ABA Dodd-Frank Tracker

CFPB Finalizes HMDA Technical Corrections, HELOC Reporting Threshold

2017-08-25T10:15:00.000-04:00

The CFPB issued a final rule making several technical corrections and clarifications to the expanded data collection under Regulation C, which implements the Home Mortgage Disclosure Act, as well as temporarily raising the threshold at which banks are required to report data on home equity lines of credit.

In finalizing the technical corrections, the bureau took note of at least one compliance challenge discussed in ABA’s comment letter and backtracked on a proposal to define multifamily dwellings as including properties in multiple locations. However, the bureau declined to adopt other ABA suggestions that would improve compliance and clarity and finalized the rules largely as proposed, including a provision ABA characterized as “significant and substantive” that would increase the number of institutions subject to HMDA.

Under the rule as originally written, banks originating more than 100 HELOCs would have been generally required to report under HMDA, but the final rule temporarily raises that threshold to 500 HELOCS for calendar years 2018 and 2019, allowing the bureau time to assess whether to make the adjusted threshold permanent. This provision takes effect on Jan. 1, along with compliance for most HMDA expansion provisions.

Read the final rule.
Read ABA’s comment letter.

Agency Guidelines on HMDA Data Testing Fall Harder on Smaller Lenders

2017-08-23T10:00:00.000-04:00

The federal banking agencies issued guidelines for how examiners will test the accuracy of data collected and reported by financial institutions under the Home Mortgage Disclosure Act.

Despite coming after concerns expressed by ABA and others about the burdens imposed by unreasonable error tolerances that require a bank to resubmit its HMDA data — in light of the vastly expanded data fields that must be reported beginning in March 2019 — the new guidelines are expected to have the opposite result, creating disproportionate expectations for smaller volume lenders. For example, an examiner will review 30 loan files of a bank that only makes 50 mortgage loans but only 159 files for a bank that originates 100,000 loans. Moreover, a small number of errors in any given data field will trigger review and resubmission.

In comments filed to the proposed guidelines, ABA called for more reasonable tolerances. The association intends to ask the congressional banking committees to review the new guidelines and consider whether the level of perfection required will undermine the ability of banks to serve their customers.

Read more.

OCC Issues Guidance on Programs for Home Loans with Over 100 Percent LTV

2017-08-22T10:45:00.000-04:00

Noting that in many communities persistently depressed home prices are hindering recovery, the OCC issued guidance for OCC-regulated banks seeking to develop programs to offer home loans with loan-to-value ratios of over 100%, known as “higher-LTV” loans. These programs may be eligible for Community Reinvestment Act credit.

“The OCC recognizes that supporting long-term community revitalization may necessitate responsible, innovative lending strategies,” the agency said. “The OCC believes that in some circumstances, a bank also can design a program to offer higher-LTV loans in communities targeted for revitalization in a manner consistent with safe and sound lending practices and current regulations and guidelines.”

Such programs would apply to purchase loans or purchase plus rehabilitation of owner-occupied properties in communities “officially targeted” for revitalization by federal, state, municipal or other government-designated entities. Eligible loans would be permanent first-lien mortgages with LTV ratios exceeding 100 percent, without mortgage insurance or other acceptable collateral and with an original loan balance of $200,000 or less.

The guidance also provides information about the required policies and procedures under such a program and about the process and timing for notifying the OCC about starting or modifying a program. “Bank lending under such a program may serve the credit needs of individual borrowers and the community, and the bank may receive Community Reinvestment Act consideration depending on the specifics of the program,” the agency added.

Read the guidance.

This Week Ahead: August 21-25

2017-08-18T11:00:00.000-04:00

Monday

Comment Due SEC: Covered Securities Pursuant to Section 18 of the Securities Act of 1933
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Comments Due CFTC: Conflicts of Interest Policies and Procedures by Swap Dealers and Major Swap Participants (PRA)
Read more.
Comments Due CFTC: Revisions to Freedom of Information Act Regulations
Read more.

Wednesday

Comments Due FHFA: Minority and Women Inclusion Amendments
Read more.
Comments Due OCC: Agency Information Collection Activities: Information Collection Revision; Submission for OMB Review; Uniform Interagency Transfer Agent Registration and Deregistration Forms
Read more.

