On September 25, the FSOC released a Statement on Activities-Based Review of Secondary Mortgage Market (Statement). According to the Statement, in conducting its review, the FSOC evaluated the FHFA’s proposed new capital rule (Proposed Capital Rule) that is intended to enhance the quality and quantity of required capital so as to ensure that each of Fannie Mae and Freddie Mac (Enterprises) remains well-capitalized both during and after a severe economic downturn and also to mitigate the potential risk to national housing finance markets posed by the Enterprises. Specifically, the FSOC considered whether the proposed capital rule (1) is appropriately sized and structured given the Enterprises’ risks and their key role in the housing finance system and (2) promotes stability in the broader housing finance system. The FSOC stated that any capital requirements "materially less" than what the FHFA proposed in the new capital rule “would likely not adequately mitigate the potential stability risk” posed by the Enterprises, and encouraged the FHFA to:
- avoid market distortions that could result from lower credit risk requirements for the Enterprises;
- consider the relative merits of alternative approaches for more dynamically calibrating the capital buffers; and
- ensure high-quality capital by implementing regulatory capital definitions that are similar to those in the U.S. banking framework.
On September 29, the Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency and FDIC finalized rules to provide COVID-19-related relief on appraisals and the liquidity coverage ratio. Both rules are either identical or substantially similar to interim final rules currently in effect and issued earlier this year. Specifically, the final rules include:
- a final rule that temporarily defers appraisal and evaluation requirements for up to 120 days after the closing of certain residential and commercial real estate transactions; and
- a final rule that neutralizes—due to the lack of credit and market risk—the regulatory capital and liquidity effects for banks that participate in certain Federal Reserve liquidity facilities.
The final rule temporarily deferring appraisal and evaluation requirements allows individuals and businesses to more quickly access real estate equity to help address liquidity needs as a result of the coronavirus. In response to comments, the final rule clarifies which loans are subject to the deferral. The final rule is effective upon publication in the Federal Register and will expire on December 31, 2020.
The final rule pertaining to Federal Reserve liquidity facilities adopts without change three interim final rules issued in March, April and May of 2020. Earlier this year, the Federal Reserve launched several lending facilities to support the economy in light of the coronavirus response. The final rule neutralizes the regulatory capital and liquidity coverage ratio effects of participating in the Money Market Mutual Fund Liquidity Facility and Paycheck Protection Program Liquidity Facility because there is no credit or market risk in association with exposures pledged to these facilities. As a result, the final rule will support the flow of credit to households and businesses affected by the coronavirus. The effective date of this final rule is 60 days after the date of publication in the Federal Register.
In order to streamline its regulations, the FDIC has proposed to rescind and remove from the Code of Federal Regulations prompt corrective action rules that were transferred to the FDIC from the OTS on July 21, 2011, in connection with the implementation of Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The proposal would also amend certain sections of existing FDIC prompt corrective action rules to make it clear that such rules apply to all insured depository institutions for which the FDIC is the appropriate Federal banking agency. Comments on the proposed rule must be received on or before October 28, 2020.
The SEC has adopted the third group of amendments to its disclosure requirements, originally proposed in August 2019 and discussed in an earlier Goodwin client alert. These amendments are the next steps as the SEC continues to update its disclosure requirements and will incrementally simplify disclosure about a company’s business, emphasizing a principle-based approach. Read the client alert to learn more about these amendments. The amendments will be effective 30 days after publication in the Federal Register.
As previously discussed in the Roundup, the SEC has adopted amendments to the definitions of “accredited investor” and “qualified institutional buyer” (QIB). The amendments are substantially the same as those originally proposed by the SEC in December 2019, and will expand investor access to private capital markets by adding new categories of natural persons and entities that may qualify as accredited investors or QIBs. Read the client alert for Goodwin’s advice on what private market participants should do before the amendments become effective, which will be 60 days after publication in the Federal Register.
On September 14, the CFPB announced a settlement in its eighth case arising out of the CFPB’s “sweep of investigations” of mortgage companies allegedly mailing deceptive advertisements for VA-guaranteed mortgages to service members and veterans. The CFPB’s focus on protecting consumers, especially those of vulnerable populations, is in line with general enforcement trends in the industry over the last several years, as Goodwin previously reported in its Consumer Finance 2019 Year in Review. Read the LenderLaw Watch blog to read more about these settlements and the CFPB’s enforcement efforts.
Litigation and Enforcement
On September 29, the CFPB, along with the FTC and more than 50 federal and state law enforcement partners, announced a nationwide law enforcement and outreach initiative to protect consumers from phantom debt collection and abusive and threatening debt collection practices. The initiative, called Operation Corrupt Collector, includes five cases filed by the FTC, two cases filed by the CFPB and three criminal cases brought by the U.S. Department of Justice and U.S. Postal Inspection Service. States reporting actions as part of the operation include Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Massachusetts, New Mexico, North Carolina, North Dakota, New York, Ohio, South Carolina and Washington. In addition to law enforcement actions, state and local consumer protection agencies are joining the FTC in rolling out new information to help consumers know their rights when it comes to debt collection and what steps to take if they receive a call trying to collect on a debt that they do not recognize.
On September 15, the CFPB announced that it had filed a proposed stipulated judgment against a Delaware statutory trust after a settlement agreement was reached between the trust and 47 states plus the District of Columbia. This judgement marks the third settlement by the CFPB related to the private loan programs of ITT Educational Services, Inc. (“ITT”). As we reported last year, the CFPB announced a settlement with another company that had been set up to hold and manage a separate portfolio of private loans for ITT students, by which the company agreed to discharge approximately $168 million in loans. Read the Enforcement Watch blog to learn more about the complaint against the trust.
Goodwin’s latest webinar series “Financial Services Forward Focus,” presented by a cross-discipline team of Goodwin lawyers, explores the topics that are most relevant for the financial services industry in a challenging market. From changing regulatory guidelines to fintech, mergers and acquisitions and corporate social responsibility, Goodwin will take attendees through these topics and provide guidance to help you navigate the current market conditions. Please visit the web page for more information and to access recordings and resources from previous sessions.