Uncategorized

In the four years since the Surfside condo collapse, a wave of regulatory changes continues to unsettle property owners and lenders, compounding challenges in an already fragile housing market.The scrutiny on condo developments in the aftermath of Surfside led to tightened lending rules that continue to put properties across the country onto a nonwarrantable list, making mortgages taken out on individual units unsellable to government-sponsored enterprises Fannie Mae and Freddie Mac. A host of factors, from inadequate insurance coverage or financial reserves within individual properties to ongoing litigation or the number of rentals in a building, could land a development on the list, often unbeknownst to owners, residents and the homeowners associations that govern them. Unit owners and buyers then find themselves forced to reevaluate the purchase or abandon plans altogether, as they face more stringent lending requirements.READ MORE: Lenders get a better view of condo blacklist but want moreWith the majority of loans originated in the country guaranteed by Fannie Mae or Freddie Mac, the effect of such uncertainty is having a detrimental effect, destabilizing condo markets and greater home affordability, according to Dawn Bauman, chief strategy officer at the Community Associations Institute, a trade group serving HOAs. "It is already creating a property-value issue in some of these buildings, and that will continue if Fannie and Freddie don't become more flexible in these few requirements that they have."Still, nonwarrantable condos offer lenders a growing niche, with strong interest from those specializing in this unique corner of the mortgage market.But making changes to some of the onerous rules creating today's challenges needs to be at the top of the list of priorities in order to balance lending opportunities with a healthy condo market, Bauman said.  Nonwarrantable lending presents opportunity and challengesHistorically, nonwarrantable condominiums garnered interest from participants in the non-qualified lending segment, many of whom come in already aware of their nuances. Among the top homebuyers in the space are real estate investors turning units into rentals, often purchasing with cash or taking advantage of debt-service coverage ratio products, one of several types of non-QM products that can only be sold on private secondary markets as opposed to Fannie Mae or Freddie Mac.  "A majority of our clients that are buying these types of properties are going to be your real estate investors that are mainly using the DSCR for these types of properties," said Erik Björklund, vice president of mortgage lending and a nonwarrantable condo specialist at Fidelity Home Group, which operates exclusively in the Florida market. "We have a multitude of investment groups we work with. They all kind of share the resources or information where we're one of their main lenders out there, just because we have these different types of loans specifically for investors that really don't focus on their debt-to-income ratio."Outside of Florida, which is regarded as an outlier in the national housing market due to the unusually large number of investors and second-home buyers in the mix, nonwarrantable units are also capturing the attention of those looking for a primary residence, noted Jay Voorhees, founder and CEO of JVM Lending. The company originates loans in several states across the Sunbelt. "We get inquiries constantly, far more often than we did maybe five to 10 years ago, asking us if we can finance such and such condo because it's not warrantable," Voorhees said.While they may eliminate a number of buyers and lenders needing to work within the limits of a conforming loan, sales of nonwarratable units, which tend to be lower priced than comparable homes backed by a GSE, can offer affordably priced opportunities for a different set of buyers."What we've discovered over the last three to four years is that there are more options now for these nonwarrantable condos than there were years ago," he added, in reference to lenders and available offerings. That interest carries over to the private secondary market. "The non-QM space just expanded greatly in general, just because the industry is looking for any way possible to generate more volume," Vorhees said. "That includes the willingness to finance nonwarrantable condos."Although real estate investors are typically savvy about non-QM terms and processes, buyers looking for a primary or secondary residence are sometimes taken aback by unpleasant surprises surrounding a nonwarrantable-unit origination. The discovery of a unit's status as such sometimes occurs after the borrower has already gone through some of the underwriting and then has to start the lending process again.   Among the owner-occupied units that Björklund helps finance, many sold to clients outside his home state, nearly all are purchased by buyers initially unaware that traditional conventional financing methods might not work for their transaction.While the list price of a unit in a nonwarrantable property can prove to be enticing, the sale will carry with it higher mortgage rates and higher down payments, which the borrower might not be able to afford. "The closing costs with these nonwarrantable condos tend to be a little bit more just because there's more involved with the detailing and underwriting and document gathering," Björklund added.   "It's such a special-use mortgage product that you need to really make sure you overcommunicate and educate these clients and the Realtors," he said.  