June 24, 2021

Parson Signs Bill To Create Electronic Lien, Title System

A modernized computer system that will allow the Missouri Department of Revenue to integrate an electronic lien and title system, among a number of other improvements, is one step closer after Gov. Mike Parson signed Senate Bill 176 into law this week. MBA supports the measure, which takes effect Aug. 28.

Senate Bill 176, sponsored by Sen. Lincoln Hough, R-Springfield, and carried in the House by Rep. Aaron Griesheimer, R-Washington, creates the Motor Vehicle Administration Technology Fund. The fund is dedicated for the purpose of developing a modernized system for the titling of vehicles, the issuance and renewal of vehicle registrations and the perfection and release of liens and encumbrances on vehicles.  The program is funded through administrative fees charged by motor vehicle dealers. 

MBA has long supported technology improvements for the Department of Revenue. A special thank you to the Missouri Auto Dealers Association, Hough, Griesheimer, House and Senate leadership and the governor for their work on passing and approving the legislation.

New Report Highlights Missouri’s Low-Income Housing Tax Credit

The Missouri Accelerated Redemption Study Committee issued a report relating to the state’s low-income housing tax credit. The committee recommends the Missouri Housing Development Commission allocate up to 50% of the state’s low-income housing tax credits be used for its accelerated redemption pilot program, an increase from its current 20% allocation. The report’s recommendation will require approval by the MHDC board as part of the FY 2021 Qualified Allocation Plan.

The study committee was formed in 2020 and approved as part of MHDC’s FY 2020 Qualified Allocation Plan to evaluate the impact of accelerated redemption on pricing for low-income housing tax credits.

Parson Calls Special Session On FRA

Gov. Mike Parson called lawmakers back to the Capitol this week for a special session on the Federal Reimbursement Allowance. The FRA is a key funding mechanism for health-related services, including Medicaid, worth approximately $2 billion. Although typically noncontroversial, the measure failed to pass in the Senate during the regular session after an amendment was added relating to birth control. Debate is expected to be contentious, and it’s uncertain whether lawmakers will reach an agreement on the measure. It’s possible leadership will employ a procedural motion to shut off a filibuster and force a vote.

Powell: Recent Rise In Inflation Is ‘Transitory’

Testifying on Capitol Hill this week, Federal Reserve Chairman Jerome Powell said that a recent rise in inflation is transitory and that a “perfect storm” of strong demand and weak supply due to the reopening of the economy is a substantial cause.‌

“These effects have been larger than we expected, and they may turn out to be more persistent than we expected, but the incoming data are very much consistent with the view that these are factors that will wane over time and then inflation will move down toward our goals,” Powell told the Select Subcommittee on the Coronavirus Crisis.

‌Powell added that increases in oil prices passed through to consumers, very low readings from early in the pandemic falling out of calculations and supply bottlenecks were other causes of recent inflation. Speaking about the sluggish labor market, Powell told the committee that there are several reasons people are citing for not rejoining the workforce, including fear of being infected or passing along the infection, schools remaining closed and enhanced unemployment benefits.

“The very quick job gains of the early recovery essentially involve going back to your old job, that’s not so much what's happening now. Now it’s actually finding new jobs, and that’s a matching function that is more labor-intensive and time-consuming and there may be a bit of a speed limit on that. We expect, though, a lot of progress,” said Powell.

Supreme Court: FHFA Director May Be Removed By President At Will

The U.S. Supreme Court ruled that the structure of the Federal Housing Finance Agency is unconstitutional, given that it has a sole director who may only be removed by the president for cause, not at will. The court’s opinion in the case of Collins v. Yellen mirrored its decision in Seila Law v. CFPB, which challenged the Consumer Financial Protection Bureau’s structure on similar grounds. The court in that case held that the bureau may continue to operate but that its single powerful director must be able to be removed at will by the president.

Immediately after the decision, President Biden removed FHFA Director Mark Calabria, who had been appointed by former President Trump to a five-year term starting in 2019. Biden designated Sandra Thompson as FHFA acting director. Thompson, a 23-year veteran of the FDIC, has served since 2013 as deputy director of FHFA's Division of Housing Mission and Goals.‌

The Collins case arose when Fannie Mae and Freddie Mac shareholders challenged FHFA’s amendments to the senior preferred stock purchase agreements, which among other things included the replacement of the fixed dividend with a variable quarterly dividend. The shareholders argued that FHFA exceeded its authority both on statutory grounds as a conservator under the Recovery Act by agreeing to the new variable dividend formula, and on constitutional grounds, claiming that the agency’s structure violates the separation of powers.

