MBA Advocacy Update Sept. 25: FDIC Chairman Gruenberg Calls for Enhanced Prudential Standards and Increased Nonbank Reporting in Speech 

1. FDIC Chairman Gruenberg Calls for Enhanced Prudential Standards and Increased Nonbank Reporting in Speech 

In a speech on Wednesday at the Exchequer Club in Washington, D.C., Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg said that the Financial Stability Oversight Council (FSOC) should consider enhanced prudential standards and reporting requirements for some money market and mutual funds, hedge funds, and nonbank lenders. He specifically noted the increasing shift of mortgage servicing out of the banking sector and into nonbank mortgage servicing companies and said that “it is important that the FSOC has renewed its efforts to review the risks in these sectors and to consider whether our current regulatory authority is sufficient to address them.” Chairman Gruenberg was also dismissive of the stark criticism from the financial services industry – including early and often from MBA – that the federal banking agencies’ proposed changes to bank capital requirements would cause more activities, including mortgage lending and servicing, to migrate to nonbanks, stating that “the obvious response to that is there should be appropriately strong capital requirements for those activities in the banks, complemented by greater transparency, stronger oversight and appropriate prudential requirements for nonbanks.”

• Why it matters: During the audience Q&A portion of the event, MBA President and CEO Bob Broeksmit, CMB, pushed back on Chairman Gruenberg’s assertion that nonbanks need more regulation and stressed that the threat of additional and unnecessary regulation and costs for IMBs, along with the crippling proposed capital charges for banks, will lead to fewer choices and higher prices for consumers. Broeksmit also pointed out that previous changes to capital requirements were a direct cause of banks’ diminished participation in the mortgage servicing market, and that simply imposing those same standards on nonbanks, as Chairman Gruenberg suggested, is certainly not the answer.
• What’s next: MBA will continue to engage with the White House, Treasury Department, FSOC agencies and staff, and Congress, repeating the serious concerns with the unwarranted efforts to target nonbank financial companies – including nonbank mortgage servicers – and subject them to enhanced, prudential oversight. Additionally, comments on the banking agencies’ proposed changes to bank capital requirements are due by Nov. 30. MBA is working with members and other industry stakeholders to formulate its 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, Fran Mordi at (202) 557-2860 or Matt Jones at (202) 557-2933.

2. MBA Outlines Concerns with Proposed Interagency Guidance on ROVs  

On Tuesday, MBA submitted comments on the proposed interagency guidance on Reconsiderations of Value (ROVs). MBA supports a principles-based approach to guidance that lending institutions have clear, robust, and efficient policies and procedures for ROVs. MBA does not, however, see ROVs as the best tool for addressing allegations of discrimination in the appraisal process and/or the influence of racial bias on the resulting valuation. 

• Why it matters: ROVs are an important tool in addressing methodological and informational errors in the appraisal report. The Property Appraisal Valuation Equity (PAVE) interagency taskforce, established by the Biden Administration in 2021, identified ROVs as a useful process for preventing mis-valuations. MBA and other trade and consumer groups agreed that broad guidance on executing ROVs from federal regulators, investors, insurers, and guarantors would help ensure a uniform borrower experience. While MBA supports the process-oriented components of the interagency guidance, the letter outlined concerns with the legal analysis provided for, and general characterization of, fair lending review requirements for lenders over completed appraisals.
• What’s next: The Agencies will review feedback and publish a final version in the near future. MBA will continue to advocate for uniformity in ROV guidance between investors, insurers, and guarantors, and for its legal position on fair lending review requirements as presented in the amicus brief MBA filed in the Connelly case in Maryland.

For more information, please contact Hanna Pitz at (202) 557-2796.

