The Federal Housing Finance Agency (FHFA) has revised its proposal to amend the Suspended Counterparty Program (SCP).

The SCP regulation requires a regulated entity to report to FHFA if an individual or institution it does business with has committed certain types of misconduct within the prior three years. It also authorizes FHFA to order its regulated entities to cease doing business or refrain from initiating new business with certain counterparties. Final suspension orders are published on FHFA’s website.

FHFA is publishing this re-proposal after considering commenters’ feedback regarding the original proposed rule, which was issued in July 2023. Some commenters raised concerns that the original proposed rule was “overly broad; granted FHFA with undue discretion; and risked capture of relatively minor misconduct that would not pose a risk to the regulated entities’ safety and soundness,” the proposed rule stated. Some commentors also urged FHFA “to clarify what types of misconduct would give rise to suspension under the first proposed rule.”

To address these concerns, the re-proposal distinguishes between misconduct that poses material risk to the safety and soundness of the regulated entities and behavior with de minimis impact — in other words behaviors with no risk to regulated entities.

“Amending the SCP will help strengthen FHFA’s ability to protect its regulated entities from risks presented by other businesses that engage in misconduct,” FHFA Director Sandra Thompson said. “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 U.S. housing finance system.”

The re-proposal would:

• Maintain counterparties’ ability to respond to the issuance of a final suspension.
• Authorize the suspension of business between a regulated entity and a counterparty whose misconduct resulted in a federal prohibition order or a civil monetary penalty order, but “the scope of those additions would be limited to capture only orders from certain Federal agencies and, where applicable, above a numerical threshold.”
• Authorize the suspension of business between a regulated entity and a counterparty that has committed criminal or civil misconduct related to the management or ownership of real property.

Following the FHFA’s announcement for this re-proposed rule, the Mortgage Bankers Association’s (MBA) President and CEO Bob Broeksmit, issued a statement.

“A re-proposal is a smart move, and 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.

“The re-proposal appears to address some of MBA’s significant concerns outlined in our joint comment letter. 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.”

Broeksmit concluded that MBA plans to review the re-proposal and offer a response focused on “any necessary improvements to the SCP regulation that strike an appropriate balance.