Federal Housing Finance Agency (FHFA)

FHFA Extends COVID-19 Related Loan Origination Flexibilities Through August 31

 

On July 9, the Federal Housing Finance Agency (FHFA) announced that several loan origination flexibilities originally set to expire on July 31 will be extended through August 31. These flexibilities include alternative appraisals on purchase and rate term refinance loans; alternative methods for documenting income and verifying employment before loan closing; and expanding the use of power of attorney and remote online notarizations to assist with loan closings. These loan origination flexibilities are intended to ensure borrowers receive continued support during the COVID-19 pandemic. Release.

FHFA Provides Tenant Protections

 

On June 29, the Federal Housing Finance Agency (FHFA) provided additional protections for owners and renters of multifamily properties by allowing servicers to extend existing forbearance agreements for up to three months, for a total forbearance of up to six months for multifamily property owners with loans backed by Fannie Mae and Freddie Mac. Borrower may qualify for up to 24 months to repay the missed payments once the forbearance period concludes, and borrowers must comply with additional tenant protections during this period. Release.

FHFA Publishes Final Rule on the FHLBanks’ Housing Goals

 

On June 3, the Federal Housing Finance Agency (FHFA) sent for publication a final rule on the Federal Home Loan Banks’ Housing Goals, which eliminates the retrospective evaluation using HMDA data and set a single prospective mortgage purchase housing goal as a share of each FHLBank’s total Acquired Member Asset purchases. The rule also sets a new small member participation housing goal for participation by small institutions, eliminates the volume threshold and simplifies the eligibility criteria to enable federally backed loans sold by small institutions eligible to count for goals purposes. Release.

FHFA Extends Loan Processing Flexibilities for Fannie Mae and Freddie Mac Customers

 

On May 5, the Federal Housing Finance Agency (“FHFA”) extended loan origination flexibilities offered by Fannie Mae and Freddie Mac until at least June 30th. The extended flexibilities aim to help borrowers during the COVID-19 pandemic by facilitating loan closings and include: (1) alternative appraisals on purchase and rate term refinance loans; (2) alternative methods for verifying employment; and (3) expanding the use of power of attorney and remote online notarizations. Release.

FHFA to Allow FHLBanks to Accept PPP Loans as Collateral for Member Advances

 

On April 23, the Federal Housing Finance Agency issued a supervisory letter addressed to Federal Home Loan Banks’ (“FHLBanks”) presidents advising them that FHLBanks may accept Paycheck Protection Program (“PPP”) loans as collateral for advances made to member banks, subject to certain member-related conditions and loan-related discounts, caps and limits. Release. Supervisory Letter.

Fannie Mae and Freddie Mac Publish Joint Enterprise Credit Score Solicitation

 

On February 18, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the “Enterprises”) have published a Joint Credit Score Solicitation, which describes the process for credit score model developers to submit applications to the Enterprises. The publication of the solicitation in the process of evaluating new credit score models will ensure that the Enterprises validate and approve credit score models in a timely and prudent manner. Release.

FHFA Instructs Federal Home Loan Banks to Transition Away From Purchase of LIBOR-Tied Assets

 

On September 27, the Federal Housing Finance Agency (FHFA) instructed the Federal Home Loan Banks to stop practice of purchasing any investments with assets tied to LIBOR with maturities beyond December 31, 2021, as part of the transition away from LIBOR. As of March 31, 2020, according to the FHFA policy, Federal Home Loan Banks will be restricted from entering into all other LIBOR-based transactions, subject to certain limited exceptions. Release.

FHFA Requests Input on FHFA’s Draft Strategic Plan for Fiscal Years 2018-2022

 

On September 27, 2017, the Federal Housing Finance Agency requested comment on its proposed strategic plan, which “…reflects the Agency’s priorities as regulator of the Federal Home Loan Bank System and as regulator and conservator of Fannie Mae and Freddie Mac[.]” Release.