3. MBA, Trades Oppose FHFA’s Suspended Counterparty Program Proposal

On Monday, MBA, the American Bankers Association (ABA), and Independent Community Bankers of America (ICBA) sent a joint letter to the Federal Housing Finance Agency (FHFA) raising strong objections to its proposal to amend the existing Suspended Counterparty Program (SCP). While the industry recognizes the importance of rules that ensure the safety and soundness of Fannie Mae and Freddie Mac (the GSEs), the proposal offers no rationale for its adoption, despite the draconian consequences that could fall on businesses caught up in an expanded SCP. The current SCP allows FHFA and the GSEs to cease doing business with counterparties that have engaged in certain criminal misconduct. The proposed rule would expand that authority to cover certain civil violations and administrative actions by state regulators (e.g., related to fraud, misrepresentation, false statements). FHFA provides no explanation for the need for the expansion, nor does it offer any data suggesting that the GSEs have been materially harmed by FHFA’s inability to suspend counterparties for civil or administrative misconduct. Seventy-four state and local associations also signed on to a separate letter that echoed the same concerns with FHFA’s SCP proposal. 

• Why it matters: MBA has significant issues with FHFA’s proposal because it gives them unlimited discretion to suspend counterparties for potentially minor civil or administrative sanctions. It is evident that FHFA has not contemplated the potential harm on the housing finance market and the impact of a suspension. Given the extreme economic and reputational harm that suspended counterparties could face, FHFA should not impose such disproportionate and severe sanctions for the administrative and civil misconduct described in the proposal.
• What’s next: MBA will provide any relevant updates on FHFA’s SCP proposal.

For more information, please contact Justin Wiseman at (202) 557-2858 or Alisha Sears at (202) 557-2930.  

4. CFPB Issues Guidance Regarding Credit Denials by Lenders Using Artificial Intelligence

On Tuesday, the Consumer Financial Protection Bureau (the Bureau) released guidance (CFPB Circular 2023-03) concerning legal obligations for lenders using artificial intelligence and other complex models in credit decisions. Lenders that use the tools may not rely exclusively on the checklist of reasons provided in the Bureau’s sample adverse action notice form if none of the sample reasons accurately or specifically identify the reasons for the adverse action. The Equal Credit Opportunity Act (ECOA) and Regulation B require that a creditor must provide the applicant with a specific reason when taking adverse action. The guidance says that if the precise reason for an adverse action is not accurately reflected in the checklist on the model CFPB form, creditors must provide detailed information and disclose the reason by either modifying the form or by checking “other” and including an accurate explanation for the adverse action. Creditors cannot simply select the closest or most similar reason on the model CFPB form. 

• Why it matters: This guidance follows CFPB Circular 2022-03, which was issued last year and explains that the reasons provided in the model adverse action notices are not exhaustive and do not automatically cover a creditor’s legal requirements.
• What’s next: MBA will analyze how this impacts the current technology used by the industry and will provide relevant updates in this area. The Bureau has stated that it has made the intersection of fair lending and technology a priority.

For more information, please contact Justin Wiseman at (202) 557-2858 or Alisha Sears at (202) 557-2930.  

5. Senate Banking Committee Holds Hearing on Artificial Intelligence and Financial Services

On Wednesday, the Senate Banking Committee held a hearing titled, “Artificial Intelligence in Financial Services.” A summary of the hearing can be found here.

• Why it matters: While there was broad bipartisan agreement that artificial intelligence offers benefits, Senators repeatedly mentioned mortgage lending as an area of financial risk and potential bias.
• What’s next: The Senate will continue holding bipartisan briefings on artificial intelligence as it considers how to regulate the emerging use of the technology.

For more information, please contact Ethan Saxon at (202) 557-2913 or George Rogers at (202) 557-2797.

6. California Insurance Commissioner Addresses Crisis, CMBA Endorses Plan

Yesterday, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at improving insurance choices and protecting Californians from increasing climate threats while addressing the long-term sustainability of the nation’s largest insurance market. This announcement comes after Governor Newsom released executive orders aimed at making progress on the insurance crisis. Important to all real estate, the executive action directs the FAIR Plan to transition homeowners and businesses off the state FAIR plan and back to the normal insurance market with commitments from insurance companies. This commitment includes a required 85% statewide market share to disaster areas and increased focus on wildfire mitigation at the state, local, and parcel levels. California Mortgage Bankers Association CEO Susan Milazzo, a key partner in finding a state solution, said, “The California insurance crisis is creating barriers on the path to homeownership. MBA supports Commissioner Lara’s efforts to expand insurance availability for consumers and business owners across our state. It is critical to implement solutions to restore insurance options for property owners in California.”

