MBA Advocacy Update May 1, 2023
MBA Remains Focused on Removing Proposed LLPA for DTI Ratios; Quells Misinformation on LLPAs
MBA President and CEO Bob Broeksmit, CMB, and staff continue to urge the Federal Housing Finance Agency to remove the unworkable debt-to-income price adjustment that was part of recent changes to Fannie Mae’s and Freddie Mac’s loan-level price adjustments announced in January. In addition, MBA has sought to counter misinformation and educate members, elected officials and their staffers, and the press regarding the new credit score and loan-to-value LLPA grids. The fees have become a controversial topic in financial and political media and on Capitol Hill in recent weeks, including in a letter that Chairman of the House Financial Services Committee, Rep. Patrick McHenry (R-NC), and Rep. Warren Davidson (R-OH), who chairs the House Financial Services Subcommittee on Housing and Insurance, sent to FHFA Director Sandra Thompson highlighting some of the concerns. Separately, and in an attempt to correct the broad sweep of public misconceptions, Thompson released a statement explaining the reasons behind the new pricing framework, stating that it “will bolster safety and soundness, better ensure the Enterprises fulfill their statutory missions, and more accurately align pricing with the expected financial performance and risks of the underlying loans.”
• Why it matters: In several media interviews, including Broeksmit’s live TV interview with Yahoo! Finance TV on Thursday, MBA has stressed that contrary to inaccurate reporting and the resulting hyperbole, the fees have essentially been in the market since March and do not “punish borrowers with higher credit scores,” noting that those with higher credit scores will still pay less than someone with a lower credit score with the same downpayment. MBA’s primary concern continues to be on the planned LLPA for certain borrowers with DTI ratios above 40 percent, which was delayed in March until August 1, 2023. In a blog post and numerous other press interactions, Broeksmit stressed that the DTI-based LLPA is unworkable and would lead to several problems, including multiple changes to a borrower’s pricing throughout the loan application process, operational and system issues, compliance implications related to TILA-RESPA Integrated Disclosures (TRID), compromised borrower trust, and QC issues.
• What’s next: MBA continues to call for the removal of the DTI-based LLPA and is committed to working with FHFA on alternative approaches that do not pose hardships to both lenders and borrowers.
House Financial Services Committee Votes on CFPB Reform Legislation
On Wednesday, the House Financial Services Committee considered and passed H.R. 2798, the CFPB Transparency and Accountability Reform Act, along partisan lines. The bill would alter the Consumer Financial Protection Bureau’s funding structure and subject the agency to the congressional appropriations process, replace the agency’s current governance structure (single Director) with a 5-member bipartisan commission, create an Office of Economic Analysis to more stringently review the costs and benefits of rulemakings, and more adequately ensure that CFPB regulations account for the requirements imposed by the Small Business Regulatory Enforcement Fairness Act (SBREFA). A copy of the letter MBA submitted to the Committee can be found here.
- Why it matters: The Supreme Court will hear arguments this fall on the pending 5th Circuit case that deemed the CFPB’s funding structure unconstitutional. MBA’s policy has long called for more appropriate checks and balances as part of the agency’s governance structure.
- What’s next: The full House may consider H.R.2798 in the coming months, but the Senate is unlikely to act on any CFPB reforms – unless/until a SCOTUS ruling on the 5th Circuit case dictates an urgent need to do so.
House Passes Debt Ceiling Legislation
On Wednesday the House passed H.R. 2811, the Limit, Save, Grow Act of 2023, by a vote of 217 – 215. The bill suspends the debt limit through March 31, 2024, or until the debt increases by $1.5 trillion, whichever occurs first. Additionally, the legislation, which is unlikely to be considered by the Senate, includes provisions that would establish discretionary spending levels, reclaim unspent COVID-19 money, repeal certain energy tax credits, impose work requirements for certain social programs, and subject major agency rulemakings to congressional approval for final approval.
- Why it matters: A broad real estate coalition sent a letter last month to congressional leaders urging the White House and Congress to take steps to raise the federal debt ceiling well in advance of risking default.
- What’s next: The White House and Senate Democratic leaders have requested a one-year clean debt limit extension (with no extraneous provisions). The House GOP leadership passed H.R. 2811 in an effort to kickstart negotiations with President Joe Biden. MBA will closely monitor the ongoing debate.
For more information, please contact Bill Killmer at (202) 557-2736.
Senate Banking Committee Holds Housing Hearing
On Wednesday, the Senate Banking Committee held a hearing, “Building Consensus to Address Housing Challenges.” The witnesses were: Lou Tisler, Executive Director, National NeighborWorks Association; Vanessa Brown Calder, Director of Opportunity and Family Policy Studies, Cato Institute; and Diane Yentel, President and CEO, National Low Income Housing Coalition. A summary of the hearing can be found here.
