David H Stevens, CMB is the CEO of Mountain Lake Consulting, Inc and an advisor to George Mason Mortgage. David was the CEO of the Mortgage Bankers Association in Washington DC and served as the US Assistant Secretary of Housing and Federal Housing Commissioner for President Obama.
By: David H Stevens, CMB. Dave is a former US Assistant Secretary of Housing and Federal Housing Commissioner under President Obama and the former CEO of the Mortgage Bankers Association. Dave currently is CEO of Mountain Lake Consulting Inc and serves an as advisor to the Board of Directors of George Mason Mortgage.
(All thoughts below are opinion only and subject to change)
With the year ending and in looking forward at the incoming new administration under President Biden and Vice President Kamala Harris, what should those in housing, real estate, and mortgage banking expect? Here are my top thoughts about how the new administration may look.
2021 will not be like 2009: In 2009, when President Obama came into office, the nation was reeling from a global housing recession brought on by a housing crisis. Weak credit standards, poor demographics with low demand, and excess housing supply resulted in 20% national drop in home prices and put millions of Americans into foreclosure. The impact of that recession put Fannie Mae and Freddie Mac into Conservatorship in order to keep them in business, but so many other financial firms failed. From Lehman Brothers to Wachovia, from Countrywide to Washington Mutual, over 450 banks failed from 2007 to 2012. As a result, Congress passed the Dodd-Frank bill that created a new regulator, the CFPB, and required the implementation of a plethora of new rules and protections for consumers. In addition, because of mistakes made, enforcement actions were broadly applied, impacting lenders across the nation.
In contrast, the pandemic recession of 2020 could not be further from that scenario. In fact, today we see an unprecedented demand for housing with a demographic surge in buying from millennials and a shortage of inventory. Rather than weak credit and poor demand, today the nation’s housing system is financing very high credit quality borrowers and the short supply of homes is resulting in home price appreciation and multiple offers on homes across the nation. In fact, instead of housing being the reason for the recession, as was the case beginning in 2008, housing is the shining light – the most positive story that is bolstering the economy in a substantive way.
As a result, instead of bracing for a looming wave of new regulations and enforcement actions, expect this administration to be focused elsewhere. Payday lending and student loans will likely consume the time of the CFPB and a Biden administration will be almost solely focus on COVID, the nation’s recovery from COVID, bolstering relationships with global partners and restoring focus on issues like the environment.
So that bad news? Expect little focus on housing. And the good news? Expect little focus on housing. We are the good story of this difficult time.
But What about Housing Focus: There will be some focus on housing. After all, President Elect Biden has one of the most extensive housing plans for an incoming President that has ever been seen in his plan for “investing in communities”. In his plan he calls for many things to support rental and owner occupied housing including, for example, a $15,000 first-time homebuyer tax credit. In a traditional sense, where Republican regimes can mean less regulation, they can also mean less government support for many programs including housing. Democrats on the other hand, tend to encourage greater support for housing and homeownership and safe and secure rental housing. While not a universal truth, this has proven to the case over the decades.
So, lets look at a few of the key questions:
HUD: Biden has nominated Congresswoman Marcia Fudge from Ohio, an attorney by background having been a prosecutor but also with experience in the key government agencies in the Cleveland area. While not deep in housing, her background will help as she focuses on re-affirming anti housing discrimination policy and the re-institution of the AFFH rule (Affirmatively Furthering Fair Housing). Additionally, I expect her to focus on rental housing, eviction concerns, and resolving forbearance issues associated with the pandemic. I believe the new HUD team will look at Mortgage Insurance Premiums, and I expect to see a drop in them, at some point, in the President’s first term. Of note, the transition team working on selecting key personnel at HUD are searching for leaders with technical skill sets in housing and housing finance, something that would serve a Secretary Fudge well.
