MBA Advocacy Update: MBA Releases Summary on Proposed Changes to Bank Capital Requirements

1. MBA Releases Summary on Banking Agencies’ Proposed Changes to Bank Capital Requirements

Last month, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) issued interagency proposed changes to capital requirements for banks with assets of $100 billion or more. The so-called “end game” proposed rules complete U.S. regulators’ implementation of the Basel III standards and make changes in response to the recent large bank failures. The proposed changes effectively increase capital requirements at larger banks by an estimated 15 to 20 percent – large enough to impact which lines of business banks choose to support or withdraw from, and with potential implications for the entire mortgage market. MBA strongly opposes certain provisions of the proposal that undermine the mortgage market and takes exception to the extremely scant economic analysis regarding how the changes will affect the economy, single-family housing market, and commercial real estate finance markets. An MBA-created summary of the proposal can be found here.

• Why it matters: The agencies’ proposal makes significant changes to how larger banks calculate their risk-weighted assets and imposes several additional requirements on banks with total assets of $100B or more. The proposal increases the risk weighting on certain mortgage loans held by the covered banks – a provision that goes beyond the Basel III Accord – that in turn could make homeownership less attainable to first-time homebuyers and low- and -moderate-income borrowers with smaller down payments. The rule also proposes even more of a punitive treatment of MSRs and a requirement to include net unrealized losses on available-for-sale securities in the calculation of regulatory capital. These changes could impact banks as lenders, servicers, and providers of warehouse lines and MSR financing. MBA is also concerned that the Federal Housing Finance Agency (FHFA) and Ginnie Mae – under pressure from the bank regulators on the Financial Stability Oversight Council (FSOC) – could seek to extend these poorly conceived capital standards to nonbanks.
• What’s next: Comments on the proposal are due by November 30, 2023, with July 1, 2025, as the start of a three-year transition period provided for the final rule. MBA will work with members and other industry stakeholders to formulate our response, focusing on the numerous negative impacts these proposed rules would have on the housing finance ecosystem.

For more information, please contact Pete Mills at (202) 557-2878, Mike Flood at (202) 557-2745, Fran Mordi at (202) 557-2860 or Stephanie Milner at (202) 557-2747.

2. MBA Opposes HUD-USDA Proposal to Increase Costs and Burdens on Housing Construction

On Monday, MBA submitted a comment letter regarding the Department of Housing and Urban Development (HUD) and Department of Agriculture (USDA) proposal to increase energy efficiency standards significantly for USDA and Federal Housing Administration (FHA)-insured and financed loans for construction or substantial rehabilitation. The notice of preliminary determination proposed by HUD and USDA would require building codes that are not currently supported in the vast majority of states.

• Why it matters: MBA and its members support energy efficiency measures, but the proposal would place significant new cost burdens on newly-constructed housing, reducing affordability.
• What’s next: MBA will continue its advocacy with HUD and USDA to stress the importance of limiting additional costs and burdens on development, and instead promote and incentivize an increase in housing supply.

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

3. HUD Releases Updates to FHA Single Family Housing Policy Handbook

On Wednesday, HUD released an update to FHA Single Family Housing Policy Handbook, providing additional industry guidance to originators and servicers. In addition to integrating recently released Mortgagee Letters, HUD also incorporated numerous origination recommendations proposed by MBA, including updating the process for canceling and reinstating case numbers and providing additional clarifying guidance surrounding well water testing requirements for new construction homes. Moreover, it also provides updates to its servicing section by clarifying the requirements for requesting approval for expenses that exceed the maximum property preservation allowance and permitting the increase in a borrower’s monthly principal and interest (P&I) for a COVID-19 Recovery Modification if the targeted payment reduction is not achieved.

• Why it matters: Incorporating guidance from mortgagee letters directly into the Handbook on a regular basis is essential for maintaining a central point of policy authority. MBA appreciates FHA’s efforts to clarify and streamline language in the Handbook, consistent with our recommendations.
• What’s next: Unless otherwise noted, changes to the Handbook can be implemented immediately, but must be by November 7, 2023. MBA will continue to review the updates and engage with HUD on additional changes to the FHA Handbook through the Government Loan Production Subcommittee and Loan Administration Committee.

For more information, please contact Gabriel Acosta (202) 557-2811 or Darnell Peterson (202) 557-2922.

4. MBA Submits Coalition Letter to FCC on Advanced Methods to Eliminate Unlawful Robocalls

On Wednesday, MBA and other trades sent a joint letter in response to the Federal Communications Commission’s (FCC) proposal on methods to eliminate unlawful robocalls. FCC’s proposal asks about how best to notify legitimate callers of erroneously blocked calls and seeks comment on how frequently outbound calling numbers are erroneously labeled as “spam” or with another derogatory label, among other questions. One point made in the letter is that banks, credit unions, and other financial institutions place large numbers of fraud alerts, past-due notifications, and other servicing calls in a short timeframe, and these calls may have low average call duration and low completion ratios—three attributes that the Commission has suggested voice service providers and their third-party analytics service providers use to identify illegal calls. Accordingly, the letter urges the Commission to state that these factors may suggest that the call placed is an illegal call only if the factor is present along with other indicia indicating the call is illegal.

