ABA’s mortgage advocacy update: Dec. 11

By Rod Alba

The American Bankers Association continues its advocacy efforts on multiple issues that affect mortgage lending. Here is a rundown of important recent activities:

ABA, other trades ask FHA to rescind RCV bulletins 

American Bankers Association, Housing Policy Council, and Mortgage Bankers Association sent a letter to the Federal Housing Finance Agency (FHFA) asking that Fannie Mae and Freddie Mac (the GSEs) rescind bulletins issued in February 2024 regarding property insurance verifications.  The joint trades also asked FHFA to recall associated surveys being conducted with lenders, servicers, insurers and trade groups.

Issued in February, the bulletins set forth requirements for lenders and servicers regarding valuation and verification of property insurance. These new issuances were described as “clarifications” and set forth that lenders and servicers are required to verify that homes securing a mortgage purchased by the enterprises are insured at replacement cost value (RCV). The issuances added that actual cash value (ACV) coverage is now deemed unacceptable.

Effect on banks: The 2024 bulletins were issued without consultation or solicitation for comments from stakeholder. The provisions set forth by these bulletins will cause significant operational, legal, and consumer protection questions that the GSEs must consider. For instance, banks are often unable to obtain an actual calculated estimate of dollar costs needed to fully reconstruct a home to pre-loss condition. The policy updates also overlook insurance industry practice where it is common for policies to be settled on a Replacement Cost (RC) basis with certain sub-limits that use ACV valuations for specific elements.

This letter advises GSEs to delay the current process and fully engage with the property and casualty insurance sector. If additional information is needed, the GSEs should initiate transparent and public requests for Information that would identify safety and soundness concerns.

ABA calls for ‘whole of government’ approach to illegal calls and texts

ABA recently urged the FCC to join a “whole of government” approach to combatting fraud, including fraud perpetrated by criminals who use illegal calls and text messages. According to ABA, strengthening the Robocall Mitigation Database so that it contains fulsome and accurate filings by providers and greater functionality for those who wish to search the database is an important part of the government’s overall strategy to combat fraud perpetrated through illegal phone calls

Effect on banks. ABA has consistently urged the federal government to do more to combat calls and texts placed by criminals who impersonate banks, with the intent to defraud consumers. At ABA’s recent Annual Convention in New York City, ABA President and CEO Rob Nichols urged the government to establish a national scam and fraud prevention strategy, among other policy recommendations. 

ABA advances on multiple amici efforts affecting mortgages

ABA continues significant activities to defend bank interests in courts.  A recent action involved amicus filing in First Circuit, in the case Conti v. Citizens Bank, N.A., arguing that the National Bank Act (NBA) preempts Rhode Island’s interest requirements for mortgage escrows.  Section 1044 of the Dodd-Frank Act codified the NBA preemption standard from the Supreme Court’s decision in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), ruling the NBA preempts state law if it “prevents or significantly interferes with the exercise of a national bank’s power.”

Effect on banks: ABA’s amicus curiae efforts advance the greater interests of the banking industry by assuring that judicial decisions in banking are well-informed and consistent with good public policy. ABA’s filings aim to bolster a court’s understanding of how any particular decision will affect banks and their customers. ABA’s filings often address policies or issues beyond litigants’ arguments that may not be fully addressed by the briefs.

The following is a list of additional mortgage-related litigation where ABA has been involved:

Deadlines extended for FHA cybersecurity reports 

On Dec. 2, the Federal Housing Administration (FHA) released Mortgagee Letter 2024-23 concerning cyber incident reporting requirements for FHA-approved mortgagees to notify the Department of Housing and Urban Development (HUD) when a reportable cyber incident occurs. As requested by ABA and industry allies, FHA shifted the timeline for notifying HUD from 12 to 36 hours, effectively aligning to requirements previously promulgated by the three Federal Banking Agencies.

Effect on banks: This change announced by FHA is significant in streamlining reporting requirements for banks originating FHA mortgages. As initially drafted, the Mortgagee Letter contained unworkable “significant cybersecurity incident” definitions and offered very constrained and unworkable reporting timeframes. In light of these proposals, ABA joined the Bank Policy Institute (BPI)/BITS (the technology policy division of BPI) and the Housing Policy Council in requesting that the FHA rescind its Mortgagee Letter 2024-10, which established the incident notification requirement. Leaders from ABA and the joint trades met with officials from FHA and HUD and submitted recommended changes to the policy along with our rationale. In response, FHA issued a revised proposal and sought public input. ABA, BPI/BITS and FHA submitted a follow-up letter supporting the revised proposal. Separately, Rep. Andrew Garbarino (R-N.Y.), who chairs a subcommittee of the House Financial Services Committee, sent a letter to HUD officials in early September raising concerns about the FHA cyber incident notification requirements highlighting that they are not harmonized with other incident notification requirements and requesting that the requirements be rescinded.

Rod Alba is ABA’s SVP for real estate finance.