What makes a condo nonwarrantable?While opportunities exist for lenders, a substantial increase in nonwarrantable condo sales is something the home finance community shouldn't get excited about, CAI says. A rise in their numbers can put long-term salability within some communities in jeopardy and stymie efforts to create a sustainable supply of affordable units in the future. Instead, the organization underscores the need to address underlying rules behind how so many properties became unwarrantable in the first place.    While the top reasons may vary by market, financial and insurance requirements that are impractical for some building owners to meet lie at the heart of nonwarrantability.The level of master insurance coverage could be unavailable for the property or market or only offered at an exorbitant cost, Bauman said. At the same time, GSE guidelines call for insurance to cover actual replacement values, which isn't an option for some buildings constructed decades ago. "An insurance carrier is not going to provide coverage for actual replacement value," she said. "It's like providing coverage for a 1970 Chevy Citation, requiring that you have insurance that'll get you a 2025 new car."To maintain eligibility for secondary loan sales to the GSEs, regulators also introduced higher reserve-funding levels after the Surfside disaster on individual properties that owners had trouble reaching."It's only been four years, so to build that reserve fund to a place where it is the right fund for that building takes time," Bauman added. "These requirements are looking at some of these specific reserves and insurance that are just impossible to reach. It doesn't mean the building is unsafe. It doesn't mean that the building is financially unstable," she said.Due to its appeal as a vacation destination, Florida also has many complexes with an unacceptable ratio of rental versus owner-occupied units, another common reason properties  become unwarrantable, Bjorklund said. While proving burdensome to buyers, nonwarrantability presents as much of a challenge for owners needing to sell their units. A common question Björklund hears from potential buyers is if they will be able to find interested parties when it comes time to move."You absolutely will be able to sell it later. The tricky part [could be] the financing now and how it will be in five years," he said.It's also possible for a property to change status to GSE-eligible, and CAI is actively working with state lawmakers as well as federal regulators to come up with such solutions.In the end, those efforts can produce a stable, dependable condo market that benefits HOAs, buyers and sellers alike, Bauman said."The condominium buildings might be fine if they continue to have investors and cash buyers, but at the end of the day, is that what's best for the American people? I don't think so," she said. 

Senate Republicans are coming around to the $40,000 cap on state and local tax deduction key House lawmakers demand in President Donald Trump's massive tax package, but they want to lower the income threshold. Senator Markwayne Mullin of Oklahoma, a key negotiator, said he plans to make the offer late Monday to House Republicans from New York, New Jersey and California. The House bill, which passed the chamber on a single vote last month, would phase down the break for those with incomes of more than $500,000 in 2025, with the income limit increasing by 1% per year as well. Mullin would not say what his proposed income limit was. A deal would resolve a standoff between Senate GOP leaders who favored keeping the SALT cap at the current $10,000 and a group of House Republicans from high-tax swing districts who insisted on the $40,000 cap in the House-passed version of the tax bill. Mullin said he expected neither side to be happy with the deal but expressed optimism that they could come to a consensus. New York Republican Nick LaLota said Monday he would not budge from the $40,000 cap but signaled he would be open to adjusting the income threshold. The SALT provision has been one of several holdups for the Trump tax bill in the Senate.Senate Republican Leader John Thune is also trying to navigate competing demands from conservatives and moderates on social safety net cuts and the elimination of clean energy tax credits.  He must resolve most of the disputes to secure the votes he needs to pass the legislation. Agreement on the SALT provisions reduces the chances that the House will make further changes to the tax bill once it receives the measure back from the Senate. Any changes would delay the legislation because the Senate would have to take up the measure once again, including going through days of procedural steps. Trump and Republican congressional leaders have set a goal of passing the legislation before the July 4 holiday.Senate Republicans said Medicaid cuts to rural hospitals were now the toughest problem with the bill. At issue is a provision in the Senate bill that caps taxes states apply to Medicaid providers in order to boost their federal reimbursement rates. Senator Josh Hawley of Missouri said that plans to create an emergency fund for hospitals lack detail and Jerry Moran of Kansas said the fund on the table appears too small. Senate Republicans also said they are working to restore some provisions the parliamentarian decided violate the strict rules governing legislation that can pass the chamber by a simple majority. That includes a cut to the funding for the Consumer Financial Protection Bureau and a provision requiring states to provide matching funds for food stamp benefits. Republicans also said fights over green energy tax credits remain unresolved.Separately, Senators Ted Cruz and Mike Rounds indicated a dispute over spectrum sales has been resolved."We're there," Cruz said.Rounds said he's been told his concerns over protecting Defense Department airwaves have been addressed and he's just waiting to see final language. "Trust, but verify," he said.

