The DOJ alleged that from 2015 through at least 2020, Patriot avoided providing mortgage services to majority-Black and Hispanic neighborhoods in Memphis, Tennessee and discouraged people seeking credit in those communities from obtaining home loans.

Over the same six-year period, other banks received nearly 3.5 times as many loan applications compared to Patriot in majority-Black and Hispanic neighborhoods in Memphis, Tennessee according to its complaint filed in the U.S. District Court Western District of Tennessee Western Division in January. 

Even when Patriot generated loan applications from majority-Black and Hispanic areas, the applicants themselves were disproportionately white, prosecutors alleged.

Patriot Bank denied any allegations of redlining.

“Patriot Bank has always acted to serve the home mortgage credit needs in minority neighborhoods, and the bank’s strong record speaks for itself and flatly contradicts any allegation of wrongdoing,” John Smith, president and CEO of Patriot Bank, in a statement.

“We are proud of our record and strongly deny that Patriot Bank ever avoided originating home mortgage loans in Black and Hispanic areas of the Memphis market.” 

The bank claims that Patriot ranked 14th out of 482 lenders in making mortgage loans in minority areas of Memphis in 2021 and 15th out of 534 lenders in 2022. 

Patriot Bank added: “The bank entered into a consent order with the DOJ because the terms of the agreement affirm and adopt the programs and actions that the bank has already been implementing on its own for many years to help meet mortgage credit needs in the communities it serves, including its investment of $1.9 million in reaching and serving communities of color, as the consent order itself states.”

Of the $1.9 million investment Patriot will make, subject to court approval, 

• At least $1.3 million will go towards loan subsidy fund to increase access to home mortgage, home improvement and home refinance for residents of majority-Black and Hispanic neighborhoods
• About $375,000 will be allocated for advertising, outreach, consumer financial education and credit counseling focused on majority-Black and Hispanic neighborhoods
• Some $250,000 will be spent on community partnerships to provide services that increase residential mortgage credit access for residents of those neighborhoods.

In addition, Patriot Bank is required to have at least two mortgage loan officers to serve majority-Black and Hispanic neighborhoods in the Bank’s service area and employ a director of community lending – responsible for development of lending in communities of color. 

“The Justice Department is dedicated to stamping out discriminatory lending practices across this country and we are vigorously committed to holding lenders accountable, no matter their size. This settlement will provide many Memphis families with access to credit that will improve the quality of their lives while opening up opportunities to build intergenerational wealth,” said assistant attorney general Kristen Clarke of the DOJ’s civil rights division.

Mortgage tech platform Modex shows that Patriot Bank produced about $149 million in mortgage loans over the last 12 months through 17 active loan officers and 9 branches.

Patriot Bank is the 11th lender to reach a settlement with the DOJ over redlining discriminatory practices.

In October 2021, the DOJ launched an initiative to combat redlining – a coordinated enforcement effort to address this persistent form of discrimination against communities of color. 

Since 2021, the department has secured more than $109 million in relief for communities of color that have been the victims of lending discrimination across the country.

FinCEN, part of the U.S. Department of Treasury, has been authorized to collect the reports, a requirement established under the Corporate Transparency Act of 2021. The law, enacted to curb illicit financial activities, requires nonexempt companies doing business in the United States to register information about the individuals who ultimately own or are in control of them.

“The launch of the United States’ beneficial ownership registry marks a historic step forward to protect our economic and national security,” said Secretary of the Treasury Janet Yellen in a prepared statement. “Corporate anonymity enables money laundering, drug trafficking, terrorism, and corruption. 

“It harms American citizens and puts law-abiding small businesses at a disadvantage. Having a centralized database of beneficial ownership information will eliminate critical vulnerabilities in our financial system and allow us to tackle the scourge of illicit finance enabled by opaque corporate structures.”

