MBA Advocacy Update July 31: Banking Agencies Issue Proposed MBA-Opposed Changes to Bank Capital Requirements

1. Banking Agencies Issue Proposed Changes to Bank Capital Requirements

Last week, 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 about 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 and on Wednesday sent an open letter to the leadership at the banking agencies that urged them to vote against its issuance, highlighting that the substantial capital hike will have both macroeconomic and sector impacts and would fundamentally shift what business lines mid-sized and regional banks will focus on. MBA President and CEO Bob Broeksmit, CMB, said in a press statement that “this unnecessary proposal will increase borrowing costs and reduce credit availability for the very consumers and borrowers this administration ostensibly seeks to assist,” and that “experience with such significant capital changes tells us that equity markets will react immediately, and banks will respond to that pressure in real time, long before the final rule is issued.”

– 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, including a modification of current rules on the deduction of threshold items (including MSRs) from common equity tier 1 capital, and a requirement to include net unrealized losses on available-for-sale securities in the calculation of regulatory capital. The proposal also changes the risk weighting on certain mortgage loans held by the largest 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. These changes could impact banks as lenders, servicers, and providers of warehouse lines and MSR financing, and were made with scant analysis regarding how they will affect the economy or the housing and mortgage markets specifically.

– 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 is currently reviewing the over 1,000-page proposal and will provide a summary of the key provisions impacting single-family and commercial/multifamily sectors in the coming days. 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 Joins Coalition Supporting Proposed PACE Financing Rule

Last Wednesday, MBA joined a coalition of trade and consumer groups supporting the finalization of the Consumer Financial Protection Bureau’s (the Bureau) proposed rule establishing nationwide consumer protection standards for residential Property Assessed Clean Energy (PACE) loans. The promulgation of this rule was required by Congress in an MBA-supported provision in 2018’s S. 2155 (Public Law No. 115-174). Implementation of these regulations represents a significant milestone in MBA’s multiyear advocacy campaign to extend consumer mortgage rules to PACE obligations and protect lenders from PACE superliens.

– Why it matters: PACE loans are structured like home improvement or home equity loans, but because they are collected as part of local property taxes, they have skirted all the federal consumer mortgage rules. The tax roll aspect also provides them first-lien priority over first mortgages. To address well-documented abuses, the proposed regulation defines PACE obligations as consumer credit, making it clear that the Truth in Lending Act (TRID) applies generally to PACE financing. The rule would also subject PACE obligations (and providers) to Ability-to-Repay requirements, modified TRID disclosures, and the civil liability provisions of TILA for violations. The letter urged the Bureau to clarify the application of the proposed rule to additional rules, including the SAFE Act, and encouraged the Bureau to require PACE creditors to notify mortgage servicers of a PACE obligation upon financing.

– What’s next: MBA will monitor the proposed rule and communicate updates to members. We will also continue to work with state MBA partners to address lien priority and other consumer protection issues. For more information about MBA’s campaign against residential PACE loans, click here.

For more information, please contact Pete Mills (202) 557-2878 or Brendan Kelleher (202) 557-2779.

3. Senate Passes NDAA; PFCRA Amendment Averted

On Thursday evening, the Senate voted to pass its version of the National Defense Authorization Act (NDAA) for Fiscal Year 2024. Senators filed more than 1,000 amendments to the legislation, including several minor housing-related amendments – including one to modify the Program Fraud Civil Remedies Act (PFCRA).

– Why it matters: MBA worked closely with several Senate offices to ensure that the amendment to modify PFCRA – a bill (S. 659) offered by Senator Chuck Grassley (R-IA) that could encourage the Department of Housing and Urban Development (HUD) and the Justice Department to more frequently pursue smaller administrative false claims mortgage-related actions – was not made in order for debate or included in a substitute “Manager’s Amendment” by Senate leaders.

– What’s next: The House, which passed its version of the NDAA earlier in July, and the Senate will go to conference to resolve differences in their separate iterations of the legislation. The Senate will return in September to work on other “must pass” bills (e.g., FAA Reauthorization and/or a multi-year farm bill reauthorization). MBA staff will work with congressional allies to stay on guard should the Grassley PFCRA amendment (or separate False Claims Act reforms) re-emerge during those floor debates.

For more information, please contact Ethan Saxon at (202) 557 2913 or Bill Killmer at (202) 557 2736.

