Legislative Update - 10/17/201
We are less than a month away from what are the most highly anticipated and hotly contested midterm elections in recent history. With several retirements of long-time members of Congress, the prospect of a large freshman class new to legislating and the strong possibility of the balance of power changing, things are going to look very different on the Hill in 2019. While we await the outcome of November’s contests, let’s take a look at recent banking and housing developments in DC and how the table is setting up for the new Congress.
Comptroller of the Currency Joseph Otting took the first step in moving toward Community Reinvestment Act (CRA) reform. The Office of Comptroller of the Currency (OCC) issued an advanced notice of proposed rulemaking (ANPR) on CRA that asks for input on a number of questions. The OCC is seeking to encourage increased lending and investment where it is most needed, more consistently evaluate CRA activities and provide greater clarity around what may qualify for CRA credit. The entire ANPR can be found and comments can be submitted through the Federal eRulemaking Portal at www.regulations.gov by searching for “Docket ID OCC-2018-0008”.
Federal Reserve Chairman Jerome Powell has stated that he is hopeful that the Federal Reserve Bank (the Fed), Federal Deposit Insurance Corporation (FDIC) and OCC will be able to go forward with a joint rulemaking process in the near future. The OCC has also indicated that further action will be in conjunction with the other regulators.
FDIC Transparency Initiative
On October 3, the FDIC announced a new “Trust through Transparency” initiative. While continuing to make many of its financial reports available to the public, the agency will begin to publish performance metrics “such as turnaround times for examinations and bank charter applications, call center usage and response times, and data on the status of supervisory and assessment appeals.” The FDIC has created a new section of its public website where these metrics, policies and procedures will all be published. The initiative promises to include even more public data in the future.
Quarles on Rural Community Banks
Fed Governor Randy Quarles gave a speech on the particular issues faced by community banks in rural areas at the Fed’s annual conference on community banking. Quarles discussed the generally positive performance of rural banks despite the fact that they are in more challenging economic environments than their urban counterparts. He stated that there are some local areas that have lost their community bank and, while technology can help some communities overcome lack of local banks, many rural areas do not have the infrastructure necessary to support online banking. He also stated that the loss of a local bricks-and-mortar bank has a “ripple effect” on its community. The Fed is in the midst of a listening tour of rural areas across the country.
Hensarling Delaney GSE reform bill
House Financial Services Chairman Jeb Hensarling and Congressman John Delaney (D-MD) introduced a bipartisan housing finance reform discussion draft on September 6. While this legislation clearly is not going anywhere this Congress, it does lay a marker down for a possible path forward next year. It also keeps Hensarling’s name in the mix as a possible successor to Federal Housing Finance Agency (FHFA) director Mel Watt, whose term ends early next year.
This plan would wind down Fannie Mae (Fannie) and Freddie Mac (Freddie) over five years and creates a mortgage insurance program run by Ginnie Mae (Ginnie). Ginnie would be spun off from the Department of Housing and Urban Development (HUD) and, as an independent entity, would provide a government guarantee of privately insured mortgage backed securities. Private capital would take the first loss through “Private Credit Enhancers”. The multifamily businesses of Fannie and Freddie would continue, with their securities also guaranteed by Ginnie.
Senate regulatory hearing
The Senate Banking Committee held a hearing on October 2 with the Fed, FDIC and OCC regarding the implementation of S. 2155, the “Economic Growth, Regulatory Relief and Consumer Protection Act”. During this hearing, regulators discussed the progress they have made thus far and what actions they must still take to comply with the regulatory reform measure. The FDIC and Fed stated that they hope to have a community bank leverage ratio rule published by the end of the year. Chairman Mike Crapo encouraged the regulators to submit their policy documents and other guidance stemming from S. 2155 to Congress for review.
Warren housing bill
Senator Elizabeth Warren introduced a housing bill that is getting attention from folks. Her legislation, the American Housing and Economic Mobility Act, would increase funding for rental and owner-occupied housing to build up to 3.2 million new units, and address local zoning issues by providing infrastructure funding to communities that reform zoning rules that restrict affordable housing construction. It would also require credit unions and nonbank mortgage originators to follow CRA requirements. The plan proposes to pay for itself by raising the estate tax. Moody’s issued a report endorsing this plan and stating that it would be revenue-neutral.
The Political Magic Eight Ball
As of press time, there is a very strong possibility that the Democrats will have a narrow majority in the House while the Republicans will retain the Senate by a small number of seats. If this holds true, the House Financial Services Committee will mostly likely be chaired by Congresswoman Maxine Waters of California. Senator Mike Crapo could remain at the helm of the Senate Banking Committee, but if there is some shuffling of leadership in other committees, Senator Pat Toomey of Pennsylvania could take the reins. Senators Heidi Heitkamp (D-ND) and Jon Tester (D-MT), both members of the Senate Banking Committee from the Federal Home Loan Bank of Des Moines district, have races this year. Tester is up slightly on his opponent while Heitkamp trails. All members of the Financial Services Committee from the Federal Home Loan Bank of Des Moines district appear poised to retain their seats.