• Why it matters: MBA continues to support the FCC’s efforts to eliminate illegal automated calls. Banks, credit unions, and other financial services providers – and their customers – are impacted negatively by bad actors that increasingly place calls that impersonate legitimate companies with intent to defraud. These bad actors at times illegally “spoof” phone numbers belonging to member companies by causing the call recipient’s caller ID to display the name of a legitimate company instead of the name of the actual caller, who is seeking to defraud the recipient.
• What’s next: MBA will continue to monitor this rulemaking and provide any relevant updates.

For more information, please contact Alisha Sears at (202) 557-2930.

5. MBA Staff, Members Highlight IMB Issues at Annual State Regulator Conference

MBA staff gathered this week at the annual meeting of the American Association of Residential Mortgage Regulators (AARMR) in Baltimore. The conference consisted of several meetings with state agency leaders, and staff delivered presentations on issues of concern to independent mortgage banks (IMBs), including: a review of the health of the IMB sector, discussion of industry and regulator standardization efforts through MISMO, and a call for further industry-regulator collaboration to expand post-forbearance options described in the recent MBA white paper, The Future of Loss Mitigation. Also, as part of a discussion on policies that seek to apply Community Reinvestment Act mandates to IMBs, staff presented state-level analysis of Home Mortgage Disclosure Act data from a recent report by the nonpartisan Urban Institute, which details the positive record of IMBs leading the market in lending to LMI borrowers.

• Why it matters: The AARMR conference, which this year featured participation from 42 state regulators, is an excellent opportunity for MBA and member companies to meet with state licensing staff, examiners, and agency heads and advocate for industry priorities.
• What’s next: MBA will follow up with state association partners and continue to serve as a resource for data and policy information for state regulators.

For more information, please contact William Kooper (202) 557-2737 or Liz Facemire (202) 557-2816.

6. VA Announces an Extension for the COVID-19 Refund Modification

On Wednesday, the Department of Veterans Affairs (VA) extended the COVID-19 Refund Modification through the end of the year. VA’s announcement reestablishes the VA COVID-19 Home Retention Waterfall with several changes, including reducing the targeted payment reduction for the COVID-19 Refund Modification from 20% P&I to 10% P&I. Servicers also do not need to seek VA approval for a borrower’s interest rate to increase by more than 1%. VA’s Circular was effective retroactively as of July 1, 2023.

• Why it matters: The COVID-19 Refund Modification allows borrowers that need payment reduction to achieve an affordable payment by combining a traditional loan modification with a partial claim. With the expiration of the COVID-19 Veterans Assistance Partial Claim in October 2022, this extension allows servicers to continue to offer struggling borrowers a loss mitigation option in today’s high interest rate environment. This waterfall is intended to be a stop-gap measure until the Veterans Assistance Servicing Purchase program is announced later this year.
• What’s next: MBA will keep members informed of any updates of VA loss mitigation policy.

For more information, please contact Brendan Kelleher at 202-557-2779.

7. Fannie Mae and Freddie Mac Retire COVID-19 Loss Mitigation Flexibilities

On Wednesday, Fannie Mae and Freddie Mac (GSEs) began the retirement of several COVID-19 loss mitigation flexibilities, including the COVID-19 Forbearance. Effective for evaluations after November 1, 2023, servicers must follow standard guidance when evaluating borrowers for a forbearance plan, which includes achieving contact or Quality Right Party Contact (QRPC) with a borrower specific to property type and reporting a non-COVID-19 reason for default. Additionally, QRPC must be achieved for the COVID-19 Payment Deferral and Flex Modification for borrowers after November 1, 2023. Servicers must also begin evaluating borrowers for standard loss mitigation guidance for the Payment Deferral and Flex Modification no later than November 1, 2024.

• Why it matters: The GSE’s expected announcement creates a runway for servicers to proactively adjust their operations ahead of the effective date. The GSEs previously announced an expansion of the Payment Deferral to allow borrowers to resume their payment after 6 missed payments, which MBA supported in our Future of Loss Mitigation white paper.
• What’s next: MBA will keep members informed of any additional updates to GSE loss mitigation policy.

For more information, please contact Brendan Kelleher at 202-557-2779

8. Get Involved – MBA Advocacy Month Kicks Off in September

Join MBA’s Legislative and Political Affairs (LPA) team in September for MBA Advocacy Month, an all-member campaign focused on raising awareness on the top single-family and commercial/multifamily issues that can help produce positive policy changes at the national level.

• Why it matters: Throughout September, MBA will work with members to engage with their employees and help run impactful Mortgage Action Alliance (MAA) and MORPAC campaigns. In addition, MBA staff will host (virtual) events, including legislative townhall(s) and webinars with a focus on how members can make their voices more effectively and better heard.
• What’s next: If interested in learning more and how to get involved, visit mba.org/advocacymonth.

For more information, please contact Jamey Lynch, AMP at (202) 557-2818.

9. 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:

• Budgeting and Financial Planning for Non-Believers – August 22
• C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23
• Current Expected Credit Losses (CECL) Updates – August 24
• Navigating the Obstacles in Multifamily Housing: Perspectives from the Affordable Rental Housing Advisory Council – August 29
• Succeeding Today and Tomorrow: Tech Tools That Can Drive More Market Share – September 7

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.