4. HUD Releases Proposed Rule Revising FHA Requirements for Investor Lenders and Mortgagees

Last week, HUD released a proposed rule for industry comment that would revise the requirements for “investing lenders” and mortgagees to gain or maintain their status as a Federal Housing Administration (FHA) approved lender or mortgagee. In addition to clarifying and removing certain language, the proposed rule would require investing lenders and mortgagees to comply to HUD’s Uniform Financial Reporting Standards and FHA’s Annual Certification Requirements. HUD also seeks to create a separate definition for the government sponsored enterprises (GSEs) that would release them from meeting net worth requirements, but still require them to meet the general approval requirements.

– Why it matters: An Investing Mortgagee is an organization that invests funds under its own control, while an Investing Lender holds equity in the loan.

– What’s next: MBA will collect member feedback though the Government Loan Production Subcommittee.

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

5. House Financial Services Committee Holds Contentious Markup

Late Thursday evening, the full House Financial Services Committee (HFSC) concluded a contentious, full-day markup of several bills, including two with potential impact on MBA members. MBA’s letter to committee leaders regarding our real estate finance-related concerns is here.

-Why it matters: H.R. 4737, in the form of Title I within a separate bill (H.R. 4823), would require federal banking agencies to notify their House and Senate authorizing committees prior to implementing any non-binding recommendations from the Financial Stability Oversight Council (FSOC) or via an Executive Order. As drafted, the bill would apply to almost all prudential regulators (including the FHFA), but not to the CFPB. H.R. 4823 was passed by the committee along partisan lines.

-What’s next: MBA will continue to advocate for the inclusion of the CFPB in the list of regulators covered by Title I’s requirements within the bill prior to its full House floor consideration.

For more information, please contact Bill Killmer at (202) 557-2736 or Alden Knowlton at (202) 557-2741.

6. USDA Announces Pilot Programs to Increase Homeownership on Tribal Lands

Last Wednesday, the Department of Agriculture Rural Housing Service (RHS) announced it has launched two pilot programs for the Section 502 Single Family Housing Guaranteed Loan Program dedicated to increasing homeownership on tribal lands. The first of the two pilots seeks to remove the barriers to obtaining appraisals in rural areas by providing the opportunity for lenders to utilize desktop appraisals when appraising a home on tribal land. The second pilot program will focus on providing loans for the rehabilitation of properties on tribal lands.

-Why it matters: Tribal communities are often located in rural areas, making it increasingly difficult to review properties in an area with a limited number of available appraisers.

-What’s next: The pilot programs began on July 26, 2023, and will continue until July 28, 2025, unless extended by RHS.

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

7. ULC Approves MBA-Supported Model State Law to Address Discriminatory Covenants

Last Wednesday, the nonpartisan Uniform Law Commission (ULC) approved a model state law to address illegal discriminatory covenants placed in property records decades ago prior to the U.S. Supreme Court case Shelley v. Kraemer (1948) and the enactment of federal and state fair housing laws. MBA joined an industry coalition in a letter of support. The Uniform Unlawful Restrictions in Land Records Act provides a uniform mechanism for repudiation of these covenants by homeowners, while retaining the capability to study these historic records and their impacts. Many unlawful covenants exist in old declarations of covenants, conditions, and restrictions (CC&Rs). Additionally, unlawful covenants can exist within instruments that also include enforceable CC&Rs. The ULC took care in the model act to not unintentionally void lawful enforceable covenants, which could create title questions impacting the marketability of the property.

-Why it matters: There is no model or uniform legislative approach currently for empowering individuals to address unlawful discriminatory covenants in land records pertaining to their property.

-What’s next: MBA and its industry partners will support the enactment of the model act in state legislative sessions starting in 2024.

For more information, please contact William Kooper (202) 557-2737 or Liz Facemire (202) 557-2870.

8. Senate Banking Subcommittee Holds Hearing on Consumer Fees

Last Wednesday, the Senate Banking Committee Subcommittee on Financial Institutions and Consumer Protection held a hearing titled, “Taking Account of Fees and Tactics Impacting Americans’ Wallets.” A summary of the hearing can be found here.

-Why it matters: The hearing witnesses mentioned bank fees and tenant fees as examples of “junk fees.” Senators expressed bipartisan interest in more transparency with regards to fees in both the banking and rental housing sectors.

-What’s next: While legislation on consumer fees is unlikely to be enacted, senators will continue to debate the White House initiative targeting “junk fees” writ large and the role of the CFPB as a regulator in this potential enforcement area.

For more information, please contact Ethan Saxon at (202) 557 2913 or Bill Killmer at (202) 557 2736.