CFPB: Director Kathy Kraninger is expected to be terminated or to resign. In the past year, the Supreme Court ruled that a single director at the CFPB who can only be terminated “for cause” was unconstitutional. As a result, it opens up the option for any President to terminate the person in this position at will. The CFPB is a highly protected regulator for Democrats whose idea was born from Senator Elizabeth Warren. It is expected that President Biden will nominate a more progressive Director. While Senate confirmation may be challenging, Biden will be obligated to Warren and others to make this move. A new CFPB director will likely have deep legal skills but as stated above will focus more on programs that are not mortgage related. The one exception will be that a CFPB will be tasked to ensure that homeowners who went into forbearance during this crisis are offered all the requirements under the national servicing standards rule.
Treasury: Janet Yellen has been nominated for this role. Respected by republicans and democrats alike, Yellen has deep experience having been the Chair of the Federal Reserve, Chair of the Council of Economic Advisers in the White House, and a highly respected professor in macroeconomics. The good news is she can hit the ground running. She has deep knowledge about the markets, rates, housing, Commercial real estate, and the GSE’s. While her responsibilities are broad and issues like the Iran nuclear arms program may tie her up into new tariff and embargo policies, she will be pivotal to any GSE reform actions. Treasury governs the contract that holds the GSE’s in conservatorship and nothing can be done of substance without this Secretary. Short take – expect Secretary Yellen to slow the efforts of FHFA Director Calabria to release the GSE’s quickly from conservatorship.
FHFA: The FHFA Director was nominated and confirmed under President Trumps regime. This role is as an independent director and the President cannot terminate except for cause during the Director’s five-year term. This complicates the desires of an incoming Biden regime as they would likely want to roll back things like the 50 basis point refinance fee and the high delivery fees charged on forbearance loans, as well as stall Calabria’s attempt to release the GSE’s from conservatorship. Unless Calabria is overly antagonistic, which is possible, expect the Biden camp to avoid an attempted termination. The Supreme Court heard a case this December 2020 that argues that a single Director of FHFA that cannot be fired except for cause is unconstitutional, similar to the CFPB case. If the court rules consistent with the previous case, then the President can terminate Calabria without cause. Expect the Supreme Court to rule by June 2021. Short take – expect Calabria to still raise costs to programs from Fannie and Freddie generally, but be stalemated on his bigger plans as the Treasury Department will not be willing to go along with his desired outcome. Calabria should be gone from the job by late year 2021 and Biden will wait him out.
The Fed and Rates: The Fed has been clear as they revised their policy about rate setting. In this revision stated in November, they will no longer focus on inflation targets and will instead focus on full employment as a target. They will continue quantitative easing to keep rates down. But, as the nation recovers in 2021, we expect them to shift some of their purchase activity from mortgages and more into treasuries for a variety of reasons related to debt and strategy. The yield curve should begin to steepen with longer rates rising a bit while shorter rates stay at the low end of the curve. Mortgage rates will still be low, a boon for homebuyers, but it may mean a fairly significant tapering to refinance activity.
Finally..Congress: While the republicans hold a majority in the Senate, leaving Mitch McConnell as Majority Leader, all eyes are on the neck and neck run off races in Georgia to be decided in January. If both flip to Democrat, then New York Senator Chuck Schummer takes over. Neither will make a huge difference as the difference would be a single vote in a tie and moderates on either side are not a certainty to hold the party line in a vote for legislation. But if Schummer takes hold we will see more confirmations on the voting calendar more quickly, which would potentially allow the Biden team to fill their open jobs faster. Short take – dysfunction will still remain in congress due to divided government. But debt ceilings, funding the government, flood insurance, and responses to the covid crisis will be among the major policy issues that can move forward.
Conclusion: Change is coming, but a Biden regime is generally more favorable to housing and he is building a team that has pretty decent experience in our issues. While all of these things will evolve as time progresses, the bottom line is that, unlike the Great Recession of 2008, housing will not be the primary focus and that is a good thing. COVID will lead all efforts over at least the first year of the new regime.