Congress Urges FHFA to Pause Rulemaking Amid COVID-19 Pandemic

Strategic Insights -

As the nation grapples with the COVID-19 pandemic, Congresswoman Maxine Waters, Chairwoman of the House Committee on Financial Services, and Congressmen Wm. Lacy Clay and Denny Heck have sent a letter to Dr. Mark Calabria, Director of the Federal Housing Finance Agency (FHFA), urging the agency to pause a rulemaking that would set new capital requirements for Fannie Mae and Freddie Mac (the Enterprises) until after the pandemic. The lawmakers express concerns that the rulemaking would have harmful impacts on access to credit for underserved borrowers, including borrowers of color and lower-income borrowers.

Key Takeaways:

  • The letter, sent on May 20, 2020, expresses concerns that the rulemaking would have harmful impacts on access to credit for underserved borrowers, including borrowers of color and lower-income borrowers.
  • The lawmakers request that the FHFA pause the rulemaking until after the COVID-19 pandemic passes and instead extend the comment period to allow for sufficient analysis of the rule's impacts on borrowers of color.
  • The proposed rule would establish a new, complex regulatory capital framework for the Enterprises, which would increase costs for borrowers and potentially deny access to credit to underserved communities.
  • The lawmakers note that the pandemic has caused significant economic harm and that the rulemaking could exacerbate the crisis, particularly for communities of color who were disproportionately affected by the 2008 foreclosure crisis.
  • The letter cites examples of previous rulemaking processes that allowed for longer comment periods and more extensive stakeholder engagement, advocating for a similar approach in this case.
  • The lawmakers request that the FHFA engage with stakeholders through public hearings or roundtables to ensure that impacted communities have a voice in the rulemaking process.

Statistics:

  • The proposed rule would translate into a substantial increase in (g-fees) by 15 to 20 basis points.
  • The rule could deny access to credit to an estimated number of borrowers, including a breakdown of what percentage of those borrowers are borrowers of color.
  • The average increase in mortgage costs for borrowers under the proposed rule could be estimated, including a breakdown by race and ethnicity.
  • The 424-page rule would have a significant impact on the housing market, potentially hampering the ability of the Enterprises to provide liquidity and stability during and after the pandemic.

Sources:

  • Letter from Representative Waters, Clay, and Heck to Director Mark Calabria, May 20, 2020.
  • National Housing Conference, "Racial Justice and the GSE capital rule: yes they are related," https://www.nhc.org/racialjustice-and-the-gse-capital-rule-yes-they-are-related/, June 2020.
  • Independent Community Bankers of America, Letter to The Honorable Mark Calabria, Director, FHFA et al, March 30, 2020, https://www.icba.org/docs/defaultsource/icba/advocacy-documents/letters-to-regulators/icbas-covid-19-agency-rulemaking-delayletter.pdf?sfvrsn=95fb2b17_0.
  • Proposed Rule by the Treasury Department, the Federal Reserve System, and FDIC on Risk-Based Capital Standards: Advanced Capital Adequacy Framework (Sep. 25, 2006).
  • Federal Reserve Board invites comment on three proposed rules intended to help ensure banks maintain strong capital positions, (Jun. 7, 2012).