The president should unwind the federal government's stake in Fannie Mae and Freddie Mac, and direct the proceeds to a housing remainder trust designed to close critical gaps in real estate lending, writes Joshua Rosner, of Graham Foster & Co.Adobe Stock America's post-pandemic paradox is clear: The economy keeps adding jobs, but the supply of homes keeps falling short. By most estimates, the U.S. faces a deficit of at least 4 million housing units. That gap drives bidding wars for starter homes, forces rents higher than wages can keep up with and leaves employers struggling to hire in places their workers can no longer afford to live.President Donald Trump, who began his career in hard-hat territory, now has a rare opportunity to fix that — quickly, safely and without needing a single vote from Congress. The key is a housing remainder trust: a self-financing, 10-year initiative that can be created by the Treasury Department and overseen by an independent board made up of builders, labor leaders, lenders, governors and consumer advocates.Funded by up to $240 billion from the wind-down of the government's crisis-era stakes in Fannie Mae and Freddie Mac, the trust would unlock a critical piece of housing finance: the middle layer. Most developers can get loans to cover 70% of a project's cost. They can usually supply another 10% themselves. But the final 20% — the "mezzanine" slice — is often prohibitively expensive or unavailable altogether. Without it, many shovel-ready projects stall.The trust would step in by offering that gap financing at modest interest rates — low enough to attract private capital, but high enough to earn a return for taxpayers. For every dollar it puts in, four more from private markets could follow. That's enough to fund more than $500 billion in projects over seven years and to deliver more than 4 million new homes by 2035.This isn't a subsidy or a giveaway. It's an investment — one that's expected to return full principal to taxpayers, plus roughly $70 billion in profit. It requires no new spending, no new taxes and no new congressional action. Treasury already has the authority to create this kind of self-liquidating trust. All it takes is executive action.The direct beneficiaries would be middle-income Americans — the nurses, teachers, police officers and small-business employees who earn too much to qualify for subsidized housing but too little to compete for luxury condos. For them, more supply means real relief. Builders gain dependable access to capital. Local contractors and trades see years of steady work. Banks and pension funds gain a pipeline of safe mortgages. And Fannie and Freddie, once privatized, get a surge in conforming loans, supported by the safety and soundness reforms made since they entered government conservatorship in 2008.Local governments, in red and blue states that need more housing, can be part of the solution, too. Access to trust financing could be tied to streamlined permitting and zoning, giving governors and mayors an incentive to cut red tape instead of adding more.Politically, the proposal aligns perfectly with a president who sees himself as builder-in-chief. It offers the largest homebuilding surge since the GI Bill — not through government mandates, but through market mechanisms, private investment and executive authority. It is infrastructure Americans can sleep in. It is a real strike against inflation. And it answers the most pressing question facing millions of American families: Where will we live?New roofs can rise. Cranes can return to the skyline. The president just has to say yes.

Rhode Island real estate professionals are criticizing two new taxes that will increase costs for Ocean State homeowners, including a levy dubbed the "Taylor Swift tax." State lawmakers last week approved a $14 billion fiscal year 2026 budget, which now awaits Gov. Dan McKee's signature. Included in the proposed budget is a 63% increase in a conveyance tax for all home sellers, and a new tax on homes appraised at $1 million or more which are unoccupied for more than 183 days per year. The pending tax on pricier homes has been dubbed the "Taylor Swift tax" as the singer could owe $136,000 in new taxes on her Rhode Island shoreline mansion, according to the Providence Journal. The Rhode Island Association of Realtors and the Rhode Island Mortgage Bankers Association have criticized the bill affecting the state's small and expensive housing market. "These aren't intended to increase the critical housing shortage and will likely exacerbate it," said Travis McDermott, an attorney and board member of the RIMBA. What are the taxes?The current conveyance tax in Rhode Island for sellers assess $4.60 per every $1,000 of a home's value. The new tax would up that to $7.50 per $1,000. A "Tier 2" tax on properties selling over $800,000 would also rise. Instead of sellers paying $4.60 per $1,000 of value above $800,000, they would be taxed $7.50 per $1,000 over that limit. The "Taylor Swift tax" meanwhile would charge homeowners an additional $5 per $1,000 of assessed value on homes valued at $1 million or more that aren't primary residences. The changes would go into effect July 2026.How the taxes could impact the housing marketThe nation's smallest state has a competitive housing market, with a median price of $512,750 in May, according to the Rhode Island Association of Realtors. While home prices in some of the nation's largest and fastest-moving markets are stalling or beginning to decline, Ocean State home prices have risen almost $50,000 since the beginning of 2025, the trade group said. The state is also last in the nation in residential construction since 2020, and saw homes built at the slowest pace in the U.S. last year, the Providence Journal reported. Those assessments last month also came ahead of what could be disruptive impacts to home building by tariffs. The looming conveyance tax increase could add thousands of dollars to a home seller's bill, local real estate trade groups warned. A homeowner offloading a $500,000 property could see their conveyance tax jump from $2,300 to $3,750. Lower-priced homes could see more modest tax increases of a few hundred dollars, but $200,000 homes in Rhode Island are few and far between, McDermott explained. "Whether the seller tries to negotiate that away by not making concessions, or starts at a higher asking price, either way would further restrict the liquid market for real property," he said. The Taylor Swift tax meanwhile could supercharge annual tax bills, and is already discouraging buyers who were weighing Rhode Island properties against Connecticut and Massachusetts homes, said Chris Whitten, president of the RIAR and founder of Premeer Real Estate. Rhode Island House Speaker K. Joseph Shekarchi, a Democrat, said there was no estimate for the revenue the vacation home tax would generate, and the proceeds would funnel into the state's Low Income Housing Tax Credit program, according to the Rhode Island Current. Shekarchi, in emailed comments Monday evening, said lawmakers had to find additional revenues to invest in primary care and Medicaid. Regarding the Taylor Swift tax, the House Speaker said he felt it was more equitable to increase the costs on the pricier homes than tax working families.On the conveyance tax increase, the lawmaker highlighted the Tier 2 tax and noted it's a one-time fee. "I do not believe a fee of a few thousand dollars will be a significantly detrimental factor in the purchase of a million dollar home," said Shekarchi.Trade groups said they have no way to block the taxes if they're signed into law, but said they'll lobby for amendments in the next budget bill. "They're balancing the budget on the backs of homeowners in Rhode Island," Whitten said. "The last thing we need to do is give them another reason not to sell, because we have such tight inventory in Rhode Island."

