Advocacy Update: Fed’s Bowman Hints at Basel III Reproposal; Government Funding Update Ahead of 10/1 Deadline; FHA Servicing Changes
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Fed Vice Chair Bowman Says Revised Basel III Endgame Proposal Could be Released by Year End
Federal Reserve Vice Chair Michelle Bowman said in a fireside chat at Georgetown University that the Federal Reserve is actively working with the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) on a revised Basel III Endgame proposal that could be released as soon as late this year.
Go deeper: MBA led the industry during the Biden administration in calling for significant changes (or a re-proposal) of the flawed July 2023 proposal, which included a sharp increase in risk weights for single-family mortgages and higher capital on mortgage servicing assets (MSAs) and warehouse credit lines. MBA has highlighted its recommended changes over the past two years in testimony before Congress, speeches, comment letters, and ongoing conversations with federal regulators.
Why it matters: More recently, MBA in May sent a letter to the Federal Reserve, FDIC, OCC, and the Treasury Department requesting review of key risk-based capital reforms sought by MBA to strengthen the mortgage market.
• MBA has advocated for years to reduce the punitive 250% risk weight on MSAs and called for a reduction in the 100% risk weight for warehouse lines of credit to match the risk-weighting on the mortgage collateral securing the line.
• MBA also called for an indexing of the current thresholds used to tailor capital for institutions of different sizes so that banks can grow and innovate organically without triggering tougher capital regulation. The punitive treatment of MSAs is a major factor in the banking industry’s pullback from the mortgage market over the past decade. That retreat diminishes the value of mortgage servicing rights for all market participants that originate and sell mortgages (not just banks).
• Similarly, even while banks have deemphasized mortgage lending and servicing, the provision of warehouse lines to IMBs is a critical source of mortgage market liquidity. Both asset categories are assigned capital charges that exceed the underlying risk, raising borrowing costs and diminishing mortgage market liquidity.
What’s next: MBA looks forward to the revised Basel 3 Endgame proposal and will continue to advocate for a bank capital framework – including reduced risk-weighting for mortgage servicing rights and warehouse lines – that ensures safety and soundness without reducing mortgage market participation and thus limiting choice and increasing costs for consumers.
For more information, please contact Fran Mordi at (202) 557-2860.
MBA Monitoring Developments Ahead of Possible October 1 Government Shutdown
As of this writing, Republican and Democratic leaders in the House and Senate remain locked in an impasse over funding the government ahead of a Tuesday, September 30, 2025, deadline at 11:59 p.m. ET.
• Republicans in the House of Representatives passed a short-term Continuing Resolution (CR) that extends Fiscal Year (FY) 2024-2025 funding levels through November 21, 2025. However, in the Senate, where 60 votes are needed, all but one of the 46 Democratic Senator (and two Independents) have refused to advance the House-passed CR and are insisting – along with House Democratic leaders – that certain health-care related priorities be added to the current GOP proposal.
• The Office of Management and Budget (OMB) issued a memo on Wednesday evening that instructs federal agencies to prepare, in the event of a government shutdown, for reduction-in-force (RIF) plans.
Why it matters: Starting on October 1, a shutdown would necessitate furloughs at a minimum – and perhaps a series of more widespread layoffs – of certain federal employees and potentially lead to a significant curtailment of certain operations requiring agency staff intervention or action at the Departments of Housing and Urban Development (HUD), Veterans Affairs, and Agriculture.
• MBA remains directly engaged with lawmakers in both chambers of Congress and with affected regulators.
• Importantly, National Flood Insurance Program (NFIP) authorities are also scheduled to expire on October 1. An NFIP extension is currently provided for in the House-passed CR but could be at risk if the Senate CR debate stalls. A lapse in the NFIP would be disruptive, especially at closing time for loans relying on the program. MBA will continue its work with lawmakers and agency officials in calling for an extension of NFIP’s authority – including a possible separate/targeted authorization measure – to avoid disruptions to the flood insurance market.