Reporting companies must file beneficial-ownership reports as follows, according to a press announcement by FinCEN:

• Existing companies: Reporting companies created or registered to do business in the United States before Jan. 1, 2024, must file by Jan. 1, 2025.

• Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.

The filing is free of charge and needs to be submitted only once, absent a need to update or correct information provided. Information required for the report includes the name, date of birth, address and a valid ID (such as a non-expired passport or U.S. driver’s license).

The company also must submit information, including its official name and address — with newly created companies as of Jan. 1, 2024, also required to submit information about the individuals who formed the business.

A total of 23 types of entities are exempt from the reporting requirements, including many publicly traded companies and nonprofits as well as certain large operating companies.

“FinCEN’s Small Entity Compliance Guide walks small businesses through the requirements in plain language,” the FinCEN states in a press release issued today. “Filers can also view informational videos and webinars, find answers to frequently asked questions, connect to the contact center, and learn more about how to report at www.fincen.gov/boi.”

The loophole allowed those gathering leads to sell to many entities at once, who would then often reach out to that consumer to get their business. The closing of that loophole could have a big impact on the lead generation practices of mortgage professionals, and to get a better idea of the potential impact HousingWire spoke with two subject matter experts.

Matthew Marx is the CEO and co-founder of marketing automation software company Evocalize, and has written on the topic of the new rules on social media as well as speaking about the changes on podcasts including HousingWire Daily.

Colgate Selden is an attorney, a partner at SeldenLindeke and has over 20 years of regulatory legal experience in government and as in-house and outside counsel, and also served as a founding member of the Consumer Financial Protection Bureau (CFPB) as senior counsel in its Office of Regulations.

The potential marketing impacts

The new rule is not likely to dismantle lead aggregators or their businesses, Marx said. However, the lead generation side of the business could likely see major changes.

“I think [mortgage professionals] need to keep in mind that the lifeblood of a lot of folks businesses is buying leads from lead portals and aggregators,” Marx said. “We now have a time clock of about six months. Those portals and lead aggregators are smart and they have a lot of money, so they’re unlikely to go out of business or go away, nor are the leads that they buy. But it’s going to change pretty dramatically, we think, given consumers will now need to consent explicitly to who gets the lead that they opt into.”

If you’re a loan officer or a real estate agent buying packages of leads, for instance, some packages will change while others will go away, Marx said. Some are also likely to become more expensive, Marx explained.

Those who own lead generation portals will certainly react to the adoption of the new rules, but the rules themselves use specific terms that could challenge the ability of lead aggregators to adapt.

As for what professionals in the mortgage business can do in response to this development, Marx says it comes down to being creative. Individuals who buy leads today may need to develop their own direct lead-generation techniques.

“A lot of leads that Zillow generates in real estate, or that Bankrate or LendingTree and all the other mortgage lead aggregators generate in credit-related industries, a lot of them are paid leads coming in through paid channels,” Marx said. “The people that they reach initially are actually on Meta, Google, TikTok or other online channels and they reach the consumer with a compelling message or some content that resonates.”

It is possible — and Marx argues, could be required for either individual LOs or their companies — to perform lead generation in-house.

“They [may] have to do it,” he said. “I think they’re going to have to put these lead funnels in place, otherwise they’re not going to have the leads they need to fuel their business.”

The legal perspective

Some of the requirements that come out of these new rules may be considered onerous, but it remains to be seen if the industry side decides to litigate, said Selden.

“I think that some of the traditional models where there’s either a long form or short form inquiry [could be impacted], but some of those are already starting to be phased out or tweaked anyway because of the digital mortgage comparison-shopping advisory opinion that the [CFPB] put out for RESPA Section 8 issues,” he said.

Now, the onus will be on the lenders or aggregators themselves to seek out one-to-one consent before contacting a particular consumer identified as a lead.

“You have to give consent to a specific lender now,” he said. “So if, say, Rocket Mortgage is one of the companies involved, then when the leads that day from that particular lead generation site come in, there would have to be some way — before they can call you — for you to provide consent directly for Rocket Mortgage,” he said.