Friday

Comments Due FDIC: Agency Information Collection Activities: Submission for OMB Review
Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

HARP Extended through 2018 as Changes Made to High-LTV Refi Program

2017-08-18T09:30:00.000-04:00

The Federal Housing Finance Agency extended the Home Affordable Refinance Program through Dec. 31, 2018. The program was scheduled to phase out in September upon the launch of Fannie Mae and Freddie Mac’s new streamlined refinance program for borrowers with high loan-to-value ratios.

However, the agency announced that the new high LTV refi program would only be available for borrowers who originate their loans on or after Oct. 1, 2017; as a result, FHFA determined that HARP remained necessary to serve eligible existing borrowers. More than 143,000 homeowners may still be able to benefit from HARP, the agency added. Since its inception in 2009, more than 3.47 million refinances have been done through HARP.

The eligibility date for the new high LTV refi program was necessary to support the GSEs’ credit risk transfer programs, which since March have seen $54.2 billion worth of risk transferred. Fannie and Freddie will modify future credit risk transfers to accommodate the new streamlined refi program.

Meanwhile, FHFA announced that nearly 357,000 refinances of Fannie or Freddie loans were completed in the second quarter, with 9,700 of them coming through HARP. HARP refinances dropped by one third since the prior quarter. Fourteen percent of second-quarter loans refinanced through HARP had a loan-to-value ratio greater than 105 percent. In Nevada and Florida, HARP refinances this year accounted for at least 6 or more percent of total refinances, double the national average of 3 percent.

Read more.
Read the refinance report.

Watt: FHFA Will Not Build Short-Term Capital Buffer for GSEs

2017-08-11T09:38:00.001-04:00

In a letter to the National Association of Realtors, FHFA Director Mel Watt signaled that the agency would not move to establish a short-term capital buffer for Fannie Mae and Freddie Mac when the current capital buffer put in place under the terms of the Senior Preferred Stock Purchase Agreements with the Treasury Department expires on Jan. 1, 2018.

Watt’s letter came in response to calls from NAR to establish a short-term “mortgage market liquidity fund,” where the GSEs could deposit a portion of their profits to cover future losses and reduce risk to taxpayers. Watt responded that while FHFA remains concerned about the expiration of the capital buffer, any changes to housing reform should come through Congress.

“I am sensitive to the prospect that whatever steps FHFA could take might be misperceived as either an effort to promote recapitalization and release of the Enterprises or as interference with Congress’ important work to advance housing finance reform,” Watt wrote, calling on lawmakers to continue the work it began on reform before the August recess.

ABA has long held that reform of the housing finance system must be directed by Congress. The association previously outlined specific recommendations for reforming Fannie and Freddie, with the goal of reducing the direct role of the federal government in mortgage finance, restoring private participation in housing markets and ensuring equitable access.

Read Watt’s letter.
Read ABA’s principles for housing reform.

Fannie, Freddie Fail Stress Tests

2017-08-09T09:25:00.000-04:00

Fannie Mae and Freddie Mac could need upwards of $100 billion in bailout funds if faced with another financial crisis, according to the results of the GSEs’ Dodd-Frank Act stress tests. Under a “severely adverse” scenario that saw GDP fall 6.5 percent from its pre-recession peak and unemployment reaching 10 percent, Fannie and Freddie combined would require between $34.8 and $99.6 billion in Treasury funds, the Federal Housing Finance Agency said in its report.

The findings underscore the need for housing reform that would shift risk away from taxpayers, which ABA has long called for. The association earlier this year outlined nine principles for reforming Fannie and Freddie, with the goal of reducing the direct role of the federal government in mortgage finance, restoring private participation in housing markets and ensuring equitable access. ABA also testified at a recent Senate Banking Committee hearing on housing reform, and will continue to encourage further engagement on the issue on Capitol Hill when Congress returns in September.

View the stress test results.

FHFA Reopens, Extends Comment Period on Limited English Proficiency RFI

2017-08-07T10:45:00.000-04:00

The Federal Housing Finance Agency has reopened and extended the deadline of its request for information on how to serve borrowers with limited English proficiency to Sept. 1. The original comment period officially closed on July 31.

In a joint comment letter, ABA cautioned FHFA on including a language preference question on its Universal Residential Loan Application form, noting that it could create significant liability for lenders. The association also outlined several principles for assessing the impact of language barriers on LEP borrowers going forward.

