Election 2020 donations reveal divisions within the mortgage industry

Conventional wisdom suggests that in business, it's often smartest not to take sides in politics. Figures in the mortgage industry have long understood this, largely supporting both Democrats and Republicans in about equal measure over time.

But this isn't any ordinary election year.

"With the pandemic, everybody’s mind is somewhere else," said Bill Cosgrove, president and CEO of Union Home Mortgage.

Between the coronavirus, increased party polarization, and protests that have put more of a focus on racial equity issues, the mortgage industry is contending with the impact of various national crises, which are affecting the various segments of the field in different ways.

Achieving a bipartisan consensus these days "is tough on any issue, and certainly will be on fair housing," said Bill Killmer, senior vice president for legislative and political affairs at the Mortgage Bankers Association.

The industry will need to be more flexible in its positions because the business depends on broad coalitions to exert federal influence.

But achieving cohesion amid difficult conditions isn’t altogether unfamiliar territory.

"This happens every four years and it does result in a little disruption," said Allen Price, a senior vice president at BSI Financial Services. "We particularly saw disruption in 2008 and now we’re seeing it in the current election cycle. The mortgage … industry is doing now what it was doing then: adapting."

Below we examine five divisions within the ranks of the housing industry that are likely to emerge or deepen in the course of the election and how the business will bridge them, comprised of larger players out-donating the rest of the field, partisan splits on industry priorities, disagreement on the best approach to fair housing, the niche considerations of mortgage brokers, and the varying philosophies on creating influence in Washington.

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Partisan positions are getting tougher to reconcile
In keeping with its donation patterns, the MBA positions the broader interests of the real estate finance industry as split between GOP and Democratic agendas.

"There's a little bit more of an emphasis with Democrats on issues related to affordable housing production and financing. With Republicans, we have a little more opportunity to work with them in issues related to regulatory clarity and relief," said Killmer of the MBA.

But the two views aren't always easy to square, and there are always individual executives with leanings that may depend on the niche a particular company works in, Killmer acknowledged.

"From a corporate standpoint obviously certain issues may mean more for certain companies, but the MBA's got the luxury and the burden of having to represent the whole sweep of residential, commercial and multifamily business formations, and regulatory platforms that our members utilize, so we have to take a broader view," he added.

The MBA's positions on the issues may also depend on the opinions held by the broader housing coalitions it joins.

These groups include a mix of larger and smaller entities and can be effective in getting politicians to hear them out on policy issues, said Tim Rood, chairman and co-founder of the Collingwood Group, a consultancy that has ties to several former officials from key government-related housing agencies.

"I think that probably is helpful. Each group has its own strengths, and it’s probably better received," said Rood.

But identifying common ground in the mortgage industry has always been a challenge that's only growing, particularly given the current polarization between parties.

"The [mortgage] industry does a good job of educating stakeholders, policymakers and influencers. So that's good, but it’s about getting everybody to rally around a common set of issues and getting everyone to speak on point and focus on group rather than self-interest. They’ve struggled with that," Rood said.
Department of Housing and Urban Development
Signage stands outside the U.S. Department of Housing and Urban Development (HUD) headquarters in Washington, D.C., U.S., on Friday, Aug. 23, 2019. HUD this year accused Facebook Inc. of enabling and encouraging bias based on race and religion by restricting who can see housing-related ads on its platforms and across the internet. Photographer: Andrew Harrer/Bloomberg
Industry figures are at odds over fair housing initiatives
The pandemic and the protests that arose from the murder of George Floyd have made fair housing a central issue in the election. But mortgage industry figures hold differing opinions on how to create greater equity.

"The COVID-19 pandemic, the economic crisis, and the national reckoning on racial injustice are closely intertwined issues that have become the dominant lens through which almost all policy issues in the 2020 election are seen," Melissa Stegman, senior policy counsel at the Center for Responsible Lending, said in an email.

Groups like the CRL, which have lobbied on behalf of lenders funding affordable housing, are focused on issues like a Department of Housing and Urban Development initiative to rollback of "disparate impact" rules used to determine fair lending claims, as well as broader related concerns like evictions and foreclosures.

