What matters most to mortgage lenders in the 2020 election

Mark Calabria, appointed as director of the Federal Housing Finance Agency by President Trump in 2019, was, like many Trump appointees, a critic of the organization he was subsequently assigned to lead. Calabria made it his mission to privatize Fannie Mae and Freddie Mac, or at least get them on track to do so before his term expires in 2024. To exit the conservatorship that began in 2008, Calabria calls for a capital framework in which the two agencies combined hold five times the funds they do now — an estimated an estimated $234 billion, based on a September 2019 valuation.

Some lenders worry GSEs won’t be able to provide stability to the mortgage market in a crisis if Trump wins and the process of exiting conservatorship continues, said Bill Cosgrove, president and CEO of Union Home Mortgage.

“It took 10 years for the non-QM and private-label market to build itself back up with moderate success, but once the pandemic hit, it took only a few days for it to freeze up,” Cosgrove added, noting that when it did, the bulk of the market received government-related support that sustained home lending. “That should scare the hell out of people. We need to be very careful about how we transition Fannie and Freddie out of conservatorship.”

A complex issue like exiting conservatorship can bring unintended consequences, like heightened GSE lending costs, said David Battany, executive vice president of capital markets at Guild Mortgage.

Biden hasn’t explicitly stated his plan on GSE reform, but the presumption is that he’ll stay the course on ending conservatorship, as no evidence to the contrary exists.

“I know there's been some news cycles lately [in which sources claim] that if Biden gets in, he's going to halt it all. I don't buy that for a second,” Rob Zimmer, principal at TVDC and registered lobbyist for both the Community Mortgage Lenders of America and Veterans United, said in an interview.

“I look for indications that the Senate Banking Committee is signaling to Mark Calabria that he needs to change direction or stop, and that's not happening. It's been astonishingly quiet which signals to me there's a consensus,” Zimmer added. “Small lenders generally want it to continue moving forward. The last thing they want is another 10 years of stasis and uncertainty.”

Perhaps no subject divides people on party lines more than regulatory parameters set by the FHFA, the CFPB, HUD and other government agencies.

Typically, Democrats embrace stricter regulations while Republicans eschew them, so lending looks quite different under each party. For example, the Trump administration dialed back the heavy-handed enforcement of the False Claims Act for Federal Housing Administration-insured loans the Obama administration started.

"I think this administration has actually made it much easier for us to operate," said Homebridge CEO Peter Norden."At the same time, the fears we have with the Democratic side [is that it could] go back to a regulatory stranglehold."

A potential Biden administration is likely to put more emphasis on fair-lending enforcement — something Trump has publicly derided. This issue divided Democrats and Republicans in the 2016 election as well. A Biden appointee at the Consumer Financial Protection Bureau is more likely to return that agency to fair housing activism — including rulemaking via enforcement — common under former CFPB Director Richard Cordray.

The future of Federal Reserve Chairman Jerome Powell also hangs in the balance. Presidents have the power to appoint the position and past precedent suggests Powell could stick around through a party change.

When the coronavirus halted the economy in March, the Fed intervened, pledging to provide liquidity to the market. The Federal Open Market Committee bought $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. While this intervention caused lenders short-term pain in the form of margin calls and squeezed liquidity, it stabilized the market and most of their pipelines settled by May. The Fed’s lowering of rates, too, led to a massive refinancing boom.

“Powell’s viewed by both sides of the aisle to be effective in his role and tries to stay above the politics,” Battany of Guild Mortgage said. “There was a shock moment when he came in," but he "has since recognized the importance of MBS price stability. The margin calls back in March definitely did more good than bad.”

At a moment when the country is reckoning with racial injustice, addressing the disparity in homeownership for people of color could be a legislative priority for Democratic leadership.

"The whole diversity and inclusion issue is a very big issue to everyone out there. Certainly with a Democrat in the White House, that will be helped dramatically," Norden said. "Just because that is normally a cause for the Democratic Party. Not that the Republicans are not friendly to it, because I am not saying that in the least."

