In proposing changes to the Suspended Counterparty Program, the Federal Housing Finance Agency has failed to explain why drastically expanding the program is necessary and why the program’s administration is not meeting the relevant policy objectives, the American Bankers Association and two other banking associations said this week in joint comments to the agency.
The FHFA in July proposed rulemaking to expand the categories of “covered misconduct” under which a counterparty suspension could be based. In addition, the agency would be able to issue an immediate suspension order when the misconduct has resulted in debarment, suspension or limited denial of participation imposed by a federal agency. In their comments, the associations said the FHFA provides no rationale for the need for the expansion, nor does it offer any data suggesting that Fannie Mae and Freddie Mac have been in any way materially harmed by the agency’s inability to suspend counterparties for civil or administrative sanctions.
“The proposed rule completely disregards the impact of being suspended from FHFA regulated sources of funding—placement on the SCP results in the inability of the mortgage business to operate,” the associations said. “Given the extreme economic and reputational harm that counterparties could face, FHFA should not impose such disproportionate and draconian sanctions on the basis of findings of misconduct in the context of civil enforcement actions.”