FEDERAL GOVERNMENT RELATIONS
Deadline Today - IBA Annual Washington Trip
The deadline to register is today for the IBA Annual Washington Trip, scheduled for July 18-20. Registrations received after today will still be accepted, but attendees may not receive guaranteed access to briefings held on site. In addition, the deadline to secure hotel reservations at The Willard InterContinental with the IBA special room rate is tomorrow, June 26 at 5:00pm. For questions on how to register, contact Lizzie Ketzenberger at lketzenberger@indiana.bank or call 317-387-9380. We look forward to seeing you in Washington!
House Votes to Repeal OCC ‘True Lender’ Rule
The House yesterday voted 218 to 208 to repeal the OCC’s “true lender” rule. The rule, finalized in 2020, established a test to determine when a bank is considered the true lender on a loan made in a partnership with a nonbank entity. On May 11, the Senate voted to repeal the rule using a Congressional Review Act resolution.
The measure now goes to the White House, where President Biden is expected to sign it. Following the vote, the OCC reaffirmed its long-standing position that "predatory lending has no place in the federal banking system."
“Moving forward, the OCC will consider policy options, consistent with the Congressional Review Act, that protect consumers while expanding financial inclusion,” the agency said. “Both of these priorities are part of the agency’s mission of ensuring that national banks and federal savings associations provide fair access to financial services for all Americans and that customers are treated fairly.”
FHFA Extends Foreclosure, Eviction Moratoriums Through July 31
The Federal Housing Finance Agency announced yesterday that it would extend through July 31, a moratorium on foreclosures and real estate owned evictions for single-family mortgages backed by Fannie Mae or Freddie Mac. The current moratorium was set to expire on June 30.
Supreme Court: FHFA Director May Be Removed by President at Will
The Supreme Court has ruled that the structure of the Federal Housing Finance Agency is unconstitutional, given that it has a sole director who may only be removed by the president for cause, not at will. The court’s opinion in the case of Collins v. Yellen mirrored its decision in Seila Law v. CFPB, which challenged the Consumer Financial Protection Bureau’s structure on similar grounds. The court in that case held that the bureau may continue to operate but that its single powerful director must be able to be removed at will by the president.
Immediately after the decision, President Biden removed FHFA Director Mark Calabria, who had been appointed by former President Trump to a five-year term starting in 2019. Biden designated Sandra Thompson as FHFA acting director. Thompson, a 23-year veteran of the Federal Deposit Insurance Corp., has served since 2013 as deputy director of FHFA's Division of Housing Mission and Goals.
The Collins case arose when Fannie Mae and Freddie Mac shareholders challenged FHFA’s amendments to the senior preferred stock purchase agreements, which, among other provisions, included the replacement of the fixed dividend with a variable quarterly dividend. The shareholders argued that FHFA exceeded its authority both on statutory grounds as a conservator under the Recovery Act by agreeing to the new variable dividend formula, and on constitutional grounds, claiming that the agency’s structure violates the separation of powers.
While the court sided with the shareholders on the constitutional question, it held that the shareholders’ statutory claim is barred by the Housing and Economic Recovery Act, which prohibits course from taking “any action to restrain or affect the exercise of [the] powers or functions of the Agency as a conservator.”
Fed Extends Comment Period for Industry-Opposed Durbin Proposal
The Federal Reserve announced that it would extend until Aug. 11 the comment deadline for a proposal to amend Regulation II, which implements the Durbin Amendment, to apply the requirement that debit card transactions be able to be processed on at least two unaffiliated payment card networks – for example, a PIN debit and a signature debit network – to card-not-present transactions.
Agencies Release 2020 HMDA Data
The Federal Financial Institutions Examination Council has released the 2020 Home Mortgage Disclosure Act data on mortgage lending transactions at 4,475 financial institutions. (FFIEC noted that the number of reporting institutions was down by about 18.8% due in part to a change in the reporting threshold for closed-end mortgage loans under Regulation C.) The data encompasses 22.7 million mortgage applications, 14.5 million of which resulted in loan originations. Of these, 13.2 million were closed-end loans and 906,000 were open-end loans, such as home equity lines of credit. There were also 432,000 records that did not indicate loan type.
The total number of originated closed-end loans rose 67.1% from 2019 to 2020. Refinances increased 150%, and home purchase loan originations 6.7%. The HMDA data showed that low-to-moderate income borrowers accounted for 30.4% of single-family, owner-occupied home purchases – up from 28.6% in 2019. LMI borrowers also accounted for 19.3% of single-family refis, down from 23.8% in 2019.