- Why it matters: The hearing provoked discussion on a broad range of housing issues (both single- and multifamily related). For example, among a range of other bills discussed, the committee’s Ranking Member, Tim Scott (R-SC), referenced his housing “framework” discussion draft legislation, which he hopes to introduce shortly. Senator Bob Menendez (D-NJ) said he will introduce new legislation (supported by MBA) to raise the statutory Federal Housing Administration (FHA) multifamily loan limits. His remarks can be viewed here.
- What’s next: The Committee may seek to markup and advance several of the bipartisan bills mentioned at the hearing in the coming weeks and months.
Senate Banking Committee Holds Hearing on Credit Bureaus
On Thursday, the Senate Banking Committee held a hearing, “Oversight of the Credit Reporting Agencies.” The witnesses were: Mark W. Begor, CEO, Equifax Inc.; Chris A. Cartwright, President and CEO, TransUnion; and Brian Cassin, CEO, Experian. A summary of the hearing can be found here.
- Why it matters: Sen. Jon Tester (D-MT) asked what can be done about trigger leads. The witnesses also discussed using rental history to improve the credit score of mortgage applicants.
- What’s next: MBA will continue to work with allies in both chambers of Congress to develop bipartisan legislation that appropriately curbs the abusive use of trigger leads.
MBA Amicus Brief: Lenders Not Liable for Actions of Independent Appraisers
Last Friday, MBA filed an amicus brief in response to a Statement of Interest filed by the CFPB and Department of Justice that expands the liability standard that would apply to lenders for the acts of independent, third-party appraisers. In an accompanying press release, MBA President and CEO Bob Broeksmit, CMB, said, “Following the Great Financial Crisis, Congress and regulators established rules to ensure appraiser independence by limiting the role of mortgage lenders in the appraisal process. By federal design, lenders have extremely limited control over the actions of appraisers and are subject to other legal responsibilities that prevent them from influencing or participating in the appraisal process.”
- Why it matters: MBA’s brief does not address the specific allegations contained within the lawsuit, nor does it take a position regarding the conduct of the appraiser. It instead outlines MBA’s concerns that the arguments made by the CFPB and DOJ in the Statement of Interest would hold lenders liable for the actions of an appraiser who is neither an employee nor an agent of the lender. The brief, filed in the U.S. District Court for the District of Maryland in Nathan Connolly and Shani Mott v. Shane Lanham, 20/20 Valuations, LLC, and loanDepot.com, LLC, respectfully requests that the Court recognize that a lender is not liable for the alleged actions of an independent appraiser who was not chosen by the lender.
- What’s next: Appraisal bias is unacceptable, and MBA is working with policymakers and industry stakeholders to develop solutions that ensure borrowers receive fair, equitable, and accurate appraisals. Improving the valuation process and reducing the risk of appraisal bias is a top policy issue, and MBA and members have prioritized it both as part of its CONVERGENCE initiative to promote more sustainable, affordable housing for minority and low- to moderate-income families and communities, and as part of the Building Generational Wealth Through Homeownership campaign. MBA will keep members updated on any pertinent developments in this case.
MBA Recommends Clarifications to FHA on Underwriting ADUs
OnThursday, MBA submitted comments in response to the Federal Housing Administration’s draft Mortgagee Letter, which updates the requirements for insuring mortgages on single-family homes with Accessory Dwelling Units. The draft ML would include rental income generated by an ADU as qualifying income when underwriting a borrower for forward and reverse mortgages. MBA supports FHA’s proposal but offers recommendations to clarify the calculation of effective income and recommends the allowing of detached ADUs to be financed n FHA’s 203(k) Rehabilitation Mortgage Program.
- Why it matters: MBA has advocated for updates to FHA’s 203(k) program, including the ability to finance ADUs. While the draft ML would allow attached ADUs, it stops short of allowing detached ADUs. MBA has submitted comments urging further expansion of ADU financing options in response to a separate FHA request for information on the 203(k) program.
- What’s next: MBA will continue to work with FHA leadership on updates to the FHA Single Family Housing Policy Handbook and its programs.
For more information, please contact Darnell Peterson at (202) 557-2779.
FSOC Proposes New Interpretive Guidance on Nonbank SIFI Designation
Last week, the Financial Stability Oversight Council approved a request for public comment on new Interpretive Guidance altering the process for the determination and designation of nonbanks as Systemically Important Financial Institutions (SIFIs). The proposed policy reinstates FSOC’s ability to pursue an entity determination without first prioritizing an “activities-based approach,” as adopted by the Trump Administration’s 2019 Interpretive Guidance. The proposed guidance also eliminates the requirement for FSOC to ensure that a cost-benefit analysis of any risk-mitigation recommendation demonstrates an overall benefit prior to issuance of that recommendation. FSOC also proposed an Analytic Framework outlining the Council’s considerations when pursuing an entity determination.