Another potential wrinkle in this scenario is if the affected companies and lead generation specialists take issue with the costs they will incur to bring their business practices in compliance with the new regulations, Selden explained.

“I’m not sure that they did a real […] analysis for the costs that this rule might have on different lead generators and mortgage lenders,” Selden said. “People may sue over this rulemaking around a lack of that consideration during the process. I haven’t heard anything yet, but that seems like that’s a possibility. We’ll see.”

Reorienting business practices to comply with the rule could touch a lot of operations these companies use, and have used for a long time.

“Given what the lead generation industry and the marketing industry will have to do to rearrange or reorder things, and review all their policies and process flows, there’s probably some substantial costs to the industry around that,” he explained. “So that could be interesting, too.”

The consumer impact

Both Marx and Selden agreed that the rule’s benefit to consumers is clear, and for Marx, this could lead to some initial pains that give way to higher quality leads. Consumer satisfaction may rise as well, Marx said.

“I don’t think this is a bad thing,” he said. “It’s going to be disruptive, but in the long haul if we have less spam coming to consumers, I feel like it really has the potential to increase trust and increase the quality of leads.”

This is because in the environment that is to come from the adoption of these new rules, consumers would now expect a call, and this could result in more success for future leads.

“In the long term for practitioners, I think this is a good thing and it’s a forcing function to get them to take control over their own business, and not outsource this really important component of it to a third party.”

Consumers will benefit from a reduction of unwanted inbound inquiries, Selden added.

“[This rule] definitely should reduce a lot of the texts and calls [consumers] get given the blanket consents that people used to ask for,” he said. “Some of the [existing] consents are so broad. Maybe you’re on a mortgage loan shopping site. You give consent for anybody to contact you, and some other industry that you weren’t even looking for may have tracked you [based on] some of your shopping habits online.”

If someone was shopping for a vacation to Disney World, Selden offered, then blanket consent may have led to Disney reaching out to them directly

“It’ll stop that magnifier effect in terms of multiple different parties contacting you,” he said. “So, the consumer benefit should be substantial.”

The new rules as adopted could bring a wave of lawsuits against those using the so-called “lead gen loophole,” which includes mortgage lenders, insurers and law firms.

These new rules will “further protect consumers from scam communications by directly addressing some of the biggest vulnerabilities in America’s robo-text defenses and closing the ‘lead generator’ robocall/robo-texts loophole,” according to an announcement issued Wednesday by the FCC. “The new rules allow blocking of ‘red flagged’ robo-texting numbers, codifies do-not-call rules for texting, and encourages an opt-in approach for delivering email-to-text messages.”

There are three core provisions for the new rules. They will “allow the FCC to ‘red flag’ certain numbers, requiring mobile carriers to block texts from those numbers,” the FCC said. “The rules also codify that Do-Not-Call list protections apply to text messaging, making it illegal for marketing texts to be sent to numbers on the registry.”

They will also close what the FCC calls the “lead generator loophole,” through which “unscrupulous robocallers and robotexters inundate consumers with unwanted and illegal robocalls and robotexts,” the FCC explained.

“The new rules make it unequivocally clear that comparison shopping websites and lead generators must obtain consumer consent to receive robocalls and robotexts one seller at a time – rather than have a single consent apply to multiple telemarketers at once,” the FCC added. This change will disrupt the current way potential homebuyer leads are bought and sold.

Finally, the FCC has proposed additional steps for new action, including soliciting the public for additional action it can take to combat unwanted robocalls for consumers. A new notice published by the FCC “proposes additional blocking requirements when the FCC notifies a provider of a likely scam text-generating number,” it explained.

“The Commission will also seek further comment on text message authentication – modeled on the successful implementation of STIR/SHAKEN protocols for phone calls – including on the status of any industry standards in development,” the FCC said.

