HUD OIG Sends Letter to House Committee on Financial Services Regarding Funding Arrangements in Certain Housing Finance Agency Down Payment Assistance Programs

On July 26, HUD OIG (OIG) Inspector General David A. Montoya sent a letter to Jeb Hensarling, chairman of the House Committee on Financial Services, regarding OIG’s continuing opposition to certain down payment assistance (DPA) programs. The letter reiterates OIG’s previously stated position that certain DPA programs used for loans sold on the secondary market violate the National Housing Act (NHA) and the Housing Economic and Recovery Act (HERA) by reimbursing prohibited parties for providing part of the required minimum investment funds. According to the letter, more than 60,000 FHA loans are originated per year using this borrower-reimbursed funding arrangement. HUD had previously investigated the OIG criticisms of these loans made in conjunction with local HFAs and had determined that these programs do not violate relevant HUD requirements. In the letter, Montoya critiques that determination and attempts to continue this disagreement between HUD program officials and the OIG.

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Republicans Attempt to Replace the Dodd-Frank Act with the Financial CHOICE Act

On June 7, House Financial Services Committee Chairman Jeb Hensarling (R-TX) released details of the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act, a Republican proposal to dismantle the Dodd-Frank Act. According to Chairman Hensarling’s remarks delivered to the Economic Club of New York, “Dodd-Frank has failed.” The goals of the proposed plan are: (i) to promote economic growth through competitive, transparent, and innovative capital markets; (ii) to provide the opportunity for every American to achieve financial independence; (iii) to protect consumers from fraud and deception as well as the loss of economic freedom; (iv) to end taxpayer bailouts of financial institutions and too big to fail institutions; (v) to manage systemic risk; (vi) to simplify in order to prevent powerful entities from taking advantage of complexity in the law; and (vii) to hold Wall Street and Washington accountable. Importantly, Section Three (“Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors”) proposes, among other things, to replace the current single director structure of the CFPB with a five-member, bipartisan commission subject to congressional oversight and appropriations. Section Three further proposes to repeal indirect auto lending guidance. As part of its goal to end “too big to fail” institutions and bank bailouts, Section Two of the Act proposes to retroactively repeal FSOC’s authority to designate firms as systematically important financial institutions. Finally, in an effort to “unleash opportunities for small businesses, innovators, and job creators by facilitating capital formation,” Section Six of the Act proposes to repeal the Volcker Rule, along with other sections and titles of Dodd-Frank that limit capital formation.

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U.S. House Passes SAFE Transitional Licensing Act to Give Greater Job Mobility to Mortgage Loan Originators

On May 23, the U.S. House of Representatives unanimously passed by voice vote H.R. 2121, the SAFE Transitional Licensing Act of 2015. Congressman Steve Stivers (R-OH) introduced H.R. 2121 in April 2015 with the purpose of “providing regulatory relief for loan originators in an effort to make a smooth employment transition between bank and non-bank entities.” As passed, H.R. 2121 would amend the SAFE Mortgage Licensing Act of 2008 to give eligible mortgage loan originators (MLOs) the ability to continue originating loans while awaiting a decision on their application for a state originator license. This temporary authority would apply when MLOs switch jobs (i) from a depository institution, where a state originator license is not required, to a state-licensed non-bank lender, where such a license is required; or (ii) from a state-licensed lender in one state to a state-licensed lender in another state, where a new state originator license is required. In both cases, this temporary authority would expire upon the grant, denial, or withdrawal of the license application, or, if an application is deemed incomplete, 120 days after the application was submitted.

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U.S. House Members Seek Information Related to Financial Institution-Fintech Relationship

On May 24, twelve U.S. congressmen – eleven Republican – sent a letter to the Government Accountability Office (GAO) requesting information on how the U.S. financial system’s regulatory structure affects the relationship between financial firms and fintech companies. This request follows a separate April 18 letter from three Democratic senators requesting that the GAO complete a study on the fintech industry, and comes after a GAO report, which was published in February but publicly released in March, that assessed the U.S. financial system’s regulatory structure, including the impacts of fragmentation and overlap in financial regulation. The most recent letter requests that the GAO supplement its February report by providing information concerning: (i) how the GAO’s findings of fragmentation and overlap in financial regulation “slowed or otherwise harmed innovation, and restricted the ability of financial firms . . . from pursuing new technological ventures”; (ii) how collaboration between financial firms and fintech companies has “helped financial firms streamline processes and become more efficient in delivering products and services”; (iii) “what challenges . . . both financial institutions and fintech companies have with the existing regulatory structure”; and (iv) how federal regulators can “streamline” collaboration between financial firms and fintech ventures, and what best practices U.S. regulators can consider to foster a “culture of collaboration” – such as the “regulatory sandbox” offered by the U.K. Financial Conduct Authority’s Project Innovate.

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Congressman Luetkemeyer Proposes Bill to Eliminate “Abusive” in CFPB’s UDAAP Authority

Recently, Representative Blaine Luetkemeyer (R-MO) introduced H.R. 5112, the Unfair or Deceptive Acts or Practices Uniformity Act, to make the authority of the CFPB and FTC more consistent and similar, and to encourage greater communication among regulators. Specifically, the Act would amend Section 1031 of the Dodd-Frank Act by removing the CFPB’s ability to regulate “abusive” conduct from its current authority to regulate “unfair, deceptive or abusive” acts or practices (UDAAP). In addition, the bill would insert the following language at the end of Section 1031: “[i]n prescribing any rule under this subsection, the Bureau shall comply with the requirements of section 18 of the Federal Trade Commission Act (15 U.S.C. 57a) applicable to the Federal Trade Commission when the Commission prescribes rules and general statements of policy under that section with respect to unfair or deceptive acts or practices in or affecting commerce.”

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