FHFA Announces Increase in Maximum Conforming Loan Limits for Fannie Mae and Freddie Mac in 2017

 

On November 23, 2016, the Federal Housing Finance Agency (FHFA) announced an increase in the maximum conforming loan limits for mortgages acquired by Freddie Mac and Fannie Mae. The maximum loan limit for one-unit properties in 2017 will increase from $417,000 to $424,100 for most of the United States. In certain higher-cost areas, there will be a higher loan limit. Release. A list of the 2017 maximum conforming loan limits for all counties and county‑equivalent areas in the country can be found here.

The Federal Housing Finance Agency Releases Final Rule on Federal Home Loan Bank Membership

On January 12, 2016, the Federal Housing Finance Agency (“FHFA”) issued a final rule establishing new requirements for membership in the Federal Home Loan Banks (“FHLBanks”). The FHLBanks are 11 U.S. government-sponsored banks that provide liquidity to their members to support housing finance and community investment.  Membership is governed by the Federal Home Loan Bank Act (the “Act”), which states that insurance companies, among others, are eligible for membership.  12 U.S.C. § 1424(a)(1).  The new rule, issued under that Act, establishes new requirements for becoming a member and maintaining membership of an FHLBank.  Most notably, the final rule excludes captive insurance companies from membership.

In its 2014 proposed rule, FHFA first proposed excluding captive insurance companies from the scope of the definition of “insurance company” in the Act. Captive insurance companies are insurance companies established by a parent specifically to cover risks to which the parent is exposed; they do not insure non-affiliated third parties. Despite receiving 400 comments on this aspect of the rule, almost all of which expressed opposition to the proposal, FHFA’s final rules retains the proposal essentially as it was proposed.

Under the rule, FHLBanks may not accept any captive insurance companies as new members. For captive insurance companies that became members since the rule was proposed in 2014, membership must be terminated within one year, and no additional advances may be made.  Captive insurance companies that were members of a FHLBank prior to the issuance of the proposed rule may remain members of their current FHLBanks for five years, but the amount of advances they can receive are capped, and the FHLBanks may not make new advances or renew existing advances with a maturity date beyond the five-year period.

The rule’s exclusion of captive insurance companies is vulnerable to challenge in court. Chiefly, it is unclear that FHFA has authority to exclude captive insurance companies from the purview of the Act.  Congress directed that “any” insurance company shall be eligible for membership, potentially ousting FHFA’s discretion to pick and choose among insurance companies, especially where the definition of “insurance company” has traditionally been left to the States.  In the same vein, it is unclear that FHFA may add additional statutory criteria (here, that an insurance company must primarily underwrite insurance for nonaffiliated persons or entities) not included by Congress.  In addition, FHFA’s evaluation of its purported reason for excluding captive insurance companies—that such companies may be passing advances through to their parents, who are not eligible for FHLBank membership—is not thoroughly analyzed.  It appears that rather than investigating whether captive insurance companies are actually being used as conduits to ineligible entities, FHFA relies primarily on industry publications encouraging companies to set up captives in order to do so.  Moreover, it is unclear that FHFA’s proffered solution would solve any purported problem given that other entities that remain eligible under FHFA’s new rule can also pass through advances to their ineligible parent companies.

Under the 2014 proposal, FHFA also proposed imposing ongoing minimum investment requirements on FHLBank members in order to maintain membership. Specifically, FHFA proposed that institutions would have had to maintain a certain percentage of residential mortgage assets.  The threshold for small banks and credit unions with assets less than $1 billion was at least 1%.  In its final rule, FHFA removed these requirements from the final regulations, concluding that the burdens of imposing such standards would outweigh the benefits.

The new regulation will go into effect 30 days after publication in the Federal Register. The rule has been strongly opposed by industry participants, who view it as a detriment to the liquidity of the residential housing market, and is expected to garner further discussion and likely a court challenge. Press Release. Final Rule.

Please feel free to contact any of the authors of this Client Alert or other Orrick attorneys with whom you work to discuss any questions you may have with regard to the foregoing.