The new notice also proposes “requiring, rather than simply encouraging, providers to make email-to-text services opt-in,” the FCC explained.

Experts who spoke to Reuters speculated before the rules’ adoption that they could allow consumers to bring a wave of lawsuits against those taking advantage of the so-called loophole, with one attorney saying the rules would create a “target-rich environment” in which to sue companies that may rely on such leads under the Telephone Consumer Protection Act (TCPA).

“Businesses that use leads will need to be especially careful to ensure that the contacts they use are in compliance with the new law,” said Andrew Perrong, who has filed dozens of lawsuits both as a plaintiff and as an attorney representing clients suing over unwanted calls, Reuters reported.

The bank received Matter Requiring Attention (MRA) notice from the Consumer Financial Protection Bureau (CFPB) on problems with loan discounts, CNBC reported on Monday, citing anonymous sources. 

It is unclear whether Wells Fargo was accused of discrimination or sloppy oversight, the report noted. 

Loan discounts — known as pricing exceptions — is when a lender makes exceptions to its established credit standards. Whether certain borrowers – based on race, gender and age – received fewer pricing exceptions, violating U.S. fair lending laws has been on regulators’ radar in recent years. 

According to the CNBC report, mortgage bankers at Wells Fargo would request pricing exceptions that typically lowered a customer’s Annual Percentage Rate (APR) by between 25 and 27 basis points to help secure deals in competitive markets.

Wells Fargo received the MRA from the CFPB a couple of months before the company announced it was scaling down its mortgage business in January. On the heels of regulatory pressure, Wells Fargo adjusted its policies in 2023 that would require hard documentation of competitive bids, sources told CNBC. 

After receiving an MRA from the CFPB, Wells Fargo hired a law firm to look into mortgage bankers’ such practices whose sales included high levels of discounts, the report said.

Wells Fargo declined to comment on any regulatory matters but noted “we don’t discriminate based on race, gender or age or any other protected basis.”

“As part of our renewed focus on supporting underserved communities through our Special Purpose Credit Program, we have spent more than $100 million over the last year to help more minority families achieve and sustain homeownership, including offering deep discounts on mortgage rates,” a spokesperson said in an e-mailed response.

CFPB’s probe into mortgage lenders 

The CFPB’s probe into mortgage lenders was shared back in Fall 2021.

Its findings showed that mortgage lenders violated U.S. fair lending laws by discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions.

Since then, regulators conducted additional examinations and again found that mortgage lenders violated “Equal Credit Opportunity Act (ECOA) and Regulation B by discriminating in the incidence of granting pricing exceptions across a range of ECOA-protected characteristics, including race, or age.”

“In several instances, examiners identified policies and procedures that were not designed to effectively mitigate ECOA and Regulation B violations or manage associated risks of harm to consumers,” according to a CFPB’s report in the summer of 2023.

“Some policies permitted mortgage loan officers to request a pricing exception by submitting a request into the loan origination system without requiring that the request be substantiated by documentation. While those requests were subject to managerial review, there were no guidelines for the basis for approval or denial of the exception request or the amount of the exception,” said the report.

The report didn’t share names of the mortgage lenders that indicated they violated ECOA and Regulation B.

The CFPB declined to comment on HousingWire’s request for comment. 

Wells Fargo was repeatedly slapped with hefty fines regarding its missteps involving home loans recently.

Wells Fargo paid $3.7 billion for consumer abuses on products including home loans in December 2022 and was fined $250 million in 2021 for failing to address problems in its mortgage business.

The CFPB has been tightening its screws on fair lending practices. In 2022, the regulator carried out 32 fair lending investigations, more than doubling the number of probes it started in 2020.

The article has been updated with Wells Fargo’s comment on Tuesday Dec. 12 at around 10:00 am ET.

These include the launch of a free water and energy benchmarking service for HUD-assisted multifamily properties and a new partnership with the U.S. Department of Energy (DOE) to increase domestic efforts to reduce carbon emissions in the building sector and to cut costs for consumers through energy efficiency improvements.

