The Fed’s Heavy Hand on Equitable Housing
Under Director Thompson, FHFA’s top policy priority is equitable housing. However, a ground-breaking study from Fed staff shows that FHFA is swimming upstream when the Fed raises rates. Combined with our own research showing that ultra-low rates also accelerate inequitable housing, the best FHFA can do to help lenders reach LMI borrowers is tread water – better than sinking, but still hard work getting pretty much nowhere.
The Great Unbundling
As we noted yesterday, FHFA has decided not only to unbundle second and high-dollar loans from its flat-fee paradigm, but now to do the same for about one in five conventional conforming purchase loans outside these categories. Together with new cash-out refi fees, the agency is recrafting Fannie and Freddie into an express risk- and mission-pricing construct that alters the essence of the GSEs and thus of the market as a whole.
Deadline Set for D-SIB Resolution Comment
The Federal Register today included the Fed/FDIC D-SIB resolution ANPR, as announced last week (see Client Report DEPOSITINSURANCE115). As analyzed in our in-depth report (see FSM Report RESOLVE48), the agencies seek comment on whether requiring D-SIBs to have TLAC standards akin to those mandated for G-SIBs would enhance resolvability, as well as seeking input on extending clearing holding company requirements to D-SIBs, disclosure standards in the event of a resolution, and explicit severability plans.
FHFA Advances Equitable Finance With New Fees, Credit Score Options
Building on its 2022 scorecards and January’s up-front fee price hikes, FHFA today announced it will eliminate upfront fees – aka, delivery fees or loan-level price adjustments (LLPAs) – for certain borrowers and affordable mortgage products. The Agency will also implement targeted increases to the upfront fees for most cash-out refinance loans. Upfront fees will be eliminated for: first time homebuyers at or below 100% of area median income (AMI) and below 120% AMI in high-cost areas; HomeReady and Home Possible loans, which are Fannie and Freddie’s flagship affordable housing products; HFA Advantage and HFA Preferred loans; and single-family loans supporting the Duty to Serve program.
As seems always the case, FHFA Director Thompson is as good as her word to Congress earlier this summer, announcing yesterday a review of the extent to which the Home Loan Banks and their System meet the mission assigned to them and, regardless, if that mission still makes sense. Building on our initial assessment of FHFA’s plans, we here turn to what the System, its allies, and reformers are likely to say and what FHFA and/or Congress will then do about it.
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Centenarians Get a Face Lift
As seems always the case, FHFA Director Thompson is as good as her word to Congress earlier this summer, announcing yesterday a review of the extent to which the Home Loan Banks and their System meet the mission assigned to them and, regardless, if that mission still makes sense. Building on our initial assessment of FHFA’s plans, we here turn to what the System, its allies, and reformers are likely to say and what FHFA and/or Congress will then do about it.
Fed Study Highlights DeFi Risks
The Federal Reserve yesterday released a staff study concluding that DeFi regulation poses unspecified but unintended consequences even as it reiterated and expanded on potential risks.
FSB’s Domanski Reinforces Calls for Holistic Crypto Framework
Dietrich Domanski, the FSB’s Secretary General, today reiterated global regulators’ call for a holistic crypto framework to rationalize digital payments so that innovation remains well governed.
Fed Study Details Need For, Challenges to Crypto Regulation
Another Fed study today repeats some of the DeFi study’s concerns noted earlier today, but goes on to a broader examination of digital-asset risk based on the Fed’s financial-stability methodology (see Client Report SYSTEMIC93).
FHLB System Opened for Possible Reform
Acting on Director Thompson’s promise to Congress, FHFA today announced a sweeping review of the Federal Home Loan Bank System. This will begin at a late-September “listening” session, proceeding then to additional national and regional discussions.
