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FHFA to remove “reputational harm” from suspensions under counterparty program
The proposed change would limit suspensions to cases where misconduct is likely to cause significant financial harm or threaten safe and sound operations, with comments due Aug. 12.
The Federal Housing Finance Agency (FHFA) has proposed dropping “reputational harm” as a basis for suspending firms and individuals that do business with Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
Under the FHFA’s Suspended Counterparty Program, the GSEs are required to report when they learn that a counterparty has been convicted of, or administratively sanctioned for, certain mortgage or lending related misconduct within the past three years, and FHFA can initiate a proposed suspension based on those reports or other referrals.
If finalized, FHFA would issue suspension orders only when covered misconduct is likely to cause significant financial harm to a regulated entity or threaten its safe and sound operations. The agency said its experience administering the program shows the reputational harm test is unnecessary because severe covered misconduct already implies financial risk or safety and soundness concerns.
FHFA said the proposal would also align its approach more closely with other federal banking regulators, including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp, and cited efforts to reduce regulatory burdens. Comments are due on or before Aug. 12.