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FHFA announces 2022 confirming loan limits
On November 30, FHFA announced that it will raise the maximum conforming loan limits (CLL) for mortgages purchased in 2022 by Fannie Mae and Freddie Mac from $548,250 to $647,200 (the 2021 CLL limits were covered previously by InfoBytes here). In most high-cost areas, the maximum loan limit for one-unit properties will be $970,800. According to FHFA, due to generally rising home values, “the CLLs will be higher in all but four U.S. counties or county equivalents.” A county-specific list of 2022 conforming loan limits for all counties and county-equivalent areas in the U.S. can be accessed here.
FSOC directs regulators to take measures to mitigate climate-related financial risks
On October 21, the Financial Stability Oversight Council (FSOC) released a new report in response to President Biden’s May executive order, which directed financial regulators to take steps to mitigate climate-related risk related to the financial system. The Report on Climate-Related Financial Risk (see also FSOC’s fact sheet) identified more than 30 specific recommendations for member agencies, including that members should: (i) expand capacity and efforts “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability,” including through “investments in staffing, training, expertise, data, analytic and modeling methodologies, and monitoring”; (ii) promptly conduct an internal inventory of currently available data and develop plans for acquiring necessary additional data to fill climate-related data and methodological gaps; (iii) review existing public disclosure requirements and consider updating public reporting requirements in a way that would build on the work of the Task Force on Climate-Related Financial Disclosures; and (iv) continue to assess and mitigate climate-related risks to financial stability, including through scenario analysis, and evaluate whether revised or new regulations or guidance is necessary to clarify expectations for regulated or supervised institutions. The report also called for enhanced coordination across member agencies, and said a Climate-related Financial Risk Committee will be formed to “identify priority areas for assessing and mitigating climate-related risks to the financial system and serve as a coordinating body to share information, facilitate the development of common approaches and standards, and foster communication across FSOC members.” A Climate-related Financial Risk Advisory Committee will also be formed to help gather information and analysis from stakeholders on climate-related financial risks. Treasury Secretary Janet Yellen warned that FSOC has a responsibility under the Dodd-Frank Act “to respond to emerging threats to the stability of the United States financial system” and to “ensure the resilience of the financial system to the future impacts of climate change.”
FHFA makes GSE desktop appraisals permanent, expands refinance programs for LMI borrowers
On October 18, FHFA announced two measures to advance housing sustainability and affordability. Speaking before the 2021 Mortgage Bankers Association Annual Convention and Expo, acting Director Sandra Thompson announced that Fannie Mae and Freddie Mac (GSEs) “will incorporate desktop appraisals into their guides for many new purchase loans starting in early 2022.” Thompson explained that including desktop appraisals in the selling guides will change what was a temporary flexibility into an option that will “mitigate risk for use over the long-term” and will “become an established option for originating [GSE] loans.” According to Thompson, this certainty should allow lenders, borrowers, and appraisers to take advantage of efficiency gains provided through desktop appraisals.
Thompson also announced that the GSEs will expand their refinance programs for low- and moderate-income borrowers that were introduced last year. Several enhancements will be made to the RefiNow and RefiPossible programs to expand eligibility requirements and make the programs easier for lenders to offer. Thompson noted that income threshold for eligible borrowers will be raised from 80 percent of area median income to 100 percent. Additionally, the GSEs are making other modifications to reduce operational frictions for lenders.
8th Circuit lets GSE shareholders seek retrospective relief
On October 6, the U.S. Court of Appeals for the Eighth Circuit held that Fannie Mae and Freddie Mac shareholders have standing to seek retrospective, but not prospective, relief related to their claims that they suffered damages as a result of the FHFA’s leadership structure. The shareholders alleged FHFA’s leadership structure and appointments violated the appointments clause, the separation of powers, and the non-delegation doctrine. Among other things, the shareholders claimed that (i) the Housing and Economic Recovery Act (Recovery Act), which created the agency, violated separation of powers principles because it only allowed the president to fire the FHFA director “for cause,” and (ii) FHFA acted outside its statutory authority when it adopted a third amendment to the Senior Preferred Stock Purchase Agreements, which replaced a fixed-rate dividend formula with a variable one requiring the GSEs to pay quarterly dividends equal to their entire net worth minus a specified capital reserve amount to the Treasury Department (known as the “net worth sweep”). The district court dismissed the claims for lack of standing, and in the alternative, rejected them on the merits.
