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NAFCU offers insights on climate change, natural disaster risk in a letter to the FHFA
NAFCU Directory of Regulatory Affairs Ann Kossachev Monday offered the association's insights and recommendations in response to the Federal Housing Finance Agency's (FHFA) request for information (RFI) on climate change and natural disaster risk to the housing finance system and the government-sponsored enterprises (GSEs).
In the letter, Kossachev encouraged the FHFA to work with other members of the Financial Stability Oversight Council (FSOC) – including the NCUA – to coordinate efforts on climate risk policies to ensure a liquid and stable mortgage market well into the future.
Kossachev also encouraged the FHFA to continue to solicit stakeholder feedback, but also engage in discussion with climate experts to “define, define, identify, and clarify climate risks to the mortgage markets could generate more meaningful engagement from financial sector stakeholders that may not have a complete understanding of the analytical methods used to assess climate risk.”
In addition, Kossachev asked that the FHFA wait to make any changes until after the Federal Emergency Management Agency (FEMA) initiate an effort to update flood maps and determine the most accurate flood risks. Kossachev noted that any federal, state, and local coordination must recognize the unique nature of credit unions and ensure that any policy changes do not penalize institutions that may have a higher concentration of climate risk.
Finally, Kossachev called on the FHFA to closely evaluate its affordable housing efforts to account for climate change risk specifically for minority and low- and moderate-income borrowers, pursue pilot programs to help borrowers build wealth, and evaluate the impact any policies may have on the Federal Home loan Banks (FHLBs) program.
In recent weeks, the risks climate change pose to the economy and financial system have become a top priority; the Senate Banking Committee held a recent relevant hearing and Federal Reserve Gov. Lael Brainard shared her perspective on the issue.
In addition, President Joe Biden is reportedly drafting an executive order to combat climate-related financial risks that could create new regulations on businesses, including the banking industry. It is expected to require, among other things, NAFCU-sought FSOC coordination on this issue.
Through the expected executive order, FSOC will also be required to issue a report on climate risk to the financial system, specifically risks to housing, and federal housing regulators will be required to consider integrating climate-related risks into underwriting standards and loan conditions.
President Biden recently released his fiscal year 2022 discretionary funding request, which included a proposed $800 million in new investments across Department of Housing and Urban Development (HUD) programs for rehabilitation and modernization to further climate resilience and energy efficiency – aimed at addressing climate change impacts, such as increasingly frequent and severe floods.
NAFCU will continue to engage with policymakers on these issues to ensure the credit union industry's voice is represented.