After several starts and stops, the trigger leads ban is the closest it's ever been to becoming law, after the House of Representatives approved its version of the Homebuyers Privacy Protection Act.There are some differences with the Senate version of the bill, which was approved by unanimous consent on June 12. Those can be resolved either in a conference committee or by the Senate voting to approve the House version, explained Brendan McKay, president of advocacy at the Broker Action Coalition. "Tonight's House vote marks another significant step forward for the trigger lead bill, and we're encouraged by the continued momentum," McKay said in a statement."But our work isn't done yet. A small technical discrepancy between the House and Senate versions must still be resolved before this becomes law."The Community Home Lenders of America has been an advocate for the ban, praised the vote. The legislation would prohibit credit bureaus from selling a consumer's information to other lenders after a credit inquiry, unless the consumer gives explicit consent."CHLA is thrilled that the trigger lead legislation has passed the House and is that much closer to becoming law," said Scott Olson, executive director, in a statement."For groups like CHLA that support streamlined, smarter regulation, proactive steps like this — advocating for cleaning up industry practices like abusive trigger leads — are important in building credibility in pursuing that objective."What makes the House bill different from the Senate versionWhen the bill was in the House Financial Services Committee, a requirement for a General Accountability Office study on the value of text message trigger leads was added, said a letter sent to House leaders in both parties by the Mortgage Bankers Association the morning of the vote.That language is not part of the Senate bill.The MBA urged the House to pass the legislation, known as H.R. 2808, and said it would also support the Senate version, S. 1467, if brought to a vote."After two years of unrelenting advocacy efforts, MBA and its members are more optimistic than ever that the abusive use of mortgage credit trigger leads is close to an end," MBA President and CEO Bob Broeksmit said in a post-vote statement."MBA will continue to work with the sponsors and congressional leadership in both chambers to reconcile the minor differences between the two bills so that one bill can be passed and signed into law as soon as possible."The Independent Community Bankers of America pointed to a recent poll which said 63% of adults supported preventing the sale of information about home loan applicants."ICBA and the nation's community bankers applaud the House and Senate for swiftly passing their versions of the Homebuyers Privacy Protection Act, which will give consumers more control over their private financial information and shield them from unwanted solicitations," ICBA President and CEO Rebeca Romero Rainey said in a statement. "We look forward to final passage of this important bipartisan legislation to restrict the sale of trigger leads and support the privacy of U.S. consumers," he added.The House version cleared the Financial Services Committee on a 46-0 vote, McKay noted."No matter which organization you're aligned with — BAC, MBA, NAMB (the National Association of Mortgage Brokers) or otherwise — stay engaged and ready to act," McKay continued. "It will take a full-industry push to get this across the finish line."Once the differences are ironed out, the bill will then move to Pres. Trump's desk, where he is expected to sign it.Why hasn't the trigger leads bill passed before nowLast fall, it looked like the ban would be approved by Congress as it was included in one of the Senate's budget bills, the National Defense Authorization Act. At the end of the day, however, it was removed, with supporters pointing to lobbying from the credit bureaus.The 2024 version of the act languished as a piece of standalone legislation, as had past efforts, even with support from both sides of the aisle. The inclusion in the NDAA was seen by supporters as the way to finally get the bill passed.Not giving up, supporters from both parties brought the Homebuyers Privacy Protection Act back to the floor in each house in April. The renewed push did make some adjustments to the legislation, McKay noted.

