MBA State Relations Committee Update Federal Highlights
Advocacy News and Information from the Latest Issue of the MBA State Relations Committee Update
The Department of Housing and Urban Development (HUD) announced significant updates to the Federal Housing Administration’s (FHA) 203(k) Rehabilitation Mortgage Insurance Program. The key changes, previously advocated for by MBA – include increasing the allowable total rehabilitation costs under the Limited 203(k) program from $35,000 to $75,000, with an annual review to ensure market relevance. The rehabilitation period has also been extended to 12 months for the Standard 203(k) and nine months for the Limited 203(k). Additionally, the 203(k) Consultant Fee can now be financed in the total mortgage amount for the Limited 203(k), and allowable fees for consultants have been increased for the first time since 1995 to increase compensation and encourage more participation. In a statement to media, MBA Senior Vice President of Residential Policy Pete Mills, said, "We support FHA’s enhancements to its 203(k) program and commend them for including many of the recommendations we highlighted in our January 2024 letter, including increasing the rehabilitation disbursement cap to $75,000 on a nationwide basis for the Limited program, and extending completion timelines to better reflect current market conditions and ensure projects are completed.” Unlocking the FHA 203(k) renovation program is a key MBA priority, given its potential to address housing supply shortages by facilitating the rehabilitation of outdated and/or dilapidated housing stock that would otherwise lack marketability. MBA appreciates the partnership with FHA to achieve these meaningful changes. MBA will continue to engage with FHA on improvements to the 203(k) programs.
Federal Reserve Board Chair Jerome Powell testified before both the House Financial Services and Senate Banking Committees on the central bank’s Semiannual Monetary Policy Report to Congress. Summaries of the hearings can be found here and here. Lawmakers' questions to Powell centered on monetary policy, the Fed’s interest rate path, and the next steps for the Basel III “Endgame” proposal. There were several questions and criticisms from a bipartisan group of lawmakers in both hearings regarding the status of the proposed Basel rule, including calls for a re-proposal. Chair Powell also acknowledged the impact of sustained, elevated interest rates on housing and commercial real estate. He said the best way to achieve housing affordability was through reducing inflation. On the Basel III Endgame proposal, Chair Powell was pressed by both House and Senate lawmakers on planned changes to the proposal and the path forward. He stated several times that key officials at the Fed, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller Currency (OCC) are “very close” to agreeing on a set of changes. "It is my view, it is the strongly held view of members of the [Fed] Board, that we do need to put a revised proposal out for comment for some period," Powell said. "And the reason is, when there are broad and material changes [to a proposal], that has been our practice." Following the Senate hearing, MBA’s President and CEO, Bob Broeksmit, CMB, issued a press statement agreeing with Chair Powell’s comments that it is “essential” to re-propose the flawed Basel proposal, stating: "MBA has been very vocal in testimony before Congress, speeches, comment letters, and in ongoing conversations with regulators about how certain provisions of the proposal would harm the U.S. economy, diminish mortgage credit availability – especially for low- and moderate-income homebuyers – and have detrimental impacts to the broader single-family housing and commercial real estate finance markets.” Chair Powell said a Basel III re-proposal, along with the release of results from the Fed's Quantitative Impact Study, is imminent. Any re-proposal would then likely be followed by a new comment period, potentially pushing the implementation of a final rule into 2025.
The Consumer Financial Protection Bureau (the Bureau or CFPB) issued its highly anticipated Notice of Proposed Rulemaking that amends the mortgage default servicing provisions of Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA). The proposed rule substantially overhauls the existing loss mitigation rules to allow distressed borrowers to receive timely assistance immediately upon request, and strengthens dual-tracking protections by prohibiting servicers from advancing the foreclosure process unless permitted by a procedural safeguard. Notable changes also include expanding borrower communications and notices, including a requirement to communicate with borrowers in languages other than English. In a joint press statement with the American Bankers Association (ABA), MBA stated, "We have long advocated for modernizing the loss mitigation framework under Regulation X and appreciate the Bureau’s efforts to simplify and streamline the process. Servicers have helped more than 8 million families stay in their homes since the beginning of the COVID-19 pandemic while adapting to new and rapidly changing loss mitigation programs implemented by government agencies. The Bureau’s proposal represents a substantial overhaul of the current framework, and we hope they will take into careful consideration the recommendations and feedback from our members who are serving millions of borrowers every day.” MBA will continue to analyze the extensive changes in the proposal and will share a summary ahead of the first kick-off meeting between The Loan Administration and Legal Issues and Regulatory Compliance Committees on Monday, July 15. Comments are due September 9, 2024.
