Posts tagged ‘FHFA’

Four Things You Need To Know To Start Your Credit Union Day

For the first time in a while, I am overflowing with news you need to know to start your credit union day. As long time readers know, what follows is a series of quick hits, any one of which would be worthy of its own blog on a quieter day.

Treasury Pushes For Expanded Reporting Responsibilities

Anyone who thought we were out of the woods after the House Ways and Means Committee approved a plan to pay for a $3.5 trillion spending package that did not include increased reporting requirements for banks and credit unions is mistaken. Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig have written letters urging Congress to include the proposal in the final budget package.

With the caveat that there has been no language officially proposed, the idea under consideration would mandate that financial institutions report gross report flows of income in and out of accounts that exceed $600.

Clearly this would impose an onerous new mandate on credit unions and alienate more than a few members. Stay tuned for more information from the Association.

How Was Your Examination Service?

The NCUA announced yesterday that federal credit unions will be asked to submit a post examination survey that will be administered by the NCUAs Ombudsman’s office as part of a pilot program.

If you have fantasies about using the survey to vent after a rough examination, you will be disappointed. The letter explains that “examination disagreements or reports of waste, fraud, or abuse should not be reported through the survey response.” At the risk of being branded a heretic, the industry spends way too much time obsessing over the examination process.  After all, disagreements are inevitable and it’s actually a sign the system is working.

FHFA Makes It Easier To Finance Investment Property

The Federal Housing Finance Administration and Treasury announced that they were suspending certain agreements entered into this past January which placed caps on the number of investment property mortgages that Fannie Mae and Freddie Mac could purchase. This is the latest in a series of moves by the new leadership at the FHFA to use the GSEs to more aggressively provide aid for homebuyers.

Acting Director Thomson discussed the changes at NAFCUs Congressional Caucus. In a closely related development, the FHFA is also proposing changes to the capital requirements for the GSEs.

Let The Redistricting Games Begin

Yesterday marked the first formal step in the once-a-decade political blood sport that is redistricting. By the time the process is complete, the Legislature will have approved new Congressional and Legislative Districts that will shape the direction of politics and policy for decades to come. This morning’s Times Union is reporting that the bipartisan commission designed to propose the initial redistricting plan has instead proposed two separate plans. One supported by Republicans, the other by Democrats. It boldly predicted that a partisan stalemate looms in New York redistricting, which is tantamount to Claude Rains’ character Captain Renault claiming to be shocked that gambling is taking place in a casino. 

September 16, 2021 at 10:14 am Leave a comment

Can Big Data Increase Home Ownership?

Good Morning, folks. The summer slumber is over and in case you missed it, the regulatory development that most intrigues me is Fannie Mae’s announcement that in a little more than a week from now it will start using a mortgage applicants’ history of consistently making rent payments to qualify first time home buyers for a mortgage.

Under the guidelines announced by the GSE on August 30th, borrowers must be able to document their rent payment history for the last 12 months. Acceptable documentation includes cancelled checks, bank statements, copies of money orders or other reasonable methods to document the timely payment of rent.

So why does this announcement intrigue me so much? One of the key emerging issues percolating in the Fintech/ banking industry is the extent to which the increasing availability of non-traditional data can and should be used to qualify lenders. A second key issue is what role the conserved GSE’s should play in the housing market?  This announcement has implications for both of these issues.

In announcing the use of the new criteria, Hugh Frater, Fannie Mae’s CEO, opined that this step would help address housing inequalities by making more African Americans eligible for home ownership. According to Frater approximately 20% of the US population has little or no credit history and the use of rent payment history is a safe and sound way of helping to address this issue. After all, as I have been told by many credit union underwriters, there are often members who are good lending risks even though their credit scores would indicate otherwise.

It remains to be seen just how positive an impact this expanded use of data will have. For example, should a member’s non-payment of rent be counted against her?

Furthermore, anytime new data is used to qualify borrowers there are of course new challenges to the application of fair lending laws. I hope that Fannie Mae keeps us updated on the impact that this change is having on the housing market.

September 7, 2021 at 9:23 am Leave a comment

Everything You Need to Know about Foreclosures but have been Too Afraid to Ask

The only thing more confusing than the latest government pronouncements about the proper response to the pandemic has been trying to figure out the status of foreclosures in New York State. There has been a multitude of guidance ranging from emergency regulations to pronouncements by the Department of Financial Services on the state level to federal legislation and industry letters from the GSEs on the federal level. These competing orders each have their own end dates and nuances, creating the perfect storm for compliance departments trying to do the right thing. Fortunately, there are signs that the confusion is beginning to come to an end as the courts step in and clarify the scope of all these competing requirements. 