Bloomberg News The Federal Reserve has officially started scrubbing "reputational risk" from its supervisory policies and practices. The central bank announced Monday that it is removing all mentions of reputation and reputational risk from its exam manuals and supervisory materials. In some cases, the agency is replacing those references with discussions of specific financial risks.To ensure these changes go into effect evenly across the bank holding companies and state member banks they supervise, the Federal Reserve Board will retrain examiners on how to operate under the revised standards. The Fed's move follows similar moves by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, both of which began removing reputational risk considerations in March. In its statement, the Fed said it would work with other agencies to promote consistent practices. The central bank also noted that its revisions would not change its expectation that banks maintain "strong risk management to ensure safety and soundness and compliance with law and regulation." It adds that banks are not prohibited from incorporating reputational considerations into their own risk management processes.Reputational risk was conceived as a means for monitoring whether banks were engaged in or associated with activities that would diminish their standing in the eyes of depositors. But critics have argued in recent months the practice became discriminatory and resulted in banks feeling pressured to deny services to customers in certain unfavored but legal sectors, such as the cryptocurrency industry — a phenomenon known as "debanking."Evaluating reputational risks generally fall under the broad umbrella of "management" considerations under the ratings system known as CAMELS — standing for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk. As part of its policy update, the Fed amended two supervision and regulation letters issued in 2021. In one of those updated letters, the Fed noted that management considerations should be incorporated into all other categories of risk within a bank, including credit risk, market risk, liquidity risk, operational risk and legal risk.The management component of supervision has come under increasing scrutiny in recent months because of the amount of undefined discretion it provides examiners. Some lawmakers have even considered banning it from the CAMELS calculation.As a candidate for president last fall and as president, Donald Trump has elevated supervisory discretion and debanking as a political issue. He made addressing it a top goal for his new administration earlier this year. The Senate Banking Committee held a hearing about the topic in February, in which Sen. Cynthia Lummis presented a reserve bank guidebook that directed officials to incorporate reputational factors when considering whether to grant master accounts. Shortly after that hearing Fed Chair Jerome Powell sat before the banking committee for his first congressional oversight hearing of the year. During his testimony, he promised to swiftly remove the "concept" of reputation risk from its master account policies and take a "fresh look" at reputational consideration more broadly. The changes come one day before Powell is set to return to Capitol Hill for his second set of oversight hearings. 

FICO has updated its latest credit score models to include buy now, pay later data, showing how important this pandemic-era tool has become in the overall consumer debt market.The credit score algorithm provider has introduced the capabilities in FICO Score 10 BNPL and FICO Score 10T BNPL."Our clients tell us that FICO's initiative to include BNPL data in credit scoring is a progressive step that acknowledges the evolving landscape of consumer financing," said Julie May, vice president and general manager of B2B scores, in a press release. "By capturing a broader view of consumer credit behavior, lenders believe they can make more informed decisions, ultimately benefiting both the industry and consumers."How FICO tested buy now, pay later dataIn a March discussion with National Mortgage News, May previewed FICO's plans to include BNPL data in its credit assessments.It benchmarked customers with at least one BNPL loan from Affirm against those with none, and ran simulations on what those loans would do and how it could impact the consumer's credit score, May said at the time.With these enhancements to the model, "we're enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products," May said in the press release. "This innovation also supports our mission to expand financial inclusion by helping more consumers gain access to credit."All three credit bureaus started collecting buy now, pay later data back in 2022. However, such reporting by creditors has been inconsistent. Until now, existing algorithms did not incorporate the information.How political developments are impacting credit scoringSo far, widespread mortgage market adoption of 10T, along with rival product VantageScore 4.0, is on hold pending action from the Federal Housing Finance Agency under Director Bill Pulte.The Biden-era proposal from then-Director Sandra Thompson called for bi-merge (from two credit bureaus) reports using both FICO 10T and VantageScore 4.0. As of now, conforming mortgages still require Classic FICO.In May, a group of Republican legislators sent a letter to Pulte taking issue with Thompson's plans and instead asking to keep the tri-merge framework already in use.But the Mortgage Bankers Association is now advocating for a single bureau credit report pull, arguing any gaps in coverage or quality that once required multiple score creation to determine worthiness for a home loan no longer exist.Also on hold are Consumer Financial Protection Bureau rules, which regulate BNPL products.Consumer demand for buy now, pay laterTransUnion's second quarter Consumer Pulse survey found that among Americans planning to add credit in the next 12 months, with 20% looking to request new buy now, pay later payment services, unchanged from the first quarter. This was fourth in the rankings behind a new credit card, increasing the limit on a current card and taking out a personal loan.For those concerned about the impact of tariffs, 23% said they would seek BNPL credit versus 17% for all others.VantageScore declined to comment on a BNPL model. Private mortgage market use of the VantageScore 4.0 model increased 166% in 2024, it said earlier this year.What are the results of VantageScore 4plus' pilot?Despite reports of increased use of the Vantagescore 4.0 model in the private marker, separately the provider put out a press release on Monday morning stating it completed two pilots on VantageScore 4plus, which uses alternative open banking data.The pilots were with Patelco Credit Union and Michigan State University Credit Union.The results indicated quantitative improvements in credit risk prediction and expanded access to credit for underserved consumers. Specifically, 33% of subprime and 41% of near prime consumers moved to a higher credit tier through the use of open banking data at Michigan State University CU. The Patelco pilot found 12% of subprime and 15% of near prime members were upgraded to a higher credit tier."These results show that open banking data, when used responsibly and in combination with credit file data, can dramatically improve both risk management and financial inclusion," said Andrada Pacheco, executive vice president and chief data scientist at VantageScore in a press release. "What excites us most is the real-world impact—helping lenders say yes more often to credit-worthy consumers."