Read ABA’s comment letter.

ABA Urges Careful Consideration of Cost, Reg Burden in ATR Review

2017-08-02T10:15:00.000-04:00

ABA urged the CFPB to carefully consider costs and burdens associated with its Ability-to-Repay/Qualified Mortgage rule as it conducts a required assessment of the final rule’s effectiveness.

While ABA generally supported the bureau’s proposed assessment plan, it noted that the review should not only focus on the consumer safety objectives of the ATR rules, but also take into account whether the mortgage markets are operating transparently and efficiently and facilitating access and innovation. The association added that the CFPB’s review should thoroughly examine overall compliance costs imposed by the rule.

A key focal point of the assessment should be an analysis of the temporary category of QM loans for loans eligible to be purchased or guaranteed by Fannie Mae and Freddie Mac, ABA said, noting that the temporary GSE QM “is a critical provision of the law and one that prevented major disruptions in banks’ transition into the new ability-to-repay standards.” Acknowledging that the special GSE provisions must eventually sunset, the association said that the ATR rules “must advance towards a uniform and transparent set of guidelines, criteria and compensating factors that are objective and policy-based, and certainly independent of any institutional market player.”

In addition, ABA recommended several modifications to the rule that would incentivize the expansion of safe lending activities.

Read the letter.

Associations Comment on Serving Borrowers with Limited English Proficiency

2017-08-02T09:55:00.001-04:00

In response to the Federal Housing Finance Agency’s recent request for information on how to serve borrowers with limited English proficiency, ABA and three financial and housing trade groups urged FHFA to pursue a holistic strategy to identify LEP-specific barriers to homeownership and develop cost-effective, practical solutions.

While the associations share the goal of making credit available to qualified borrowers regardless of their language ability, they cautioned FHFA on including a language preference question on its Universal Residential Loan Application form, noting that it could create significant liability for lenders. They added that a number of issues related to LEP borrowers must be resolved before a language preference question can be incorporated into the URLA.

The groups also outlined several principles for assessing the impact of language barriers on LEP borrowers going forward.

Read the letter.

Trade Associations Urge CFPB to Extend HMDA Implementation

2017-08-01T10:00:00.000-04:00

Together with four other finance and housing trade associations, ABA wrote to the CFPB to request a delay of the new Home Mortgage Disclosure Act’s mandatory data collection requirements that are set to take effect Jan. 1, 2018.

The groups noted that several proposed changes to the rule — many of which are substantive — have yet to be finalized and that further changes to the reporting requirements will require additional time for banks to test and implement their reporting processes. They also raised concerns about the protection of consumer financial data, as the CFPB has not yet determined which data points will be made publicly available or how it will maintain the integrity of data that is held privately. The associations further recommended that institutions be given the option to incorporate new data requirements into their data collection for 2018 on a voluntary basis.

ABA and the state bankers associations have long sought changes to the final HMDA rule since it was issued in 2015. The letter echoed previous calls from ABA and the state associations for an implementation delay, as well as findings from the recent Treasury report on financial regulation, which raised similar concerns about banks’ ability to comply.

Read ABA's letter.
Read the state bankers association letter.

ABA Supports CFPB Proposal to Raise Threshold for HELOC Reporting

2017-07-31T11:05:00.000-04:00

In a comment letter, ABA supported a CFPB proposal to raise the threshold at which banks are required to report data on home equity lines of credit. Currently, banks originating more than 100 HELOCs are generally required to report under the Home Mortgage Disclosure Act. The proposal would temporarily raise that threshold to 500 HELOCS for the calendar years 2018 and 2019, allowing the bureau time to assess whether to make the adjusted threshold permanent.

ABA has advocated for a higher reporting threshold and urged the CFPB to make the increase permanent. The association also opposed a change in language that would trigger reporting if a lender exceeded the threshold in only one of the two preceding years. Additionally, ABA noted that there are still a number of unresolved issues surrounding HMDA, and it called on the bureau to postpone the rule’s effective date to allow more time for those issues to be addressed.

Read the comment letter.

