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Jerome Powell, chairman of the Federal Reserve, right, said the Fed's vice chair for supervision has the right to propose rules, but implementation is not guaranteed.Al Drago/Bloomberg Federal Reserve Chair Jerome Powell drew a clear line between the central bank's response to last year's bank failures and the joint regulatory effort to update capital requirements for large banks.During testimony in front of the Senate Banking Committee on Monday, Powell emphasized that the so-called Basel III endgame proposal is not a direct response to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank last spring. Instead, he said, the true policy responses — related to supervision and liquidity — are still ongoing."We have taken and are taking many more steps to deal with the problems that revealed themselves with Silicon Valley Bank," Powell said, adding: "The Basel III rules are not directly related, they are not the thing that is directly related to Silicon Valley Bank." Powell spelled out the distinction during a contentious exchange with Sen. Elizabeth Warren, D-Mass., who accused the Fed chair of caving to pressure from banks and their lobbyists who have forcefully opposed the capital reform package since it was proposed last summer."You are the leader of the Fed and when the heat was on last year, you talked a lot about getting tougher on the banks, but now the giant banks are unhappy about that and you've gone weak kneed on this," Warren said. "The American people need a leader at the Fed who has the courage to stand up to these banks and protect our financial system."The exchange took place on the second day of Powell's semiannual report to Congress about the state of monetary policy. During his first round of testimony, which took place Wednesday in front of the House Financial Services Committee, the Fed chair called for "broad and material" changes to the proposed capital rule and left open the possibility of issuing a totally new proposal. Warren, a leading voice in Congress for more stringent bank regulation, argued that in making those comments, Powell had undermined his previous commitment to supporting Fed Vice Chair for Supervision Michael Barr's efforts to address the issues that led to last year's bank failures.Powell pushed back on this characterization, arguing that he has done "exactly what I said I would do." He also spelled out what he views as the limits of the vice chair for supervision's authorities for steering the Fed's regulatory policy making process."The vice chair for supervision has every right to bring proposals to the board. That has happened … but [he's] not the comptroller of the currency," Powell said. "When I do monetary policy, I have one vote, there's 11 other voters, that's the way it works. It's not different for the vice chair for supervision."The back-and-forth highlights a key point of frustration among lawmakers in both houses and on both sides of the aisle: the Fed's use of Silicon Valley Bank as a justification for increasing capital requirements.Indeed, Barr pointed to last spring's episode as evidence that even banks that are not systemically important in size can have destabilizing effects on the banking system if they fail, in the context of expanding certain capital requirements to all banks with at least $100 billion of assets. But he has also emphasized that last summer's capital proposal was meant to bring the U.S. into alignment with the global standards set by the Basel Committee on Banking Supervision in 2017. That distinction has not always rung through to members of Congress.Powell said the actual response to the issues related to Silicon Valley Bank's demise will take the form of new liquidity requirements — which he expects will surface later this year — and wholesale revisions to bank supervision. Powell noted that adjusting supervisory policies and practices throughout the entire Federal Reserve System is no small task, given that there are thousands of staffers working both for the Board of Governors in Washington and within the 12 regional reserve banks. He added that the Fed has spent a lot of time studying what happened and listening to various stakeholders to understand how supervisors can address issues quicker and more effectively."We're working hard to develop a new rulebook and another set of practices, which is still going to be evidence-based and fair, but is going to involve earlier interventions and more effective ones," Powell said. "This is work that's ongoing and will be for some time."During the hearing, Powell also addressed recent calls for updating the Fed's last-resort lending facility, the discount window, to address issues that arose during the failures of Silicon Valley and Signature. "There's a lot of work to do on the discount window," Powell said. "It needs to be brought up technologically into the modern age, we need to eliminate the stigma problem and we need to make sure banks are actually able to use it when they need to use it. That's a broad work program that we're on right now. It's important."

