MBA Secondary: Predicting the future of housing finance policy

Will new FHA, FHFA leaders get to implement any changes before the next election?

[PHOTO: From left, Bill Emerson, John Hughes, Gary Acosta, Helen Kanovsky, Jaret Seiberg, Pete Mills.]

With several key housing appointments still vacant and uncertainty building around legislative direction after the upcoming mid-term elections, forecasting the future of housing finance is tricky. But a panel of eminent industry leaders gave it a try at the Mortgage Bankers Association Secondary Marketing conference on Monday.

Helen Kanovsky, MBA general counsel, led the lively discussion featuring Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals, Bill Emerson, vice chairman of Rock Holdings, John Hughes, vice president of federal government relations at USAA, Pete Mills, senior vice president of residential policy and member engagement at the MBA, and Jaret Seiberg, managing director of financial services and housing policy at Cowen Washington Research Group.

MBA President and CEO David Stevens, who is retiring in September, wasn’t on the panel but cast a long shadow, as several panelists mentioned his earlier comments about the atmosphere in Washington and suggested he might be a good choice for the next FHFA director. The term of the current director, Mel Watt, ends in 2019, but there has been plenty of speculation about whether he will last that long in Trump’s administration.

Highlights of the hour-long discussion are below:

On the proper role of government in housing:

Acosta: The federal government’s role in mortgage finance, as it should be in any other sector, is to serve the segments of the market that wouldn’t be served by private sector. If those segments aren’t being served, the government’s role is missing the point.

Seiberg: The No. 1 lesson when it comes to the role of the government is: It ain’t going anywhere. Congress is clearly not willing to take any steps to reduce government’s role. There is such risk aversion to doing anything substantial, the government’s strong role in housing today is going to continue forward in the future.

On what might happen at the FHFA:

Seiberg: Almost no matter who gets in [as director], they are just going to be able to tinker around the edges. We’re really talking about policies in 2019 that wouldn’t take effect until 2020. That’s an election year. The appetite to do substantive change — we have some doubts that will happen.

Emerson: We’re talking February 2019, so I have no idea who it might be. Whoever that is, they could drastically change the footprint of the GSEs if they choose to. We could see a markedly different mortgage market. If they look ahead to 2020, why not do anything and everything you can to change it while they are there?

Acosta: My sense is that this administration doesn’t necessarily put calculated thought into a lot of their decisions. Absent something huge in the 2018 elections, they are going to go down the path of following ideological thinking: they could reduce the exposure of the federal government, they could reduce loan amounts, increase minimum credit scores. If they do that and don’t simultaneously do something at FHA, you would see a huge share of the market move to FHA.

Seiberg: The biggest lesson we can take away is that things always take much, much longer than we all hope they would. Hopefully this week we’ll see the FHA commissioner confirmed, but even if that happens, for that person to actually implement substantive changes — we just don’t see that. I’ll always take the over on that bet.

On different underwriting models:

Hughes: There is concern over what are the broader implications of different underwriting models? Will there be some communities not being served?

Emerson: QM is QM is QM. That’s what people are underwriting today. How does that change?

Hughes: If [big data enables] new criteria — for instance, algorithms that lead lenders to identify more creditworthy borrowers, does that have a disparate impact? There is a concern that I’m seeing from some elected officials, governors — not just in the mortgage space but also in small business lending.

Acosta: Approximately 78% of new households being formed nationwide are from diverse communities. They tend to have slightly different experiences and behavioral habits when it comes to managing finances. They may have thinner credit files, need low down payments, pool resources among families and multi-generations to make that first home accessible. All those nuances are on the margin. If the work developing technology is to reduce friction in the process, you certainly have reason to be concerned that the borrower on the margin would be cut out of process just from an efficiency standpoint.

Emerson: I have a different stance on that. I think the promise of data is in how you use it. We’re a retail originator —  we want to take any human being in this country and get them a mortgage. If you want to talk about where folks get left behind, the FHA is going to have to come into the 21st century. I think tech opens up more opportunity if you are doing from the right place.

On regulatory reform and safe harbor:

Seiberg: We’re already seeing less enforcement. There are not as many new investigations.  Whether Mulvaney leaves in June or they nominate someone and he remains in the role as acting director, it is a mindset that says we are not going to set policy through enforcement action. One thing I think [this administration] will prioritize is reviewing the QM rule. There are provisions in there where you have to scratch your head — 20 pages on when you can’t consider part-time income. The more they can do to simplify the rule the easier it will be to comply and easier to qualify people for credit.

Politically, you can’t get rid of safe harbor.

Mills: Safe harbor is there so that liability is there if you make a mistake. If you change the liability you can change the safe harbor.

Acosta: There are several dynamics happening now. You have a reduction in enforcement, some curtailment of Fannie and Freddie, and rising interest rates simultaneously, creating a perfect storm for a big expansion of non-traditional lending, even subprime. I think we can expect that in the coming year.

Mills: Responsible subprime lending.

Hughes: In the shift from Cordray to Mulvaney to whoever’s next, it’s inspiring congressmen on both sides of the aisle, you see some pushback on commission structure. We will see what the next five years of a Trump appointed director looks like, see if there is some sweet spot before the next election. There will have to be serious bipartisan conversation.

Mills: The problem is we’re always planning in two-year cycles. I think the sweet spot was last year.

On whether there is a blue wave building in Congress:

Hughes: I remember serving in Congress in 2010, and asking, What’s this tea party — all the way up until the week of election. We didn’t appreciate how many incumbents were vulnerable. You’re seeing that again in the House, but the Senate is just a different creature — it’s hard to nationalize Senate elections.

When it comes to affordability issues — the Democrats’ conversation is how are you serving populations on the lower income side?

Seiberg: The big story is on [Maxine] Waters. The next two years will be about making headlines, the actual abilities to change the law is limited. But 2020 will be very interesting —  the math shifts on the Senate, there are a lot of more Republicans than Democrats up for re-election. Democrats could be back in power in 2020 — you can actually implement change if you control everything. What we tell clients is don’t get distracted by the midterms, it’s all about 2020.

Hughes: Watch the bills that Waters passes in 2019. Whatever she passes in 2019, that’s what the Democrats will do in 2020.

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