However, President Trump tweeted that he may end the Affirmatively Further Fair Housing Rule, a section of the Fair Housing Act. The statute he referenced enforces accountability at local levels to break up segregated housing patterns and overcome redlining. In November 2019, HUD proposed gutting the disparate impact standard — the statute enforcing antidiscrimination upheld in 2015 by the Supreme Court — but house Democrats opposed it.

Biden’s housing platform states his administration would invest $640 billion over 10 years into housing stock, as well as expanding the Protecting Tenants at Foreclosure Action established under the Obama administration.

“I think the country really needs to figure out how to build affordable housing at a reasonable price,” Cosgrove said. “We have housing stock that is now 75 years old and it is showing its age. There need to be a lot of neighborhoods that need to be rebuilt and it doesn’t seem like there is a committed, holistic plan to resolve that.”

The Opportunity Zone program, part of the Tax Cuts and Jobs Act of 2017, was intended to incentivize developers to build affordable housing projects in low-income census tracts with tax breaks. But the country’s affordable housing stock still sits behind the demand, highlighted by the coronavirus. With underwriting standards tightening and rent prices growing faster than wages, homeownership becomes harder to attain.

“Newsflash from Captain Obvious: We're not building enough single-family housing for buyers and we're certainly not building enough affordable multifamily housing,” Zimmer said. “The trap for a lot of Americans is if it's more difficult to buy a home, then you must rent. If there's no rental housing, then you're committed to seeing your rents rise every year faster than your incomes. With the population bulge, it's going to get worse.”

Credit expansion and non-QM products could open new doors for potential borrowers who otherwise have been shut out of getting mortgages. The “QM patch” is set to expire in January 2021 and could have detrimental effects on Black homeownership. However, the CFPB’s latest proposal pushes the expiration date to April 1, 2021.

"We're finding as we engage with our customers that there are a number of blind spots credit organizations are able to cover effectively," said Cameron Jenkins, government relations manager at Better.com. "Anything the government can do to expand creditworthiness and credit access is incredibly important to us. This is not a partisan issue. We've seen support on this from Maxine Waters and Tim Scott."

The coronavirus showcased how inconvenient the loan process is during a crisis. Any in-person components, especially those requiring a notary, held up business. Notarization practices vary at the state level. Some forcibly require notaries and county offices that host legal documents to stay open. Others passed temporary legislation allowing remote notarization and some states already had remote statutes in place.

A consistent, national policy on remote notarization would make life easier and more cost effective for lenders doing business across multiple locales.

"We just rolled out remote notarization ourselves, but we can't do it everywhere because it's not available everywhere," said Mike Fontaine, COO and CFO at Plaza Home Mortgage. "It actually can add to the frustration for companies that are trying to offer it and the cost that goes along with trying to run two different solutions at the same time."

Now that consumers and lenders got a taste for the ease and efficiency of remote notarization, it's hard to imagine a complete reversion. However, any temporary rulings will likely need to start the legislative process over again when the virus subsides.

In March, Sen. Mark Warner, D-Va., and Sen. Kevin Cramer, R-N.D., introduced the SECURE Notarization Act as a bipartisan bill at the federal level to put baseline RON rules in place across the country. Warner stands for reelection this voting cycle while Cramer’s term lasts through Jan. 3, 2025. Among others, the bill has backing from the American Land Title Association, Mortgage Bankers Association, and National Association of Realtors. It sits at the introductory phase on the Senate floor.

Moving the country forward technologically depends on how much of an appetite the administration has for innovation.

"I don't think either Biden or Trump will veto that bill if it comes before them," Jenkins said. "The more likely scenario is, this doesn't pass Congress and becomes a state issue. And it goes back to what is the atmosphere fostered by the president and even more importantly, the governors in each state."

Brad Finkelstein and Bonnie Sinnock contributed to this story.