Lately, mortgage rates have surged higher, climbing from as low as 2% to over 8% in some cases.Despite this, home builders have been enjoying healthy sales of newly-built homes.And somewhat incredibly, they haven’t had to lower their prices in many markets either.The question is how can they continue to charge full price if financing a home has gotten so much more expensive?Well, there are probably several reasons why, which I will outline below.Home Builders Don’t Have Competition Right NowThe first thing working in the home builders’ favor is a lack of competition. Typically, they have to contend with existing home sellers.A healthy housing market is dominated by existing home sales, not new home sales.If things weren’t so out of whack, we’d be seeing a lot of existing homeowners listing their properties.Instead, sales of newly-built homes have taken off thanks to a dearth of existing supply.In short, many of those who already own homes aren’t selling, either because they can’t afford to move. Or because they don’t want to lose their low mortgage rate in the process.This is known as the mortgage rate lock-in effect, which some dispute, but logically makes a lot of sense.At the same time, home building slowed after the early 2000s housing crisis, leading to a supply shortfall many years later.Simply put, there aren’t enough homes on the market, so prices haven’t fallen, despite much higher mortgage rates.They Don’t Need to Lower Prices If Demand Is StrongThere’s also this notion that home prices and mortgage rates have an inverse relationship.In that if one goes up, the other must surely come down. Problem is this isn’t necessarily true.When mortgage rates rose from record lows to over 8% in less than two years, many expected home prices to plummet.But instead, both increased. This is due to that lack of supply, and also a sign of strength in the economy.Sure, home buying became more expensive for those who need a mortgage. But prices didn’t just drop because rates increased.History shows that mortgage rates and home prices don’t have a strong relationship one way or the other.Things like supply, the wider economy, and inflation are a lot more telling.For the record, home prices and mortgage rates can fall together too!Lowering Prices Could Make It Harder for Appraisals to Come in at ValueSo we know demand is keeping prices mostly afloat. But even still, affordability has really taken a hit thanks to those high rates.You’d think the home builders would offer price cuts to offset the increased cost of financing a home purchase.Well, they could. But one issue with that is it could make it harder for homes to appraise at value.One big piece of the mortgage approval process is the collateral (the property) coming in at value, often designated as the sales price.If the appraisal comes in low, it could require the borrower to come in with a larger down payment to make the mortgage math work.Lower prices would also ostensibly lead to price cuts on subsequent homes in the community.After all, if you lower the price of one home, it would then be used as a comparable sale for the next sale.This could have the unintended consequence of pushing down home prices throughout the builder’s development.For example, if a home is listed for $350,000, but a price cut puts it at $300,000, the other homes in the neighborhood might be dragged down with it.That brings us to an alternative.Home Builders Would Rather Offer Incentives Like Temporary BuydownsInstead of lowering prices, home builders seem more interested in offering incentives like temporary rate buydowns.Not only does this allow them to avoid a price cut, it also creates a more affordable payment for the home buyer.Let’s look at an example to illustrate.Home price: $350,000 (no price cut)Buydown offer: 3/2/1 starting at 3.99%Year one payment: $1,335.15Year two payment: $1,501.39Year three payment: $1,676.94Year 4-30 payment: $1,860.97Now it’s possible that home builders could lower the price of a property to entice the buyer, but it might not provide much payment relief.Conversely, they could hold firm on price and offer a rate buydown instead and actually reduce payments significantly.With a 3/2/1 buydown in place, a builder could offer a buyer an interest rate of 3.99% in year one, 4.99% in year two, 5.99% in year three, and 6.99% for the remainder of the loan term.This would result in a monthly principal and interest payment of $1,335.15 in year one, $1,501.39 in year two, $1,676.94 in year three, and finally $1,860.97 for the remaining years.This assumes a 20% down payment, which allows the home buyer to avoid private mortgage insurance and snag a lower mortgage rate.If they just gave the borrower a price cut of say $25,000 and no mortgage rate relief, the payment would be a lot higher.At 20% down, the loan amount would be $260,000 and the monthly payment $1,728.04 at 6.99%.After three years, the buyer with the higher sales price would have a slightly steeper monthly payment. But only by about $130.And at some point during those preceding 36 months, the buyer with the buydown might have the opportunity to refinance the mortgage to a lower rate.It’s not a guarantee, but it’s a possibility. In the meantime, they’d have lower monthly payments, which could make the home purchase more palatable.Home Price Cuts Don’t Result in Big Monthly Payment SavingsPrice Cut PaymentPost-Buydown PaymentPurchase Price$325,000$350,000Loan Amount$260,000$280,000Interest Rate6.99%6.99%Monthly Payment$1,728.04$1,860.97Difference$132.93At the end of the day, the easiest way to lower monthly payments is via a reduced interest rate.A slightly lower sales price simply doesn’t result in the savings most home buyers are looking for.Using our example from above, the $25,000 price cut only lowers the buyer’s payment by about $130.Sure, it’s something, but it might not be enough to move the needle on a big purchase.You could take the lower price and bank on mortgage rates moving lower. But you’d still be stuck with a high payment in the meantime.And apparently home buyers focus more on monthly payment than they do the sales price.This explains why home builders aren’t lowering prices, but instead are offering mortgage rate incentives instead.Aside from temporary buydowns, they’re also offering permanent mortgage rate buydowns and alternative products like adjustable-rate mortgages.But again, these are all squarely aimed at the monthly payment, not the sales price.So if you’re shopping for a new home today, don’t be surprised if the builder is hesitant to offer a price cut.If they do offer an open-ended incentive that can be used toward the sales price or interest rate (or closing costs), take the time to consider the best use of the funds.Those who think rates will be lower in the near future could go with the lower sales price and hope to refinance. Just be sure you can absorb the higher payment in the meantime.Read more: Should I use the home builder’s lender?