Energy and water benchmarking service

The Energy and Water Benchmarking Service is available to all of HUD’s project-based multifamily rental assistance programs and will be free to all qualifying participants.

It will provide “multifamily property owners with data on energy and water consumption at their properties,” which can “aid property owners in identifying opportunities for energy efficiency improvements that can benefit residents and promote green investments in individual properties or entire property portfolios,” HUD explained.

Property owners will also be able to use the information to “assess rehabilitation efforts that may be eligible for grant or loan funding under HUD’s Green and Resilient Retrofit Program (GRRP) or other sources of funding,” the announcement said.

Special Presidential Envoy for Climate and former Secretary of State John Kerry delivered the benchmarking announcement at COP28.

“Along with the Green and Resilient Retrofit Program, the benchmarking service puts the historic Inflation Reduction Act funding to work in communities that are too often overlooked,” said Assistant Secretary for Housing, Federal Housing Administration (FHA) Commissioner Julia Gordon. “This program reinforces our ongoing commitment to efficient, safe, and healthy homes in all communities.”

DOE partnership for decarbonization

HUD has also entered into a new memorandum of understanding (MOU) with the DOE to develop a policy designed to reduce carbon emissions in the building sector, also announcing that it is joining the White House Office of Science and Technology Policy’s United States Global Change Research Program (USGCRP).

Its membership in USGCRP will allow HUD to assist with guiding and contributing to the U.S. government’s “scientific research on global climate change and ensure that state-of-the-art research and data on climate change benefits the people and communities that HUD serves,” the Department said.

At COP, the U.S. also joined the UNEP Buildings Breakthrough. Participating countries endorse the statement “Near-zero emission and resilient buildings are the new normal by 2030.”

“The new partnerships that we are announcing today underscore our strong and enduring commitment to energy efficiency and climate resiliency for our nation’s communities, homes, buildings, and infrastructure. It also underscores our commitment to sharing research on climate impacts faced by those most at risk,” said HUD Secretary Marcia Fudge.

DOE’s partnership with HUD will allow both agencies to create policy that will “fortify homes and communities across the country, ensuring they are prepared to respond to the challenges posed by the climate crisis through mitigation, adaptation and resilience,” Fudge added.

U.S. Secretary of Energy Jennifer Granholm also joined Fudge to offer perspective on the MOU.

“Today’s announcement reinforces the Biden-Harris Administration’s whole-of-government effort to lower costs for working families and ensure the benefits of the transition to a cleaner energy future are fully accessible, especially to those in low-income areas and underserved communities,” Granholm said.

She added that the new partnership “will allow DOE and HUD to leverage each other’s expertise to deliver on President Biden’s commitment to provide more affordable and healthier housing for Americans while also reducing deadly emissions that fuel the climate crisis.”

Sen. Jack Reed (D-R.I.), who serves as a senior member of the Banking and Housing Committee, took the opportunity to ask Chopra about the practice and what the Bureau might be able to do about it.

“Credit rating bureaus sell so-called trigger leads, which are essentially a tip that consumers shopping for a mortgage,” Reed said. “The trigger lead can generate contacts, and some of them [are] more confusing than helpful. You have responsibility for both the mortgage lending process and also the credit reporting bureaus. Is there anything you could do to help clarify the situation under existing authority to protect consumers from misinformation?”

Mortgage trigger leads

Chopra described the situation as complicated but did not challenge the senator’s premise regarding the confusion that consumers might have when trigger leads enter the equation.

“One of the things that [happens is that] a prospective homeowner will talk to a mortgage lender, and then all of a sudden, they’ll start getting a barrage of calls,” Chopra said. “And they actually think that the original mortgage lender told everyone [they were seeking a mortgage], and they wonder what’s going on. This is something that I think our authority is somewhat limited.”

