FEDERAL GOVERNMENT RELATIONS
FHFA’s Calabria: GSEs Need a Way to Recover Costs for COVID-19 Relief Programs
Fannie Mae and Freddie Mac may be facing insolvency if they are not able to recoup some of the costs associated with their COVID-19 mortgage relief programs, Federal Housing Finance Agency Director Mark Calabria told House lawmakers Wednesday. The GSEs are attempting to recover some of those costs through an “adverse market fee” of 50 basis points that would apply to certain refinance transactions. The fee was originally set to take effect in early September but was delayed after industry advocacy until Dec. 1.
“The CARES Act imposed unfunded mandates on Fannie and Freddie as well as much of the mortgage market. We are required by statute to recoup those fees via income,” Calabria said in testimony before the House Financial Services Committee. The GSEs currently have a net worth of around $30 billion – of which $15 billion is due to accrued interest on mortgages in forbearance. “That’s money they haven’t received – they can’t absorb those losses,” Calabria explained. “Were Fannie and Freddie to take the entire potential $15 billion loss from COVID, they would hit zero. And if they become insolvent, there’s a real risk that would disrupt the mortgage market.”
When asked to ballpark how much financial support the GSEs would require from Congress to cover their costs for COVID-19 relief without having to impose the adverse market fee, Calabria estimated that it “would have to be in the neighborhood of $10 billion,” though he emphasized that “I’m not requesting any funding – we think we can make it work on our own.”
FinCEN Considering BSA Changes to Improve Effectiveness of AML Programs
The Financial Crimes Enforcement Network is seeking public feedback on potential changes to the Bank Secrecy Act that would enhance the overall effectiveness of banks’ anti-money laundering programs. The changes – which were outlined in an advance notice of proposed rulemaking – are the result of a months-long effort by members of FinCEN’s Bank Secrecy Act Advisory Group.
The proposal would provide banks greater flexibility with respect to the allocation of resources and greater alignment of AML priorities across industries and government. Specifically, the amendments would clarify that for an AML program to be considered “effective and reasonably designed,” it should assess and manage risk according to the institution’s own risk assessment process; provide for compliance with BSA requirements; and provide for the reporting of information with a high degree of usefulness to government authorities. The proposal would also create a mechanism to establish a set of national law enforcement priorities to help guide banks with their risk assessments and resource allocation.
FinCEN is also seeking input on whether to impose an explicit requirement for a risk assessment process and whether FinCEN’s director should issue a list of national AML priorities every two years. Comments are due Nov. 16.
FDIC Approves Plan to Restore DIF to Statutory Minimum
Federal Deposit Insurance Corp. Chairman Jelena McWilliams Tuesday signaled that an increase in the deposit insurance assessment rate schedule will likely not be necessary to restore the Deposit Insurance Fund to its statutorily required minimum reserve ratio of 1.35%. The reserve ratio was 1.3% as of June 30 – down from a peak of 1.41% at the end of 2019 – due in large part to extraordinary deposit growth during the first half of 2020 that was connected to the coronavirus pandemic and response.
The FDIC Tuesday approved a plan that is expected to restore the DIF to at least 1.35% within eight years, as required by the Federal Deposit Insurance Act. Under the plan, the FDIC will maintain the current schedules of assessment rates for all banks; monitor deposit balance trends, potential losses and other factors that affect the reserve ratio; and provide updates to its loss and income projections at least twice a year.
“We project the reserve ratio would return to a level above 1.35% without any increase to the deposit insurance assessment rate schedule,” McWilliams said. “Of course, we are living in highly uncertain times, and these estimates are not predictions.” She added that the banking industry has been a “source of strength” throughout the pandemic and that “that FDIC will continue to support the ability of banks to meet customer needs while also taking actions to promote financial stability, including maintaining a strong DIF and reserve ratio.” Moreover, she added, “building the fund during good times [to allow] steady assessment rates is a critical aspect of responsible fund management,” she said.
FDIC to Move Ahead With Assessment Credits
In separate action, the FDIC elected to disburse the residual assessment credits that banks under $10 billion in assets accrued for their contributions to recapitalization of the DIF from 2016 to 2018. In total, $5.8 million will be paid out to 190 banks at the end of the month.
While the FDIC adopted a plan last year to pay out the remaining credit balances, it has the authority to withhold payments with the fund’s reserve ratio now below 1.35%. However, the FDIC board decided to proceed with remittances because “remaining assessment credits are immaterial relative to the DIF balance.”
CFPB Previews Section 1071 Proposals Under Consideration
The Consumer Financial Protection Bureau Tuesday issued an outline of the proposals it is considering for its rulemaking to implement Section 1071 of the Dodd-Frank Act, which concerns the collection of credit application data for women-owned, minority-owned and small businesses. The bureau issued this document ahead of a small business advocacy review panel it will convene in October to examine the effect of the potential rule on small businesses, as required by the Small Business Regulatory Enforcement Fairness Act.
Among other provisions, the outline addresses the scope of the rulemaking, the proposed definitions of several key terms, data points required by Section 1071, privacy considerations and the implementation timeline that the bureau is considering.
The bureau is also collecting public feedback on the proposals being considered. Comments may be emailed to 2020-SBREFA-1071@cfpb.gov by Dec. 14, 2020.
HUD Issues Guidelines for Underwriting FHA Loans to Borrowers With Forbearances
The Department of Housing and Urban Development last week issued underwriting guidelines for borrowers who were been previously granted forbearance due to COVID-19 or another presidentially declared disaster. Lenders may begin to implement the guidance immediately, and it must be applied to all loans with case numbers assigned on or after Nov. 9, 2020.
According to the guidelines, borrowers who remained current on their payments during their forbearance period are immediately eligible to refinance their current FHA-insured mortgage or obtain financing for a new loan. Borrowers who missed payments during their forbearance period but have since resolved their financial hardship and exited their forbearance agreement will require waiting periods of varying lengths depending on the loan type.
FinCEN Final Rule Establishes AML Requirements for Trust Companies, Private Banks
The Financial Crimes Enforcement Network has issued a final rule establishing minimum standards for anti-laundering programs for institutions lacking a federal functional regulator, including state-chartered nondepository trust companies, private banks and non-federally insured credit unions.
Under the final rule, these institutions will be required to establish and implement anti-money laundering programs, which must include policies and procedures, a dedicated compliance officer, employee training and an independent audit function. Institutions will also be subject to customer identification program requirements and beneficial ownership requirements.
The final rule will take effect 60 days after publication in the Federal Register, and institutions will have 180 days to come in compliance with the requirements.
IRS Publishes Final Business Interest Expense Regulations, Makes Minor Changes
The IRS Monday published in the Federal Register long-awaited final regulations addressing restrictions on deducting net interest expense, pursuant to the 2017 tax reform law. The published version incorporates minor editorial changes made since the text of the final regulations were first issued at the end of July. It also clarifies that taxpayers may rely on the final regulations or any taxable year beginning after Dec. 31, 2017, provided that certain conditions are met.
The final regulations generally apply to taxpayers with defined levels of gross receipts and restrict the deductibility of net interest expense to an amount that does not exceed a certain percentage of a taxpayer’s adjusted taxable income. Since the restriction applies to net business interest expense, and banks have net business interest income, the regulations should not apply to banks as taxpayers, but they will affect certain bank customers.
IBA COVID-19 Updates
The IBA has several COVID-19 resources and updates available at our website.