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Washington Report | August 10, 2018

Published on August 10, 2018

Washington Report - August 10, 2018

In a meeting of housing and consumer organizations this week, we heard from Comptroller of the Currency Joseph Otting that the OCC would issue an Advance Notice of Proposed Rulemaking (ANPR) regarding the Community Reinvestment Act (CRA) before Labor Day. The Comptroller indicated the release would incorporate input from the other federal bank regulators — the Federal Reserve Bank and the Federal Deposit Insurance Corporation — as well, reflecting the agencies’ consensus areas of interest in potential changes to the CRA regulations.

The ANPR was expected after the Treasury Department, in April, issued a memorandum to the agencies recommending “regulatory and administrative changes that are consistent with the original intent of CRA, including common sense reforms that reduce the complexity and burden on banks, regulators, and community advocates.”

While awaiting the ANPR to see specifically what the regulators are considering, the following would be constructive outcomes of any revisions to the CRA rules:

  • More housing capital for rural communities. While rural areas are more diverse than commonly portrayed, many lack financing for affordable housing. The Housing Assistance Council has noted: “The failure of lending activity to match up with [CRA] assessment area boundaries reflects the reality that retail bank locations are no longer the sole conduit for mortgage access,” leading to “blank spots in rural lending activities.” And Housing Credits have less purchasing power in rural communities because banks generally get greater CRA credit for investing in their more urban CRA “assessment areas,” as currently defined, even though the investment performance in them is “not materially different” than in rural places, according to a CohnReznick report.
  • Increased preservation of naturally-occurring affordable housing. The inventory of “naturally-occurring” (i.e., unregulated and unsubsidized) affordable housing (NOAH) is at least 5.5 million units, about the same size as the federally-assisted supply. The stock “faces headwinds from the deterioration and obsolescence, as well as value-add investment activities that may take previously affordable multifamily rental properties out of the affordable range,” Bridge Investment Group wrote recently. Current CRA regulatory guidance regarding bank investment in NOAH preservation is “unworkably vague, inconsistently applied, and burdensome” — but readily fixable — in the view of the National Association of Affordable Housing Lenders.
  • Sustained strong demand for HFA-funded affordable mortgage financing. In addition to being the primary investors in Housing Credits, CRA-defined “large banks” are major buyers of Housing Bonds and funders of Housing Bond loans, which results in lower all-in borrowing rates in CRA-driven markets, as suggested in a recent presentation by Norris, George and Ostrow, PLLC. Just recently, we heard from a state HFA that attributes CRA to ensuring strong demand for its bonds during a period when one of its state’s major cities was experiencing severe financial stress that was rattling investors.

The forthcoming CRA rulemaking is widely, and fairly, being described an “opportunity.” Since opportunities often come with risks or tradeoffs, proponents of any CRA changes — whether regulators or advocates — must be mindful as well of another law: that of unintended consequences. The ultimate goal and end result of CRA should always be more safe and sound community reinvestment in all the areas that need it.


Stockton Williams | Executive Director

In This Issue

HUD Issues Reminder That Housing Trust Fund Commitment Deadlines Near for FY 2016 Grants

HUD notified us recently that the deadlines for committing FY 2016 Housing Trust Fund (HTF) grants may be coming up very soon. The HTF statute requires grantees to commit their HTF funds within 24 months of receiving a grant. HUD obligated the first HTF grants to states in September 2016, which means states will begin hitting their commitment deadlines as soon as next month. HUD tells NCSHA that, to date, not all of the FY 2016 HTF grantees have met the 24-month commitment requirement, according to HUD’s Integrated Disbursement and Information System (IDIS), where grantees must enter their data for HUD to acknowledge it. If a state does not meet its commitment and enter it into IDIS, HUD is required to deobligate the uncommitted funds from the grantee’s HTF Treasury account. Commitments may be entered into IDIS after the grantee executes a legally binding agreement with a recipient.

