June 18, 2020

State Treasure Discusses CARES Act Funding, Time And Linked Deposit Programs On MBA Podcast

The latest episode of "Our Two Cents with MBA" podcast features Missouri State Treasurer Scott Fitzpatrick, who is leading the Governor's Task Force on CARES Act funds distribution for Missouri. The treasurer shares insights on the task force's work, as well as updates on the time and linked deposit programs. He also discusses MO ABLE and the 529 program.

"Our Two Cents with MBA" podcast  is available on iTunes, Apple Podcasts, Google Podcasts and Spotify.  

ABA Voices Strong Opposition To CU Bank Acquisition Proposal

In a letter to the National Credit Union Administration, the American Bankers Association vigorously opposed a proposal that would formalize a process for credit unions to purchase taxpaying banks, a practice “growing at an alarming rate” in recent years. The association pointed out several concerning trends that have emerged from recent credit union acquisitions of community banks, noting that large, tax-exempt credit unions are seeking out smaller banks for acquisitions, often in saturated markets where consumers already have plenty of financial options.
 
“ABA believes that credit unions are aggressively targeting banks for acquisition to expand their business lines and growth their field of membership outside of their chartered mandate to serve low- and moderate-income individuals,” the association said. In addition, ABA noted that “further aided by their tax advantage, credit unions are employing an acquisition strategy that outprices taxpaying banks for the same deals.”
 
ABA added that “these actions raise severe policy and regulatory concerns given the expansion of large credit unions and the broader risks the impact would have on the $1.5 trillion credit union industry,” and urged NCUA to “reevaluate its supervisory responsibilities and work with Congress on credit union charter and tax preference reforms.”

Bipartisan Group Of Senators Call For FSOC Study On CECL

A bipartisan group of senators urged Treasury Secretary Steven Mnuchin to direct the Financial Stability Oversight Council to conduct a study on the current expected credit loss accounting standard’s effect on lending and the economy. The senators raised concerns about the procyclical nature of CECL and the way in which it constrains credit availability, particularly during the current economic downturn because of COVID-19.
 
“The reserves for the 200 largest banks, which have community, state, regional, and national footprints, increased by nearly 60% at the end of the first quarter compared to the quarter ending 2019, representing billions of dollars of capital that has been taken out of the system during a moment when it is most needed,” they noted. “Now is the optimal time to assess CECL’s economic impact, including how the policy affects products and lending decisions of financial institutions, and especially the consequences on customers in low-to-moderate income communities.”
 
The senators recommend that FSOC study current macroeconomic data, rather than relying on “speculation and models,” and complete a report by 2021.

FHFA Calls On Congress To Pursue Housing Finance Reform In Annual Report

In the Federal Housing Finance Agency’s annual report to Congress, the agency outlined several legislative steps it is seeking to reform the nation’s housing finance system.
 
“Only Congress has the authority to enact the legislative reforms necessary to address the structural flaws in the current model,” FHFA Director Mark Calabria wrote in a cover letter to the report. “To that end, in this report, I reiterate my recommendation that Congress remove unnecessary statutory exemptions and other advantages afforded the Enterprises and grant FHFA the authorities, similar to those of other financial regulators, to develop capital standards for the Enterprises and to issue new enterprise charters.”
 
The report also included a comprehensive overview of the steps FHFA has taken to respond to the coronavirus pandemic and ensure the continued functioning of the housing market, including enacting foreclosure and eviction preventions, providing resources for homeowners and renters and granting relief to mortgage originators and homebuyers.

ABA Urges Targeted Changes To FDIC’s Brokered Deposit Proposal

In a comment letter to the Federal Deposit Insurance Corporation, the American Bankers Association raised concerns that the agency’s recent proposal to modernize brokered deposit rules does not go far enough to narrow the definition of “deposit broker” and would continue to impose unnecessary costs on stable funding sources gathered through modern means.
 
