MBA Advocacy Update Nov. 17, 2020

Bill Killmer bkillmer@mba.org; Pete Mills pmills@mba.org.

On Friday HUD released its annual report detailing the financial condition of the FHA Mutual Mortgage Insurance Fund. On Tuesday and Thursday, federal prudential regulators from the Federal Reserve, FDIC, OCC and NCUA appeared before the Senate Banking Committee and the House Financial Services Committee to discuss the economic impact of the COVID-19 pandemic.

And finally, CSBS announced at MBA’s Regulatory Compliance Conference this week a “one company, one exam” program that it will roll out in pilot form next year. The program addresses longstanding MBA advocacy efforts to reduce the costs and burdens associated with overlapping or duplicative examinations by state regulators.

1.Health of FHA Mutual Mortgage Insurance Fund Improves; Pandemic-Related Concerns Remain in Focus

On Friday, HUD released its annual report detailing the financial condition of the Federal Housing Administration Mutual Mortgage Insurance Fund. The overall capital ratio of the MMIF increased to 6.10 percent from 4.84 percent a year ago, reflecting the impact of significant home-price appreciation on the actuarial model, and recent risk management initiatives by FHA. While the capital ratio of the MMIF now sits well above its statutory minimum of 2 percent, FHA noted several concerns related to the rising delinquencies associated with the COVID-19 pandemic, economic and policy uncertainty, and the additional resources needed for the MMIF to withstand a stress event similar to that of the Great Recession. For a detailed MBA summary of the report and the status of the MMIF, please see here.

• Why it matters: The health of the MMIF provides important information regarding the stability of the FHA program, as well as insight into future policy measures that FHA may pursue with respect to credit or pricing parameters. In a statement about the report, MBA President and CEO Bob Broeksmit, CMB, noted that as the economic “picture becomes clearer, including how the 800,000 FHA borrowers currently in forbearance will exit, FHA should begin to re-examine premium levels.”
• What’s next: MBA will review the report in detail and continue to advocate for important FHA reforms, including those related to servicing processes, technology upgrades, and borrower access to credit.

For more information, please contact Dan Fichtler at (202) 557-2780, Julienne Joseph at (202) 557-2782 or Hanna Pitz at (202) 557-2796.

2. Financial Regulators Update Senate and House Committees On COVID-19 Related Actions 

On Tuesday and Thursday, federal prudential regulators from the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and National Credit Union Administration appeared before the Senate Banking Committee and the House Financial Services Committee to discuss the economic impact of the pandemic. In the Senate, Banking Committee Chairman Mike Crapo (R-ID) encouraged regulators to carefully review supervisory frameworks where necessary to bolster financial institutions’ ability to support an economic recovery, while Ranking Member Sherrod Brown (D-OH) criticized the four regulators for putting their thumbs on the scale for corporations during the previous four years. In the House, the financial regulators received bipartisan concerns about the need to extend TDR flexibilities through the duration of the current health crisis. For example, Rep. Ed Perlmutter (D-CO) entered into the congressional record an MBA-led letter urging the financial regulators to provide guidance that certain loan modifications do not automatically trigger TDRs.

• Why it matters: As the Congress continues to debate the need for further economic stimulus, Sen. Pat Toomey (R-PA), next in line to lead Republicans on the Banking Committee, said that with the economy recovering faster than expected, some federal lending programs that helped get the nation back on track should be allowed to end.
• What’s next: Both sides remain far apart on a future pandemic relief package. House and Senate Democratic leadership is calling for a sweeping new coronavirus relief bill in response to rising infection numbers across the country, while Senate Republicans continue to push for more narrow legislation as they cite an improving economy.

For more information, please contact Tallman Johnson at (202) 557-2866 or Ernie Jolly at (202) 557-2741.

3. State Regulators Announce ‘One Company, One Exam’ Initiative for IMBs

Following long-running engagement with MBA and industry participants on options for streamlining the state examination system, the Conference of State Bank Supervisors last week announced at MBA’s Regulatory Compliance Conference a “one company, one exam” program that it will roll out in pilot form next year. The program addresses both regulator and industry desires to reduce the costs and burdens associated with overlapping or duplicative examinations by state regulators.

• Why it matters: The objective of the “one company, one exam” program is to leverage more standardized examination processes and better coordination among regulators to lower burdens for IMBs without sacrificing oversight or consumer protection. Under the proposed framework, state regulators will have the option to join a multi-state examination or receive and review the results of an examination conducted by others. If a state regulator opts not to participate in or receive the results of this examination, it would agree not to examine the company during a 15-month “moratorium period” that follows.
• What’s next: CSBS will conduct a pilot offering of the “one company, one exam” program in 2021, with the expectation that the program will become increasingly available for broader use in 2022 and beyond. Meanwhile, MBA will continue to develop detailed comments in response to the CSBS proposal for revised prudential standards for IMB servicers.

For more information, please contact Pete Mills at (202) 557-2878 or Dan Fichtler at (202) 557-2780.

4. FHFA Extends GSE COVID-19 Flexibilities Through Year-End

Last week, the Federal Housing Finance Agency announced it would extend Fannie Mae and Freddie Mac origination flexibilities and the temporary policy allowing them to purchase qualified loans in forbearance through December 31. The origination flexibilities include temporary policies related to appraisals, employment verification, and power of attorney, which allow transactions to occur in a safer manner that avoids person-to-person contact whenever possible. The GSEs’ purchases of “early payment forbearance” loans, while still subject to pricing adjustments, has been an important source of liquidity for lenders. 