Still, the Bureau is “happy” to look at potential solutions to make clear that it is not the mortgage lender openly divulging the shopping status of a particular consumer.

“That is not happening,” Chopra explained. “Because the credit reporting company is really making that information available. You know, you raise the issue of [the Fair Credit Reporting Act (FCRA)] and data on credit reports. We have a lot more of these companies collecting sensitive information, not just what loan you apply for.”

Trigger lead data can include geolocation information, Chopra said, which has privacy considerations for consumers.

“That data is increasingly being weaponized,” he said. “And so, we’re looking at all of these data issues, and figuring out how to make sure we’re protecting the public.”

Servicing rules

Democratic Sen. Jon Tester of Montana asked a focused question about what Chopra sees as the biggest risk that the CFPB can help with for the financial solvency of U.S. military veterans, and Chopra responded that homeownership issues were at the top of the list.

“Certainly, I think homeownership, being kicked out of your home, and being able to get a loan modification — by sheer dollars — it’s a huge amount of money,” Chopra said. “And that’s why we’re looking at streamlining some of our mortgage servicing rules to allow more people to more easily get loan modifications, and be able to avoid foreclosure.”

This response followed statements made by the CFPB this past summer, where it identified mortgage servicing rules as a priority.

“The CFPB observed that there were places where the rules could be revised to reduce unnecessary complexity,” Chopra said in a June blog post. “Last fall, the CFPB asked the public for input on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments, including input on the mortgage forbearance options available to borrowers.”

At the time, Chopra described seeking input on the features of COVID-19 forbearance programs, seeing those as a potential guide to the automation and streamlining of “long-term loss mitigation assistance,” he said.

Mortgage issues were generally not the focus of questioning, which was also the case in the House Financial Services Committee hearing Chopra sat in the day before. Much of Chopra’s opening remarks in the Senate hearing were similar, if not identical, to the same statement he provided for House lawmakers.

PHAs with tenants in public housing and owners of properties participating in HUD multifamily project-based rental assistance programs would need to provide “written notification at least 30 days” before a court filing for an eviction due to rent nonpayment.

The proposal, published in the Federal Register, also requires that the 30-day notice “include instructions on how tenants can cure lease violations for nonpayment of rent and information on how to recertify their income and request a minimum rent hardship exemption if applicable to avoid eviction,” HUD said in its proposal announcement.

“HUD-assisted rental housing allows millions of people to achieve stability for themselves and their families,” said Solomon Greene, HUD’s Principal Deputy Assistant Secretary (PDAS) for Policy Development and Research. “This proposed rule would give many HUD-assisted renters an opportunity to catch up if they fall behind on rent and avoid the harmful consequences of evictions, while also preventing landlords and PHAs from encountering costly unit vacancies.”

Another reason for the proposed rule is that the eviction process is both costly and time-consuming, according to Richard Monocchio, PDAS for Public and Indian Housing.

“We are very proud of this proposed rule, and we welcome feedback from all interested stakeholders to make it even more practical and effective,” Monocchio said.

HUD estimates that the proposal would affect 3.9 million people in 2.2 million households, including 1.7 million people in 840,000 households in public housing and 2.2 million people in 1.4 million households in project-based rental assistance (PBRA) programs.

Stakeholders may offer comments on the proposal until Jan. 30, 2024.

The updates include increases in the maximum rehabilitation costs for the program’s limited version, an extension of the allowable period for more complex projects and changes in consultant fees, among others. 

The 203(k) Rehabilitation Mortgage Insurance Program helps borrowers purchase a home or refinance an existing mortgage and includes the cost of repairs or rehabilitation into one new mortgage.

There are two versions: the standard, which includes structural repairs and requires an approved consultant, and the limited version, which is focused on minor renovation and repair and does not require a consultant. 

In 2022, HousingWire reported that the FHA was looking to revamp the 203(k) program to address the current affordability crisis by boosting the supply of homes. Changes also intend to align the program to be more similar and as popular as Fannie Mae‘s Homestyle for conventional borrowers.

