Hello, LOs!
Federal Reserve Chair Jerome Powell will get a second term leading the central bank, a move that promises stability. But Biden's pick for Fed vice chair is shaking things up.
The second-in-command position, if confirmed by the Senate, will go to Lael Brainard — the architect of the Fed's efforts to modernize the Community Reinvestment Act.
The CRA was passed in 1977, nearly 10 years after the Fair Housing Act, which was supposed to end redlining. The practice persisted, however, and the CRA sought to curb it. Although concerns about redlining led to the law's passage, the statute never really lived up to the intent. For one, it didn't mention race explicitly, and it hasn't had an update since 1995. A lot has changed since then, including the rise of mobile banking.
A multi-year effort to modernize the CRA lurched forward in 2020 when the Office of the Comptroller of the Currency proposed a widely panned revision of the law. Brainard was highly critical of that revision during a speech at the Urban Institute. The OCC rescinded the rule in September.
(Efforts to modernize the federal CRA are separate from the laws that have been popping up at the state level. They apply CRA-like requirements to non-bank lenders.)
Brainard has said that the three federal banking agencies — the Federal Deposit Insurance Corporation, the OCC and the Fed — should work to converge on a consistent approach with buy-in from stakeholders, something the mortgage industry can appreciate.
Brainard is credited with the idea of addressing racial equity in the statute itself, and with getting the other governors on board, no small feat. The now well-known "Question 2" in the advanced notice of proposed rulemaking she authored for the Fed last year sought feedback on what changes to the CRA could address "systemic inequities in credit access for minority individuals and communities."
The Fed is on track to produce a notice of proposed rulemaking early next year, after it combs through the 600-plus comment letters it got from banks, trade groups and advocates.
Brainard may not yet be confirmed by the Senate by then. But Brainard's ascension to vice chair sends a strong signal that CRA modernization is coming and, because of her, will likely address racial equity in mortgage lending directly.
"Lael is the reason that racial equity question is in the proposal, but she faces some stiff resistance from colleagues and Fed lawyers to doing anything meaningful there," Jesse Van Tol, CEO of the National Community Reinvestment Coalition, told me. "If anybody can get it done, it's her, but the President needs to give her some reinforcements."
That could happen, too. Biden has three more vacancies to fill, and they don't need to pass muster in the Senate. He said he will start announcing those appointments in December.
LOs, federal regulators are contemplating big changes to the mortgage industry. How do you see their overall stance impacting your work?
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
Correction: In the Nov. 16 edition of LendingLife, I wrote that UWM increased its conforming loan limits ahead of an announcement from the FHFA, and PennyMac followed suit. In fact, PennyMac was the first to increase its limits.
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