Against this backdrop, the case that I think you all should read this morning is Money Source, Inc. v. Mevs, in which Judge Thomas Whelan wrote an extensive analysis describing the state of foreclosure law in New York. Although a court decision in Suffolk county does not bind the rest of the state, it can be used as persuasive authority for those of you still trying to figure out how to deal with foreclosures during the pandemic. Before I get into the weeds, the Judge succinctly summarizes the state of New York’s foreclosure laws as follows: 

“(1) that the moratorium of the CARES Act has expired; (2) the Governor’s most current EO, that is, 202.48, only precludes enforcement of commercial foreclosure proceedings; and (3) the most recent and controlling AO from the CAJ, that is, AO/131/20 (as amended), only remains in effect for such time “as state and federal [*8]emergency measures addressing the COVID-19 pandemic amend or suspend statutory provisions governing foreclosure proceedings…” There is no longer any state prohibition on pre-COVID-19 residential foreclosure proceedings and the new state legislation, detailed above, is addressed to initiation of new proceedings.”

The first source of confusion were the Governor’s executive orders. To be clear, much of this confusion was unavoidable since executive orders must be renewed every 30 days, and must be amended to reflect changes in law. Originally, EO 202.14 prohibited residential foreclosure actions stipulating that there should be “no initiation of a proceeding or enforcement of a foreclosure action.” Yours truly has always read this order conservatively. Specifically, since the order applied not only to foreclosure actions, but to proceedings “leading to foreclosures,” it is my opinion that the order not only prevented foreclosures, but the sending of pre-foreclosure notices mandated by Section 1304 of New York’s Real Property and Proceedings Law. 

Fortunately, this is no longer a valid concern. On June 7th, the Governor issued EO 202.48, which recognized that the executive orders were now superseded by the creation of Section 9-x of the Banking Law. This law applies to individuals in need of residential mortgage forbearances beginning in March 2020 and will be in existence on a county by county basis until there are no restrictions on non-essential gatherings of any size in the county in which the residence is located. According to the court, “there is little doubt that the new statute is designed to address mortgages affected by the COVID-19 pandemic, and should not apply to borrowers who defaulted before March 7, 2020.” Remember, where the law does apply, lenders seeking to go forward with foreclosures must demonstrate that they have complied with 9-x. 

Section 9-x does not apply to federally-backed mortgages. In other words, if you are servicing a mortgage loan and holding it in your portfolio, 9-x applies, but if you are simply servicing a loan that has been sold off to the GSEs, federal standards apply. 

This seems clear enough at first. After all, the CARES Act only provided a moratorium on foreclosures through May 15, 2020. The GSEs, however, are technically private companies that can set their own standards. I say technically because they are also bankrupt and are overseen by the Congressionally created Federal Housing Finance Agency. The FHFA recently announced they would not foreclose on property until at least December 31, 2020.

September 29, 2020 at 9:39 am Leave a comment

FHFA Pushes Back Refinance Fee

In one of the most swift and effective lobbying efforts yours truly has seen, the Federal Housing Finance Agency (FHFA) announced it would delay imposition of a 50 basis point mortgage refinance fee on loans sold to Fannie Mae or Freddie Mac until December 1, 2020.

As I explained in a recent blog, FHFA announced on August 12th that Fannie and Freddie would begin imposing the fee on loans sold to the GSEs starting in September.  Since most loans are locked 45 to 60 days in advance of such sales, this meant that mortgage lenders, including credit unions, would have to pay the fee out of their own pocket.  The industry responded quickly and forcefully to this de-facto tax on mortgage lending.

When the fee does take effect in December it is anticipated that it will result in increasing the cost of refinancing by an average of $1,400.

The fact that the FHFA feels that the fee is necessary is the clearest sign yet that the future is far from bright for mortgage lenders who must begin absorbing the cost of forbearances and delinquencies.

 

August 26, 2020 at 8:34 am 1 comment

Refinancing is About to Become a lot Less Profitable

The mortgage industry has been in an uproar since Fannie Mae and Freddie Mac announced on August 12th that they would be imposing a 50 basis point fee on most refinanced mortgages sold to them starting September 1, 2020.  It’s not just what they did, but how they did it that has mortgage lenders so annoyed.

Crucially, this new fee will apply to mortgages with settlement dates on or after September 1, 2020.  Since most mortgage loans are locked in between 45 and 60 days prior to closing, mortgage lenders will not be able to pass the increased costs for refinancing onto borrowers.  The American Banker estimates that this will cost the mortgage industry hundreds of millions of dollars over the next two months.