ABA recommended several changes to the proposal, including a more precise definition of “deposit broker” and an explicit exemption for parties not deemed to be deposit brokers. ABA also urged the FDIC to ensure that activities that fall within the rule’s primary purpose exemption do not require an application and to require an annual re-certification of primary purpose exemptions. Finally, ABA called for a transitional period for institutions to comply with the final rule when it is issued and for additional steps that would help to mitigate the stigma of “classic” brokered deposits, including examiner education.
 
ABA as long called for an update to the brokered deposit rules and expressed appreciation for the FDIC’s willingness to consider changes to the three-decade-old regulatory framework. The association also continues to call for much-needed changes to the national rate cap, which is often used as a proxy for volatile deposits at healthy banks and calculated in a manner that fails to account for differences in local markets and how banks compete.
 
ABA’s Health Savings Account Council also filed comments on the FDIC proposal, recommending that HSAs continue to be treated as core deposits and thus excluded from the brokered deposit rules.

OCC Issues Final Rule Clarifying ‘Valid When Made’ Principle

A final rule from the Office of the Comptroller of the Currency affirms that permissible interest on a loan made by a national bank or federal thrift remains valid when the loan is transferred or sold, codifying the “valid when made” principle for nationally chartered banks. Under the final rule, federal regulations would provide that interest on permissible loans “shall not be affected by the sale, assignment, or other transfer of the loan.”
 
The so-called “Madden fix” addresses a Second Circuit Court of Appeals ruling in Madden v. Midland Funding, which held that a nonbank buyer of a loan issued by a national bank could not export the originated interest rate into another state. The Supreme Court declined to take up an appeal of Madden, resulting in conflicting precedent around the country and increasing the urgency of regulatory or legislative action.
 
“The rule supports the orderly function of markets and promotes the availability of credit by answering the legal uncertainty created by the Madden decision,” said Acting Comptroller of the Currency Brian Brooks. “Such certainty allows secondary markets to work efficiently and to serve their essential role in the business of banking and helping banks access liquidity and alternative funding, improve financial performance ratios, and meet customer needs.”
 
The Federal Deposit Insurance Corporation also has issued a similar proposal, ensuring that “valid when made” is codified for both national and state-chartered banks.

OCC Issues Proposals On Bank Activities, Innovation

The Office of the Comptroller of the Currency has proposed changes to its rules for national bank and federal savings association activities and operations to ensure that they can continue to meet the shifting needs of consumers, businesses and communities.

The proposed rule would make several changes to update, streamline or clarify existing rules related to the following.

• permissible derivatives activities for national banks
• the ability of national banks and federal thrifts to engage in certain tax equity finance transactions
• national bank and thrift membership in payments systems

• hurdles to bank innovation
• digital banking activities not covered by existing regulations
• cryptocurrencies and cryptoassets
• distributed ledger technology
• artificial intelligence and machine learning
• new payments technologies
• challenges faced by smaller institutions with respect to technology

CFPB Proposes Reg Z Changes For Libor Transition

As part of the planned transition away from the London Interbank Offered Rate, the Consumer Financial Protection Bureau proposed a rule addressing the rate transition and Regulation Z. Specifically, the bureau proposed changes to open-end and closed-end provisions to provide examples of replacement indexes for Libor indexes that meet Reg Z standards.
 
Although Reg Z permits home equity line of credit creditors and card issuers to change the index and margin they use to set annual percentage rates when a rate is no longer available, the CFPB said that early transition from a Libor index could benefit consumers and the industry. The bureau also proposed that WSJ Prime and certain Secured Overnight Financing Rate indexes be suitable replacements. The proposal would create provisions for this transition starting in March 2021.
 
It also would identify specific indexes as examples of a “comparable index” for closed-end loans to avoid a rate change constituting a refinancing under Reg Z. The bureau said that it “anticipates that the spread-adjusted replacement [SOFR] indexes that the [Alternative Reference Rates Committee] is developing will provide a good example of a comparable index to the tenors of Libor that they are designated to replace” and sought comment on other comparable indexes. Comments are due by Aug. 4.
 
The bureau also released a Libor transition FAQ to provide guidance not requiring amendments to Reg Z, and it revised the Consumer Handbook on Adjustable-Rate Mortgages (required by RESPA) to eliminate references to Libor, among other changes.