This Week Ahead: July 31 - August 4

2017-07-28T11:34:00.000-04:00

Monday

Comments Due CFPB: Request for Information Regarding Ability-to-Repay/Qualified Mortgage Rule Assessment
Read more.
Comments Due FDIC: Agency Information Collection Activities: Proposed Collection Renewals; Comment Request (3064-0015) (PRA)
Read more.
Comments Due FDIC: Interagency Bank Merger Act Application
Read more.
Comments Due FRB: Notification of Nonfinancial Data Processing Activities
Read more.
Comments Due FRB: Notification of Nonfinancial Data Processing Activities (PRA)
Read more.
Comments Due TREAS: Review of Regulations
Read more.

Friday

Comments Due CFPB: Debt Collection Quantitative Disclosure Testing (PRA)
Read more.
Comments Due FRB: Government-Administered, General-Use Prepaid Card Surveys
Read more.
Comments Due OCC: Agency Information Collection Activities: Information Collection Renewal; Comment Request; Community Reinvestment Act Regulations (PRA)
Read more.
Comments Due OCC: Agency Information Collection Activities: Information Collection Renewal; Comment Request; Disclosure Requirements Associated With Supplementary Leverage Ratio (PRA)
Read more.
Comments Due OCC: Agency Information Collection Activities: Information Collection Renewal; Comment Request; Fair Housing Home Loan Data System Regulation (PRA)
Read more.
Comments Due OCC: Assessment of Fees
Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

FDIC Revised Affordable Housing Program Guide

2017-07-27T11:05:00.004-04:00

The FDIC released a new version of its guide to state housing finance agencies' programs for affordable mortgage lending. The guide is part two of a three-part series covering federal, state and FHLB affordable housing support. Changes to the newest version include product and program updates from state agencies, the addition of a new program and the addition of alternative private mortgage insurance options.

Download the revised guide.

This Week Ahead: July 24-28

2017-07-21T11:50:00.000-04:00

Monday

Comments Due FHFA: Proposed Collection; Comment Request (PRA)
Read more.

Thursday

Effective Date CFPB: Policy Guidance on Supervisory and Enforcement Priorities Regarding Early Compliance With the 2016 Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act and the Truth in Lending Act
Read more.

Meeting OCC: Minority Depository Institutions Advisory Committee
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All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

CFPB Proposes Temporary Adjustments for HMDA Reporting Requirements

2017-07-17T10:40:00.000-04:00

The CFPB issued a proposal to raise the threshold at which banks are required to report data on home equity lines of credit. Under the rule, banks originating more than 100 HELOCs are generally required to report under HMDA. The proposal would raise that threshold to 500 HELOCs for the calendar years 2018 and 2019, giving the CFPB time to determine if it will make the adjustment permanent. Comments on the proposal are due by July 31.

Read the proposal.

ABA, CFPB to Host Free Webinar on HMDA Submission Tool

2017-07-17T10:26:00.000-04:00

ABA’s Center for Regulatory Compliance and the CFPB will offer a free webinar on the new Home Mortgage Disclosure Act submission tool on Aug. 8, 2017, at 2:00 pm EDT. The program will provide an overview of the new tool and the data collection process that all financial institutions will use to submit HMDA data beginning Jan. 1, 2018, for data collected in 2017 and after.

CFPB experts will demonstrate the new HMDA platform and discuss other tools designed to help with filing. During the program, participants will see the new web application for uploading data files, learn how they will receive feedback on file format, syntax and validity edits and learn how they can approve the conditions in quality and macro edits. This webcast is designed for compliance, operations and loan processing professionals.

Register now.

This Week Ahead: June 17-21

2017-07-14T11:47:00.002-04:00

Monday

Comments Due FDIC: Affiliate Marketing Consumer Opt-Out Notices
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Comments Due FDIC: Agency Information Collection Activities: Proposed Collection Renewals (PRA)
Read more.
Comments Due FDIC: Retail Foreign Exchange Transactions
Read more.

Tuesday

Comments Due HUD: 60-Day Notice of Proposed Information Collection: Mortgagee's Application for Partial Settlement (PRA)
Read more.

Thursday

Effective Date CFTC: Revisions to Freedom of Information Act Regulations
Read more.

Friday

Comments Due EBSA: Proposed Extension of Information Collection Requests Submitted for Public Comment (PRA)
Read more
Comments Due FRB: Ongoing Intermittent Survey of Households
Read more
Comments Due FRB: Proposed Agency Information Collection Activities (PRA)
Read more

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

OCC: Mortgage Performance Improved Year-on-Year

2017-07-14T08:37:00.000-04:00

The share of current and performing first-lien mortgages rose to 95.6% for the first quarter, up from 94.9% a year earlier, according to the Mortgage Metrics Report released by the OCC. The report is generated from data from seven large national banks representing 35% of all outstanding residential mortgages.

