MBA Advocacy Update July 3, 2023

1. Broeksmit Calls on Regulators to Support Warehouse Lenders

In a blog post published last Monday, President and CEO Bob Broeksmit, CMB, recommended regulatory changes to support warehouse lending as all corners of real estate finance, including warehouse lenders, continue to adjust to market conditions and the rapid slowdown in origination volume. He made the point that observers and policymakers should expect to see an ongoing “right-sizing” of the industry in bank business models and product lines. “For better or for worse, real estate finance remains a cyclical business. But it’s also a resilient business,” he said.

-Why it matters: Broeksmit highlighted the essential and irreplaceable form of liquidity for the mortgage market that warehouse lending provides – connecting Wall Street to Main Street to provide broad mortgage credit access for borrowers across the country – and recommended two key regulatory changes that should be considered to ensure the stability of the warehouse funding market:
-Reduce the risk weighting on warehouse lending facilities to align with the risk weighting on the underlying collateral. Under current rules, a warehouse line secured by single family loans is assigned a 100% risk weight.
-The Federal Housing Finance Agency (FHFA), as the regulator of the Federal Home Loan Banks (FHLBs), should ensure that advances from the FHLB system remain available to support warehouse lenders through all market cycles.
-What’s next: Federal banking regulators are expected to propose for comment new rules that could significantly increase capital and liquidity requirements for mid-sized and regional banks. Absent any fine-tuning of capital charges for key assets in the mortgage finance sector like warehouse lines, those rules could exacerbate already challenging conditions in the housing and mortgage markets. MBA will be focused on these issues and other mortgage market implications when those rules are released for comment.

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

2. MBA Offers Recommendations to FHA’s Proposal to Assist Borrowers in High-Interest Rate Environment

MBA led a joint comment letter sent with the American Bankers Association (ABA) and the National Mortgage Servicing Association (NMSA) to the Federal Housing Administration (FHA) on its proposed loss mitigation option that provides payment relief for distressed borrowers who are delinquent on their mortgage payments. MBA is generally supportive of the proposed Payment Supplement Partial Claim (PSPC), which allows Mortgagees to use a partial claim to cure a borrower’s arrearages and temporarily reduce the principal portion of a borrower’s monthly mortgage payment for 3-5 years. The PSPC is intended to assist borrowers in default who are unable to obtain a significant payment reduction through other loss mitigation options and is an additional solution for struggling borrowers in high-interest rate environments.

-Why it matters: For borrowers unable to resume their regular payment, the PSPC allows servicers to offer borrowers additional payment relief while preserving their existing below market interest rate, without completing and redelivering a loan modification to Ginnie Mae – a key recommendation in MBA’s recent white paper on loss mitigation. While MBA supports the concept of the proposal, we believe certain aspects are excessively complex and will pose operational, compliance. and reputational risks that will limit its effectiveness. The joint letter urged FHA to:
-Simplify and clarify the PSPC by creating a 3-year level payment term, prioritizing permanent relief over temporary relief, reinforcing FHA’s traditional use of a prescribed waterfall, and addressing substantial documentation issues with the PSPC proposal;
-Increase the allowable incentive to $3,500 to protect servicers liquidity positions in today’s market and the value of Ginnie Mae MSRs actively being transferred among program participants; and
-Allow servicers to implement the Draft ML within 12 months of the effective date for mandatory compliance.
-What’s next: Comments were due Friday, with FHA expected to publish a final rule later this summer.

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

3. MBA Weighs in on FHFA’s Proposed Rule on Fair Lending and Equitable Housing Finance Plans

Last Monday, MBA submitted comments to FHFA in response to its Notice of Proposed Rulemaking (NPR) addressing fair lending oversight of Fannie Mae and Freddie Mac (the GSEs) and codifying the GSEs’ Equitable Housing Finance Plans (EHFPs). MBA was generally supportive of certain aspects of the proposal – which aims to formalize many existing requirements related to fair lending – and welcomed FHFA’s proposal to codify the EHFPs and their associated practices into regulation. However, the letter highlights some key concerns with two aspects of the proposal: 1) the inclusion of Section 5 of the Federal Trade Commission Act (FTC Act) regarding unfair or deceptive acts or practices (UDAP) as a standard for Fair Housing and Fair Lending Compliance, and (2) the new requirement to collect the language preference of applicants and borrower.

