FHFA rule change could expand the number of suspended counterparties

The Federal Housing Finance Administration is looking to make it easier to put entities and people into its Suspended Counterparty Program, a proposed rule change states.

This would require Fannie Mae, Freddie Mac and the Federal Home Loan Banks to report to the FHFA any individual or company they do business with that committed "certain forms of misconduct" in the past three years. The current program was established by FHFA letter in June 2012 and amended in December 2015.

Today, the SCP list is limited to those that have committed and are convicted of criminal offenses. "However, in FHFA's experience of administering the SCP, it has determined that this standard is too narrow; specifically, it does not authorize suspension of counterparties that have been found to have committed various forms of misconduct in the context of civil enforcement actions," the proposed amendment to the rule said.

It is looking to broadly expand the definition of misconduct "to all manner of civil enforcement proceedings," including cases before administrative law judges, as well as qui tam actions (also known as whistleblower cases) such as those brought under the False Claims Act.

While many of those civil cases are settled without an admission of misconduct, the proposal noted, the change could allow the FHFA to put those entities on the SCP list. "FHFA has determined that it is appropriate to permit suspension where enforcement claims are resolved without admission of misconduct," the proposal said.

For example, in the most recent qui tam settlement involving Movement Mortgage, the company specifically did not admit any legal liability for the False Claims Act violations. 

Other changes would allow for placement on the SCP for criminal or civil misconduct in connection with the management or ownership of real property.

"Amending the Suspended Counterparty Program will help strengthen FHFA's ability to protect its regulated entities from business risks presented by individuals or institutions who engage in misconduct," said Director Sandra Thompson, in a press release. "The proposed rule will strengthen FHFA's ability to ensure the regulated entities remain safe and sound so they continue to serve as reliable sources of liquidity."

The changes would also create an ability to vacate suspension orders in certain circumstances.

Currently, the SCP list has 170 individual or company names, most of which have a definitive end date for the suspension. The person on the list the longest time, starting on April 15, 2013 with an indefinite suspension, is Lee Farkas, the convicted mortgage fraudster who ran Taylor, Bean & Whitaker.

First Mortgage and its convicted founder and chairman Ron McCord — a former Mortgage Bankers Association chairman — are both also on the list. Live Well Financial, the defunct reverse mortgage lender, was the most recent addition.

This proposal will be opened for a 60-day comment period once it is published in the Federal Register.