FHFA's UDAP advisory rollback: What it means for lenders

FHFA Director Bill Pulte is signaling a narrower agency role by rescinding renter requirements for multifamily mortgages and rolling back direct regulation of unfair and deceptive acts and practices. These changes ease burdens on lenders but raise concerns about renter protections.

Pulte announced the moves on X, marking a direct contrast to how the government-sponsored enterprises' regulator operated previously, when it mandated rent grace periods and lease change notices, and said it regulated UDAP.

Lenders welcomed the rollback, seeing the renter requirements, which were set to go into effect May 31 after an extension, as political overreach. However, there is some disagreement on whether it will put further strain housing affordability for renters or provide some relief.

Tenant protections rollback

David McCarthy, managing director and chief lobbyist for the Commercial Real Estate Finance Council, had predicted the tenant protections would be one of the issues addressed by a new administration. He called them "a back-door way to regulate certain aspects of the housing market."

The Urban Institute, in contrast, said in a report last year that protections could go further to fulfill the congressional duties that the government-sponsored enterprises have to "preserve housing affordable to very low-, low- and moderate-income families."

The Republicans on the Senate Banking Committee issued a statement on X asserting the removal of the costs for landlords "will help make housing more affordable across the country" as it will result in savings they can pass on to renters.

The Trump administration and Republican Congress are considering privatizing the GSEs, which went into conservatorship during the Great Financial Crisis and have been key market supporters since then. 

The FHFA said the rollback would not leave renters unprotected, noting that "many states and local governments have existing laws and policies related to lease notices and grace periods for late fees."

Kathryn Reynolds, principal policy associate at UI, called state and local rental protections inconsistent and insufficient. She said that cost of payment leeway and notifications should be weighed against the price of housing instability for taxpayers.

"It's not the case that many states around the country have these protections. It's really a mixed bag," she said. "That's especially true in southern states like Florida and North Carolina, where we've had some major natural disasters."

Reynolds said disaster assistance for renters may be available through measures like rules that require landlords to provide housing that meets habitability standards, but these too are inconsistent across jurisdictions.

The CREFC did not have a response to the most recent change to tenant protection rules available at deadline.

UDAP advisory bulletin rescission

By rescinding the UDAP advisory that previously stated the FHFA would directly regulate prohibitions in regard to unfair and deceptive acts or practices, the agency shifts enforcement to the Federal Trade Commission, reducing regulatory overlap.

The move reduces "potential conflict or confusion over interpretation of UDAP provisions" by leaving that role to the hands of the Federal Trade Commission as their "primary administrator while the FHFA focuses on the "safety and soundness" of the enterprises, the FHFA said.

The move aligns with the Trump administration's broader push to reduce regulatory oversight, including its aim to eliminate the Consumer Financial Protection Bureau and rely on the FTC instead.

Mortgage Bankers Association President and CEO Bob Broeksmit welcomed the move in a statement in which he said the previous expectation that Fannie Mae and Freddie Mac would conduct consumer protection oversight "wrongly established the GSEs as compliance regulators."

Fannie Mae and Freddie Mac don't originate loans but set parameters for purchases that lenders frequently use as the basis for their underwriting. While they can push lenders to repurchase fraudulent loans, they won't play a direct role in consumer protection enforcement under these changes.

There has been an intensified focus on consumer protections at the FHFA since the Great Financial Crisis forced the enterprises into conservatorship, which Republicans largely view as excessive.

While the causes of the GFC and its housing crash are sometimes subject to debate, both are often largely attributed to poor loan performance after lenders, the enterprises and others failing to take enough responsibility for consumers' ability to repay when qualifying borrowers for loans.

The CFPB has had oversight over ability-to-repay rules established after the crisis.

Some free-market advocates have said borrowers involved in the GFC should have taken responsibility for the loan terms they agreed to and subsequent defaults with less government involvement. Officials bailed the enterprises out due to their broader market influence.

The government-sponsored enterprises do have a buffer against unfair and deceptive acts and practices at the lender level that affect consumers and can be associated with fraud. If the GSEs find it in loans they purchase, they typically try to get the selling lenders to buy back the mortgage involved.