The Senate Banking Committee considered the nomination of the Honorable Christy Goldsmith Romero (currently a Commissioner at the Commodity Futures Trading Commission) to be Chair and Member of the Board of Directors of the Federal Deposit Insurance Corporation (FDIC). Committee Chair Sherrod Brown (D-OH) praised Romero as a highly qualified and dedicated public servant who has previously been unanimously confirmed by the Senate. Ranking Member Tim Scott (R-SC) agreed Romero has a long record of public service but “lacks the banking regulatory experience necessary to carry out the critical responsibilities of the FDIC.” Senator Mark Warner (D-VA), one of Romero’s home state Senators, said she has “dedicated much of her career to protecting consumers and investors.” A full summary of the hearing is here. In the wake of the allegations concerning sexual harassment and interpersonal misconduct at the FDIC, there have been bipartisan calls for new leadership. If confirmed, Romero would replace current Chair Martin Gruenberg. The pending Basel III “Endgame” rule would then be among her first responsibilities at the FDIC. Romero indicated her openness to a re-proposal of the current Basel rule, echoing comments made earlier this week by Fed Chair Jerome Powell. A full Senate confirmation vote on the Romero nomination is expected in the near future.
Treasury Secretary Janet Yellen testified before the House Financial Services Committee in a hearing titled, "The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System." View a recording of the hearing here and a written summary here. Topics of discussion at the hearing included (1) sanctions on Russia and Iran; (2) economic competition with China; (3) the Basel III “Endgame” proposal; (4) the impacts of climate change on insurance markets; and (5) U.S. participation/investment in international financial institutions. Additionally, Republicans on the committee focused much of their questioning on the ongoing implementation of the Beneficial Ownership Information reporting requirement, expressing fears of the broad application of penalties on businesses that fail to meet the reporting deadline. Several committee Democrats agreed with their counterparts and suggested that the Treasury Department needs to conduct a more vigorous and prominent outreach and education campaign. MBA will continue monitoring ongoing legislative and regulatory requests made by the Treasury Department (and other key regulators).
The full House Appropriations Committee met to consider the Fiscal Year (FY) 2025 Transportation, Housing and Urban Development (T-HUD) Appropriations Act. The overall measure, which is roughly $7 billion (7.3%) below the FY 2024 enacted level, was approved by the panel by a party-line vote of 31-26. MBA supported HUD’s recommended funding levels for FHA’s and Ginnie Mae’s administrative expense accounts. More specifically, HUD recommended $155 million in funding for FHA’s program account; House appropriators came in under that recommendation at $150 million. HUD asked that Ginnie Mae salaries and expenses be funded at $67 million; the House committee allocated $54 million within its approved bill. Senate appropriators are expected to attempt to raise those levels above what the House panel approved this week. The full House T-HUD bill text is here. The House committee report and instructions that accompany the bill is here. Earlier this year, MBA submitted its funding request for FY 2025 to appropriators (and recently sent an additional letter regarding Ginnie Mae funding levels). The legislation is scheduled to advance to the full House floor later this summer. The Senate is expected to begin consideration of its parallel iteration of a T-HUD “mark” prior to the August congressional recess. MBA will continue to engage with lawmakers on the key federal funding priorities (both single-family and multifamily) as the appropriations process progresses.