-Why it matters: MBA applauds FHFA’s efforts to create a fairer and more equitable housing industry and support Limited English Proficiency (LEP) Borrowers. However, the application of UDAP principles as outlined in the FTC Act is an inappropriate lens to evaluate the conduct of the GSEs as that framework generally governs interactions between businesses and consumers. MBA also notes that the codification of the Supplemental Consumer Information Form (SCIF) could have unintended consequences for lenders, servicers, and borrowers.
-What’s next: MBA looks forward to continued engagement with FHFA on this and other critically important housing issues.

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

4. MBA, Industry Groups Stress Timeline Flexibility and Coordination in FHFA’s Credit Score Implementation Plan

Last week, MBA and 16 other trade groups submitted a joint letter to FHFA providing recommendations on its recently announced timeline and implementation plan for the GSEs’ adoption of FICO 10T and VantageScore 4.0 and bi-merge reporting requirements. The letter urged FHFA to ensure timelines remained “soft,” and highlighted the need for coordination with government lending programs. Specific recommendations included:
-A comprehensive, transparent, and iterative stakeholder engagement process;
-Robust data transparency, specifically including the release of long-term historical datasets for Classic FICO, FICO 10T, and VantageScore 4.0 that allow for analysis of the impacts of the changes and the design of new models to support the wide array of business functions that will be affected; and
-A recalibrated timeline that accommodates both data analysis and modeling as well as a stakeholder engagement process that considers the costs, complexity, consumer impact, and policy implications of the transition.

-Why it matters: The implementation of the new credit score models and a transition to bi-merge reports have wide-ranging impacts, and a well-coordinated and appropriate execution strategy is needed to minimize disruption to the housing finance system.
-What’s next: MBA and other groups have requested a meeting with FHFA to discuss the letter’s recommendations and concerns and look forward to a comprehensive and transparent stakeholder engagement process.

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

5. FHA Adds SCIF Requirement for Mortgage Originations

On Tuesday, FHA released Mortgagee Letter (ML) 2023-13, which implements new data collection requirements for lenders originating FHA-insured mortgages. The ML requires lenders to begin using the Fannie Mae and Freddie Mac Supplemental Consumer Information Form (SCIF) to document borrower language preferences and record homeownership education and housing counseling the borrower may have received. Borrowers must be provided the form but will not be required to provide the requested information.

-Why it matters: The ML further aligns FHA with FHFA’s requirement for GSE-backed loans.
-What’s next: Lenders will need to start including the SCIF in loan applications no later than August 28, 2023.

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

6. FASB Issues Proposed Accounting Standards Update on Acquired Financial Assets

On Tuesday, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) intended to improve the accounting for financial assets acquired in a business combination or purchase. The proposed ASU is in response to feedback from the investor community and other stakeholders regarding the difference in accounting for these financial assets following the issuance and implementation of the Current Expected Credit Losses (CECL) standards. Under Generally Accepted Accounting Principles (GAAP), there are two models for accounting for acquired financial assets – the purchased credit deteriorated (PCD) method and the non-PCD method. The PCD model is used to account for acquired financial assets that have experienced deterioration since origination, whereas acquired financial assets that have not experienced a more-than-significant deterioration since origination are accounted for under the non-PCD model, similar to originated financial assets.

-Why it matters: Two models create unnecessary complexities in accounting for acquired financial assets under GAAP, and preparers and users of the financial statements have noted concerns with the non-PCD model’s requirement to record a day-one allowance for credit loss in addition to any credit discount reflected in the fair value for purchased assets that have not experienced a more-than- significant deterioration since origination. These stakeholders have indicated that determining whether an asset has experienced more-than-significant deterioration since origination is subjective and is inconsistently applied, which creates comparability issues and erodes the usefulness of information provided in the financial statements. The proposed ASU essentially intends to eliminate the non-PCD model for acquired financial assets that have not experienced a more-than-significant deterioration since origination, and have them accounted for under the PCD model, without making any amendments to the existing PCD model.
-What’s next: MBA will work with the Accounting and Financial Management Committee to formulate a response to the proposed ASU by the August 28, 2023, due date.