9. MBA Releases 2023 Home Equity Lending Study

For the first time since 2020, MBA released its Home Equity Lending Study, which revealed that originations of open-ended Home Equity Lines of Credit (HELOCs) and closed-end home equity loans increased 50 percent in 2022 compared to two years earlier.

-Why it matters: The study showed that nearly 65 percent of borrowers cited home renovations and remodeling as their primary reason for applying for a home equity loan. Other reasons cited also included debt consolidation and emergency cash management.

-What’s next: For more information on the 2023 Home Equity Lending Study, click here.

For more information, please contact Marina Walsh at (202) 557-2817.

10. Federal Reserve Announces Rate Hike

The Federal Reserve in its ongoing efforts to slow inflation raised the federal funds rate by another 25 basis points to a target range of 5.25-5.50% on Wednesday – the highest level in 22 years.

-Why it matters: This short-term rate hike marks the 11th increase since March 2022. Additionally, the FOMC emphasized that, “the Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

MBA’s SVP and Chief Economist Mike Fratantoni noted, “The FOMC increased short-term rates yet again at its July meeting, responding to high, but moderating inflation and a job market that remains quite strong. However, both are now moving in a direction which could allow this hike to be the Fed’s last for this cycle. We expect that to be the case, but for the Fed to hold off on any rate cuts until we are well into 2024.”

For more information, please contact Mike Fratantoni at (202) 557-2935.

11. NMLS Announces Fall Ombudsman Meeting Date & Requests Discussion Topics

The National Mortgage Licensing System (NMLS) said the next virtual Ombudsman meeting will be held on September 6, 2023, from 2:00pm-5:00pm EST. The announcement included the link to register (here) and asked for discussion topics to be sent to ombudsman@nmls.org by 5pm EST on Wednesday, August 16, 2023. MBA asks members to provide discussion topics and to attend this meeting as a chance to improve relationships with regulators while coordinating efforts to improve licensing and regulatory compliance structures.

-Why it matters: The Ombudsman meeting has proven to be a constructive venue for industry and regulators to discuss working relationships as well as any improvements needed to the NMLS system or individual state regulatory structures, including MLO remote work policies. The timing of this second Ombudsman is crucial as MBA prepares for 2024 state legislative sessions and plans for any legislative efforts industry and/or regulators need to accomplish.

-What’s next: MBA staff will be attending the upcoming American Association of Residential Mortgage Regulators (AARMR) in preparation for topics and continued discussions with regulators at this Ombudsman meeting.

For more information, please contact William Kooper at (202) 557-2737 or Liz Facemire at (202) 557-2870.

12. CFPB Releases Summer 2023 Supervisory Highlights

Last Wednesday, the CFPB published its Summer 2023 Supervisory Highlights (the Highlights). The report outlines concerns with fair lending and mortgage origination and servicing. CFPB examiners found fair lending violations stemming from the unequal use of pricing exceptions and from disparate impacts caused by underwriting decisions when handling applicants’ criminal records or learning about income derived from public assistance. The CFPB also highlighted several violations of the loan originator compensation rules stemming from differentiating compensation based on credit product type, including violations for different compensation for brokering out a loan and violations of Regulation Z disclosure requirements by lenders misrepresenting the note rate. Lastly, in the servicing context, the CFPB highlighted Regulation X violations by mortgage servicers caused by the failure to timely process loss mitigation and from not recovering borrower information that was lost during servicing transfers.

-Why it matters: The Highlights particularly focus on unfair, deceptive, and abusive acts or practices (UDAAPs) across many consumer financial products. This report can provide members with insight into how the CFPB understands and views UDAAP authority. It also announces a new CFPB interpretation of the application of the LO Comp rule to loans that are brokered out to lenders. Finally, the Highlights signal activity the CFPB is seeing and looking out for in examinations and can also inform future CFPB rulemaking or guidance publications.

-What’s next: The CFPB periodically publishes these reports to share key examination findings and to communicate operational changes to its supervision program. MBA will continue to inform members of relevant reports and findings as they arise.

For more information, please contact Justin Wiseman at (202) 557-2854 or Alishia Sears at (202) 557-2930.

10. 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:

-How to Combat Risk, Fraud and Losses in an Economic Downturn – August 3
-C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23
-Current Expected Credit Losses (CECL) Updates – August 24
-Succeeding Today and Tomorrow: Tech Tools That Can Drive More Market Share – September 7

For more information, please contact David Upbin at (202) 557-2931.

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