Following U.S. airstrikes against Iranian nuclear and military infrastructure over the weekend, the United States faces an escalated cyber threat environment, with warnings issued for potential attacks against U.S. networks, including financial institutions.U.S. Defense Secretary Pete Hegseth and General Dan Caine, Chairman of the Joint Chiefs of Staff, confirmed the attacks targeted Iran's two major uranium enrichment centers at Fordo and Natanz, and a third site near Isfahan where near-bomb-grade enriched uranium is believed to be stored.Iran's foreign minister, Abbas Araghchi, called the strikes "outrageous" and stated Iran had "a legitimate right to respond to defend its sovereignty and people," according to news reports.Iran's history of cyber operations against the U.S. financial sectorThis heightened alert echoes previous periods of tension where Iran-affiliated actors targeted U.S. financial institutions.From late 2011 to mid-2013, Iranian individuals working on behalf of the Iranian government, specifically the Islamic Revolutionary Guard Corps (IRGC), launched a systematic campaign of distributed denial of service (DDoS) attacks against nearly 50 institutions in the U.S. financial sector, including Bank of America and JPMorgan Chase.These attacks, known as "Operation Ababil," flooded bank servers with junk traffic, preventing customers from accessing online banking services and costing tens of millions of dollars to mitigate. A 2016 U.S. Department of Justice indictment eventually charged seven Iranian individuals for their involvement, noting that one hacker even received credit for his computer intrusion work towards his mandatory military service in Iran.Beyond financial targets, Iranian hackers also demonstrated the potential to compromise critical infrastructure, with one defendant repeatedly gaining access to computer systems of the Bowman Dam in Rye, New York, in 2013, according to the FBI. While the hacker never gained control, the access allowed him to learn critical information about the dam's operation.The U.S. has issued warnings about heightened cyber threats in the wake of acts of war by the U.S. against Iran. For example, in 2020, after a U.S. military strike killed senior Iranian military commander Qassem Soleimani, the Federal Deposit Insurance Corp. (FDIC) and Office of the Comptroller of the Currency (OCC) said in a joint bulletin that financial institutions faced a "heightened risk" environment, though the bulletin did not cite Iran by name.Current threats and Iranian tacticsPrior to this weekend, federal agencies had consistently warned about ongoing Iranian cyber activities.Iranian cyber actors have used brute force and multifactor authentication (MFA) "push bombing" since October 2023 to compromise user accounts and gain access to organizations across multiple critical infrastructure sectors, including healthcare, government, information technology, engineering and energy, according to an October 2024 joint advisory from the FBI, Cybersecurity and Infrastructure Security Agency (CISA) and National Security Agency (NSA).In MFA push bombing attacks, hackers repeatedly push second-factor authentication requests to the target victim's email, phone or registered devices. Push bombing relies on workers re-authenticating into applications and desktops numerous times daily, creating muscle memory that can cause them to approve errant MFA notifications.These Iranian actors then reportedly sell the acquired credentials and network information on cybercriminal forums to other cybercriminals. Once inside, they frequently register their own devices with MFA to maintain persistent access.An August 2024 joint advisory from the FBI, CISA and the Department of Defense Cyber Crime Center further highlighted a group of Iran-based cyber actors, known by monikers such as Pioneer Kitten and xplfinder, actively exploiting U.S. and foreign organizations across sectors including education, finance, healthcare and defense.According to the FBI, this group typically aims to gain network access and then collaborate directly with ransomware affiliates like NoEscape, Ransomhouse and ALPHV (aka BlackCat) to deploy ransomware, according to the August advisory.These actors "lock victim networks and strategize on approaches to extort victims," while intentionally keeping their Iran-based location vague from their ransomware partners, according to the advisory. The group also conducts separate computer network exploitation (CNE) activities to steal sensitive technical data in support of the Iranian government.They capture login credentials using webshells, create new accounts on victim networks, and use tools like Remote Desktop Protocol (RDP) for lateral movement. They also employ living off the land (LOTL) techniques to gather information about target systems and internal networks. In a living-off-the-land attack, the cybercriminal uses native, legitimate tools within the victim's system to deploy malware.Moreover, Iranian threat actors are increasingly leveraging generative AI (genAI) and large language models (LLMs) to enhance their influence and cyber operations, according to Crowdstrike's 2025 Global Threat Report, released in February.This includes creating highly convincing fake IT job candidates to infiltrate organizations and using AI-driven disinformation campaigns to disrupt elections.Iranian internal measures amidst conflictAmidst the conflict, Iran has also taken steps to control its own internet infrastructure. On Tuesday, the New York Times reported severe internet