CREF Policy Update Nov. 16: FHFA Releases Report on FHLBs

FSOC Finalizes Nonbank SIFI Designation Interpretive Guidance and Analytical Framework

A few weeks ago, the Financial Stability Oversight Council (FSOC) voted unanimously to approve finalized Interpretive Guidance that alters the process for the determination and designation of nonbanks as Systemically Important Financial Institutions (SIFIs). The guidance reinstates FSOC’s ability to directly pursue the designation of an individual firm without first requiring the identification of a particular market activity, as adopted by the Trump Administration’s 2019 Interpretive Guidance.

• FSOC also approved a finalized Analytical Framework detailing the factors FSOC considers when evaluating systemic threats to the global financial system. Nonbanks of concern to FSOC include hedge funds, insurers, money market funds, payments system providers, crypto assets and mortgage servicers.

Why it matters: Under the new guidance, nonbank financial companies are more vulnerable to the prospect of FSOC review, possible designation, and the resulting enhanced prudential supervision by the Federal Reserve.

What they are saying: In a blog post, MBA President and CEO Bob Broeksmit, CMB, called FSOC’s moves with respect to IMB mortgage servicers an attempt to “impose a solution where no problem exists,” and warned that regulators using their authority to designate IMB servicers as SIFIs would negatively affect the mortgage market and consumers.

Go deeper: The new guidance removes three significant prerequisites to a designation that were created by the 2019 Interpretive Guidance, the removal of which MBA advocated against in its comment letter: 1) prioritizing an “activities-based approach,” 2) performing a cost-benefit analysis, and 3) assessing a company’s likelihood of material financial distress. FSOC has determined that these steps are not legally required, are not useful or appropriate, and would unduly hamper the Council’s ability to use the statutory designation authority in relevant circumstances.

What’s next: Actual designations of any nonbanks — whether hedge funds, insurers, money market funds, crypto players, or IMBs–would not be expected until 2024 at the earliest.

• MBA will continue to engage with the White House, Treasury Department, and FSOC agencies and staff on this issue.

For more information, please contact Mike Flood at (202) 557-2745 or Stephanie Milner at (202) 557-2747.

FHFA Releases Report on FHLBs

Last Tuesday, the Federal Housing Finance Agency (FHFA) released the FHLBank System at 100: Focusing on the Future report, its comprehensive review of the Federal Home Loan Bank (FHLBank) System in anticipation of the System’s centennial in 2032.

What they are saying: MBA’s Pete Mills, SVP of Residential Policy and Strategic Industry Engagement, said in a press statement that “MBA is disappointed that the report fails to engage in a more meaningful examination of the potential benefits of diversifying the FHLB system through the expansion of membership to other critical providers of mortgage origination, servicing, and investment activities.”

• Mills added, “A more diverse FHLB membership would reinvigorate the system and expand access to credit, lower pricing, and increase choices for consumers.”

Why it matters: The report outlined four key themes on the FHLB System, including its mission, liquidity, housing and community development, and operational effectiveness and governance. FHFA also said it plans to update and clarify its regulatory statement on the FHLB System to reflect the FHLBanks’ two core objectives: 1) providing stable and reliable liquidity to their members, and 2) supporting housing and community development.

Go deeper: MBA stressed the importance of expanding FHLB membership to institutions that are almost exclusively focused on housing finance in an October 2022 comment letter.

What’s next: MBA will remain engaged with FHFA, the FHLBs, and lawmakers on both sides and will continue to advocate for expanding membership to institutions like IMBs and mortgage REITs that are almost exclusively focused on housing finance, while ensuring the safety and soundness of the FHLB system.

For more information, please contact Mike Flood at (202) 557-2745 or Stephanie Milner at (202) 557-2747.

House and Senate Consider Approaches to Another Stopgap Funding Measure to Avoid Shutdown

This week, House and Senate leaders have considered alternative approaches to another stopgap Continuing Resolution (CR) to fund the federal government past Nov. 17.

