Revisions aim to protect GSEs from high-risk partners while ensuring due process
The Federal Housing Finance Agency (FHFA) has re-proposed amendments to a regulation that would require government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac to stop doing business with entities involved in misconduct.
The Suspended Counterparty Program (SCP) regulation mandates that GSEs report if a business partner has engaged in misconduct within the past three years. It also allows the FHFA to order the GSEs to cease doing business or refrain from entering into new business with certain counterparties when necessary.
The revised SCP proposal distinguishes between misconduct that poses a significant risk to the safety and soundness of the GSEs and less severe violations. It would allow for the suspension of business with a counterparty whose misconduct has led to a federal prohibition order or significant civil penalties.
The updated proposal also includes provisions for suspending business with parties involved in criminal or civil misconduct related to the management or ownership of real estate.
FHFA director Sandra Thompson said the amendment would strengthen the agency’s ability to protect GSEs from potential risks.
“FHFA has carefully reviewed the feedback from stakeholders in developing this re-proposal, which will better ensure the regulated entities’ safety and soundness so they continue to serve as a reliable and stable source of liquidity for the US housing finance system,” Thompson said.
The re-proposed regulation comes after the FHFA received feedback from industry stakeholders expressing concerns over the original draft released in July 2023.
Read next: MBA opposes FHFA's suspended counterparty program proposal
The Mortgage Bankers Association (MBA) expressed its approval of the revisions. MBA president and CEO Bob Broeksmit called the re-proposal a “smart move,” noting that the FHFA had responded to industry concerns.
“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,” Broeksmit said in a statement. “The re-proposal appears to address some of MBA’s significant concerns outlined in our joint comment letter.
Broeksmit added that the changes, including refinements to due process and limiting the SCP to severe violations, were positive steps.
“We are pleased to see the elimination of the proposed immediate suspension order, refinements that preserve due process, and a narrowing of the application of the SCP to violations of a certain magnitude or gravity,” he added. “MBA and its single-family and multifamily members will review the re-proposal in greater detail and our forthcoming response will focus on any necessary improvements to the SCP regulation that strike an appropriate balance.”
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