The National Council of State Housing Agencies (NCSHA) submitted comments on Aug. 1st in support of exemptions contained in a proposed rule on risk retention requirements. The rule, “generally requires the securitizer of asset-backed securities to retain not less than five percent of the credit risk of the assets collateralizing the asset-backed securities.” However, the rule provides an exemption for municipal securities, including tax-exempt housing bonds issued by state Housing Finance Agencies (HFAs).

The NCSHA also called on the relevant regulatory agencies to expand the exemption to cover all HFA-financed loans and loan-financing products used by HFAs and to expand the definition of qualified residential mortgage (QRM). The QRM recommendation comes out concern that a narrow definition of such mortgages could have a negative impact on the availability of affordable mortgage financing. Finally, the Council recommended eliminating a section of the proposed rule imposing servicing policies and procedures on QRM mortgages, suggesting instead that said polices and procedures be enumerated in a separate rule making process.


Earlier this morning, I posted a press release from HUD announcing a final rule that sets standards for state compliance with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). NCSHA has just posted an informative piece on exemptions for HFAs, government employees, and bona fide nonprofits. Here is a breakdown the breakdown, courtesy of NCSHA:

  • The SAFE Act’s purposes and licensing requirements apply to individuals who act as loan originators with respect to financing that is provided in a commercial context and with some degree of habitualness or repetition. The SAFE Act does not cover employees of government agencies or housing finance agencies who act as loan originators in accordance with their duties as employees of such agencies. Individuals who act as loan originators as employees of government agencies or of housing finance agencies, as defined by this rule, are not subject to the licensing and registration requirements of the SAFE Act.
  • The SAFE Act does not cover employees of bona fide nonprofit organizations who act as loan originators with respect to residential mortgage loans outside a commercial context.
  • The final rule does not require licensing of individuals engaged in mortgage modifications or individuals working as third-party loan modification specialists. The rule states, “Although HUD considered licensing of such individuals, and specifically solicited comment on coverage of loan modifications that result in material modifications to homeowners’ mortgages, HUD, in this final rule, does not define “loan originator” or “business of a mortgage loan originator” to include individuals who engage in loan modifications or are third-party loan modification specialists. HUD leaves to the [Consumer Financial Protection] Bureau the issue of whether such individuals should be licensed under the SAFE Act. HUD notes that the new Bureau has independent authority under the Dodd-Frank Act to regulate loan modification and loan servicing practices. However, it is important to note that those individuals involved in refinance transactions are subject to licensing under the SAFE Act. A refinancing results in a new loan, not a modified loan.”


In cautious political climate, CRA reform takes center stage

The affordable housing industry is coming off a year in which the market for tax credits dramatically recovered from a period of capital flight.  However, a tumultuous political climate could place the LIHTC program under fire, as debt-reduction and tax code overhaul become increasingly salient issues.  Both the strength of the tax credit market, and the current political environment, have industry advocates cautious about asking for anything from the new congress.

At a recent industry conference, Bob Moss, Senior VP and Director of Origination at Boston Capital, cautioned, “I think you have to be really careful about asking for stuff [in this political climate]”. Joseph Hagan, President and CEO of the National Equity Fund, quickly chimed in, “I think we have to be very limited in what we ask for. Everyone in congress is saying they want to reduce the deficit.”

In spite of the cautious atmosphere, there is one proposal that has emerged as an industry-cause.  Given its cost neutrality and regulatory (as opposed to legislative) nature, CRA reform continues to have broad support from both industry and government players alike.

The Community Reinvestment Act (CRA) was enacted in 1977 to encourage commercial banks and saving associations to meet the needs of low- and moderate-income borrowers.   As the banking industry and lending practices have evolved, CRA regulations have periodically adapted to reflect those changes.

Most recently, with the bursting of the housing bubble and the economic downturn, CRA regulations were altered to cover lending activities included in the President’s Housing and Economic Recovery Act (HERA) as well as the Neighborhood Stabilization Program. However, questions remain over the program’s functionality.

Last July and August The Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), The Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS) held a series of public hearings on CRA reform.  While the perspectives and opinions offered during the series of four meetings varied greatly, there was general agreement that CRA assessment does not appropriately reflect the diffuse nature of modern lending practices.

CRA reform is a rare case where actors on multiple sides of the issue seem to agree, with both lenders and LIHTC developers pushing for an expansion of assessment areas. Matt Parks, director of investments for Discover Bank, had the following to say about potential reform:

As a CRA Officer of a Direct Bank with customers disbursed throughout the country, we are frequently challenged to invest in viable projects within a narrow assessment area that is shared with many large bank competitors.  Although we collaborate on many projects, we find ourselves focused on such a limited number of projects, but with significant investment objectives.  This narrow focus and unrealized supply, unfortunately does not find its way to viable projects in other areas of the country that could benefit greatly from the attention and available investment capital…. but, with a broader and well defined regional area, banks similar to mine can become more confident in extending the reach of our CRA investments.

Patrick Sheridan, Senior VP of Housing Development at Volunteers of America, echoed the sentiment that assessment areas should be expanded, “The largest problem with the CRA is that it doesn’t cover all areas of the country equally. If fixed, much of the country would see much more consistent investment.”