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

7. LISTEN: HousingWire Podcast Interview with MISMO President David Coleman

Last week, MISMO President David Coleman recorded a podcast interview with HousingWire Editor in Chief Sarah Wheeler about the evolution of mortgage technology, MISMO’s recent initiatives, and how data standards will continue to transform the industry.

-Why it matters: Coleman discussed a wide range of topics, including MISMO’s role as a hub for data standards, process standards, and a forum for industry professionals to solve industry challenges through collaboration. He also discussed the evolution of valuation and appraisals and the increased interest across the industry in tech and machine learning.
-What’s next: MISMO will hold its Fall Summit on September 18-21, 2023, for four days of workgroup meetings, panel discussions, and planning sessions. To register, visit MISMO.org.

For more information, please contact David Coleman at (202) 557-2814.

8. New Florida Law Bans Real Estate Purchases by Certain Foreign Borrowers; Lack of State Guidance Creates Compliance Challenges

Florida Senate Bill 264 was signed into law on May 9th by Governor Ron DeSantis, and will go into effect tomorrow, July 1st. The new statute prohibits the purchase (or knowing sale) of certain real estate to a foreign principal or entity from China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria. Covered real estate includes farm properties, properties within 10 miles of a military installation or critical infrastructure, and any property purchased by individuals or entities associated with the People’s Republic of China or the Chinese Communist Party.

-Why it matters: Violations of the law can result in forfeiture of the property, while compliance with the law could raise fair housing risks. There is no official compliance guidance from the State of Florida, forcing the industry to develop its own tools. MBA members can use a breakdown on the three key sections of the law that is available from the Florida Association of Realtors as well its sample amended “AS IS” Residential Contract For Sale And Purchase. Additionally, the Florida Land Title Association has made available its draft suggested affidavits provided to the Florida Real Estate Commission. The Commission, however, has not yet finalized that process and the forms are only recommendations to mitigate the risk of violation of the new requirements. As these forms start to appear in connection with the underwriting of purchase money mortgages in Florida, lenders should evaluate potential forfeiture and fair lending risks, and may wish to consult counsel.
-What’s next: A lawsuit filed earlier this month in the U.S. Court for the Northern District of Florida asks for a preliminary injunction to stop the law’s implementation on the grounds that the statute violates the federal Fair Housing Act and the U.S. Constitution’s Equal Protection Clause. Earlier this week, the U.S. Justice Department submitted a “statement of interest” supporting the request. MBA will continue to work with the MBA of Florida to monitor events and provide updates and guidance on any developments.

For more information, please contact Liz Facemire (202) 557-2870 or Gabriel Acosta at (202) 557-2811.

9. New York DFS Propose Industry Guidance Regarding Character and Fitness Assessments

The New York Department of Financial Services (NYDFS) recently released proposed guidance for companies to use to update their framework for the review and assessment of the character and fitness of company leaders, both upon onboarding and on an ongoing basis. If adopted, the guidance will be applicable to NYDFS regulated banks and IMBs licensed or chartered under New York law. The guidance applies to each member of a covered institution’s board of directors, board of trustees, and/or board of managers, and each senior officer. While the language of the guidance encourages a “risk-based” approach to implementation and provides a sample questionnaire, a lack of specificity in some areas requires further analysis. MBA and New York MBA have submitted a letter in response to this proposal asking for a narrower scope and greater specificity on certain items to prevent varying interpretations and uncertainty.

-Why it matters: Following recent high-profile bank failures, including one under the supervision of NYDFS, the Department is signaling that it expects tighter controls and scrutiny of company leaders with respect to any potential conflicts of interest or any regulatory issues at companies where they previously served.
-What’s next: MBA reviewed the proposal and developed comments in consultation with members of the MBA State Legislative and Regulatory Committee and NYMBA. All comments were due today.

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

7. 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:

-Mastering Revenue Metrics of Construction to Permanent Loans – July 18
-Managing Costs and Compliance of Lead Generation in a Purchase Market – July 19
-Office Doldrums: Challenges, Opportunities, and Nuances – July 26
-How to Leverage ChatGPT and Other Generative AI Platforms to Safely Improve Borrower Experiences – July 27
-Budgeting and Financial Planning for Non-Believers – August 22
-C-PACE Financing 101: A Commercial/Multifamily Lender’s Overview – August 23

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.