• As of this writing, it is unclear if agreement on a new CR can be reached by the Nov. 17 deadline – and a shutdown beginning at midnight on Saturday, Nov. 18, is certainly possible.

Why it matters: As in past years, if there is a shutdown, federal agencies, including the Housing and Urban Department (HUD), will cease to function normally. National Flood Insurance Program (NFIP) authorities are also scheduled to expire on November 17. MBA has created a guide outlining how HUD (including FHA and Ginnie Mae) would be directly affected by the furlough of government employees and the curtailment of agency operations. MBA has continued its coalition advocacy to stave off a lapse in the NFIP by urging congressional leaders to act quickly on an extension – either separately or within the vehicle of a CR.

Go deeper: HUD has confirmed that only projects with Firm Commitments/Firm Approval Letters issued prior to the shutdown will proceed. Other requests will only be handled on an emergency basis, especially the imminent threat to the safety of the residents, or to the protection of property in HUD-insured or assisted multifamily.

What’s next: The politics of reaching House/Senate agreement on a CR are complicated by the need to consider supplemental funding for military aid to Ukraine and Israel, border security measures, and domestic disaster relief. MBA will continue to voice members’ concerns to key policymakers and staff regarding the detrimental effects of a shutdown — and lapse in NFIP authorities — of any length.

For more information, please contact Megan Booth at (202) 557-2740, Bill Killmer at (202) 557-2736, Alden Knowlton at (202) 557-2816, Ethan Saxon at (202) 557-2913 or George Rogers at (202) 557-2797.

Biden Administration Issues Executive Order on Artificial Intelligence

The Biden Administration recently issued an Executive Order (EO) that establishes new standards for artificial intelligence (AI) safety aimed at protecting consumer data and promoting innovation and competition.

Why it matters: This EO is indicative of the high level of interest in regulating the use of artificial intelligence while ensuring safety, compliance and fraud and bias prevention.

• Independent regulatory agencies are encouraged to join the efforts to address fraud, discrimination, and threats to consumer privacy and financial stability arising from the use of AI.

What’s next: Additional guidance is expected in the near future from federal agencies, including FHFA, the Consumer Financial Protection Bureau (CFPB), HUD, Treasury, and the National Institute of Standards and Technologies (NIST). MBA will keep members informed of any updates.

For more information, please contact Rick Hill at (202) 557- 2718 or Gabriel Acosta at (202) 557 -2811.

Commercial/Multifamily Borrowing Down 49% in Third-Quarter 2023

Commercial and multifamily mortgage loan originations were 49 percent lower in the third quarter of 2023 compared to a year ago, and decreased 7 percent from the second quarter of 2023, according to MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, released last Tuesday.

What they’re saying: Jamie Woodwell, MBA’s Head of Commercial Real Estate Research, noted, “Borrowing backed by commercial real estate properties declined again in the third quarter. Borrowing and lending were down for every property type and capital source from one year ago. However, compared to this year’s second quarter, volumes were more stable, and some sectors – including industrial properties and life company lenders – showed an uptick in volume.”

Go deeper: Decreases in originations for all major property types led to the overall drop in commercial/multifamily lending volumes when compared to the third quarter of 2022. There was a 76 percent year-over-year decrease in the dollar volume of loans for health care properties, a 52 percent decrease for hotel properties, a 51 percent decrease for retail properties, a 50 percent decrease for multifamily properties, a 49 percent decrease for office loans, and a 35 percent decrease for industrial properties.

For more information, please contact Jamie Woodwell at (202) 557-2936.

Upcoming MBA Education Webinars on Critical Industry Issues

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

• NMLS Mortgage Call Report (MCR) Version 6 – What You Need to Know – Nov. 21
• Community Reinvestment Act: Final Regulations and What Banks Need to Know Now – Nov. 28
• Originating and Succeeding with High-Net-Worth Borrowers – Nov. 29
• Ten Things Your Company Must Do in 2024 – Dec. 12

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

For any questions, please contact David Upbin at (202) 557-2931.