March 4, 2021

Brainard: Banks' COVID-19 Resilience Shows Importance Of Strong Capital Buffers

In remarks at a virtual industry event this week, Federal Reserve Governor Lael Brainard commented on the strong performance of the banking sector during the COVID-19 pandemic, emphasizing that strong capital and liquidity positions will continue to be important as banks continue to face a high degree of uncertainty. She noted that the resilience of the banking sector in response to COVID-19 “underscores the importance of guarding against erosion of the strong capital and liquidity buffers and risk-management, resolution, and stress-testing programs put in place pursuant to the Dodd-Frank Act.”

December stress tests by the Fed showed that while the largest banks are sufficiently capitalized to withstand a renewed downturn in the coming years, the projected losses take some large banks close to their regulatory minimums, Brainard said, adding that “it is important for banks to remain strongly capitalized in order to guard against a tightening of credit conditions that could impair the recovery.”

Brainard also discussed the need for money market fund reform, noting that the run in March 2020 forced MMFs to rapidly reduce their commercial paper holdings, which worsened stress in short-term funding markets and funding costs for borrowers shot up. She added that “the turmoil highlights the need for reforms to reduce the risk of runs on prime money market funds that create stresses in short-term funding market.”

“Reforms that address the first-mover advantage to investors that redeem early, such as swing pricing or a minimum balance at risk, could significantly reduce the run risk associated with money funds,” Brainard said.

Trade Groups Call For Funding For USDA B&I Loan Program In COVID-19 Relief Bill

The American Bankers Association joined three other trade groups in a letter to House Rules Committee leaders urging them to include an amendment in the next COVID-19 relief bill that would provide funding for the U.S. Department of Agriculture’s business and industry guaranteed loan program. 

The groups warned that the B&I program is expected to exhaust its current funding in the coming months and faces a projected $1 billion shortfall in loan authority this fiscal year. They noted that “a small allocation of approximately only $10 million” could resolve the shortfall and also urged lawmakers to extend similar relief to producers with USDA Rural Development guaranteed loans as they did to existing SBA borrowers in the CARES Act.

FDIC Publishes Strategic Plan To Enhance DEI Efforts

The Federal Deposit Insurance Corporation released a strategic plan outlining how it will focus its internal and external diversity, equity and inclusion efforts through 2023. The plan is organized around five strategic goals — culture, career, communication, consistency and community.

Internally, the FDIC will continue to integrate the core principles of DEI into its hiring, training and career development programs. Externally, the plan will improve these principles in the agency’s contracting opportunities, enhance its ability to assess diversity policies and practices at financial institutions and provide additional support for Minority Depository Institutions.
A virtual DEI Symposium hosted by MBA on Friday, March 26, explores the value of DEI and how it significantly affects your bank’s relationships with your employees, customers and communities. Presentations include the following.
  • Building a Diverse, Equitable and Inclusive Culture, Patti D. Joyner, CRCM, Financial Solutions
  • What the Data Says: A Data-Based View of Missouri’s Demographic Trends, Jeff Pinkerton, Missouri Department of Economic Development
  • DEI Framework(s) for Banks, Naomi Mercer, American Bankers Association
  • Navigating EEO Compliance and Diversity & Inclusion, Andrew Cripe, Polsinelli
  • Valuing Differences, Karen Shannon, Ollis/Akers/Arney Human Resources Consulting
  • The Power of Gender Diversity in the Boardroom and C-Suite, Terrie G. Spiro and Jennifer A. Docherty, Bank On Women, Inc. 

CFPB Nominee Has ‘Open Mind’ About Potential QM Rule Changes

At his confirmation hearing to serve as the next director of the Consumer Financial Protection Bureau, Rohit Chopra told lawmakers he has “a completely open mind” about changes to the Qualified Mortgage rules, adding that he will “look to what the statute says and what Congress’ goals are” as the bureau reviews the rules. Chopra’s comments came after the CFPB last month said it is considering whether to revisit recent final rules regarding the QM definition and the establishment of a “seasoned QM” category of loans.