Foreclosure activity was up 4.5% from the previous quarter — the first such increase in two years — with 47,546 new foreclosures initiated during the first three months of the year. Foreclosures were down 19.3% year-on-year, however. Delinquencies reached a two-year low, the report noted; mortgages that were considered seriously delinquent fell from 2.3% in the previous quarter to 1.9%, while loans that were 30-59 days delinquent fell from 2.3% to 1.8%.

Read the report.

ABA, State Associations Call for Extension on HMDA Implementation

2017-07-13T10:00:00.000-04:00

Together with state bankers associations from all 50 states and Puerto Rico, ABA called on the CFPB to delay the implementation of the new Home Mortgage Disclosure Act requirements to provide bankers and third-party service providers more time to comply with the complex rule and to ensure that consumer data is protected. The rule is set to take effect on Jan. 1, 2018. The groups asked the bureau to announce its intention for a delay within the next month.

The associations noted that the recent proposed changes to the rule — many of which were substantive — have added to its complexity, and will require third-party software providers to make additional changes to help banks comply, which would make the Jan. 1 compliance deadline unfeasible. They also pointed out that the CFPB has not conducted appropriate reviews or engaged bankers in discussing solutions.

The recent Treasury report on financial regulation raised similar concerns with banks’ ability to comply with the rule, and whether borrower data would be adequately protected. The associations echoed the department’s call for implementation to be postponed “until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements.”

Read the letter.

ABA Calls for Holistic Review of Servicing Rule

2017-07-12T10:00:00.000-04:00

ABA called on the CFPB to take a holistic approach to its review of the 2013 servicing rule to understand its full effects on servicers and consumers. The review — which is required under the Dodd-Frank Act — must be completed by 2019.

In comments on the CFPB’s assessment proposal, ABA urged the bureau to incorporate the 2013 TILA servicing rules and the 2016 servicing amendments into its evaluation. The CFPB should also consider the trickle-down effect of the underwriting requirements of the Ability-to-Repay/Qualified Mortgage rule, which is also under review by the bureau, ABA noted.

The association further recommended that the CFPB closely examine how the rules have improved the response and engagement of delinquent borrowers; the effectiveness of certain disclosures; and how the rules have affected the servicing market. ABA also offered several recommendations for improving the servicing rules, including revisiting the rule’s successors in interest requirements in situations where a borrowers is still living or dies without a will and excluding “posse letters” from a servicer’s information request and error resolution obligations.

In addition, ABA said that the bureau should further explore the issue of “rolling delinquencies,” where borrowers are chronically delinquent but never exceed 120 before making a payment, and reconsider the five-day acknowledgement notice that must be provided after receiving a borrower’s loss mitigation application, noting that the short timeframe presents a challenge for servicers.

Read the letter.

CFPB Finalizes Latest Round of TRID Amendments

2017-07-10T11:00:00.000-04:00

The CFPB finalized amendments to the TILA-RESPA integrated disclosure rule. The 500-page final rule sets forth guidance, clarifications and technical corrections on a broad range of topics, and will take effect 60 days after publication in the Federal Register, with a mandatory compliance date of Oct. 1, 2018.

Included in the amendments are tolerance provisions for the disclosed total of payments, making the treatment consistent with pre-TRID practices and paralleling the TRID tolerances for disclosures of finance charges. The amendments also clarify exemptions from TRID requirements for certain housing assistance loans and extend the rule’s coverage to all cooperative units. Additionally, the rule expands the CFPB’s commentary to facilitate the sharing of disclosures with third parties, such as sellers and real estate brokers.

The rule also makes extensive technical corrections and clarifications on topics including affiliate charges, calculating cash-to-close table, construction loan instructions, placement of decimal places and rounding, escrow account disclosures, escrow cancellation notices, expiration dates for the closing costs disclosed on the loan estimate, treatment of gift funds, payment ranges on the projected payments table and informational updates to the loan estimate.