• Why it matters: MBA has urged FHFA to provide longer-term extensions of these flexibilities in recent months. Extending these policies through the end of 2020 helps to temporarily relieve uncertainty for market participants and brings additional stability to the housing market as the economy continues to be heavily impacted by the effects of the COVID-19 pandemic.
• What’s next: MBA will continue to advocate for longer-term extensions of these flexibilities for the duration of the pandemic to ensure smooth market functioning.

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

5. FHFA Validates Classic FICO Model for Continued Use by the GSEs

Earlier this week, FHFA announced it approved the Classic FICO credit score model for continued use by Fannie Mae and Freddie Mac. This approval will allow the GSEs to maintain their ongoing operations while FHFA and the GSEs evaluate new credit score models for potential use at a later date.

• Why it matters: The GSEs use credit scores to determine borrower eligibility and loan pricing for certain products. Following legislation passed by Congress in 2018, FHFA issued a final rule that established a process for soliciting, validating, and approving new credit score models for use by the GSEs. Approving Classic FICO is seen as necessary to provide continuity and stability to the market while newer options are being validated. The first set of new credit score model applications is under review by FHFA and the GSEs.
• What’s next: FHFA and the GSEs will continue their evaluation of additional credit score models to determine whether those models will be approved for use by the GSEs. FHFA expects this process to be completed in late 2021.

For more information, please contact Dan Fichtler at (202) 557-2780.

6. Ginnie Mae Permits Alternative Audit Procedures for Document Custodians

On Monday, Ginnie Mae released APM 20-14, which provides flexibility for document custodian audits in response to the COVID-19 pandemic. For issuers with a 2020 fiscal year ending on or before December 31, Ginnie Mae will accept independent audits that relied on alternative procedures in lieu of physical inspections or observations.

• Why it matters: The ongoing challenges of the COVID-19 pandemic have made on-site inspections or activities involving travel or person-to-person contact more difficult. This temporary flexibility from Ginnie Mae is responsive to industry concerns regarding the ability of physical inspections of document custodians to take place safely.
• What’s next: Issuers must ensure that the independent public audit documentation submitted to Ginnie Mae details the condition necessitating the use of alternative procedures, includes a description of those alternative procedures, and provides the independent auditor’s rationale outlining how those alternative procedures satisfied the audit objectives.

For more information, please contact Fran Mordi at (202) 557-2860, Sara Singhas at (202) 557-2826, or Dan Fichtler at (202) 557-2780.

7. HUD Releases Proposed Rule on Private Flood Insurance

On Tuesday, HUD released its proposed rule detailing its plans to amend regulation prohibiting the purchasing of private insurance for FHA-insured mortgages. The proposed rule would allow FHA insured borrowers living in Special Flood Hazard Areas to purchase private flood insurance, instead of the currently mandated National Flood Insurance Program (NFIP) policies. HUD will accept comments for 60 days after the rule has been posted in the Federal Register.

• Why it matters: Allowing borrowers to purchase private flood insurance for FHA-insured homes removes a large barrier to affordable homeownership and has been a longstanding priority for MBA. Often the high cost of NFIP policies prevents borrowers from closing on homes, highlighted in our 2017 comment letter to FHA.
• What’s next: MBA’s Loan Administration Committee will collect industry feedback for comments to be submitted.

For more information, please contact Sara Singhas at (202) 557-2826 or Darnell Peterson at (202) 557-2922.

8. MBA Submits Escrow Letter in Response to CFPB Supervisory Concerns 

On Last Friday, MBA, along with the Housing Policy Council, sent a joint letter to the Consumer Financial Protection Bureau in response to its recently released Supervisory Highlights, which summarize recent supervisory actions taken by the Bureau. In the report, the Bureau deemed servicers offering a lump sum repayment option in a borrower’s annual escrow statement to cure a shortage violated Regulation X. The letter requests Regulation X be amended to allow servicers to offer (but not require) the option, citing the Bureau’s acknowledgment that borrowers should be allowed to repay escrow shortages in a lump sum and that servicers may accept a lump sum repayment.

• Why it matters: Amending Regulation X will enable borrowers to make the best financial decision by reviewing all options available.

For more information, please contact Sara Singhas at (202) 557-2826.

9. Bank Regulators Issue Clarifications on LIBOR Transition

Late last week, the Federal Reserve, FDIC and OCC issued a statement to clarify certain elements of the transition away from LIBOR. In this statement, the agencies reiterated that they are not endorsing a specific replacement rate for LIBOR with respect to lending activities, and that the use of the Secured Overnight Financing Rate (SOFR) is voluntary. The agencies further reiterated that banks should institute fallback contract language that provides for a robust fallback rate.

• Why it matters: It is widely expected that LIBOR will be discontinued or deemed unsuitable for use by the end of 2021. Banks and other financial institutions should be implementing plans to transition to replacement rates. Decisions regarding an appropriate replacement rate should take into account impacts on the financial condition of the institution, impacts on borrowers, and operational challenges associated with different replacement rates.
• What’s next: MBA will continue to work with the banking regulators, as well as other regulators and the Alternative Reference Rates Committee, to facilitate a smooth transition away from LIBOR in the mortgage market.

For more information, please contact Fran Mordi at (202) 557-2860 or Dan Fichtler at (202) 557-2780.

10. Upcoming and Recent 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 and recent webinars – which are complimentary to MBA members:

• MISMO: Blockchain Mortgage Banking Legal and Regulatory Issues – November 17
• MAA Post-Election Update: November 2020 – November 19
• URLA: New Updates to the Uniform Loan Application Form and Automated Underwriting Systems – November 19
• CMBS Special Topics: Lender Rights, Remedies, and Recourse – December
• Leadership During Crises and Transitions – December 10
• Mortgage Market Developments and Becoming a Public Company – December 14

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) 557-2890.