“The CFPB is not here to dictate housing finance policy,” Chopra said. “When it comes to QM, it is important that we balance the consumer protections that Congress has put into place with access, including for rural and other areas.”

Chopra added that “ultimately, we are stronger as an economy, stronger as a country, if mortgage lending is safe, broadly accessible and a way that people can build wealth. I’m looking forward to getting input from everyone and determining how [the QM rule] needs to evolve over time.”

CFPB Extends Mandatory Compliance Date For QM Rule; GSE Patch Remains In Effect

As expected, the Consumer Financial Protection Bureau proposed to delay the mandatory compliance date of the General Qualified Mortgage final rule from July 1, 2021, to Oct. 1, 2022. The bureau clarified that when this proposal is finalized, "for covered transactions for which creditors receive an application on or after March 1, 2021 and before Oct. 1, 2022, creditors would have the option of complying with either the revised General QM loan definition or the General QM loan definition in effect prior to March 1, 2021."

The proposal would also extend the temporary “GSE patch” until the new mandatory compliance date, or until the GSEs exit conservatorship, whichever comes first.

The announcement comes after the CFPB last month said it is considering a review the QM final rule and the establishment of a “seasoned QM” category of loans. Comments on the proposal are due April 5. 

Agencies Update BSA/AML Examination Manual

The Federal Financial Institutions Examination Council released updates to its Bank Secrecy Act/anti-money laundering examination manual. The updates, which do not establish new requirements, are intended to provide additional transparency and emphasize a risk-based approach to BSA/AML supervision.

The updates address transactions of exempt persons, currency transaction reporting and the customer identification program. They also include a new introduction on assessing compliance with BSA regulatory requirements. 

The agencies also made clarifications about the difference between mandatory regulatory requirements and supervisory expectations set forth in guidance. “The manual provides instructions to examiners for assessing the adequacy of a bank’s or credit union’s BSA/AML compliance program and its compliance with BSA regulatory requirements. The manual itself does not establish requirements for banks; such requirements are found in statutes and regulations,” they said.

ABA Supports Appraisal Modernization For Fannie, Freddie

The American Bankers Association offered feedback to the Federal Housing Finance Agency on appraisal-related policies and practices for Fannie Mae and Freddie Mac, noting that it “fully supports creating new alternatives to the traditional appraisals available in the market today.” ABA’s letter came in response to a request for feedback on a range of topics, including appraisal modernization, the uniform appraisal dataset and the design of appraisal forms, automated valuation models and appraisal waivers, and valuation differences by borrower and neighborhood ethnic makeup.

“ABA recognizes the need to expand traditional appraisals to include hybrid and desktop valuation approaches in order to have alternative valuation tools for different types of loans,” the association wrote. “The marketplace needs a full array of alternative methods to cover the broad spectrum of mortgage transactions and to address the different risk components or complexities of each transaction.”

As FHFA considers rolling out a new consolidated appraisal form, ABA emphasized that Fannie and Freddie should carefully consider costs and benefits associated with these changes, including the costs to industry arising from the implementation of the modifications to residential forms.

ABA Offers Feedback On Potential Changes To GSE Housing Goals

The American Bankers Association cautioned against using housing goals for Fannie Mae and Freddie Mac as a proxy to reduce the GSEs’ purchase of certain loan types in an effort to shrink their overall footprint. ABA’s letter to the Federal Housing Finance Agency came in response to a recent advance notice of proposed rulemaking, which signaled that FHFA is considering potential reduction in the housing goals credit awarded to Fannie and Freddie.

“[FHFA Director Mark] Calabria has been clear that he believes more of the market currently served by the GSEs should instead be served by other channels, including the Federal Housing Administration and private lenders,” the letter said. “ABA shares that view. However, we believe that determination of the Enterprises’ footprint is a public policy matter best decided by Congress.”

ABA also expressed opposition to further restricting loan purchases or expanded eligibility exclusions based upon safety and soundness, acceptable lending standards or loan “sustainability” and urged FHFA to proceed with caution when looking into gentrification issues. The letter also addressed whether housing goals should be adjusted to consider properties located in Opportunity Zones, and whether housing goals have helped expand low income homeownership.