Mortgage rates declined for the first time in five weeks as investors finally digested news about inflation and the pace of Federal Reserve cuts of short-term rates.Rates for the 30-year conforming loan fell 6 basis points on March 7, to an average of 6.88% from 6.94% a week prior, the Freddie Mac Primary Mortgage Market Survey found. A year ago, it averaged 6.73%.Meanwhile, the 15-year fixed averaged 6.22%, down from last week's 6.26%, but it was up from 5.95% for the same time in 2023."Evidence that purchase demand remains sensitive to interest rate changes was on display this week, as applications rose for the first time in six weeks in response to lower rates," said Sam Khater, Freddie Mac chief economist, in a press release. "Mortgage rates continue to be one of the biggest hurdles for potential homebuyers looking to enter the market."The Mortgage Bankers Association's most recent Weekly Application Survey found a 10% week-over-week increase in submissions."Housing inventory remains tight and home prices are elevated, but first-time buyer interest is strong this spring," Bob Broeksmit, the MBA's president and CEO, said in a Thursday morning statement. "FHA purchase applications jumped 16%."Mortgage rates are starting to come down broadly as the Fed takes a more tempered approach towards quantitative tightening, said David Adamo of Luxury Mortgage."There is still a supply/demand imbalance but with construction of rental properties at an all-time high and rents coming down and vacancies rising there is an opportunity to fill the gap in supply by converting rental properties to available for sale housing stock to meet demand," said Adamo. "The expectation is that mortgage industry origination volume increases significantly this year and next as we recover from the post-pandemic environment."The benchmark 10-year Treasury yield peaked at 4.32% on Feb. 27. Since then, albeit with some ups and downs, it has dropped to 4.11% just before noon on March 7.Zillow's mortgage rate tracker had the 30-year FRM at 6.45% on Thursday morning, down from the prior week's average of 6.63%."Despite an uptick in inflation in January, Fed Chair Jerome Powell reaffirmed that the peak rate of the hiking cycle has been reached and that monetary policy is sufficiently tight to bring inflation down to the Fed's 2% inflation target," Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said in a statement issued Wednesday night."This should ease anxieties that the Fed's inflation forecast may have changed and that it would not be prepared to recalibrate its key policy rate later this year," Divounguy continued.But it will not be a straight line path to lower yields for the 10-year Treasury and falling mortgage rates."Expect more rate volatility ahead as the Fed and investors continue to wait for more conclusive evidence of a return to low, stable and predictable inflation," Divounguy said. "This week's employment and wage growth data release will likely cause some repricing activity."

