MBA Advocacy Update Nov. 27: FHFA ERCF Final Rule; VA & FHA Loss Mitigation News

FHFA Issues Final Rule Amending Enterprise Regulatory Capital Framework

Last Tuesday, the Federal Housing Finance Agency (FHFA) published a final rule that amends certain portions of the Enterprise Regulatory Capital Framework (ERCF) for Fannie Mae and Freddie Mac (the GSEs).

The final rule includes modifications of certain provisions of the ERCF related to guarantees on commingled securities, multifamily mortgage exposures secured by properties with government subsidies, and derivatives and cleared transactions. Notably, in light of the delayed implementation date for the bi-merge credit report requirement and the ongoing public engagement related to credit scores, the final rule does not adopt the proposed changes to representative credit score calculations.

In previously submitted comments, MBA encouraged FHFA to delay implementation and further analyze the potential impacts of this provision as part of their alternative credit score initiative.

Why it matters: The capital rule continues to be used as a tool to manage the GSEs’ risk, which has been evident in recent policy decisions. The final rule contains important amendments reflecting previous issues highlighted by MBA, such as the risk weighting for comingled securities, and a large reduction in the UMBS commingling fee. Unfortunately, it does not address longstanding issues such as disparities in Third-Party Origination pricing or the inclusion of a multifamily countercyclical adjustment.

What’s next: The final rule is effective on April 1, 2024, with the exception of the amendments related to cleared and derivative transactions, which are effective January 1, 2026. MBA will remain engaged with FHFA on issues related to the ERCF and will continue to advocate for changes that more accurately capture the risks posed to the GSEs, promote safety and soundness, and maintain a level playing field.

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

VA Asks Servicers to Pause Foreclosures Through May 2024

The Department of Veteran Affairs (VA) recently announced in a press statement that it is calling on mortgage servicers to pause foreclosure sales through May 31, 2024.

The VA’s announcement follows recent public pressure highlighting the lack of a viable loss mitigation option for distressed veteran borrowers in a high-interest rate environment. The VA is expected to announce the Veterans Assistance Servicing Purchase (VASP) program – a below market interest modification – shortly. VA is also expected to extend their COVID-19 Refund Modification through May 31, 2024.

Why it matters: Formal policy has not been announced at this stage. MBA’s understanding is that servicers participation in a foreclosure moratorium is voluntary. VA’s six-month moratorium announcement is intended to provide enough time for servicers to implement the VASP program. MBA’s understanding is that servicers will be required to implement VASP no later than March 31, 2024.

Go deeper: MBA has discussed the details of the foreclosure moratorium with the VA, highlighting the reputational risk servicers face as borrowers engage with their servicer without formal policy. MBA has also highlighted the advancing obligations for Ginnie Mae issuers and the liquidity risk for servicers without proper (and expedited) reimbursement of those costs because of a voluntary moratorium.

What’s next: MBA will communicate developments through the Loan Administration Committee.

For more information, please contact Brendan Kelleher at (202) 557-2700.

FHA Updates New Loss Mitigation Proposal

The Federal Housing Administration (FHA) released for additional comment its latest loss mitigation proposal to help struggling borrowers avoid foreclosure. The proposed Payment Supplement provides a loss mitigation solution for borrowers in a high-interest rate environment. Under the program, servicers of FHA-insured mortgages can temporarily supplement a borrower’s monthly payment for three years. Comments are due to FHA by December 12, 2023.

Why it matters: This is FHA’s second round of stakeholder comments posted to the Drafting Table – a process MBA strongly supports and greatly appreciates, particularly for complex programmatic changes. As a result of industry feedback, the Payment Supplement simplifies much of the operational complexity that existed with FHA’s initial proposal.

Go deeper: A comprehensive summary can be found here. Several highlights of the proposal include:

Servicers will be able to reduce the borrower’s payment through a one-time funding of a partial claim upfront. The original proposal required servicers to file partial claims monthly.

The Supplement Period is for a level payment term of three years. Originally, FHA included a graduated payment feature in the final year.

Servicers have nine months to implement the Mortgagee Letter from publication of the final. FHA originally proposed a 6-month implementation.

What’s next: MBA will continue to analyze FHA’s proposal and will develop a response through the Loan Administration Committee (LAC) ahead of the December 12 deadline.

For more information, please contact Brendan Kelleher at (202) 557-2700.

Illinois Regulator Removes Controversial Study from CRA Rule

Last week the Illinois Department of Financial and Professional Regulation (IDFPR) alerted MBA of its decision to remove a controversial “disparity study” from their proposed regulations for the Illinois Community Reinvestment Act (CRA). In the second notice of the proposed rules released in late September, the IDFPR added the study to determine “disparate impact” in lending in certain geographies.

The rule provided no details on how the study would be used in the CRA rating process, and MBA argued for its removal because it would allow the regulations around the CRA to be changed outside of the formal rule making process.

Why it matters: MBA applauds the change, but there are still problematic provisions such as restrictions on CRA credit for certain originate-to-sell transactions and wrongly placing liability on lenders for appraiser bias. If the rules are not approved by JCAR at its December 12 meeting, IDFPR must repropose them.

The removal of the disparity study shows the impact the industry’s advocacy can have.

MBA urges Mortgage Action Alliance (MAA) members in Illinois to respond to the Call to Action well ahead of the December 12th JCAR meeting in order to build momentum opposing these rules.

What’s next: While the study has been removed from the rule, IDFPR indicated it will work through the legislative process to conduct it. MBA and the Illinois MBA will continue to collaborate in representing the real estate finance industry.

For more information, please visit MBA’s State CRA resource page or contact William Kooper (202) 557-2727 or Liz Facemire (202) 557-2870.

Upcoming MBA Education Webinars on Critical Industry Issues

MBA Education continues to deliver timely single-family and commercial/multifamily 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:

Community Reinvestment Act: Final Regulations and What Banks Need to Know Now – November 28

Originating and Succeeding with High-Net-Worth Borrowers – November 29

Ten Things Your Company Must Do in 2024 – December 12

California’s Corporate Climate Data Accountability Act – 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 or (202) 557-2931.