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FHFA proposes rule on GSE capital plans
On December 16, FHFA issued a noticed of proposed rulemaking (NPRM) that would require Fannie Mae and Freddie Mac (GSEs) to submit annual capital plans and provide prior notice for certain capital actions, “consistent with the regulatory framework for capital planning for large bank holding companies.” Under the NPRM, the GSEs would be required to assess their risks and submit capital plans to FHFA annually by May 20. These capital plans must include several mandatory elements, including (i) “[a]n assessment of the expected sources and uses of capital over the planning horizon that reflects the [GSE]’s size, complexity, risk profile and scope of operations, assuming both expected and stressful conditions”; (ii) “[e]stimates of projected revenues, expenses, losses, reserves and pro forma capital levels,” along with any additional capital measures the GSEs deem relevant; (iii) “[a] description of all planned capital actions over the planning horizon”; (iv) a discussion of stress test results and how the capital plans will account for these results; and (iv) a discussion of any anticipated changes to a GSE’s business plan that may likely have a material impact on the GSE’s capital adequacy or liquidity. FHFA stated that it intends to review the capital plans for comprehensiveness, reasonableness, and relevant supervisory information, and plans to review the GSEs’ regulatory and financial reports, as well as the results of any conducted stress tests and any other information required by FHFA or related to the GSEs’ capital adequacy. Should the GSEs determine that there has been or will be a material change to their risk profile, financial condition, or corporate structure since the submission of the last plan (or if directed by FHFA), they must resubmit their capital plans within 30 days. The NPRM also incorporates the determination of the stress capital buffer into the capital planning process, which will be provided to the GSEs by August 15 of each year, along with an explanation of the results of the supervisory stress test. Comments on the NPRM are due within 60 days of publication in the Federal Register.
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.
Freddie says cryptocurrency can’t be used for mortgage qualification
On December 1, Freddie Mac released Bulletin 2021-36 to Freddie Mac sellers to provide guidance on selling updates. The bulletin provides guidance on, among other things: (i) 2022 conforming loan limits; (ii) extension of the guarantee fee obligation; (iii) affordable lending; (iv) credit underwriting; and (v) document custody. In order to address uncertainty regarding the treatment of cryptocurrency in mortgage underwriting, the bulletin specifically addresses requirements related to cryptocurrency’s use in the mortgage qualification process. These requirements include, among other things, that income paid to the borrower in cryptocurrency cannot be utilized to qualify for a mortgage and that “[c]ryptocurrency may not be included in the calculation of assets as a basis for repayment of [the] obligation.” Unless otherwise noted, the changes issues in the bulletin are effective immediately.
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 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 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.”
HUD and FHFA announce fair housing collaboration
On August 12, HUD announced a Memorandum of Understanding (MOU) with FHFA regarding fair housing and fair lending coordination. The MOU—a “first-of-its-kind collaborative agreement”—will expire in December 2025, and is intended to enhance enforcement of the Fair Housing Act and the agencies’ oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. According to HUD, the agencies “anticipate that the MOU will lead to stronger oversight that will help advance vigorous fair housing enforcement that can begin to redress our nation’s history of discriminatory housing practices.”
FHFA gives guidance on FHLB investments
On August 16, FHFA issued Advisory Bulletin AB 2021-02, which provides guidance regarding federal home loan banks’ investments in Agency Commercial Mortgage-Backed Securities (CMBS) that are issued and guaranteed by either the U.S. government (Ginnie Mae), or by government-sponsored entities Fannie Mae and Freddie Mac. The Bulletin recommends risk management practices, such as establishing certain limits to address the risks associated with unexpected prepayments of CMBS investments. FHFA also “encourages early adherence” to the guidance, but states that “by December 31, 2021, all Banks should have appropriate Agency CMBS concentration risk limits in place.” Guidance in the Bulletin includes, among other things: (i) pre-purchase analytics; (ii) the minimum risk-adjusted spread requirement; (iii) concentration limits; (iv) reporting; and (v) prepayment projections.