The 8th Circuit began by rejecting the district court’s holding that the shareholders lacked standing. Relying on the U.S. Supreme Court’s recent ruling in Collins v. Yellen (covered by InfoBytes here), the appellate court held that the shareholders’ alleged injury flowed from the adoption of the agreement containing the net worth sweep by FHFA’s acting director, who did not properly hold office. However, the shareholders were limited to seeking retrospective relief, because prospective relief was mooted by the adoption of subsequent amendments to the agreement by validly-appointed directors.
However, the appellate court went on to hold that the shareholders were not entitled to relief based on their argument that the acting director had been in office too long in an “acting” role when he adopted the agreement. Even if the shareholders were correct, the acting director’s decisions were valid under the de facto officer doctrine, which confers validity on the acts of persons operating “under the color of official title even though it is later discovered that the legality of that person’s appointment or election to office is deficient.” Moreover, even if the de facto officer doctrine did not control, “[a]ny defect was resolved when the subsequent FHFA directors—none of whose appointments were challenged—ratified the third amendment.”
The 8th Circuit also rejected the argument that Congress unlawfully delegated authority to FHFA in the Recovery Act, finding that the statute directs FHFA “to act as a ‘conservator,’ with clear and recognizable instructions.”
Finally, the 8th Circuit did agree with the shareholders that FHFA’s leadership structure was unconstitutional because, as the Court held in Collins, it limited the president’s ability to remove the director. But the appellate court rejected the shareholders’ request that it vacate the adoption of the agreement containing the net worth sweep as a result, noting that the acting director was always “removable at will,” and that there was no allegation that subsequent agency directors (who took actions to implement the agreement) were appointed improperly. Still, the appellate court noted that, in Collins, the Court had remanded the case for a determination whether the constitutional violation “caused compensable harm” to the plaintiffs, and it did the same here.
FHFA extends Covid-19 multifamily forbearance
On September 24, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will continue to offer Covid-19 forbearance to qualified multifamily property owners. The forbearance options for GSE-backed multifamily mortgages were set to expire September 30, but have been extended for the fourth time. Eligible multifamily property owners that enter into new or modified forbearance agreements are required to (i) “[i]nform tenants in writing about tenant protections available during the property owner’s forbearance and repayment periods”; and (ii) “[a]gree not to evict tenants solely for the nonpayment of rent while the property is in forbearance.” Additionally, property owners must also provide a tenant at least 30-days’ notice to vacate, may not charge a tenant late fees or penalties for nonpayment of rent, and must allow a tenant flexibility to repay back rent over time and not in a lump sum.
HUD and FHFA clarify Freddie Mac policies on purchasing group-home mortgages
On September 22, HUD and FHFA announced policy clarifications concerning Freddie Mac’s purchase of mortgages secured by property owned by an individual that is occupied by people with disabilities. According to HUD and FHFA, the assurance that Freddie Mac will purchase mortgages secured by group homes (which are protected under the Fair Housing Act) “should encourage lenders in extending credit for such mortgages, thus providing more community-based living opportunities for persons with disabilities.” These clarifications were included in a Freddie Mac update earlier this month to its seller/servicer guide. The announcement follows a HUD investigation of a mortgage lender who allegedly denied a consumer’s loan for a group home based on the incorrect premise that Freddie Mac would not agree to buy the mortgage. (Covered by InfoBytes here.) After HUD reported the misunderstanding to Freddie Mac and FHFA, Freddie Mac agreed to revise its policies to clarify that it has always been willing to buy mortgages secured by a group home.