The amount of mortgage credit provided by lenders loosened in February compared with the previous month because of an increase in refinance offerings, the Mortgage Bankers Association said."Mortgage credit availability remains quite tight – near the lowest levels in MBA's survey – even as application volume lags last year's pace and as the industry continues to reduce capacity," Joel Kan, deputy chief economist, said in a press release. "Despite these factors, credit criteria remain conservative."This is the second consecutive month of relative loosening by lenders of underwriting criteria.Its Mortgage Credit Availability Index rose by 0.2% compared with January to 92.9 from 92.7, but that is still well below the benchmark value of 100 established in March 2012, a period when lenders were still not as freely offering loan programs as they did a few years prior.The degree to which products have become restricted is exemplified in the index value of 100.1 reached last year, in February 2023. It was the lowest in a decade."There was a slight increase in credit availability for refinance loan programs last month," Kan explained. "The purchase market, however, continues to be impacted by supply and affordability constraints, due to higher mortgage rates."Its Weekly Application Survey for March 1 reported an 8.1% week-to-week increase in the refinance index.The MCAI is split into conventional and government indices; it is calculated using program data from ICE Mortgage Technology. The conventional portion increased by 0.5%, as its conforming component rose by 1.6% and the jumbo segment was up by 0.1%.The government index was "essentially unchanged," MBA said.The rise in refi programs is likely tied to an increase in rate lock activity for these loans, which while also still low, has picked up in recent weeks, according to a daily report issued by Optimal Blue.As of March 5, cash-out rate locks were up 26.7% over the past four weeks, while rate and term refi activity was up 35.4% in that same period, and 57.4% during the prior seven days.Optimal Blue's Market Volume Index for cash-out refis rose to 9 as of March 5 from 8 in January. For rate-and-term, it was flat at 6.The refi share was 14%, down from 17% in January, the Optimal Blue data showed. That is because the purchase MVI leaped to 92 from 64.

A Canadian lender has stopped issuing mortgages in certain flood zones, a move which echoes pullbacks by residential property insurers in the U.S. The Desjardins Group, a Quebec-based financial services firm, said it won't lend in zones with a one-in-20 chance of being flooded each year. It is also only allowing buyers of homes whose sellers have Desjardins mortgages to obtain new financing up to 65% for that property, and those properties must have flood mitigation features such as embankments. "The impacts of climate change, including water damage, are growing in importance and causing substantial damage," the company said in a statement this week. The lender added that properties in the designated zones are generally uninsurable, and less than 5% of homes in its mortgage portfolio are in the affected areas. Canada lacks a national flood insurance program like the NFIP in the U.S., although the government there is mulling a program. No stateside lender has publicly pulled out of a market because of climate risk, although flood insurance woes in the U.S. have affected originations. Congress has also yet to extend the NFIP, set to expire March 22; lawmakers appear poised to vote to extend government funding through September. The rising cost of residential property insurance meanwhile has strained some U.S. markets as American insurers respond to numerous pressures from climate risk, to restrictive laws on price hikes, and rampant litigation. Risk assessment experts who spoke to National Mortgage News offered differing opinions on whether U.S.-based lenders would make a move similar to Desjardins."I think it's naive to think that it cannot happen here," said Toni Moss, CEO of AmeriCatalyst, an industry advisory firm. "It's just a matter of time to go from, "We're not going to insure," to "We're not going to lend in these areas." Insurance providers including Allstate, Farmers and State Farm have wound down coverage in California and Florida, citing more expensive wildfire and hurricane responses exacerbated by inflation. Insured losses, according to AmeriCatalyst, were $63 billion in 2022 alone, or equivalent to $1 billion every three weeks. Kingsley Greenland, director of mortgage risk analytics at risk assessment firm Verisk, said it's unlikely a U.S.-based lender will make a move similar to Desjardins in the near future. He cited Canada's lack of national flood insurance and the country's lack of agency securitization akin to Fannie Mae and Freddie Mac to mitigate risk. Mortgage servicers could be more sensitive to climate impacts, he added, as mortgage servicing rights could have geographic preferences more granular than the underlying loans. "You can price it in ways that you couldn't for a 30-year fixed-rate mortgage or even a non-QM or a jumbo," said Greenland of MSRs. "So I can see that moving faster where servicers or lenders who have a choice to sell servicing start to develop a climate-related view faster than home loan originators."Regulators also took another step Wednesday toward addressing climate risks, in enacting rules for public companies to beef up their climate-related disclosures to investors. The requirements, which the Securities and Exchange Commission weakened after pushback, require firms to disclose climate-related factors that can have material impacts on their operations. The Mortgage Bankers Association said it was pleased with the altered rules, and the longer implementation schedule for required registrants. Publicly traded lenders and servicers who've so far released annual reports only mention climate risks briefly under operational risk disclosures. Fannie and Freddie meanwhile elaborate on the impacts of climate change in their respective 10-K annual filings. Greenland lauded the government-sponsored enterprises' investments into measuring climate risk, and another effort by regulators in issuing principles for safe management of exposure to climate-related financial risks. The real estate industry is already incorporating tools such as geolocation technologies to help investors make decisions. "Catastrophe models are well-documented, well-validated by the insurance industry and offer a turnkey solution for mortgage bankers trying to understand their exposure to these low frequency high severity events," said Greenland.