FHFA Extends Foreclosure, Eviction Moratoriums Through June 30

The Federal Housing Finance Agency announced it would extend through June 30 a moratorium on foreclosures and real estate owned evictions for single-family mortgages backed by Fannie Mae or Freddie Mac. The current moratorium was set to expire March 31.

FHFA also announced that borrowers with GSE-backed mortgages also would be eligible for an additional three-month extension of COVID-19 forbearance. With this extension, borrowers may be in forbearance for up to 18 months in total. The extension applies to borrowers who are in a COVID-19 forbearance plan as of Feb. 28, 2021.

Fannie and Freddie both issued guidance for servicer on the new extensions, which are similar to extensions announced by President Biden’s administration for loans backed by the Department of Housing and Urban Development, the Department of Veterans Affairs and the Department of Agriculture.

CFPB Report: Share Of Delinquent Mortgages Doubles During Pandemic

The number of homeowners who are behind on their mortgage has doubled since the beginning of the pandemic, with 6% of mortgages in delinquency as of December 2020, according to a new report issued by the Consumer Financial Protection Bureau. A total of 2.1 million mortgages are considered “seriously delinquent,” with borrowers more than 90 days behind on making their payments. In addition, an estimated 8.8 million tenant households are behind on their rent.

While COVID-19 relief programs have reduced the number of foreclosures and evictions thus far, the bureau estimated that 11 million families could be at risk of losing their homes as COVID-19 relief measures expire. As of January 2021, there were 2.7 million borrowers in active forbearance. Of those, more than 900,000 will have been in forbearance for over a year as of April 2021.

The CFPB noted that 263,000 seriously delinquent borrowers have not taken forbearance to date and warned that should COVID-19 relief options expire before they do so, they would have limited options to avoid foreclosure. On a positive note, however, the bureau found “most borrowers that have exited forbearance have been able to resume their payments without issue.”

In a blog post, acting CFPB Director Dave Uejio acknowledged the efforts of mortgage servicers and landlords throughout the pandemic to help keep borrowers and renters in their homes, noting that “most mortgage servicers are working hard to engage with the record number of homeowners in forbearance and the many other homeowners struggling to make payments.”

NCUA Chairman Calls For Improvements To CU Consumer Protection Programs

Credit unions may not be paying attention to consumer financial protection “as closely as warranted,” National Credit Union Administration Chairman Todd Harper said at an industry event. Harper called for a dedicated NCUA program to supervise consumer financial protection compliance.

“The NCUA must create a dedicated program to supervise for compliance with consumer financial protection and fair lending laws. In doing so, we will better protect consumers’ interests, ensure that the credit union system lives up to its commitment to serve members, and provide a comparable level of consumer protection oversight as federal bank regulators,” said Harper.

In quality control reviews of examination reports, the NCUA observed weaknesses in credit unions’ compliance management systems, Harper said, adding that “if left unchecked, issues such as deficient recordkeeping, or inadequate training, or weak internal review or audit processes could lead to heightened risks.”

NCUA observed shortfalls in compliance with the Fair Credit Reporting Act, potentially affecting the credit scores of consumers, Harper said, as well as Electronic Fund Transfer Act issues that may have prevented consumers from understanding their accounts and may have led to expensive fees. NCUA also flagged Truth in Lending Act compliance problems where credit unions did not provide complete and accurate disclosures to their members or correctly calculate the finance charge for certain consumer loans.

Zelle Payments Now Able To Be Cleared, Settled Over RTP Network

Zelle transactions can now be cleared and settled over the RTP network, enabling companies to send transactions with a customer's email address or mobile number without having to collect bank account information, Early Warning Services and the Clearing House announced.

Bank of America and PNC Bank were the first to take advantage of the new payment option that uses the emerging global ISO 20022 message standard. Bank of America said the new capability will help consumers better manage their money and reduce the potential for late payments by giving customers more control over the timing of payments.

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