End-August Deadline Set for LIBOR Comments
The Federal Register today includes the Fed’s proposal to implement the LIBOR Act. Comments are due by August 29. As we noted (see FSM Report LIBOR8), a smooth transition from LIBOR by its effective end date in June 2023 appears unlikely, with the Fed leaving several questions unresolved in its NPR in favor of meeting this deadline.
HFSC Votes in On Key Bills
Turning to recorded votes from yesterday’s markup, the HFSC today approved several bills including reforms to overdraft fees and credit reporting. The overdraft bill, H. R. 4277 (Maloney, D-NY), passed 27-22. Also voted on were H.R. 8485 (Williams, D-GA), and H.R. 8478 (Pressley, D-MA). Both passed the Committee 28-23.
FSOC Agency Heads Report Climate-Risk Progress
At today’s FSOC open meeting, member agency heads reported their climate-risk progress following the President’s executive order. Chairman Powell reiterated that the Fed is updating work on climate risk assessments without providing timing or details. SEC Chairman Gensler mentioned the SEC’s proposed climate disclosure proposal, stating that hundreds of issuers already disclose climate-related information.
Housing Prices Session Ignites Familiar Partisan Debates
Today’s Senate Banking Committee Hearing on Housing Price Increases was another session of partisan discussion of the housing market and how to address it. Chairman Brown (D-OH) focused on the economic stressors that result from housing insecurity, emphasizing the consequences on families of color.
Senate Banking Republicans Demand FHFA Reverse Racial Equity Plans
Following yesterday’s hearing (see Client Report GSE147), Sen. Thom Tillis (R-NC) and eleven other Senate Banking Republicans sent a letter to Director Thompson strongly objecting to what they call “affirmative-action” subsidies, calling them unconstitutional and beyond the FHFA’s mandate and the Enterprises’ charters.
BIS CPMI Identifies Benefits, Barriers to Multilateral Payment System Platforms
The BIS Committee on Payments and Market Infrastructures published an article today arguing that multilateral platforms can alleviate some payment system frictions, but several challenges remain. The article claims that multilateral platforms can shorten processing chains, facilitate standardization, and process multiple currencies, resulting in faster payments.
CFPB Sure Now to Tackle Zelle Scams
Following media coverage yesterday suggesting near-term CFPB action, the majority of Senate Banking Democrats have called on the Bureau to do exactly what it appears to contemplate: take action to make banks offering Zelle responsible not only for fraud, but also scams to which consumers give initial consent.
Two Things
We yesterday provided a complete assessment of Sandra Thompson’s sojourn on HFSC’s griddle, noting the lack of any insights into essential issues such as conservatorship’s end or the full scope of CRT’s new beginning. More interesting to us are new battlelines on new products, including signs of renewed skirmishing over GSE self-insurance in lieu of MI. Unlike FHFA under Calabria, Fannie and Freddie appear to have a friend in one critical high places for new ventures, especially those said to be good for equitable finance.
HFSC Set for Consequential GSE-Reform Review
As noted last week, HFSC will on Wednesday convene a hearing with FHFA Director Thompson. Although Republicans sought this session, the majority-staff memo ahead of the hearing unsurprisingly reflects Democratic views on matters such as the GSEs’ equitable-finance plans.
Comment Period Extended on Consequential Credit-Card Proposal
The Federal Register today provides a ten-day comment period extension for the CFPB’s ANPR on Credit Card Late Fees and Late Payments (see FSM Report CREDITCARD35). The former deadline was July 22; it is now August 1.
G20 Ministerial Dissolves Over Sanctions, Climate Risk
Reinforcing fears of global fragmentation, the G20 finance ministerial over the weekend was unable to agree on a joint communique even though these are historically anodyne pronouncements that mask considerable disagreement.
CFTC Presses for Commodity-Originator Climate-Risk Comments
The CFTC today extended the comment deadline for its climate-risk RFI from August 8 to October 7. Chairman Rostin Behnam said the Commission did so to encourage feedback from farmers and other small entities critical to the Commission’s mission.