The Seventh Circuit Court of Appeals issued their decision in CFPB v. Townstone Financial Inc. and Barry Sturner, reversing a District Court ruling which had held that the Equal Credit Opportunity Act (ECOA) does not extend to prospective applicants under a plain language reading of the statute. In this surprising ruling, the CFPB won the argument that ECOA covers prospective applicants. The Court held in a short opinion cast as a straightforward case of statutory interpretation that "An analysis of the text of the ECOA as a whole makes clear that the text prohibits not only outright discrimination against applicants for credit, but also the discouragement of prospective applicants for credit." The court did not reach the conclusion that Townstone discriminated against any prospective applicants and remanded that back to the District Court for determination, along with Townstone's First Amendment claims. The Court’s decision did not engage much with many of the arguments that Townstone raised or in MBA’s amicus brief, which argued: ECOA's plain language limited to “applicants” should control, but if the Court finds that the anti-discouragement provision is in fact valid, there should be two limiting principals. First, the Bureau should be required to prove that a lender affirmatively discouraged an applicant on a prohibited basis. Secondly, the Bureau should be required to prove that a discouraging statement caused identifiable applicants to be discouraged from applying. Townstone has the option to appeal to the entire Seventh Circuit or Supreme Court if they wish. MBA will monitor and provide any relevant updates.
FHA posted proposed updates to Appendix 8.0 – FHA Defect Taxonomy on its Single-Family Housing Drafting Table for comment. These updates implement a defect taxonomy for servicing loan reviews, a longstanding priority for the Agency. FHA's press release can be found here. The Taxonomy is FHA's method of identifying servicing defects at the loan-level. It intends to provide clarity and transparency into existing FHA quality assurance processes and is used to describe findings through the Loan Review System (LRS) based on HUD policy requirements. FHA is expected to utilize the Servicing Defect Taxonomy to conduct reviews of servicers implementation of their COVID-19 loss mitigation programs. At first review, FHA’s new Servicing Defect Taxonomy appears to improve upon the Agency’s original proposal in 2021. Previously, industry stakeholders expressed concern with the lack of certainty and predictability for servicers to anticipate how FHA would apply their new framework. Now, FHA’s proposal has provided specific examples of defect and clearer, proportionate remedies to the potential harm. FHA’s proposal is extensive, and MBA will continue to review and will share a short summary with members. MBA will submit organized comments through the Loan Administration Committee by the August 26, 2024 deadline.
The Biden administration published the Spring 2024 Unified Agenda of Regulatory and Deregulatory Actions, outlining the regulatory actions federal administrative agencies plan to issue over the next six months. The rules and proposals published by federal agencies can have significant impacts on lenders and borrowers. Topics of interest to members include:
- HUD Advanced Notice of Proposed Rulemaking on Accessibility (September 2024)
- HUD/FHA Proposed Rule on Single Family Mortgage Insurance Updates to Claims Procedures, Curtailment of Interest; and Disallowance of Certain Expenses Incurred Beyond Established Timeframes, and Claim Filing Deadlines (December 2024)
- HUD Proposed Rule on Promoting Climate Resilience, Advancing Equity, and Streamlining Environmental Reviews (December 2024)
- HUD/FHA Proposed Rule on Federal Housing Administration (FHA): Single-Family Loan Sale Program (August 2024)
- FHFA Proposed Rule on Enterprise Housing Goals (July 2024)
- FHFA Proposed Rule on Enterprise Return on Capital Requirements for Single-family Mortgage Acquisitions (July 2024)
- Six FHFA Proposed Rules on the Federal Home Loan Banks, including Federal Home Loan Banks Core Mission Activities; and Members of the Federal Home Loan Banks (September 2024)
- Banking Agencies’ Final Rule on Basel III Bank Capital Requirements (September 2024) (unlikely - see aforementioned blurb above)
- CFPB’s inclusion of “pre-rule” activity on mortgage closing costs
The dates listed above are their expected published dates, but federal agencies regularly miss these targets. MBA will work with members to monitor and respond to proposals put forth by government agencies that impact residential, multifamily and commercial lending activities.