Although the court sided with the shareholders on the constitutional question, it held that the shareholders’ statutory claim is barred by the Housing and Economic Recovery Act, which prohibits course from taking “any action to restrain or affect the exercise of [the] powers or functions of the Agency as a conservator.”

ABA, Trade Groups Warn Against Changes To Section 199A Tax Deduction

The American Bankers Association and a broad coalition of trade associations urged congressional leaders to oppose any efforts to reduce or repeal the 20% deduction for qualified business income under Section 199A, including phasing out the deduction above certain income thresholds. The deduction, which was enacted as part of the 2017 tax reform law, applies to certain qualified businesses income received from sole proprietorships, pass-through entities such as partnerships or businesses operating under a Subchapter S election and other selected entities.‌

Should lawmakers move ahead with an overhaul of Section 199A, the groups pointed out that it would lead to significantly higher taxes for small businesses, especially for individual or family-run firms, placing them at a competitive disadvantage. They added that the recent tax plan outlined by President Biden’s administration did not include changes to the existing deduction.

“Proposals to limit or repeal the deduction would hurt main street businesses and result in fewer jobs, lower wages, and less economic growth in thousands of communities across the country,” the groups wrote. “Such changes would amount to a direct tax hike on America’s main street employers, a key reason why the tax plan released by the White House in March left the deduction fully intact.”

Bowman: Community Banks ‘Irreplaceable’ In Meeting Small Business PPP Needs

Community banks are irreplaceable in responding to the needs of small business clients and in helping them access the multiple rounds of the Paycheck Protection Program funding during the pandemic, Federal Reserve Governor Michelle Bowman said during remarks at an industry event this week.

“While I have heard from community groups that small businesses struggled to navigate the PPP application process, especially those that did not have a preexisting banking relationship, community banks and [community development financial institutions] made a concerted effort to meet small business needs,” Bowman said.

‌The Fed’s 2021 Small Business Credit Survey showed that small banks were the most common source for PPP loans among employer firms, Bowman said, adding that applicants that sought assistance from smaller banks were the most successful in obtaining all of the PPP funding they applied for.

“As a former community banker, I know that few understand their communities better because they live in the local economy and can step in to lend in a targeted way to those best prepared to benefit,” Bowman said. 

FDIC: Banks Continued Residential Mortgage Lending Amid Economic Uncertainty

Amid ongoing pandemic-related economic uncertainties, the nation’s banks maintained the flow of credit by continuing to make residential mortgage loans, according to an article in the FDIC Quarterly. The article noted that “community banks in particular have maintained strength in residential lending” and that community banks’ share of all residential real estate loans has remained consistent at around 26% for more than a decade.

“Unlike in 2008, when a financial crisis resulted in an economic crisis and the banking system entered a long period of balance sheet repair, the banking system was much stronger in 2020 and better able to withstand economic distress,” the Federal Deposit Insurance Corporation noted. “Banks have been in a position to help support the economy by extending credit and by working with distressed borrowers.”‌

Mortgage delinquency rates spiked sharply in early 2020 when the pandemic began, following several months of steady decline, but fell again as COVID-19 relief programs were instituted, the FDIC noted. This was driven mostly by a decrease in 30- and 60-day delinquencies; the FDIC found that although delinquency rates among borrowers with mortgages more than 90 days past due tapered off slightly at the end of 2020, they picked up again in early 2021, “reflecting the more entrenched distress of those with longer-term delinquencies.”

Overall, bank underwriting standards tightened in 2020 in response to weakening economic conditions. The FDIC said it also has seen weakening in bank asset quality since mid-2020 and noted that credit quality concerns remain, especially as COVID-19 relief programs begin to expire and borrowers continue to face financial challenges. However, while the noncurrent loan balance remains higher than in recent years, “noncurrent loan balances after the [2008] financial crisis were more than three times larger,” the agency observed.

ABA Report: Ag Lending Remains Strong Despite Small Decrease In 2020

Agricultural lending by the nation’s farm banks dipped 1.8% to $98.6 billion in 2020 as demand for agricultural production loans declined slightly, according to the American Bankers Association’s annual Farm Bank Performance Report. Agricultural production loan demand declined 6.7% because of rising costs, supply and production bottlenecks, price volatility and an increase in federal cash payments, the report found. Government payments also enabled producers to pay down existing loan balances.