Overall, loans backed by the Federal Housing Administration, Department of Veterans Affairs or federal farm programs accounted for 32.9% of all new mortgages in 2020, down slightly from 33.4% in 2019. FHA and VA market share both decreased slightly. The FHA market share for refinances fell to 6.6% from 12% in 2019, while shares of VA refinances decreased from 13.5% to 11.9%. Meanwhile, non-depository lenders held 60.7% market share in 2020, up from 56.4% in 2019.
Black borrowers accounted for 7.3% of single-family home purchase loans in 2020, up slightly from 7% the year before. Home purchase loan shares for Hispanic-white borrowers edged down from 9.2% in 2019 to 9.1% in 2020, and were down from 5.7% to 5.5% among Asian-American borrowers. The data also noted that Black and Hispanic-white applicants experienced higher denial rates for conventional home mortgages than non-Hispanic-white applicants, but the agencies noted that “these relationships are similar to those found in earlier years,” and that due to the limitations of HMDA data “cannot take into account all legitimate credit risk considerations for loan approval and loan pricing.”
FDIC: Banks Continued Residential Mortgage Lending Amid Economic Uncertainty
Amid ongoing pandemic-related economic uncertainties, the nation’s banks maintained the flow of credit by continuing to make residential mortgage loans, according to an article published in the FDIC Quarterly. The article noted that “community banks in particular have maintained strength in residential lending,” and that community banks’ share of all residential real estate loans has remained consistent at around 26% for more than a decade.
“Unlike in 2008, when a financial crisis resulted in an economic crisis and the banking system entered a long period of balance sheet repair, the banking system was much stronger in 2020 and better able to withstand economic distress,” the Federal Deposit Insurance Corp. noted. “Banks have been in a position to help support the economy by extending credit and by working with distressed borrowers.”
Mortgage delinquency rates spiked sharply in early 2020 when the pandemic began, following several months of steady decline, but fell again as COVID-19 relief programs were instituted, the FDIC reported. This was driven mostly by a decrease in 30- and 60-day delinquencies. The FDIC found that while delinquency rates among borrowers with mortgages more than 90 days past due tapered off slightly at the end of 2020, they picked up again in early 2021, “reflecting the more entrenched distress of those with longer-term delinquencies.”
Overall, bank underwriting standards tightened in 2020 in response to weakening economic conditions. The FDIC reported it has also seen weakening in bank asset quality since mid-2020, and noted that credit quality concerns remain ¬¬– especially as COVID-19 relief programs begin to expire and borrowers continue to face financial challenges. However, while the noncurrent loan balance remains higher than in recent years, “noncurrent loan balances after the [2008] financial crisis were more than three times larger,” the agency observed.
Trade Groups Warn Against Changes to Section 199A Tax Deduction
A broad coalition of trade associations have urged congressional leaders to oppose any efforts to reduce or repeal the 20% deduction for qualified business income under Section 199A – including phasing out the deduction above certain income thresholds. The deduction – which was enacted as part of the 2017 tax reform law – applies to certain qualified businesses income received from sole proprietorships, pass-through entities such as partnerships or businesses operating under a Subchapter S election and other selected entities.
Should lawmakers move ahead with an overhaul of Section 199A, the groups pointed out that it would lead to significantly higher taxes for small businesses, especially for individual or family-run firms, placing them at a competitive disadvantage. They added that the recent tax plan outlined by the Biden administration did not include changes to the existing deduction.
“Proposals to limit or repeal the deduction would hurt main street businesses and result in fewer jobs, lower wages, and less economic growth in thousands of communities across the country,” the groups wrote. “Such changes would amount to a direct tax hike on America’s main street employers, a key reason why the tax plan released by the White House in March left the deduction fully intact.”
IRS Adds Online Tools to Manage Child Tax Credit Payments
The Internal Revenue Service has released two new online tools to help manage monthly child tax credit payments, which were authorized under the American Rescue Plan. They add to a non-filer sign-up tool released last week. The first monthly child tax credit payments will be made on July 15.
With the child tax credit eligibility assistant, users answer a series of questions to determine if they qualify for the advance credit. The child tax credit update portal allows users to verify payment eligibility and, should they choose to, unenroll or opt out of monthly payments to receive a lump sum when they file their tax return next year. The IRS plans to release updated versions of the online resources later this summer and in the fall to allow users to view their payment history, adjust bank account information or mailing addresses and other features, including a version in Spanish.