Refinances have skyrocketed.  Thanks to almost non-existent interest rates there have been over 1.5 million refinances in the second quarter of 2020.  The Federal Housing Finance Agency (FHFA) could have directed the ostensibly bankrupt quasi-governmental behemoths it oversees not to impose this sharp increase on loan applications but it chose not to.

In a combined letter released Thursday, the top executives at the GSEs responded.  They said that

“Contrary to much of the criticism we have received since making this announcement, this will generally not cause mortgage payments to ‘go up’.  The fee applies only to refinancing borrowers, who almost always use a refinancing to lower their monthly rate”

This misses the point.  It doesn’t address why mortgage refinances should be made more expensive or why lenders are not being given time to adjust to these increased costs.

As I mentioned, the GSEs are currently overseen by the FHFA, an agency created in the aftermath of the mortgage meltdown to oversee Fannie and Freddie.  Like the CFPB, the agency has a single director.  Next year the Supreme Court will be hearing a case challenging its constitutionality.  Government decisions like these shouldn’t sanctioned by a single unelected individual.

August 24, 2020 at 9:26 am Leave a comment

FICO Adds Consideration of Account Activity To The Credit Scoring Mix

Greetings credit union people, with a special shout-out to the attendees of the Volunteer’s Conference.

What has caught my eye this morning is this article from the Wall Street Journal reporting that Fair Isaacs is rolling out a significant addition to its FICO credit score system. It’s the latest example of how big data analytics has the potential to remake traditional lending model as statisticians get a better feel for how non-traditional consumer attributes can be used to predict whether someone is a good or bad credit risk.

Starting next year, the company will start offering the “UltraFICO Score.” According to the Wall Street Journal, the Pentagon Credit Union is going to be the first users of this new framework. With a consumer’s consent, FICO will now consider a consumer’s checking and savings account transaction history as part of the process of generating a person’s credit score. According to the company, the product will be used as an option for consumers who do not have a sufficient credit history to be “score-able” or who want to recalibrate their existing credit score if they are near credit score cutoffs.

Why is this a big deal? Because the traditional FICO scoring system realizes on credit lines such as car loans and credit card payments. This system is great for people with credit cards and loans but what about the growing number of consumers who don’t enter the traditional banking system or who simply don’t have a history extensive enough to demonstrate their credit worthiness even though they have responsibly utilized their checking accounts?

To glass half-full Henry. This is perhaps the highest profile example of how data analytics is going to expand the scope of lending criteria. In a best case scenario, this information will make it easier for more people to get loans and build up their credit scores.

But alas, I am a glass half-full kind of guy. As I like to say, I’m paid to be paranoid. As I’ve explained in previous blogs even though data analytics has tremendous potential benefits for the non-traditional borrower, data analytics is out-pacing the traditional legal framework used to ensure fair lending. We are getting close to the day when so many data points are used to build lending profiles that will become virtually impossible to determine for example, what data points in a lending algorithm have the effect of discriminating against an individual and even more difficult to figure out whether less discriminatory factors could be used instead. Don’t get me wrong, I’m not saying we shouldn’t go forward with new lending models. I’m just saying we shouldn’t assume that the increasing use of non-traditional data is an unabashed good for all consumers.

Is the Fair Housing Finance Administration Asleep at the Switch?

According to this interesting article in the CU Times, the Office of Inspector General has released a report highly critical of the Federal Housing Finance Administration’s lackluster oversight of Fannie Mae and Freddie Mac. The criticism is particularly noteworthy since the primary purpose that the FHFA was created to oversee Fannie Mae and Freddie Mac after they went bankrupt and helped trigger the mortgage meltdown.

One Baseball Note

When are major league dugouts going to start using cellphones to call ball pens instead of awkward landlines that look like they were installed in the mid-70’s?

October 22, 2018 at 9:04 am 1 comment

Is A Housing Reform Showdown On The Horizon?

Image result for showdownYour faithful blogger is a little bleary-eyed and unshaven this morning, having stayed up until 12 o’clock to watch the Yankees beat the Twins to secure their rightful place in the Major League Baseball Playoffs. It was the latest example of how Major League Baseball has more and more in common with your local little league game as starting pitchers are quickly replaced with a parade of relievers. But I digress.