disruptions across Iran, with Iranian officials and cybersecurity experts suggesting the government was restricting access to limit information spread about the strikes and in fear of Israeli cyberattacks.Iranian authorities notably restricted access to foreign news sites and blocked many international calls, urging citizens to use the National Internet Service. One Iranian official stated the restrictions would reduce bandwidth by 80% to combat "Israeli operatives trying to carry out covert operations," according to the Times.An Iranian government spokeswoman claimed the internet speed reduction was "temporary" and "targeted" to "defend against enemy cyberattacks," according to the Times report.However, the Iranian Cyber Police attributed the disruptions to "severe cyberattacks."Protecting against the threatThe Department of Homeland Security (DHS) issued a bulletin on Sunday, affirming that "low-level cyber attacks against U.S. networks by pro-Iranian hacktivists are likely, and cyber actors affiliated with the Iranian government may conduct attacks against U.S. networks." Iranian hacktivists routinely target poorly secured U.S. networks and internet-connected devices, according to the bulletin.CISA and FBI have not recommended specific countermeasures against Iranian threats. Rather, they recommend organizations implement basic cybersecurity hygiene practices to mitigate these risks. These practices include:Applying patches and mitigations for known vulnerabilities.Implementing phishing-resistant multifactor authentication (MFA), such as hardware security keys.Ensuring all accounts use strong passwords and register a second form of authentication.Reviewing IT helpdesk password management and disabling user accounts for departing staff.Providing basic cybersecurity training to users, covering concepts like detecting unsuccessful login attempts and denying MFA requests they have not generated.Continuously reviewing MFA settings to ensure coverage over all active, internet-facing protocols.

Federal Reserve Vice Chair for Supervision Michelle Bowman.Bloomberg News The Federal Reserve's top regulator said changes are needed to the supplementary leverage ratio to improve the Treasury market and ensure banks face proper risk incentives. In a Monday speech, Fed Vice Chair for Supervision Michelle Bowman said the current calibration of the capital requirement is holding some banks back from facilitating Treasury securities transactions. She said changes are needed to ensure the SLR is not binding for the largest banks in the country."Leverage ratio impacts on bank-affiliated broker-dealers can have broader impacts, including market impacts like those observed in Treasury market intermediation activities," Bowman said. "Once we've identified 'emerging' unintended consequences — issues that were not contemplated during the development of a regulatory approach — we must consider how to revisit earlier regulatory and policy decisions."Bowman's remarks, delivered at a research conference in Prague, come just days before the Fed is poised to formally take up the matter of SLR reform. The Fed board of governors will unveil potential changes to the regulatory framework during an open meeting on Wednesday.Like other regulatory officials, Bowman said the rapid expansion of Treasuries and central bank reserves in recent years have flooded bank balance sheets with low-risk assets, causing the risk-blind SLR to become more capital-restrictive than other, risk-adjusted regulatory mechanisms. Bowman said this dynamic has caused bank-affiliated primary dealers in the Treasury market to pull back on intermediation, which has in turn contributed to the dwindling liquidity in that market. She pointed to the 2019 stress in the repurchase agreement, or repo, market, the so-called "dash for cash" in 2020 and even balance sheet pressures that arose this past spring during heightened Treasury market volatility as signs of increasing fragility.Bowman acknowledged that increased debt issuance, saturation and interest rate volatility have also contributed to the issues facing the Treasury market, but added that regulators have an obligation to alleviate any unneeded stress that they can. "Due to the role of large banks in the intermediation of Treasury markets, there is a direct link between banking regulation and Treasury market liquidity," she said. "Particularly when it comes to the growth of 'safe' assets in the banking system and the increase in leverage-based capital requirements becoming the binding capital constraint on some large banks."Introduced in 2014, the SLR was intended to be a "backstop" for the regulatory framework, creating a 3% — or 5% for the largest banks — capital ratio behind a more robust, risk-based structure. Under the risk-weighted approach, Treasuries are assigned a zero weight, whereas corporate loans are typically set at close to 100%. But, as some banks — particularly those with large trading books —  load up on low-risk assets, the SLR minimum is increasingly calling for a larger capital requirement than the risk-weighted minimum. Indeed, a handful of large banks are consistently bound by the SLR while a few others are restricted by it periodically.When the SLR first went into effect, risk-weighted assets accounted for 48% of leverage exposure on the balance sheets of the eight largest, global systemically important banks. That ratio has since come down to 40%, which Bowman said is evidence that the backstop requirement has become the primary capital constraint that large banks have to