On September 25, 2024, the Federal Housing Finance Agency (“FHFA”) announced that it is revising its previously issued proposal to amend the Suspended Counterparty Program (“SCP”). The SCP requires a regulated entity (Fannie Mae, Freddie Mac, all Federal Home Loan Banks, and any of their affiliates) to submit a report to FHFA if it becomes aware that an institution or individual that it does business with has committed certain types of misconduct within three years of discovery. If the FHFA determines that the misconduct would likely cause significant or reputational harm to a covered entity, it may issue a suspension order to cease doing business with that suspended counterparty.
In July 2023, FHFA published a proposed change to its SCP regulations to expand categories of covered misconduct that could warrant a suspension, including sanctions imposed on certain forms of civil enforcement. After reviewing comments submitted, FHFA decided to announce numerous material changes to the first proposed rule and open a new comment period. “Amending the Suspended Counterparty Program will help strengthen FHFA’s ability to protect its regulated entities from risks presented by other businesses that engage in misconduct,” said FHFA Director Sandra L. Thompson. “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 first proposed rule would have created a process for imposing immediate suspensions instead of allowing affected institutions or individuals an opportunity to respond to a proposed suspension order before a final suspension order is put in place. Another proposed update was to include “knowingly committed a material breach of contract” to the definition of “conviction.” Commenters expressed concern that the proposed changes were overly broad and may have due process implications.
The re-proposal retains the current requirement that a proposed suspension will be issued before any final order. Also, the definition of “conviction” will remain unchanged. Instead, the definition of “covered misconduct” will be revised to expand the terms “prohibition order” and “civil monetary penalty order.”
FHFA published the re-proposed rules, which supersede the first proposed rule, in the Federal Register on October 1, 2024. Public comments may to be submitted through December 2, 2024, by mail, hand delivery, or electronically on the Federal eRuleMaking Portal.
