week

All signs point to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) voting on Thursday, July 27, on the interagency proposed changes to capital requirements for banks with assets of $100 billion or more. The forthcoming rules would propose the so-called “end game” rules to complete U.S. regulators’ implementation of the Basel III standards and make changes in response to the recent large bank failures. It is expected the changes could collectively result in increased capital requirements at larger banks by 15 to 20 percent – large to enough impact which lines of business banks choose to support.

-Why it matters: According to press reports this week, the proposal may include an increase in residential mortgage capital requirements for large depository banks. This is disconcerting, as large increases in capital standards will likely lead to a shift in where mid-sized and regional banks will focus their core businesses and reduce credit availability for all types of lending, including for single-family, multifamily, and commercial real estate. Such an outcome would directly and negatively impact one of the Biden Administration’s top priorities to improve housing affordability and close the racial homeownership gap. Increasing the risk weighting on mortgage assets could raise the cost and reduce the availability of financing for homes and rental housing at a time when affordability is already stretched, and despite the fact that single-family mortgage performance is incredibly strong, and delinquencies are near record lows. MBA also has concerns about how the capital rules could impact warehouse lending costs/availability and MSR values.
-What’s next: MBA will focus on how these rules, when issued, could impact the housing finance ecosystem, including banks’ participation in the mortgage market as lenders, servicers, and providers of warehouse and MSR financing, and will make recommendations to mitigate potential adverse fallout.

For more information, please contact Pete Mills at (202) 557-2878 or Fran Mordi at (202) 557-2860.

3. FHFA Proposes Concerning Rules on the Suspended Counterparty Program

The Federal Housing Finance Agency (FHFA) recently issued a Notice of Proposed Rulemaking (NPR) that would amend portions of the Suspended Counterparty Program (SCP) regulation. Specifically, the proposal would allow the suspension of business between FHFA’s regulated entities and counterparties (e.g., sellers, vendors) who are found to have committed misconduct in the context of civil enforcement actions or who are found to have committed criminal or civil misconduct in connection with the management or ownership of real property. The rule would also authorize FHFA to immediately, and without first issuing a proposed suspension order, suspend business between the regulated entities and counterparties where the misconduct has resulted in debarment, suspension, or limited denial of participation imposed by a federal agency.

-Why it matters: MBA has significant concerns with this proposal because it gives FHFA wide discretion to expand dramatically the scope of the SCP and could have major impacts on sellers and servicers, exposing them to suspension risk for relatively minor regulatory or legal settlements. MBA is particularly concerned about the effect this will have on companies entering into consent orders. FHFA’s rule asserts that this proposal is needed to ensure the GSEs remain safe and sound and are protected from certain business and reputational risks, but it does not offer a factual record to support the need for such a broad expansion.
-What’s next: FHFA invites interested parties to comment on the NPR within 60 days of publication to the Federal Register. Both MBA’s Residential and Commercial policy teams will continue to analyze the proposal in the coming weeks and will work with members to prepare a response.

For more information, please contact Sasha Hewlett at (202) 557-2805 or Justin Wiseman at (202) 557-2854.

4. Senate Passes the Tribal Trust Land Homeownership Act

Last Tuesday, the Senate passed the MBA-endorsed Tribal Trust Land Homeownership Act by unanimous consent. Senators Thune (R-SD), Smith (D-MN), Rounds (R-SD), and Tester (D-MT) introduced the legislation to accelerate the review and processing of mortgages on trust land by the Bureau of Indian Affairs (BIA).

-Why it matters: Bill Killmer, MBA’s SVP of Legislative and Political Affairs, applauded the bill’s passage in a press statement, saying that it would “reduce or eliminate Bureau of Indian Affairs (BIA) processing delays, improving access to credit by encouraging more lenders to participate in trust land mortgage lending,” and would “go a long way in helping more Indigenous and Native families buy a home. press statement because it will encourage more lenders to participate in trust land mortgage lending.”
-What’s next: The legislation now heads to the House, where it may be referred to the House Natural Resources Committee for further consideration.

For more information, please contact Ethan Saxon at (202) 557 2913 or Bill Killmer at (202) 557 2736.

5. House and Senate Appropriations Committees Advance Government Funding Legislation During Markups

Last week, the House and Senate Appropriations Committees advanced their respective versions of the Fiscal Year 2024 (FY24) Transportation, Housing and Urban Development (T-HUD) bills. In April, MBA sent a letter to the chairs and ranking members of the full House and Senate Appropriations Committees and T-HUD Subcommittees, highlighting MBA’s views on the real estate finance industry’s priorities. The House is slated to advance individual spending bills at funding levels well below the negotiated limits of the Fiscal Responsibility Act, causing a nearly $2 billion difference between the House and Senate T-HUD bills.

-Why it matters: MBA has once again worked closely with House and Senate appropriators to both secure funding for targeted federal housing investments and enhance oversight of federal agencies’ actions through committee report language. MBA worked with key appropriators to help secure commentary regarding FHA-insured small dollar mortgages within the committee report. Both bills fund the administrative costs of Ginnie Mae and FHA, and the Senate bill includes $100 million in grants to support inclusive zoning.
-What’s next: These markups are an initial step toward eventual House and Senate negotiations on final FY24 HUD funding levels (as part of a broad, potential omnibus spending package to fund all federal agencies). House floor action on the all 12 individual appropriations bills – including its version of a T-HUD bill – remains uncertain. With Congress unlikely to reach agreement on government funding before September 30, 2023, legislators will almost certainly need to pass a “stop-gap” Continuing Resolution to keep the government operating beyond October 1, 2023.