Fortunately, I don’t have to think that hard to find something interesting that you need to know about. I could talk about the testimony of departed Equifax CEO, Richard Smith, but his testimony created as many questions as it provided answers;  or I could comment on the testimony of Wells Fargo’s CEO, Tim Sloan who had to keep a straight face while Senator Elizabeth Warren stopped just short of calling for him to be publicly flogged, tarred and feathered. But I’ve decided that by far, the most significant testimony that came out of Washington yesterday has to do with Fannie and Freddie and the way we finance housing in this country.

Once upon a time, the economy was near collapse and Fannie Mae and Freddie Mac were insolvent. So, in 2008, Congress passed The Housing and Economic Recovery Act which made the Federal Housing Finance Administration the conservative of these institutions. In September of that year the FHFA gave the treasury preferred shares in these corporations in return for a capital injection of $200 billion for each GSE.

In 2012, the government got further involved in the housing market when the Treasury entered into agreement pursuant to which it was allowed to sweep the net profits of the GSE’s minus a capital buffer. This has been a very good deal for the government, but the gravy train may be coming to an end.

This buffer was set at $3 billion in 2012 and declined by $600 million increments thereafter. That means that come January 1, 2018, the GSE’s will no longer have the authority to operate with any buffer at all. At the same time, the government will still have the authority to sweep the GSE profits. As it stands right now, the only option for the GSE’s would be to draw on a line of credit.

Which brings us to yesterday’s hearing at which former Congressmen and current director of the FHFA, Mel Watt reiterated the need for Congress to either decide on how it wants to reform the GSE’s or allow Fannie and Freddie to have appropriate capital buffers. He went on to draw a line in the sand by suggesting that he has the authority in the absence of congressional action to withhold from the treasury, money necessary to ensure the maintenance of adequate buffers.

I lost hope a long time ago that Congress is capable of passing meaningful, constructive housing reform. But the current situation cannot continue indefinitely. Either Congress must accept that the GSE’s are here to stay or it has to decide once and for all what they want the government’s role to be in the housing industry. By doing nothing, it is effectively deciding that the GSE’s are here to stay. From a credit union perspective, this is a good thing.

October 4, 2017 at 9:10 am Leave a comment

A Matter of Principal. . .Reduction?

I’m back blogging this morning after attending the State Governmental Affairs Conference all week.  Kudos to those of you who attended.  I understand why most of you are too sane to want to do this type of thing for a living, but a few of your stories to well-place legislators and staff go a long way toward getting things done.  Ok, no more Mr. Nice Guy.

One of the areas of unfinished business is housing policy reform.  An article that came out earlier this week in the Housing Wire reports that New York Attorney General Eric Schneiderman wrote a letter to the Federal Housing Finance Administration urging it to adopt mortgage principal reduction as a policy.  According to Schneiderman, in 2013 alone there were 60,000 homeowners in New York who were delinquent in mortgages controlled by Fannie Mae and Freddie Mac.  He goes on to argue that “there is significant evidence that homeowners who are seriously delinquent on their mortgages are most likely to avoid foreclosure and remain in their homes when reduction of principal balance is part of the loan modification offer. . .while virtually all of the large, commercial single family lenders now include principal reduction in their foreclosure mitigation options,” Fannie and Freddie do not. 

First, I would love to know how much an academic researcher got paid for figuring out that people who get a reduction in their mortgage principal are more likely to be able to afford their house.  Next thing you know, we will have conclusive proof that the sun rises in the East and sets in the West.  Secondly, having just watched The Big Short, calls for principal reduction have a certain facial appeal.  You wouldn’t know it from watching the movie, but Fannie and Freddie were willing participants and contributors to the securitization frenzy that indirectly led to the Great Recession.  Surely, giving a little back is the “right thing to do.”

But then, let’s get back to reality.  First, Fannie and Freddie are bankrupt entities and like any trustee administering a bankrupt estate, the FHFA has a fiduciary obligation to maximize its value.  Furthermore, as my Mother taught me growing up, two wrongs don’t make a right.  Should policy makers do more to reign in the big banks?  Absolutely.  But, for the life of me I don’t understand why taxpayer supported entities should be on the hook for bailing out the bad financial decisions of other taxpayers. 

I believe that if we don’t learn from our mistakes, we are bound to repeat them.  The American public wasn’t a victim of excessive real estate zeal so much as a willing accomplice.  I, for one, don’t want to see taxpayer supported institutions, which shouldn’t even exist at this point, bail out one set of taxpayers at the expense of others who were able to pay their bills.  Foreclosures are a tragedy, but they shouldn’t be avoided at all costs.

http://www.housingwire.com/articles/36747-new-york-attorney-general-pushes-fhfa-for-principal-reduction

 

 

April 14, 2016 at 7:45 am 1 comment

Further Proof That MBL Reform Would Help Small Businesses

If you are one of those hopeless idealists who actually think that facts, as opposed to the exercise of pure political power, make a difference in credit union efforts to raise the cap on Member Business Loans, then a recent report issued by Filene is a must read. Its most important finding is that “increasing the percentage of total assets that credit unions may lend to businesses should be beneficial to local communities,” particularly where there are already larger bank and savings institutions.