Go deeper: Congress last passed a CR on March 14, 2025, that extended FY 2024 funding levels until September 30. Lawmakers initially failed to pass a full FY 2025 budget before the start of the new FY on October 1, 2024.
What’s next: Given that short-term shutdown threats have become somewhat routine, MBA anticipates that most agencies have begun their plans for maintaining essential functions. Once confirmed, MBA will provide a member guide that outlines the potential impacts to single-family and multifamily government lending programs.
• A shutdown lasting a few days would only slightly inconvenience single-family and multifamily mortgage markets. A longer delay – especially if it leads to widespread layoffs at federal agencies important to our industry – would have much more severe and disruptive impacts to members and the consumers, end users, and customers they serve.
For more information, please contact Bill Killmer at (202) 557-2736 and Pete Mills at (202) 557-2878.
FHA Pushes Back Servicing Changes
On Wednesday, FHA published Mortgagee Letter 2025-21 (ML), Updates to Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options.
Why it matters: The ML responds to some of the questions servicers sent FHA in response to Mortgagee Letter 2025-12 (ML 2025-12) and Mortgagee Letter 2025-14 (ML 2025-14), and it better aligns policy with the recent FHA training and FAQs on implementing the updated loss mitigation waterfall. The ML also updates requirements to align with Executive Order 14218 “Ending Taxpayer Subsidization of Open Borders.” Some of the changes including clarifying:
• that the Mortgagee must receive the Borrower Affordability Attestation from only one borrower;
• that the 24-month clock begins at the date of execution and would end at the subsequent date of execution;
• that those with delinquent federal debt (e.g., student loans) are eligible for standalone loan modifications; and,
• requirements for loss mitigation assumptions.
The ML includes a deadline extension to December 30, 2025, that applies only to the provisions of ML 2025-21. It does not extend the deadline more broadly for the changes to the loss mitigation waterfall published in either ML 2025-12 or ML 2025-14.
What’s next: MBA will continue to advocate for clear guidance from HUD as servicers implement the new loss mitigation waterfall.
For more information, please contact Kaitlin Hildner at (202) 557-2933.
Webinar: Navigating FHA’s Credit Watch Program and Risk Mitigation
Join MBA and industry experts for a timely discussion on FHA’s Credit Watch program and what it means for lenders with Direct Endorsement and Lender Insurance approval. With elevated delinquency levels in FHA’s portfolio, this session will provide a clear explanation of how FHA measures lender performance using compare ratios, monitors delinquency trends, and benchmarks market data.
• In addition, panelists will cover remediation strategies, including how to track performance, identify red flags early, implement proactive risk mitigation steps to safeguard your approvals, and respond to HUD notifications about Credit Watch terminations.
• Whether you attend Part I, Part II, or both, you’ll gain actionable insights to keep your organization compliant and positioned for success.
Why it matters: FHA’s Credit Watch program directly impacts a lender’s ability to originate FHA loans, and rising delinquency levels mean more institutions are at risk of sanctions or losing approvals.
What’s next: The webinar will be held on Wednesday, October 1, from 3:00 – 4:15 PM ET. Please submit questions in advance to David Upbin.
Upcoming MBA Education Webinars on Critical Industry Issues
MBA Education continues to deliver timely single-family programming that covers the spectrum of challenges, obstacles and solutions pertaining to our industry. Below, please see a list of upcoming and recent webinars – all complimentary to MBA members:
• Non-Agency Training Series: Alt Doc and Interest-Only – Sept. 30
• FHA Credit Watch Program: Overview and Remediation – October 1
• Leveraging Rental Payment History – Part I: Current GSE Policy and Recent Enhancements – Nov. 6
• Leveraging Rental Payment History – Part II: Industry Practices and Consumer Experience Improvements – Nov. 13
MBA members can register for any of the above events and view recent webinar recordings by clicking here.
For more information, please contact David Upbin at (202) 557-2931.