FHFA Releases Results of Fannie and Freddie Stress Tests

The Federal Housing Finance Agency (FHFA) Tuesday released the results of Fannie Mae’s and Freddie Mac’s annual stress tests, which the Dodd-Frank Wall Street Reform and Consumer Protection Act requires FHFA to conduct to determine their ability to absorb losses released during severe economic downturns. This year’s tests show that the two firms would need a combined total of between $42 billion and $78 billion from the U.S. Treasury should a “severely adverse scenario” occur. For the purpose of the 2018 tests, a “severely adverse scenario” is described as a global recession that prompts investors to lose interest in long-term assets, such as mortgage-backed securities. These results are a slight improvement from the 2017 tests, which estimated that Fannie Mae and Freddie Mac would need a combined $100 million from Treasury. One of the reasons for the improved results is FHFA and Treasury’s decision in December to allow each firm to hold $3 billion in capital. Fannie Mae and Freddie Mac were previously scheduled to reduce their capital levels to zero.

House Financial Services Committee to Hold Hearing on Possible Waste and Fraud at FHFA and the GSEs

House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Oversight and Investigations Subcommittee Chairman Ann Wagner (R-MO) announced August 7 that the Committee will soon hold a hearing as part of its ongoing investigation of waste, fraud, and abuse at the Federal Housing Finance Agency (FHFA), Fannie Mae, and Freddie Mac. The announcement states that the Committee will invite FHFA Director Mel Watt and Fannie Mae CEO Tim Mayopoulos to testify. The hearing is expected to be held no later than September 27. The Committee has not yet announced any additional hearings for when it returns from August recess.

Court Hears Challenge to HUD’s Affirmatively Furthering Fair Housing Rule Delay

The U.S. District Court in Washington, D.C., heard arguments Thursday about HUD’s May decision to delay implementation of the Affirmatively Furthering Fair Housing rule published by HUD during the previous Administration. The plaintiffs asked the judge to require HUD to reinstate the rule, claiming HUD gave no notice and held no comment period as required by law before making the decision, its reasoning for doing so was inadequate, and the federal agency was reneging on its legal obligation to take meaningful steps to address housing segregation. Lawyers representing HUD argued the plaintiffs have no standing to sue and HUD’s rulemaking was appropriate and legal.

Looking Ahead…

NCSHA and State HFA Events

  • August 13 – 15 | U.S. Bank HFA Symposium
    Garth Rieman will participate in this event.
  • August 14 – 15 | New Mexico Mortgage Finance Authority Board and Staff Retreat
    Stockton Williams will participate in this event.
  • August 21 – 22 | Oklahoma State Housing Conference
    Garth Rieman will participate in this event.
  • September 5 – 7 | Housing Iowa Conference
    Jennifer Schwartz will participate in this event.
  • September 6 | Delaware 2018 Governor’s Conference on Housing
    Stockton Williams will participate in this event.
  • September 12 – 14 | New Mexico Housing Summit
    Stockton Williams will participate in this event.
  • September 14 | Discounted Early Registration Deadline for the 2018 Annual Conference & Showplace
  • September  17 | Midwest Housing Collaborative MeetingNCSHA will participate in this event.
  • October 1 – 2 | Southeast States Regional RoundtableJim Tassos will participate in this event.
  • October 2 – 4 | Housing Washington Conference
    Jennifer Schwartz will participate in this event.
  • October 11 | Ohio Housing Council Fall Symposium
    Jennifer Schwartz will participate in this event.
  • October 13 – 16 | 2018 Annual Conference & Showplace | Austin, TX
  • October 24 – 25 | Affordable Housing Investors Council – Affordable Housing Summit
    Jim Tassos will participate in this event.

Legislative and Regulatory Activity

  • August 15 | 2018 HUD Meeting for Approved Housing Counseling Intermediaries, State HFAs, and Multi-State Organizations
    NCSHA’s Greg Zagorski and Glenn Gallo will attend. 
  • August 20 | Comments due to HUD on its Disparate Impact Standard Final Rule
  • September 17| Consumer Financial Protection Bureau Symposium on Credit Visibility
  • September 17 | Comment deadline on Federal Housing Finance Agency proposed rule on Capital Requirements for Fannie Mae and Freddie Mac