manage."This downward trend results in the SLR increasingly becoming the binding constraint and reflects banks' growing holdings of high-quality liquid assets, most of which carry a risk weight of zero under risk-based capital ratios but have a 100 percent weighting under leverage capital ratios," she said.Despite this gravitation toward low-risk assets, Bowman warned that a banking system primarily governed by a risk-blind leverage ratio could incentivize excessive risk-taking by banks, since there is no capital premium for riskier exposures and no discount for safer ones."A binding leverage capital requirement can create perverse incentives for banks to shift their balance sheets into higher risk assets, since doing so could generate larger returns without requiring additional capital," she said. "This is simply a cause and effect of overly restrictive leverage capital."Yet, even for banks bound by the SLR, risk-weighed capital standards still apply, meaning an increase in riskier activity could result in still-higher capital requirements.Bowman said the goal of this week's meeting is to address the current calibration issues with the SLR, noting that the regulators are finally delivering on reform first called for in 2021, after the temporary exemption of Treasuries and reserves from the ratio's calculation amid the COVID-19 pandemic. "The proposal would solicit public comment on the impacts of this miscalibration, potential fixes, and work to develop an appropriate and effective solution," she said. "This proposal takes a first step toward what I view as a long overdue follow-up to review and reform what have become distorted capital requirements."

Mortgage modifications surged in the first quarter at the nation's largest banks, reversing a yearlong decline, while foreclosure activity also saw a marked uptick, according to a new government report.The data suggests rising financial stress is hitting certain borrower segments, even as conditions for the mortgage market overall appear relatively strong, based on numbers in the Office of the Comptroller of the Currency's quarterly mortgage metrics report. The report covers first-lien servicing data provided by seven of the largest national banks OCC oversees, including JPMorgan Chase, Bank of America and Wells Fargo. The banks initiated 7,889 modifications between January and March. The latest number accelerated 7.6% from the 7,332 modifications posted during fourth-quarter 2024. The latest total is also the highest since the 7,926 recorded a year ago, with activity slowing over subsequent quarters as last year progressed. Among the total, "92.1% were 'combination modifications'— modifications that included multiple actions affecting the affordability and sustainability of the loan, such as an interest rate reduction and a term extension," OCC said. New terms on 4,086, or 51.8%, of the loans with combination modifications reduced the mortgage holder's monthly payment. Increasing alongside loan modifications was foreclosure activity, with 10,667 new filings recorded by the banks. Volume was 60.5% higher than fourth quarter's 6,647. On a year-over-year basis, foreclosures increased 44% from 7,408 in early 2024.    Why are foreclosures and loan modifications rising?While the OCC report did not provide a breakdown into the types of loans or borrowers experiencing stress, the surge in both modifications and foreclosures showed up as loss-protection measures for Department of Veterans Affairs mortgages expired at the end of last year. The end of a foreclosure moratorium, followed by the full termination of the Veterans Affairs Servicing Purchase program led to a scramble among banks and lawmakers to make assistance available for distressed VA borrowers.Currently, negotiations are underway to implement a new partial-claims program to succeed VASP, but passage of any legislation is likely to take months. While VA borrower difficulties are likely a cause of elevated loss-prevention servicing activity, housing researchers have also noted an increase in the number of Federal Housing Administration-backed loans and a smaller uptick in conventional mortgages entering delinquency this year compared to 12 months earlier. The data indicates that economic challenges, including interest rates that remain more than two times higher than levels of a few years ago, may also be driving some hardships. A significant fall in rates below 6% that would offer borrowers potential refinance relief is not expected for several months.  Just over 25% of homeowners who received modifications two quarters earlier were still struggling to make payments at the end of March, according to OCC. Servicing customers within that segment were either 60 days past due or had fallen in the foreclosure process.    Overall numbers suggest mortgage borrower strengthAlthough a rise in modifications and foreclosures is worth watching, OCC data also pointed to generally strong financial health of the overall mortgage market.The share of mortgages current and performing came in at 97.6% during the first quarter, the highest in two years. The most recent percentage increased from 97.3% three months earlier and 97.4% a year ago. The seven banks reporting serviced approximately 10.9 million residential mortgages, accounting for $2.71 trillion in unpaid principal balance. The balance represented 20.1% of all U.S. mortgage debt outstanding. Total unpaid servicing principal decreased 1.2% on a quarterly basis from $2.74 trillion and also fell 3.5% from $2.81 trillion in the first quarter of 2024.