“Thanks to the enhancements we proposed today, home rehabilitation will be more accessible for millions of homebuyers and homeowners through the Federal Housing Administration,” HUD Secretary Marcia L. Fudge said in a statement. 

“Our proposed changes to the 203(k) program add to our larger goals of increasing both housing supply and affordability through FHA’s offerings,” Julia Gordon, federal housing commissioner, added in a statement.  

In February, the FHA launched a request for information regarding the 203(k) program. 

After receiving the industry’s feedback, the FHA proposes that the maximum costs for the program’s limited version increase from $35,000 to $50,000. In high-cost areas, however, it can go up to $75,000. 

Also, in the limited program, the FHA proposes that consultant fees be included in the financed mortgage, as it is permissible in the standard version. 

Regarding consultant fees, the FHA said it’s updating the schedule, “including a streamlining of and substantial increases for, allowable fees for preparation of work write-ups and architectural exhibit reviews.” 

For example, the document says if requested by the borrower or mortgagee to determine if a 203(k) loan is feasible, the consultant may charge an additional fee of $375 to prepare a feasible study. For the preparation of work write-up, consultants may charge up to 1% of the repair costs or $2,000, whichever is lower, for repairs over $140,000. 

Changes also include increases to the maximum amount for other allowable fees, including for draw inspection, which is $375. 

“Proposed fee increases are designed to appropriately compensate consultants for their role and incent more consultants to participate in the program,” the FHA stated.

The proposal increases the allowable rehabilitation period from six to 10 months in the standard version and from six to seven months in the limited program. The change considers repair and rehabilitation timeframes common for more complex projects, per the FHA. 

Borrowers would also be allowed to include 75% of material costs into the initial draw amount, compared to 50% under the current rules, so that they can make payments to a supplier or manufacturer. 

The deadline to comment on the proposals is Jan. 5, 2024. 

The final rule is primarily related to guarantees on commingled securities, multifamily mortgage exposures secured by properties with government subsidies and derivatives and cleared transactions.

The final rule goes into effect Apr. 1, 2024, but certain provisions on derivative contracts, and cleared and collateralized transactions go into effect on Jan. 1, 2026.

“The Enterprise Regulatory Capital Framework is a critical tool to ensure the Enterprises responsibly manage their risks,” said FHFA Director Sandra Thompson. “Finalizing these proposed changes helps ensure the framework will continue to strengthen the Enterprises’ ability to provide liquidity throughout the economic cycle.”

After a stakeholder comment period, the new rule seeks to “enhance the ERCF, contribute to the Enterprises’ safety and soundness, and better enable [them] to fulfill their statutory mission throughout the economic cycle,” the rule said.

The new guideline includes a reduction in the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively.

It also introduces a risk multiplier of 0.6 for multifamily mortgage exposures secured by properties with certain government subsidies. It replaces the current exposure methodology with the standardized approach for counterparty credit risk.

The credit score assumption for single-family mortgage exposures originated without a representative credit score has been updated to 680. The timing of the first application of the single-family countercyclical adjustment has been aligned with the first property value adjustment.

FHFA has also “identified several aspects of the ERCF where modifications will clarify and enhance the usefulness of the framework,” and has made changes in response.

These include expanding the definition of MSAs to include servicing rights on mortgage loans owned by a relevant GSE and the permission of eligible time-based call options in the CRT operational criteria, though this change is “subject to certain restrictions.”

In May, the Mortgage Bankers Association (MBA) submitted comments to the FHFA in response to proposed rulemaking that would amend certain parts of the ERCF, including many of the provisions in the final rule.

The MBA is “generally supportive” of most amendments in the proposal, it said, but noted concern regarding the proposal’s “changes to representative credit score calculations.” It urged the FHFA to consider “reducing the risk surcharge on third-party originated loans and the inclusion of a multifamily countercyclical adjustment.”