Sheridan and other members of the development community are optimistic about the reform process signaled by the government hearings.  “The CRA reform that was being talked about was not a legislative fix so it could be something that is feasible that could benefit the industry” said Sheridan, “Because it is a regulatory as opposed to legislative fix and it is budget neutral, it has a much higher likelihood of happening.”

“We’ve shifted our priorities”, said Joseph Hagan during the same panel in which he urged caution, “one of the things we are looking at is non-legislative issues, like CRA reform”. It remains to be seen, however, even with the consensus and cost neutrality, whether Washington and the affordable housing industry will see their priorities align.



The NCSHA submitted comments on two Dodd-Frank derived proposed rules. The first series of comments addresses a proposed rule by the Commodity Futures Trading Commission (CFTC) intended to, “address reporting, transparency in decision-making, and limitations on use or disclosure of non-public information, among other things” applicable to derivatives clearing organizations, designated contract markets, and swap execution facilities.

Specifically, the NCSHA is requesting clarification to ensure that Housing Finance Agencies are included in an end-user exception as defined by section Section 2(h)(7) of the Commodity Exchange Act. To those ends, the NCSHA is requesting a clarification from the CTFC:

We urge the CFTC to exclude explicitly state and local governmental entities, specifically HFAs, from the definition of a “financial entity” as defined in Section 2(h)(7) of CEA. Similarly, we recommend that the CFTC expressly confirm that swaps used by state and local governmental entities, including specifically swaps used by HFAs, “hedge or mitigate commercial risk,” as defined in Section 2(h)(7) of CEA.

Additionally, the NCSHA is asking that the CTFC relax reporting requirement for HFAs, citing an unnecessary cost burden on housing agencies, and that the CTFC more clearly define the regulatory scope of the end-user exception.

The second series of comments addresses an SEC proposed rule that requires Municipal Advisors to register with the Commission. The NCSHA is urging the SEC to exclude, “all board members of municipal entities from the requirements of the proposed rule”:

Applying registration and related requirements to appointed board members of municipal entities would impose substantial, unnecessary burdens on board members whose fundamental purpose is deliberative, not advisory, and who are clearly accountable for their actions and performance under state law and other federal regulations. The proposed rule’s additional burdens would discourage otherwise willing and qualified candidates from agreeing to serve as appointed board members, undermining municipal entities’ ability to function effectively.

The NCSHA is requesting this exemption on numerous grounds, including legislative history, and the fact that board members, while not elected, are still accountable for their actions, and that said actions are “fundamentally deliberative, not advisory”. Additionally, the NCSHA sites (again) the rising cost of the increased reporting requirements on HFAs and notes that HFAs and their board members are already subject to reasonable and sufficient oversight by the Treasury Department and HUD.

Read the full letters:
NCSHA_CFTC End User Exception Comments

See also:
SEC Asset-backed securities rules spark debate


Housing Credit Industry Outlook from Housing Think on Vimeo.

In the above clip, taken from a session at this year’s NCSHA HFA Institute, Bob Moss and Joseph Hagan exchange ideas on the what the tax credit market will look like in 2011.  The session, entitled Housing Credit Industry Outlook, is part of a recently released series of videos available through NCSHA.


Two recent SEC proposed rules have sparked a debate over the role of the Commission in regulating housing bonds.


In October, the SEC proposed two rules to enforce provisions of the Dodd-Frank act, which mandates increased transparency requirements for securitizers of asset-backed securities (ABS) and the ratings agencies reporting on ABS.

Specifically, the rules would:

require securitizers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests across all transactions

require any issuer registering the offer and sale of an asset-backed security…to perform a review of the assets underlying the ABS

require an ABS issuer to disclose the nature of its review of the assets and the findings and conclusions of the issuer’s review of the assets

NCSHA Response

In response to the proposed rules and the SEC’s call for comments, the National Council of State Housing Agencies (NCSHA), an advocacy group that represents state housing agencies, issued a statement calling for HFA exemption from the proposed rules:
[click to continue…]


The National Council of State Housing Agencies issued a statement today calling for HFA exemption from two recent SEC proposals aimed at increasing transparency in the asset-backed securities market:

“it is extremely important for NCSHA to submit compelling, substantive comments to these proposed rules requesting exemptions for HFAs. It is important that the SEC understand that municipal bonds backed by mortgages, especially those issued by HFAs, are very different from traditional ABS and should not be treated similarly. A strong response advocating for HFA-exemption from the rules issued on October 3 and October 13 could set the tone for future rulemakings.”

The first rule, issued on October 4th, would:

“require securitizers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests across all transactions”

“require nationally recognized statistical rating organizations to include information regarding the representations, warranties and enforcement mechanisms available to investors in an asset-backed securities offering in any report accompanying a credit rating issued in connection with such offerings, including a preliminary credit rating.”

The second rule, issued on October 13th, would:

“require any issuer registering the offer and sale of an asset-backed security (“ABS”) to perform a review of the assets underlying the ABS”

“require an ABS issuer to disclose the nature of its review of the assets and the findings and conclusions of the issuer’s review of the assets”

“require that the issuer disclose the third-party’s findings and conclusions” (If the issuer has engaged a third party for purposes of reviewing the assets)

“require that an issuer or underwriter of an ABS offering file a new form to include certain disclosure relating to third- party due diligence providers, to implement Section 15E(s)(4)(A) of the Securities Exchange Act of 1934, a new provision added by Section 932 of the Act”