By Rod Alba
ABA has been active over the last month on issues important to banks in the mortgage space. The following is a rundown of the main topics ABA’s advocacy team has been working on.
FHFA revises counterparty proposal
On Sept. 25, the Federal Housing Finance Agency issued a revised a proposal to amend the Suspended Counterparty Program regulation, kicking off a second round of public comment and review. According to FHFA, the revised proposal comes after considering issues that commenters had raised about the original proposed rule, issued in July 2023. ABA and allied trade industry groups filed strong comments of concern with the agency, and the associations encouraged that the agency’s response is to begin the process of improving the proposed rule.
Effect on banks: The SCP proposed regulation raised concerns for banks as it would have punished counterparties for potentially minor civil or administrative sanctions. The proposal raised due process concerns by allowing FHFA to immediately suspend businesses without prior notice where the alleged misconduct was based on administration sanctions. Such sanctions often lack adequate protections or proper evidentiary standards and often involve underlying claims that lack seriousness or injury. The trade groups pointed out that companies sometimes settle claims with regulators without admission of liability to avoid costs or conflict with their respective regulators. This often expedites consumer relief. Given the extreme economic and reputational harm that banks could face, ABA pushed FHFA to refrain from imposing disproportionate and draconian sanctions on the loose basis proposed in the rule.
Cyber incident reporting harmonization
The Federal Housing Administration (FHA) posted a draft mortgagee letter, Revised Cyber Incident Reporting Requirements, that updates requirements for when FHA-approved mortgagees must notify the Department of Housing and Urban Development of a reportable cyber incident. The updates, which are subject to public comments, would clarify the definition of what constitutes a cyber incident and harmonize FHA with existing standards established by the federal banking agencies. These improvements align with ABA’s advocacy activities in this area, where ABA is in active discussions with policymakers and industry allies regarding ways to achieve greater harmonization in incident reporting requirements across all federal agencies.
Effect on banks: As recently reported by the Department of Homeland Security, there are currently 45 different federal cyber incident reporting requirements in place across 22 federal agencies. The inconsistency in reporting thresholds and timelines extends to programs administered by HUD, FHA and Ginnie Mae. The updates just proposed by HUD represent key victories in harmonization by extending timeline for reporting a “reportable cyber incident,” and making the proposal consistent with the federal banking agencies’ 36-hour reporting deadline. ABA will submit comments on this matter and will be remain in active communication with stakeholders to rein in burdensome cyber reporting mandates.
Basel III rule
On Sept. 10, Governor Michael Barr, vice chair for supervision at the Federal Reserve, discussed coming changes to the Basel III endgame proposal for banks with assets greater than $100 billion and the capital surcharge for global systemically important banks. He said new capital rules for banks would be re-proposed, and the proposal no longer will apply to banks with assets between $100 billion and $250 billion, except for requirements to recognize unrealized gains and losses of their securities in regulatory capital. The proposal will also significantly improve treatment of mortgages with loan-to-values up to 90%, which should benefit low- and moderate-income Americans and first-time homebuyers. Barr announced that the new proposal would eliminate the “gold plating” of capital requirements on mortgages, reducing the current treatment of mortgages with loan-to-values of higher than 90% and leaving the treatment of mortgages with LTVs between 90 and 100 unchanged. The announcement follows strong ABA opposition to the proposed rule and broad criticisms by large swaths of the banking industry. ABA filed lengthy comments with a coalition opposed to the rule, especially the capital increase for loans with home mortgage down payments below 20%.
Effect on banks: ABA had predicted that the endgame proposal would increase costs of mortgage loans for consumers and greatly amplify operational capital requirements for banks’ mortgage operations. ABA applauded Barr’s announcement to re-proposing the Basel capital rules, with ABA President and CEO Rob Nichols saying, “a do-over was absolutely necessary.” Nichols added, “We will carefully review this new proposal with our members, recognizing that America’s banks are already well-capitalized and, as Vice Chair Barr acknowledged … any increase in capital requirements will still carry a cost for the economy and must be appropriately tailored.”
Ban on “trigger leads” added to the Senate’s FY2025 NDAA
A bill that restricts the use of trigger leads — The Homebuyers Privacy Protection Act of 2024 — has been incorporated into the manager’s amendment to the Senate National Defense Authorization Act for fiscal year 2025. While this means the Homebuyers Privacy Protection Act will very likely pass the Senate, the bill must still pass the House as well. The bill, (Senate Amendment 2358), advanced by Senate Armed Services Committee Chairman Jack Reed (D-R.I.) and Ranking Member Roger Wicker (R-Miss.), seeks to limit the distribution and use of trigger leads sold by national credit reporting agencies to mortgage credit companies, unless the customer consents, or has an existing relationship with the lender. Per legislative procedure, the full Senate will consider the NDAA and finalize a version of this “must-pass” bill. The NDAA will then have to be reconciled with the House bill, which is where the trigger leads legislation could be stripped from larger bill. A final NDAA vote by House and Senate are likely only after the elections.
Effect on banks: For several months, ABA has worked with industry allies to build bipartisan agreement in Congress for legislation that curbs the use of trigger leads. The incorporation of Senate Amendment 2358 into the NDAA is a crucial step to advance these needed controls and protect consumers against confusing and often abusive waves of phone calls, texts, emails or direct mail solicitations when homeowners apply for mortgages.
ABA-alliance letter to FHFA on FHLB standards
On Sept. 30, ABA and the joint state bankers associations sent a letter to FHFA, raising concerns about the agency’s efforts relating to the Federal Home Loan Banks’ credit standards. The letter addressed recent and expected actions by FHFA that ABA and state association believe are limiting banks’ ability to borrow from the FHLBs, questions the FHFA’s purpose for such actions, requests greater transparency around their efforts, and requests greater industry involvement and input.
Effect on banks: The Federal Home Loan Bank of New York has issued significant updates to its credit risk management framework to aligning the framework with recommendations contained in FHFA’s recently issued FHLBank System at 100: Focusing on the Future Report. These updates, which became effective in August, introduced a more rigorous credit risk rating framework for assessing the financial health of each member institution on a quarterly basis. There is concern that similar changes may soon be required of all eleven Federal Home Loan Banks.
Rod Alba is ABA’s SVP for real estate finance.