• Why it matters: Insurance premiums have risen for 20 straight quarters due to increased risk from natural disasters. Finding adequate insurance coverage in coastal states is increasingly difficult and has affected transactions. MBA’s state and local chapters play a critical role in our advocacy efforts. As MBA continues to raise awareness of the issue at the federal level, it will continue to partner with state and local chapters to find solutions.
• What’s next: MBA will analyze the executive actions fully through its Insurance Risk Management Task Force and communicate the implications of the California executive actions to members. MBA will also continue to advocate through its network of state and local chapters for similar actions in states such as Florida, Texas, and Louisiana.

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

7. Federal Reserve Maintains Federal Funds Rate 

The Federal Reserve in its ongoing efforts to slow inflation decided to hold the federal funds rate to a target range of 5.25-5.50% on Wednesday.

• Why it matters: 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 take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.”
• MBA’s SVP and Chief Economist Mike Fratantoni noted, “As expected, the Federal Reserve did not change its federal funds rate target at the September meeting. However, the FOMC members’ projections signal that they believe they are not yet done in their fight to bring inflation down. The majority of FOMC members still expect another hike this year, even though core inflation has slowed. And many FOMC members now expect that the pace of cuts in 2024 will be somewhat slower than they had thought in June. We expect that inflation will continue to drop closer to the Fed’s target, the job market will continue to slow, and that mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts–not further increases. This should provide some relief in terms of better affordability for potential homebuyers.”

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

8. California MAA Members Urge Governor Newsom to Veto New Emissions Disclosure Legislation

MBA Mortgage Action Alliance (MAA) members in California last week began taking action to urge Governor Gavin Newsom to veto  Senate Bill 253, the Corporate Climate Data Accountability Act. This bill is rife with flaws and attempts to go beyond a proposal by the Securities and Exchange Commission (SEC) in mandating the disclosure of Scope 3 emissions – i.e. emissions from a company’s supply chain – which are outside the control of mortgage industry firms. Because the emission sources within the supply chain are already required to disclose the exact same datapoints under the bill’s provisions for Scope 1 and 2, the Scope 3 disclosures are duplicative – adding costs to the process of data collection for no apparent benefit. Moreover, collection of Scope 3 emissions information will have little to no value in providing useful information about a mortgage lender’s climate-related risk. By increasing the cost of compliance, this bill will ultimately increase the cost of lending in a state already struggling with an affordability crisis. 

• Why it matters: SB 253 is being rushed to the Governor’s desk ahead of a more prudent national debate about emissions disclosure, and if enacted is certain to be emulated in other states.
• What’s next: MBA and the California MBA will continue to urge their members in the state to take action and work with industry partners to oppose the bill.

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

9. [VIDEO]: On Leading with Kindness with Mortgage Connect’s Cristy Ward

In the mPower Moments episode, mPower Moments Founder Marcia M. Davies sits down with Cristy Ward, Executive Vice President and Chief Strategy Officer at Mortgage Connect. During this insightful interview, Ward discusses her career journey and her experience in working in all facets of the industry. Ward also emphasizes how being authentic in her career has helped her build confidence and become a thoughtful and effective leader. She also discusses her leadership conference, Women Empowering Women, which helps women executives network, identify new opportunities within the industry, and follow their dreams of entrepreneurship.

• What’s next: To watch more mPower Moments, click here.

For more information, please contact Marcia Davies at (202) 557-2707.

10. Get Involved – MBA Advocacy Month Carries on Through the End of September 

Join MBA’s Legislative and Political Affairs (LPA) team for the remainder of 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: Through the end of next week, MBA will continue to work with members to engage with their employees and help run impactful Mortgage Action Alliance (MAA) and MORPAC campaigns. MBA staff has been hosting (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 before the end of the month, visit mba.org/advocacymonth.

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

11. 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:

• MCPI/Zone of Opportunity: Understanding the Demand Side of Mortgage Origination – Sept. 26
• An Overview of Regulatory Capital Requirements Proposed Revisions – Sept. 27
• From Policy to Practice – Fannie and Freddie’s New Radon Sampling Requirements – Oct. 5
• Using Data Analysis as Part of a Strong Fair Lending Compliance Program – Oct. 24

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.