FHFA seeks comments on regulatory capital framework
On September 15, FHFA issued a notice requesting public comment on a proposed rule that would amend the regulatory capital framework for Fannie Mae and Freddie Mac (collectively, “GSEs”). The proposed rule would amend the prescribed leverage buffer amount (PLBA) and the capital treatment of credit risk transfers (CRT) to encourage more distribution of credit risk between the GSEs and private investors. Specifically, FHFA is proposing to: (i) change the fixed PLBA equal to 1.5 percent of a GSE’s adjusted total assets to a dynamic PLBA of 50 percent of the GSE’s stability capital buffer; (ii) “replace the prudential floor of 10 percent on the risk weight assigned to any retained CRT exposure with a prudential floor of 5 percent on the risk weight assigned to any retained CRT exposure”; and (iii) eliminate the requirement that a GSE is required to apply an overall effectiveness adjustment to its retained CRT exposures in line with the framework’s securitization framework. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
Treasury, FHFA suspend provisions of 2021 PSPAs
On September 14, the U.S. Treasury Department and FHFA announced the suspension of certain requirements that were added on January 14 to the Preferred Stock Purchase Agreements (PSPAs) between Treasury and Fannie Mae and Freddie Mac (collectively, “GSEs”). According to the announcement, “FHFA will continue to measure, manage, and monitor the financial and operational risks of the Enterprises to ensure that they operate in a safe and sound manner and consistent with the public interest.” In addition, during the suspension, the FHFA will review the requirements and consider other revisions, and notes that the suspensions “do not affect the [GSEs] ability to build or retain capital.”
FHFA announces GSE equitable housing goal plans
On September 7, FHFA announced that Fannie Mae and Freddie Mac (GSEs) will submit Equitable Housing Finance Plans to FHFA by the end of 2021. According to FHFA the GSEs will identify and address barriers to sustainable housing opportunities, including their goals and plans of action to advance equity in housing finance for the next three years. In addition, FHFA will require the GSEs to submit annual progress reports regarding which actions were taken to implement their plans. FHFA is issuing a Request for Input, which invites public input through October 25, to aid the GSEs in preparing their first plans and to aid FHFA in overseeing the plans. Acting Director Sandra L. Thompson noted that by identifying and addressing the barriers to equitable housing finance opportunities, the GSEs “can responsibly reduce the racial and ethnic disparities in homeownership and wealth that still exist today.”
FHFA proposes new GSE housing goals
On August 18, FHFA proposed new housing goals for Fannie Mae and Freddie Mac (GSEs) for 2022 to 2024, which are intended to ensure the reasonable promotion of “equitable access to affordable housing that reaches low- and moderate-income families, minority communities, rural areas, and other underserved populations.” Specifically, FHFA proposes two new single-family home purchase subgoals, which will replace the current low-income areas subgoal. The first new subgoal targets minority communities to improve access to fair and sustainable mortgage financing in communities of color. According to FHFA’s announcement, mortgages will qualify under this subgoal if (i) “the borrower has an income at or below area median income (AMI)”; and (ii) “the property is in a census tract where the median income is below AMI and minorities make up at least 30 percent of the population.” Under the proposed rule, the first new subgoal would establish a benchmark level of 10 percent for GSE purchases of mortgage loans on properties in minority census tracts “made to borrowers with incomes no greater than 100 percent of AMI.” The second new subgoal targets low-income neighborhoods and would establish a benchmark level of 4 percent for GSE purchases of “mortgage loans on properties in low-income census tracts that are not minority census tracts,” in addition to “mortgage loans on properties in low-income census tracts that are minority census tracts, made to families with incomes greater than 100 percent of AMI.” Acting Director Sandra L. Thompson noted that the GSEs’ “housing goals over the next three years should support equitable access to sustainable affordable housing opportunities in a safe and sound manner that bolsters the health of communities.”