‌“American farm banks have remained healthy this past year and continued to play a critical role in supporting farmers and the broader U.S. economy through the turbulence of 2020,” said ABA Chief Economist Sayee Srinivasan. “While the agricultural sector will continue to face challenges as the economy reopens and recovers from the coronavirus pandemic, the strong asset quality and capital levels of America’s farm banks will help ensure that they continue to provide support to rural communities.”‌

Farm banks, defined by ABA as banks with ratios of domestic farm loans to total domestic loans greater than or equal to the industry average, also continued to build high-quality capital throughout 2020. Equity capital increased 9% to $52.6 billion while Tier 1 capital increased by $3.6 billion to $48.3 billion.

The report also found that farm banks supported rural communities through the Paycheck Protection Program by holding 172,818 PPP loans worth $12.7 billion on their balance sheets at the end of 2020. Farm banks distributed these loans via more than 7,700 branches across rural America.

Agencies Release 2020 HMDA Data

The Federal Financial Institutions Examination Council released the 2020 Home Mortgage Disclosure Act data on mortgage lending transactions at 4,475 financial institutions. (FFIEC noted that the number of reporting institutions was down by about 18.8% partly because of a change in the reporting threshold for closed-end mortgage loans under Regulation C.) The data encompasses 22.7 million mortgage applications, 14.5 million of which resulted in loan originations. Of these, 13.2 million were closed-end loans and 906,000 were open-end loans, such as home equity lines of credit. There also were 432,000 records that did not indicate loan type.

The total number of originated closed-end loans rose 67.1% from 2019 to 2020. Refinances increased 150%, and home purchase loan originations increased 6.7%. The HMDA data showed that low-to-moderate income borrowers accounted for 30.4% of single-family, owner-occupied home purchases — up from 28.6% in 2019. LMI borrowers also accounted for 19.3% of single-family refis, down from 23.8% in 2019.

‌Overall, loans backed by the Federal Housing Administration, Department of Veterans Affairs or federal farm programs accounted for 32.9% of all new mortgages in 2020, down slightly from 33.4% in 2019. FHA and VA market share both decreased slightly. The FHA market share for refinances fell to 6.6% from 12% in 2019 while shares of VA refinances decreased from 13.5% to 11.9%. Meanwhile, nondepository lenders held 60.7% market share in 2020, up from 56.4% in 2019.

Black borrowers accounted for 7.3% of single-family home purchase loans in 2020, up slightly from 7% the year before. Home purchase loan shares for Hispanic-white borrowers edged down from 9.2% in 2019 to 9.1% in 2020 and were down from 5.7% to 5.5% among Asian-American borrowers. The data also noted that Black and Hispanic-white applicants experienced higher denial rates for conventional home mortgages than non-Hispanic-white applicants, but the agencies noted that “these relationships are similar to those found in earlier years” and that because of the limitations of HMDA data “cannot take into account all legitimate credit risk considerations for loan approval and loan pricing.”

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 international transportation of currency or monetary instruments reporting; purchase and sale of monetary instruments recordkeeping; reports of foreign financial accounts; and regulatory requirements for special measures issued under Section 311 of the USA Patriot Act.

Fed Extends Comment Period for ABA-Opposed Durbin Proposal

The Federal Reserve announced it would extend until Aug. 11 the comment deadline for a proposal to amend Regulation II, which implements the Durbin Amendment, to apply the requirement that debit card transactions be able to be processed on at least two unaffiliated payment card networks — for example, a PIN debit and a signature debit network — to card-not-present transactions.

The American Bankers Association previously panned the proposal, warning in a statement with other financial trades that revisiting the “flawed from the beginning” Durbin Amendment would make it harder for banks to deliver low transaction prices to acquirers and consumers.

IRS Adds Online Tools To Manage Child Tax Credit Payments

The Internal Revenue Service released two new online tools to help manage monthly child tax credit payments, which were authorized under the American Rescue Plan. They add to a non-filer sign-up tool released last week. The first monthly child tax credit payments will be made July 15.

With the child tax credit eligibility assistant, users answer a series of questions to determine if they qualify for the advance credit. The child tax credit update portal allows users to verify payment eligibility and, should they choose to, unenroll or opt out of monthly payments to receive a lump sum when they file their tax return next year. The IRS plans to release updated versions of the online resources later this summer and in the fall to allow users to view their payment history, adjust bank account information or mailing addresses and other features, including a version in Spanish. 

ABA To Host Free Webinar On Expanding Black Homeownership

The American Bankers Association will host a free webinar at 2:30 p.m. Tuesday, June 29, about banks’ role in expanding Black homeownership. Participants will learn strategies to serve this segment of the market and explore relevant lending data. Speakers include leading experts from the National Association of Real Estate Brokers, Urban Institute, National Fair Housing Alliance and the Department of Housing and Urban Development.