CFPB Issues TRID Factsheet, FAQs

The Consumer Financial Protection Bureau published a fact sheet for lenders on title insurance disclosure requirements under the TILA-RESPA integrated disclosure rule. The fact sheet outlines disclosure requirements for lender’s title insurance and owner’s title insurance on the loan estimate and closing disclosure and provides illustrative examples.
 
The CFPB also added several new questions to its TRID FAQs regarding the total of payments disclosure included on the closing disclosure. The FAQs also address whether a creditor can require a consumer to sign and return the loan estimate or closing disclosure.

FHFA Finalizes Changes To FHLB Housing Goals

The Federal Housing Finance Agency finalized several changes to the housing goals for the Federal Home Loan Banks. The changes affect all FHLBs that purchase mortgages through the Acquired Member Asset Program and will be phased in throughout a three-year period.
 
Under the existing framework, FHLBs whose AMA purchases exceed $2.5 billion in a given year are subject to the housing goals. Goals performance is evaluated by comparing the proportion of an FHLB’s purchases that were affordable with the proportion originated in its district reported as affordable in Home Mortgage Disclosure Act data.
 
The final rule eliminates the $2.5 billion volume threshold and the retrospective evaluation using HMDA data and instead sets a single prospective mortgage purchase housing goal as a share of each FHLB’s total AMA purchases. It also establishes a process through which FHLBs could propose alternative goals to the prospective goals set in the regulation and simplifies and expands the eligibility criteria to allow government-backed loans to count for goals purposes.

FHFA, FHA Extend Foreclosure, Eviction Moratoriums

The Federal Housing Finance Agency announced it would extend, through Aug. 31 at a minimum, a moratorium on foreclosures and evictions for single-family mortgages backed by Fannie Mae or Freddie Mac. The current moratorium was expected to expire June 30.
 
“To protect borrowers and renters during the pandemic we are extending the Enterprises’ foreclosure and eviction moratorium,” said FHFA Director Mark Calabria. “During this national health emergency no one should worry about losing their home."
 
The Federal Housing Administration similarly extended through Aug. 31 its forelosure and eviction moratorium for homeowners with FHA-insured single-family mortgages.

FHFA To Re-Propose Updated Seller, Servicer Eligibility Requirements

The Federal Housing Finance Agency said it plans to re-propose updated standards that mortgage institutions would have to meet to sell loans to or service loans on behalf of Fannie Mae and Freddie Mac in response to recent market events. The agency noted that the re-proposal will incorporate lessons learned from the COVID-19 national emergency. FHFA originally proposed the standards in January and was set to have finalized and implemented them this month. 

ABA Report: Farm Banks Increased Capital Ahead of Pandemic

Before the outbreak of the coronavirus in the U.S., the nation’s farm banks were well-capitalized, with many raising equity capital — a more conservative type of capita l— according to the American Bankers Association’s annual Farm Bank Performance Report. Equity capital at the nation’s 1,715 farm banks rose 11.5% to total $52 billion in 2019. Tier 1 capital, meanwhile, increased by $3.3 billion to $47.9 billion.
 
Farm banks increased agricultural lending by 3.6%, or $4 billion, to $105 billion in 2019. Almost all of them were profitable, with 63% reporting earnings increases. The report noted, however, that many ag producers were struggling with difficult conditions in the agricultural economy, from trade uncertainties to natural disasters to weakening farm balance sheets and land values, before the outbreak of COVID-19. Farm banks reported noncurrent ag loans ticking up to 0.84%.
 
Looking ahead, the report noted that with the onset of the pandemic, the ag sector has seen demand decline and supply chain disruptions and that “as lockdown and the virus persists, pressure will continue to weigh on the agricultural sector in 2020.”

ABA Foundation Launches New Housing Relief Resource Page

CFPB Releases Guide To Building Elder Fraud Prevention Networks

ABA Foundation To Host Webinar On Affordable Housing For Military Families

FFIEC To Host Webinar On BSA/AML Exam Manual Updates