- Why it matters: Specific mentions of nonbank risks in the FSOC announcement were focused on money market funds, hedge funds, and crypto exposures. While those sectors potentially pose more systemic vulnerabilities and opacity risks than nonbank mortgage servicing, previous FSOC annual reports make it clear that large IMB servicers remain a concern. Under the new guidance, nonbanks could be more readily eligible for SIFI designation, as FSOC would not first be required to address systemic risk through providing additional regulatory recommendations to relevant supervisors of the market activity. Under the 2019 guidance, entity designation was only pursuable if addressing the systemic risk could not be achieved through this activities-based approach.
- What’s next: MBA will be publishing a summary brief of the proposed Interpretive Guidance and Analytic Framework and will comment on the Interpretive Guidance and Analytic Framework.
For more information, please contact Hanna Pitz at (202) 557-2796.
Federal Agencies Issue Joint Statement on LIBOR Transition
On Wednesday, the Federal Reserve Board, the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, the National Credit Union Administration and the CFPB issued a joint statement to remind financial institutions that the U.S. dollar London Inter-Bank Offered Rate with end on June 30. The statement encourages institutions with LIBOR exposure to complete their transition as soon as possible.
- Why it matters: In January, the Board published its final rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR), which will replace the LIBOR in certain financial contracts after June 30, 2023. The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, 3-month, 6-month, and 12-month LIBOR in contracts, including U.S. contracts that do not mature before LIBOR ends and that lack adequate “fallback” language.
- What’s next: MBA will continue to engage with its members and other industry stakeholders to ensure a smooth transition as the industry moves toward the LIBOR cessation date.
For more information, please contact Fran Mordi at (202) 557-2860.
MBA Offers Recommendations to Enhance HECM Program
Earlier this month, MBA submitted comments on the FHA draft Mortgagee Letter that proposed modifications to the HECM Assignment Claim Type 22 Submission Criteria. MBA’s letter emphasizes that improving claims and filing procedures, eliminating complexities, and expediting claims payments are important steps to enhance the HECM program and provide market stability for HECMs and the senior citizens that rely on this product. In addition, MBA recommended that FHA take additional action to achieve FHA’s policy objectives, including: 1) extending waivers for certain documentation requirements to all mortgagees; 2) accepting the assignment of all HECMs immediately after a Ginnie Mae 98% Buyout; and 3) accepting loans that become due and payable or delinquent after reaching a maximum claim amount as an assignable buyout.
- Why it matters: These revisions can improve efficiencies in the assignment process and lessen the amount of time that a servicer must hold a loan on its balance sheet to prevent liquidity constraints.
- What’s next: MBA will continue monitoring this draft ML proposal and inform members of any updates.
For more information, please contact John McMullen at (202) 557-2706.
Banking Agencies Issue Revised Policy Statement on Allowance for Credit Loss
Last Friday, the OCC, Federal Reserve, FDIC and NCUA issued a policy statement revising their June 2020 policy statement on allowances for credit losses in response to the Financial Accounting Standards Board’s changes to Generally Accepted Accounting Principles rules governing Troubled Debt Restructuring.
- Why it matters: In March 2022, FASB issued ASU 2022-02, eliminating the recognition and measurement accounting guidance for TDRs by creditors upon adoption of Current Expected Credit Losses. According to FASB, because of enhanced financial statement disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, TDR accounting would be redundant, and therefore unnecessary. Prior to March 2022, the agencies required creditors to properly apply the accounting and Call Report requirements for TDRs, which provided useful financial information about the quality of loan portfolios and an institution’s efforts to work with troubled borrowers. The revised interagency CECL policy statement removes all references to TDR, thereby ensuring that the principles outlined the policy statement “are consistent with U.S. GAAP, regulatory reporting requirements, safe-and-sound banking practices, and the agencies’ codified guidelines establishing standards for safety and soundness.”
- What’s next: The revised statement will take effect at the time an institution adopts CECL.
For more information, please contact Fran Mordi at (202) 557-2860.
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:
- Credit Scores – What the FHFA Announcement Means for the Mortgage Ecosystem – May 1
- MSR Transfers: Balancing Risk, Customer Experience and Efficiency – May 11
- Managing Opportunity and Risk in Volatile Economic Conditions – May 16
- Leveraging AI, Blockchain & New Technologies in Today’s Challenging Environment – May 17
- Explore Build-to-Rent Advantages, Trends & Opportunities – May 18
MBA members can register for any of the above events and view recent webinar recordings. For more information, please contact David Upbin at (202) 557-2931