ABA has been supportive of the bureau’s efforts to revise the TRID regulations and noted that the final rule will generally benefit consumers and the industry by providing greater clarity. The association has called for additional changes to the rule — including a full exemption from TRID for temporary financing, such as construction loans — and will continue to work with regulators to help facilitate compliance.

The bureau also issued a separate proposal to re-open comments on when a creditor may use a closing disclosure instead of a loan estimate to determine if an estimated closing cost was disclosed in good faith. The proposal addresses the “black hole” problem identified by ABA in earlier comments and would allow creditors to use either initial or corrected closing disclosures to reflect changes in costs for purposes of determining if an estimated closing cost was disclosed in good faith, regardless of when the closing disclosure is provided relative to consummation. Comments on the proposal will be due 60 days after publication in the Federal Register.

Read the final rule.
Read the proposal.

OCC: Compliance Risk Management Rising as Agency Supervisory Priority

2017-07-10T10:40:00.000-04:00

The OCC is focusing on credit risk, compliance risk and strategic risk as its top supervisory priorities at community and midsize banks, according to the agency’s Semiannual Risk Perspective report. For larger banks, compliance, governance and operational risks remain dominant concerns, the agency said.

With ongoing concerns about Bank Secrecy Act compliance and a wave of new regulatory requirements recently implemented or coming due, compliance risk has been elevated, the agency said. “Evolving compliance risks and increasing complexity of the risk environment present significant challenges for bank compliance risk management systems,” said Acting Comptroller Keith Noreika. “Some banks also face change management challenges as they adapt to new or amended consumer-focused regulations.” These rules include amendments to the Military Lending Act, the TILA-RESPA integrated disclosures and the Home Mortgage Disclosure Act.

While credit risk remains elevated, slowing loan growth has left it “relatively stable overall,” Noreika said. Easing in underwriting standards slowed in the second half of 2016, but “risk layering” continued. The agency also noted growing credit concentrations, especially in commercial real estate. A year after raising concerns about the “notable and unprecedented growth” in auto lending — with total loan volume growing by 50% since 2010 — the agency “re-characterized [auto loans] from a key risk issue to an issue warranting continued monitoring.” The higher risk is now materializing in delinquencies, the OCC reported.

Strategic risk remains high for smaller and midsize banks, which continue to struggle with increased nonbank competition (from marketplace lenders, for example), merger trends, the persistent low-rate environment and governance issues. Larger banks, however, “continue to improve the effectiveness of their processes and controls to address strategic risk,” the OCC said.

Read the report.

This Week Ahead: July 10-15

2017-07-07T11:30:00.000-04:00

Monday

Comments Due CFPB: Request for Information Regarding 2013 Real Estate Settlement Procedures Act Servicing Rule Assessment
Read more.

Tuesday

Comments Due CFTC: Protection of Collateral of Counterparties to Uncleared Swaps; Treatment of Securities in a Portfolio Margining Account in a Commodity Broker Bankruptcy (PRA)
Read more.

Wednesday

9 AM Meeting FDIC: Advisory Committee on Community Banking; Notice of Meeting
Read more.

Friday

Comments Due CFPB: Request for Information Regarding the Small Business Lending Market
Read more

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

Fed’s Powell: Now Is ‘Last Best Chance’ for Housing Finance Reform

2017-07-07T10:55:00.001-04:00

With the housing market having recovered and memories of the financial crisis growing distant, Federal Reserve Governor Jerome Powell said that “the next few years may present our last best chance to finish” critical reforms of housing finance, particularly regarding the secondary market and the role of housing GSEs Fannie Mae and Freddie Mac. If Congress does not enact reforms, Powell added, “we are at risk of settling for the status quo — a government-dominated mortgage market with insufficient private capital to protect taxpayers and insufficient competition to drive innovation.”

Powell noted that it is “ironic” that housing finance remains the last major policy area untouched by major post-crisis reforms, especially given the bursting housing bubble’s role as “an essential proximate cause of the crisis.” He said that “the most obvious and direct step forward” would be to require “ample” private capital to support housing finance and to prevent bailouts of housing finance companies in distress.

Other principles Powell laid out for housing finance reform include an explicit government guarantee applying only to securities, not to institutions; greater private-sector competition; and use of existing infrastructure to the extent possible. Powell also expressed concern that “the current system [may be] too rigid,” citing a recent ABA survey showing that banks are originating fewer and fewer non-Qualified Mortgages.

Read the speech