For more information, please contact Alden Knowlton at (202) 557-2741 or Ethan Saxon at (202) 557 2913.

6. Senate Banking Committee Holds Hearing on FDIC Coverage

Last Thursday, the Senate Banking Committee held a hearing titled, “Perspectives on Deposit Insurance Reform after Recent Bank Failures.” A summary of the hearing can be found here.

-Why it matters: The hearing witnesses each affirmed the benefit of FDIC coverage and explained options to expand coverage, including to all non-interest-bearing accounts or business accounts.
-What’s next: While the committee discussed reforms, it is unlikely that FDIC coverage will be modified during this Congress.

For more information, please contact Ethan Saxon at (202) 557 2913 or Bill Killmer at (202) 557 2736.

7. Oregon Governor Signs Broad Data Privacy Bill

Oregon Governor Tina Kotek signed SB 619, the Oregon Consumer Privacy Act last week. After a long-awaited introduction from Attorney General Rosenblum, Oregon is now the 11th state to enact a broad data privacy law. The majority of the law will take effect July 1, 2024, and includes an exemption for data subject to the federal Gramm-Leach-Bliley Act (GLBA) along with additional varying exemptions based on state chapter definitions within ORS 708 and ORS 725.

-Why it matters: Oregon is the first state to differentiate exemptions for different types of financial institutions, which creates an uneven playing field. This approach to exemptions will need to be addressed in the next legislative session to ensure equal compliance within the industry and for consumers to understand how their data is managed.
-What’s next: The Oregon Mortgage Bankers Association continues to engage with the Legislature and the Attorney General’s office to provide understanding of the importance of GLBA and uniformity for compliance. Since 2018, broad data privacy legislation has been gaining traction across states and this trend is expected to gain momentum; six states have enacted laws this year (IN, IA, OR, TN, TX, and UT). It is important for member companies and state and local association partners to continue to coordinate with MBA to help educate policymakers on the importance of the GLBA exemption to our industry. For more information, and to access MBA’s model GLBA amendment, please visit MBA’s State Data Protection resource center.

For more information, please contact William Kooper at (202) 557-2737 or Liz Facemire at (202) 557-2870.

8. MBA Supports ULC Model State Law to Address Discriminatory Covenants

MBA joined an industry coalition in a letter to the Unlawful Restrictions in Land Records Committee of the nonpartisan Uniform Law Commission (ULC). The letter supports the Committee’s model state law to address illegal discriminatory covenants placed in property records decades ago prior to the U.S. Supreme Court case Shelley v. Kraemer (1948) and the enactment of federal and state fair housing laws. If approved, this model act will provide a uniform mechanism for repudiation by homeowners of these covenants, while retaining the capability to study these historic records and their impacts. Many unlawful covenants exist in old declarations of covenants, conditions, and restrictions (CC&Rs). Additionally, unlawful covenants can exist within instruments that also include enforceable CC&Rs. The ULC took care in the model act to not unintentionally void lawful enforceable covenants, which could create title questions impacting the marketability of the property.

-Why it matters: There is no model or uniform legislative approach currently for empowering individuals to address unlawful discriminatory covenants in land records pertaining to their property.
-What’s next: The full ULC is expected to vote to approve the model state law next week. MBA and its industry partners will support the enactment of the model act in state legislative sessions starting in 2024.

For more information, please contact William Kooper (202) 557-2737 or Liz Facemire (202) 557-2870.

9. [VIDEO]: mPower Moments: On Building the Next Generation with American Pacific Mortgage Company’s Bill Lowman

In this mPower Moments episode, mPower Founder Marcia M. Davies sits down with Bill Lowman, Vice Chairman of American Pacific Mortgage Company. During the interview, Lowman discusses his career in the real estate finance industry and his longtime involvement with MBA. He also talks about the importance of DEI and stresses that all people, regardless of background, should be afforded the opportunity to thrive within the industry. Furthermore, Lowman also highlights how the industry can recruit and retain diverse talent to ensure that our industry reflects its customer base.

To watch more mPower Moments, click here.

For more information, please contact Marcia Davies (202) 557-2707.

10. Upcoming MBA Education Webinars on Critical Industry Issues

MBA Education continues to deliver timely programming that covers the spectrum of
challenges, obstacles and solutions pertaining to our industry. Below, please see a list of
upcoming webinars – which are complimentary to MBA members:

-Office Doldrums: Challenges, Opportunities, and Nuances – July 24
-Credit Score Changes Webinar Series – FICO 10T Model – July 26
-Credit Score Changes Webinar Series – VantageScore 4.0 – July 27
-How to Leverage ChatGPT and Other Generative AI Platforms to Safely Improve Borrower Experiences – July 27
-How to Combat Risk, Fraud and Losses in an Economic Downturn – August 3
-C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23
For more information, please contact David Upbin at (202) 557-2931.

MBA members can register for any of the above events and view recent webinar recordings.