Count Nationstar Mortgage CEO Jay Bray among those who were surprised by the election of Donald Trump, although Bray tells HousingWire that he is looking forward to working with the incoming Trump administration and is “cautiously optimistic” about the impact that the president-elect could have on the financial services business.
HousingWire sat down with Bray this week at Nationstar’s headquarters to discuss the company’s rebrand into Mr. Cooper (click here to read more about that), the results of the election, and much more.
“I was surprised personally about the outcome of the election,” Bray told HousingWire. “In general, we would work with any administration, frankly. They’re a big part of our lives. And we’ve done it for the last 20 years and will continue to do it.”
As Bray acknowledges, the financial services industry was the subject of a raft of new regulations in the wake of the financial crisis, but the Trump administration is already stating that it plans a regulatory rollback and perhaps even the “dismantling” of the Dodd-Frank Wall Street Reform Act.
Bray characterized himself as “cautiously optimistic” about the impact of the Trump administration on financial services, noting the impact of regulations on Nationstar’s ability to innovate and create new products or services.
“If you take the regulatory environment, it’s been significant,” Bray said. “The new rules, the new regulations, take TRID in and of itself. This year, 80% of our resources are focused on making sure TRID gets implemented properly.”
TRID, the TILA-RESPA Integrated Disclosure Rule, is the work of the Consumer Financial Protection Bureau. The rule pushed the mortgage industry to create new forms that are designed to inform borrowers about all the costs associated with a mortgage before they close on the loan.
The rule, implemented just over a year ago, had a significant impact on the mortgage business, as chronicled here.
In Bray’s eyes, the regulation is helpful for consumers, but it inhibited Nationstar’s development.
“If you go back to the customer experience, post-crisis, there’s been so much new regulation that frankly we’ve had to dedicate most of our resources to it,” Bray said. “So the ability to innovate, the ability to create better customer products, has probably not been as great because we’ve got to get these rules right.”
Trump has pledged a freeze on new regulations once he takes office, and his transition team said recently that the Trump administration will move to dismantle Dodd-Frank.
Bray said that he hopes that any regulatory slowdown, pause, or rollback will allow for an evaluation of which rules work and which ones don’t.
“On the CFPB, at the end of the day, I think they’ve done some good. Advocating for consumers, I mean, who can argue with that, right?” Bray said.
“But our view is we should take a pause on new regulatory requirements, and the Trump administration may do that, or at least slow it down,” he continued.
“So let’s absorb what we have, let’s see what works, what doesn’t work, and give us more time and money to invest in the customer experience, and making a difference in people’s lives,” Bray said. “That’s what we want.”
Bray said that he thinks a full rollback of Dodd-Frank is unlikely but feels that there are sections of it that could well change.
“We’re never not in favor of smart regulation. But at this point, I think we’ve had enough regulation so let’s take a pause, and figure out what works and be able to focus more on investing in the customer.”
Another potential change under the Trump administration is the possible end of the conservatorship of Fannie Mae and Freddie Mac, as Steve Mnuchin, Trump’s choice to lead the Department of the Treasury, recently said that “getting Fannie and Freddie out of government ownership” is one of the Trump administration’s top 10 priorities.
A recent report from Moody’s Investors Service said that privatizing Fannie and Freddie is unlikely to happen any time soon, a view that Bray shares.
“We don’t know those answers,” Bray said of the future of Fannie and Freddie. “We want stability. They’re 90% of the market today, or close to it. And for anything to happen quickly seems unlikely, that’s my personal view.”
Bray said that his view is that the mortgage market needs stability and quickly changing how Fannie and Freddie operate could have a negative impact on housing.
“Ultimately, does the structure need to change? Perhaps, but housing is in reasonable shape right now,” Bray said.
“I think there needs to be more affordable products. Right now, there are people that want a loan that can’t get a loan. That needs to be addressed,” Bray added. “But it’s not like housing’s broken. So, to introduce a lot of uncertainty would be a bad thing.”
While housing may not be broken, Bray said there are definitely ways to open up mortgage lending to some of those borrowers who can’t get a mortgage right now.
“If you go back in time, we originated Alt-A and non-prime loans, so it’s in our DNA to do that responsibly. So I think, clearly lower FICO borrowers, we’re very comfortable with,” Bray said.
“If the secondary market was there, I mean, we’re not a bank, so we can’t balance sheet this stuff, but if there was an outlet for that, we would definitely participate in that,” Bray said.
“We’re 100% confident in our servicing on those products, and frankly, very comfortable with the originations as well. Lower FICO, looking at debt-to-income ratios a little differently, different loan-to-value ratios. We’re comfortable in that environment, you know, as long we have liquidity for it. Underwriting, servicing, we’ll do it all day long. We just need liquidity.”
As for the lending environment right now, HousingWire asked Bray about how the higher interest rates of recent weeks will impact Nationstar and the rest of the mortgage business.
Recent reports from Black Knight Financial Services suggest that the recent increase in interest rates significantly shrank the pool of borrowers who had incentive to refinance, but Bray said that within Nationstar’s portfolio, there are still plenty of borrowers who could refinance.
“The interesting thing about our portfolio is even with a 50-basis point increase, or even a 4% rate, there’s still a lot of opportunity in the portfolio for people to refinance,” Bray said.
“So the way we think about it is, yes, originations will go down,” Bray said. “Origination profits will probably go down. But not for us, we don’t think it will be that material. Because there’s still plenty of opportunity for customers to save money.”
As Bray notes, much of Nationstar’s business comes from mortgage servicing, and higher interest rates are good for the servicing business.
“It should be great for the servicing business. And frankly, that was one of our initial investment pieces when we bought these portfolios that rates can’t stay low forever. It’s just taken 10 years,” Bray said.
“But now that it’s happened, I think we’re going to benefit significantly,” Bray added.
“You’re going to see prepays slow down,” Bray said. “You’ll see amortization expense go down, which will result in higher profits. And frankly, I think it will be good for the business.”
As Bray said, higher interest rates are expected to impact mortgage originations, but Bray points out that originations are not solely dependent on interest rates.
“I think it will depend on the market. And I think it will depend on what’s going on in the economy. Ultimately, a 4.25% rate is not going to completely cripple the purchase money market,” Bray said.
“If the economy is doing well, unemployment, and people feel like, hey the new administration is going to have a positive impact on my life, or a neutral impact, I think it’ll be fine,” Bray said, adding that he doesn’t think lending will “falls off the cliff by any stretch of the imagination.”
Bray said in some higher priced markets, like San Francisco, the impact of higher rates will likely be more impactful than in lower price markets, but overall, higher interest rates will not negatively impact borrowers.
“Still, 4.25% is historically a very, very low rate,” Bray said. “Consumer behavior is an interesting study, but I think it will depend on what else is going on in the world. Do I feel good about my job? Do I feel good about where the country is going? If that’s good, which hopefully, knock on wood, it will be, then we’ll be fine."
For part one of HousingWire’s interview with Bray, click here.