David A. Walker is a long-serving business professor at Georgetown University, who previously served as the director of research for the Office of the Comptroller of the Currency as well as a senior financial economist for the FDIC. In order to gauge the impact that raising the MBL cap would have on business lending activities, he analyzed 120 federally insured credit unions nationwide that were up against the cap in 2012. Specifically, 84 had business loans between 9.5% and 12.25% of their assets; 15 had a percentage below 9.48 and 21 had a percentage above 12.25. The report has special resonance in New York since 12 of the credit unions are based in this state. If you have a Filene password you can access the full report at https://filene.org/research/report/room-to-grow-credit-union-business-lending

One of the big policy debates in recent years has been the extent to which a decline in bank lending to small businesses has been the inevitable result of a down turn in economic activity resulting in fewer businesses needing loans, as the banks argue; or the result of tougher bank lending standards. Based on Walker’s research, a strong argument can be made that small businesses have been squeezed by banks and would benefit from greater access to credit union loans. Most importantly, he points out that in the profiled credit unions, credit unions actually lend out a greater share of their assets in Member Business Loans in counties where banks and savings institutions are larger.

Banks love to argue that behemoth credit unions are gobbling up Member Business Lending at the expense of smaller community banks. Walker’s research strongly suggests that this is more fiction than fact. He notes that “it is not the largest credit unions that lend the largest percentage of their assets to businesses.” The 120 credit unions studied had a median asset size of $170.8 million. In contrast, the 10 largest credit unions had a median size of $8.8 billion in 2012.

This next part is my own extrapolation. The data also suggests that small business lending is particularly beneficial during an economic downturn. The profiled credit unions shifted a larger percentage of their loan volume from consumer to business loans. Between 2010 and 2012, their business lending portfolios increased faster than their credit card loans, real estate loans and auto loans. This is further proof for the proposition that since credit unions are generally much more dependent on local community lending than are regional and national banks, they are more willing to offer business loans during economic downturns than are their commercial banking counterparts.

So the next time you talk to your friendly neighborhood Congressman, you can point out that a vote for raising the MBL cap is a vote for helping small businesses grow, keeping the economy strong, and making sure that local money is spent locally. To me, raising the MBL cap is a no-brainer; but then again, I don’t have to worry about running for re-election.

FHFA Benchmarks Raised

As mandated by Congress, the Federal Housing Finance Administration (FHFA) has adopted affordable housing benchmarks for Fannie Mae and Freddie Mac for 2015 through 2017. Specifically, both GSEs are given the goal that 24% of their purchases be of low-income homes. A low-income home is one to borrowers whose income is no greater than 80% of the area’s median income. The benchmark increases the goal by 1% over the 2014-2015 period.

I’m taking tomorrow off, have a great weekend.

August 20, 2015 at 8:58 am Leave a comment

HAMP and HARP to be Extended

To no one’s surprise, FHFA Director Mel Watt announced in a speech Friday in California that the GFE’s would extend their participation in the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) until the end of 2016. This coincides with the end of the Obama Administration. What a coincidence.

Started in 2009, these programs were the primary Administrative response designed to assist consumers affected by the Mortgage Meltdown. Under the HARP and HAMP programs, eligible mortgages are either refinanced or modified to make them more affordable. Despite the fact that these programs have been around since 2009, the Director estimated that there are more than 600,000 eligible mortgage holders who have not yet taken advantage of them, including close to 19,000 New Yorkers.

The announcement follows the FHFA’s announcement last month that it was not raising the guarantee fees charged by Fannie and Freddie.

Some quick thoughts. Regardless of a whether or not you agree that HAMP and HARP are worth keeping, the fact that we are still utilizing these programs six years later indicates yet again how slow moving and unimaginative the nation’s response to the mortgage meltdown has been.

Hopefully, there will come a time when Congress has a thoughtful debate about restructuring the nation’s housing support system or comes to the conclusion that Fannie Mae and Freddie Mac should be reformed but not eliminated. Right now, nothing new is being done. The country is as dependent on Fannie and Freddie today as it ever has been. It’s as if they never really went bankrupt.

May 11, 2015 at 8:20 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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