FHFA redrafts rules for suspending mortgage companies

Reproposed rules for suspensions and related reporting in the government-related mortgage market are getting a close look from an industry that relies heavily on quasi-public entities to buy its loans.

The Mortgage Bankers Association, which spoke out against an earlier version, showed initial relief that the Federal Housing Finance Agency toned down some of the harshest measures.

"We commend FHFA for its receptiveness to our strong opposition to the initial proposal which would have punished counterparties for potentially minor civil or administrative sanctions," MBA President and CEO Bob Broeksmit said in a press release. 

"The reproposal appears to address some of MBA's significant concerns," he added.

The new draft strikes a previous plan for quick suspensions that would have omitted existing due process in some circumstances, and it requires infractions to meet a certain bar, Broeksmit said.

The FHFA confirmed it will preserve a preliminary suspension process that allows a response before a final action, and that the redraft aims to distinguish "misconduct that poses material risk to the safety and soundness of regulated entities" from behavior that has lesser impact on them.

The redraft does still expand the criteria for suspended counterparties beyond the criminal offenses, something the MBA had argued against but some consumer advocates had backed.

Counterparties "whose misconduct resulted in a federal prohibition order or a civil money penalty above a specific threshold" would be subject to the new rule.

The threshold would be $1 million for orders by the departments of Housing and Urban Development, Veterans Affairs or Agriculture.

The redraft also would authorize "the suspension of business between a regulated entity adn a counterparty that has committed criminal or civil misconduct related to management or ownership of real property," according to the FHFA.

The FHFA received feedback from six entities that opposed the original proposal and four in support that it considered in its reproposal.

"Amending the suspended counterparty program will help strengthen FHFA's ability to protect its regulated entities from risks presented by other businesses that engage in misconduct," Director Sandra Thompson said in a press release.

The FHFA will be open to more feedback on the redrafted rule for 60 days after it's officially published in the Federal Register, and the association may not be done commenting on it.

"MBA and its single-family and multifamily members will review the reproposal in greater detail and our forthcoming response will focus on any necessary improvements to the SCP regulation that strike an appropriate balance," said Broeksmit.

The FHFA has added 24 names to its suspended counterparty list since it last proposed amendments in 2023, bringing the total at the time of this writing to 194.

Individuals and companies on the list may be suspended indefinitely or for a limited period of time.

Indefinite suspensions on the list include Ron McCord, the founder of First Mortgage, and his company. McCord was MBA's chairman in 1997 and has a fraud conviction. 

Tyler Ross, a real estate agent sentenced this month for falsifying financial statements, was the most recent addition to the list at deadline.