FHFA Asks Congress for Examination Authority over Third-Party Service Providers

FHFA recently issued its annual Report to Congress (Report) providing, in part, its legislative recommendations, which include proposed legislative reform measures that would grant FHFA authority to examine a regulated entity’s service providers.

Regulated entities rely on third-party service providers to provide services that are critical to their operations.  These service providers can also pose a risk to the safety and soundness of the regulated entity’s operations.  Currently, FHFA does not have statutory authority to examine regulated entities’ service providers.  As noted in the Report, FHFA currently must rely on provisions in a regulated entity’s third-party contracts to obtain access to information about service providers “that is necessary to fulfill FHFA’s statutory safety and soundness responsibilities.”  Accordingly, in the Report, FHFA specifically recommends that Congress authorize FHFA to examine the records, operations, and facilities of each material service provider to a regulated entity for the limited purpose of identifying practices that could pose a safety and soundness risk to the regulated entity.  FHFA, however, is not seeking authority from Congress to regulate or supervise these service providers.

Other legislative recommendations in the Report include: (i) granting FHFA with chartering authority that would enable FHFA to charter competitors to Fannie Mae and Freddie Mac (the GSEs); (ii) proposing a regulatory capital framework for the GSEs; and (iii) fostering competitive national housing finance markets by removing certain statutory exemptions and “special treatments” that are provided to the GSEs.