AFC Mortgage, a small Connecticut-based retail lender, and its former employee, David Garofalo, had a deal worked out (allegedly): Garofalo would inject $100,000 into the business and bring over employees from his then employer, Guaranteed Rate Affinity, and in exchange, he would receive access to the mortgage shops' databases and equity in the company.But the agreement went awry, a suit filed in the state of Connecticut claims.After making the transition with 15 other employees to AFC, Garofalo allegedly pocketed the company's database and quickly moved with his colleagues to Cardinal Financial to start his own Connecticut branch.AFC Mortgage is suing the branch manager for breaching a contract and using a company credit card for his own personal needs. The suit was first reported by Law360.AFC Mortgage did not immediately respond to a request for comment Wednesday.Cardinal Financial declined to comment, but noted that Garofalo's employment with Cardinal ended on July 17, 2023.According to the lawsuit, Frank Ciambriello, the president of AFC Mortgage, and Garofalo hashed out a plan in late 2022 to start a joint venture business arrangement, with the ultimate goal of expanding AFC's footprint. Garofalo agreed to bring 15 employees with him from Guaranteed Rate to join AFC and contribute $1000,000 due January 2023 to help expand the mortgage shop's business, the suit claims. In doing so, Garofalo would receive equity in AFC.AFC says it agreed to provide $100,000 in capital to the former manager and a company credit card for Garafalo to purchase equipment, software licenses, and for other expenses to expand AFC's business. After Garafalo and his team transitioned Dec. 1, 2022, they allegedly downloaded $1,500 worth of credit reports using AFC's resources before departing Dec. 15, 2022, the suit said.Despite leaving AFC, Garofalo purportedly continued to use AFC's company credit card"as his personal piggy bank, and made numerous personal expenses using the company's credit card," the Connecticut mortgage company asserts. The lender says that in total, Garofalo charged a little over $24,000 to AFC's credit card for non-business related items or services. AFC claims the manager has refused to return money for those expenditures.AFC and its president "have suffered financial and business losses related to Mr. Garofalo's breach of contract," the legal filing said. The mortgage lender is asking in its suit for the court to grant it compensatory damages and punitive damages.AFC, founded in 1998, currently sponsors six loan officers and is licensed to operate in 17 states, per the Nationwide Mortgage Licensing System.

National Mortgage News in partnership with the Best Companies Group is proud to announce the winners of the ranking of the Best Small Mortgage Companies to Work For. These are companies about the overall list of Best Mortgage Companies to Work For in 2024, who have over 500 employees. READ ALSO: Best Mortgage Companies to Work For 2024This ranking is the result of extensive employee surveys and reviews employer reports on benefits and policies. The employee survey covers eight topics: leadership and planning; corporate culture and communications; role satisfaction; work environment; relationship with supervisor; training, development and resources; pay and benefits; and overall engagement. READ ALSO: Best Mid-Size Mortgage Companies to Work For 2024Once the survey data is analyzed, the companies get a score that decides their ranking. The overall score is calculated using the employee survey (weighed at 75%) and the employer questionnaire (25%). To qualify for consideration, organizations with 25 or more employees need a minimum response rate of 40% while companies with 25 or fewer employees need 80%.READ ALSO: Best Small Mortgage Companies to Work For 2024See the Best Large Mortgage Companies to Work For in 2024 below:

A year after realigning operations, Finance of America is attempting to move forward on reverse-mortgage ambitions with a goal to eventually double current monthly origination volumes.While much of 2023 was focused on bolstering its presence in the space, highlighted by the launch of a proprietary second-lien product and integration with American Advisors Group — the former top reverse-mortgage lender it acquired — future goals will require a heavy marketing push, part of the Plano, Texas-based company's three-year plan.  "There's a significant gap as it relates to customer understanding and appeal of reverse mortgage products and the category overall," said Kristen Sieffert, president of Finance of America Cos., in its fourth-quarter earnings call.Finance of America's goal is to eventually originate $300 million per month in reverse mortgages, which would translate into an approximate 40-cent to 50-cent adjusted earnings per share, Finance of America leaders said. Current monthly volumes come in between $100 million and $150 million, CEO Graham Fleming said during the call. In the fourth quarter, Finance of America reported improvement in its earnings with net income of $164.7 million. The bottom line was highlighted by noncash positive fair-value changes on its assets and factored in both a gain of $171.4 million from continuing operations and a $6.7 million loss from discontinued segments. The quarterly profit was a reversal from losses of $175 million in the third quarter and $180 million a year earlier. For the full year, Finance of America posted a $218.2 million loss, narrowing from $715.6 million in 2022. In its retirement solutions unit, newly produced reverse mortgages totaled $446 million in the final three months of 2023, down from $512 million in the third quarter. The segment recorded a pre-tax loss of $13 million, improving from $20 million in the third quarter. The lender attributed the decrease in volume to seasonal patterns and also its move to a single origination platform after the AAG merger, the last major integration milestone."With much of the foundational work close to being completed. It paves the way for a shift of attention to the growth levers in the plan," Sieffert said. The company might have a large task ahead in order to meet monthly origination goals. A recent study from Fannie Mae found only 15% of homeowners over the age of 60 willing to tap into their property's equity in retirement. Over 40% said they would not consider the option at all."We now have the components to change this," Sieffert said. "Within our three-year plan, we're committed to breaking this adoption barrier by investing in modernized messaging digital technology, and tailored customer-centric experiences." The plan would also have it lean into artificial intelligence. "We have selected key AI partners, and are excited to leverage these tools across sales, operations, marketing and data analytics," Fleming said.  Meanwhile, Finance of America's portfolio management unit posted pre-tax fourth-quarter profit of $217 million compared to a loss of $124 million three months earlier. Assets under management inched up to $26.8 billion from $26 billion quarter over quarterDuring the call, company leadership briefly addressed ongoing concerns about its potential delisting from the New York Stock Exchange. The NYSE warned Finance of America twice over three months about noncompliance after it failed to maintain the average minimum stock price of $1 per share over a consecutive 30-day period, most recently in mid February. As it did earlier, the company underscored its intention to take the steps necessary for compliance within a six-month cure period. "Finance of America's leadership remains focused on generating enhanced enterprise value for all stakeholders and ensuring the company's long term success," said Chief Financial Officer Matthew Engel, while adding that business operations would not be affected.The last time Finance of America ended trading above $1 was on Feb 15, when it came in at $1.02. The stock closed on Wednesday at 87 cents.

The Securities and Exchange Commission Wednesday finalized a rule requiring large publicly reported firms to disclose their direct greenhouse gas emissions and those enabled by their enterprises, including banks. Experts say the rule is likely to be challenged in court.Bartek Sadowski/Photographer: Bartek Sadowski/Bl WASHINGTON — The Securities and Exchange Commission Wednesday finalized a scaled-back version of climate-risk disclosure rules proposed in March 2022, eliciting bipartisan criticism deemed by proponents and opponents by turns as either insufficiently protective or excessively demanding. Yet even with the reduced disclosure framework — which passed the commission by a 3-2 vote — industry experts foresee legal challenges and legislative efforts to undo the rule. "We are increasingly dubious this rule will survive congressional and judicial review despite efforts by the SEC to narrow the proposal," said Jaret Seiberg, an analyst with TD Cowen, in a release.The SEC initially proposed a slate of climate disclosure rules roughly two years ago aimed at compelling public corporations — including many banks — to publicly disclose greenhouse gas emissions generated by their business activities, as well as other climate-related financial risks. In the initial draft of the rules, large corporations would need to disclose both their own greenhouse gas emissions and those generated across their complete distribution networks. Under the final rule, companies will now only need to disclose emissions deemed materially significant to their business, a tangibly lower bar. The final rule also exempts small firms from reporting, whereas the original proposal required all publicly traded corporations to disclose their direct emissions.Democratic lawmakers have advocated for comprehensive disclosure like that included in the original proposal, while industry groups — including banks — pushed back against the proposed Scope 3 emissions reporting, citing practical limitations. Republican lawmakers, including Banking Committee Ranking Member Sen. Tim Scott, R-S.C., and outgoing House Financial Services Chair Rep. Patrick McHenry, R-N.C., criticized the SEC's proposal, accusing regulators of advancing progressive climate policies beyond their mandate.Sustainable investing advocates say the agency's decision to greenlight the final rules without the originally proposed clauses represents a significant departure from the original proposal and provides corporations with too much leeway.Former SEC Commissioner Allison Herren Lee argued that the final rule undermines the original proposal's effectiveness in providing investors with vital information on climate risks. Lee was an SEC commissioner from July 2019 until July 2022 during which she spent months as acting SEC Chair."The new rule, unfortunately, does little to prevent companies from making vague, untested and, most significantly, unsubstantiated statements about their carbon footprints," Lee — now with the whistleblower firm Kohn, Kohn & Colapinto — wrote following the finalization of the rule.  "Under the new rule companies will not have to disclose the bulk (or in some cases any) of their GHG emissions."Ceres President and CEO Mindy Lubber — who's organization advocates for sustainable leadership — believed while the rule falls short of the SEC's 2022 proposal, it could be the first step to address the longstanding demand from investors for transparency on climate-related financial risks."Consistent, comparable information on physical and transition climate-related risks is vital to decision-making around strategy and investments," Lubber wrote accompanying the rule's finalization. "The SEC's new rule will now mandate the disclosure of that information, giving investors much-needed insight on how companies are managing the material financial risks and opportunities presented by climate change."  While critics of the proposal argued the rule did not go far enough, corporate sustainability advocates like Carolyn Berkowitz, CEO of the Association of Corporate Citizenship Professionals, welcomed the regulatory clarity provided by the final rule. "Today's long-awaited decision by the SEC to standardize climate-based reporting for U.S. listed companies will provide much needed clarity for our members who are leading corporate social impact teams and responsible for guiding companies to meet these new requirements," she said. "It lays out a clear path forward for corporate executives to develop sustainability programs that are fully funded and resourced in order to meet these new requirements."McHenry — who has consistently criticized the SEC's proposal to require climate risk disclosure — said in a statement that the rule's goal is fundamentally outside of the agency's purview and was not placated by the industry concessions in the final rule and hinted that the rule might be legally fraught. "The Securities and Exchange Commission is not a climate regulator," said McHenry. "The SEC must reissue it for public comment to satisfy the requirements under the Administrative Procedure Act."The APA — which has governed regulatory procedure since 1946 — requires agency rulemakings to not be arbitrary and capricious. Likewise, other SEC alumni like the agency's former Deputy General Counsel and Mercatus Center Senior Scholar Andrew Vollmer argued the rule may overstep congressional mandate. "The final rules create a special disclosure regime for a particular national policy issue with the aim of causing public companies to reduce their greenhouse gas emissions and use of fossil fuels," Vollmer wrote following the vote. "The final rules therefore diverge from the rulemaking authority Congress conferred on the securities regulator and will impose substantial new costs on reporting companies that exceed minor benefits." Seiberg thinks the rule's finalization will embolden congressional opponents of the rule to raise multiple resolutions attempting to block the rule wielding the Congressional Review Act. "We see both chambers passing the CRA resolution as it only needs a simple majority in the Senate. For moderate Democrats, this is a free vote as they know President Biden will veto the measure within days of it passing. It is why this should pass the Senate. We believe Congress will fail this summer to muster the two-thirds majority needed to overcome a veto."As for legal challenges, Seiberg argues the U.S. Chamber of Commerce will sue over the rule — likely in the industry sympathetic Fifth Circuit. That alone could slow the rule, he said. "A judge in the Fifth Circuit is likely to impose an injunction to block the rule while the litigation is proceeding [and] there could be an initial opinion before the election," he said. "We expect the SEC will lose at the trial court and appeals court as we expect these courts will conclude Congress did not expressly authorize the SEC to require this type of disclosure."That could ultimately send the case to the Supreme Court, Seiberg said, which could decide the fate of the rule — unless there is a change in administration next year. "If Biden wins, then the litigation seems likely to get to the justices [while] if Trump wins, it is less clear as SEC Chair Gary Gensler's term expires in 2026 [that] may not be long enough to fully litigate this case," Seiberg said.

This story has been updated with additional details and reaction to the deal. March 06, 2024 5:43 PM EST This story has been updated with additional details and reaction to the deal. March 06, 2024 5:43 PM EST