"The proposed rule from this administration would make it nearly impossible to use disparate impact under the Fair Housing Act," Stegman said.

That's led to a new schism between some mortgage companies on the issue, with some large bank and nonbank lenders questioning the rollback of the in light of current events, while smaller entities remain more typically concerned about the regulatory burden.

The MBA's position has evolved in line with larger players' opinion to date, but it's still hoping to find a middle ground.

"I think that there's been some greater intensity as the players evolved this time around," said Killmer. "The fair housing issue is obviously one where we think it's a good time for people to step back and try to pull all stakeholders together and be part of the current dialog."

Because mortgage bankers generally have interests that bridge both parties' agendas, they may be in a good position to find a middle ground, if anyone is.

"It is much more partisan now, but in my experience, most mortgage bankers don't let their personal views interfere with their business views," said Brian Chappelle, a partner at Washington, D.C., consultancy Potomac Partners, who worked for the Department of Housing and Urban Development and the MBA under a broad range of Republican and Democratic administrations.

For example, while affiliates of Rock Holdings and Quicken Loans show a strong preference for Republicans in their contributions, the company was among those that asked the Trump administration to reconsider its plan to weaken disparate impact.

There's a business case to be made for mortgage bankers and brokers that serve the demographic now coming into focus first-time homebuyers to support racial equity issues like fair lending, said Chappelle.

"The millennial generation is one of the most diverse in history," he said.
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Representative Lacy Clay, a Democrat from Missouri.
Mortgage brokers have their own unique issues to advocate for
While mortgage brokers don't amass the political donations mortgage bankers do, their numbers have grown as lenders have turned to them to help handle an influx of borrower demand. And that faction has their own interests to attend to.

One key issue for mortgage brokers, for example, is a bill introduced by Rep. Lacy Clay, D-Mo., that would ban "trigger leads" — sales of consumer credit data by companies who have no business relationship or transactional connection to the borrower.

The use of this data to generate mortgage leads has bedeviled brokers for years by creating competition for them. It's also been an irritant for some borrowers, and there's some concern it could lead to identity theft.

While Clay lost the primary and is not running for re-election, his bill serves as an example of the kind of issue a group like the National Association of Mortgage Brokers will back on the basis of legislation.

NAMB is a relatively modest donor to date, its PAC having contributed over $10,000 to a handful of individual candidates. The association received $35,000 from a group of individual donors that each gave $200 or more to the group. It boasts more than 27,000 individual members while the MBA, by comparison, has more than 60,000 members.
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The U.S. Capitol in Washington, D.C., U.S., on Friday, Aug. 14, 2020. There's little chance of agreement on a new federal coronavirus relief plan without a compromise on the roughly $1 trillion in aid to beleaguered state and local government that Democrats demand and the White House opposes. Photographer: Erin Scott/Bloomberg
The gap between the mortgage industry and Washington is wider
While mortgage bankers are more influential than some trade groups, their donations are dwarfed by others in the financial and real estate industry, which makes wielding financial influence a challenge.

At roughly $6 million, contributions from mortgage bankers and brokers are smaller than commercial banks, which have brought in almost $27 million. Depository donations look small compared to those from the real estate industry, which totaled nearly $186 million.

Add to that pandemic issues that have made even larger groups' housing issues more of a second priority for voters, and the distance between politicians' agenda and the mortgage industry expands even further.

"In the midst of the pandemic and the national debate over leadership styles and so much else, I don't think housing is a priority issue," said Karen Petrou, co-founder and managing partner at Federal Financial Analytics, a nonpartisan Washington-based think tank that refrains from lobbying in order to objectively analyze policy developments in finance.

"I think you will see over time critical questions like what happens when mortgage forbearance ends assume political proportions, but I don't think that’s likely before November."

However, there are strategies mortgage bankers and brokers can employ to address this, in addition to coalition building. They can make up for what they lack in donations and numbers by, for example, hiring staff with Washington connections.

"We don't have a PAC. We try to work with the [House Financial Services and Senate Banking] committees, where things happen, and do it through persuasion, not through money. No one thinks of us as a lobbying powerhouse," said Scott Olson, executive director of the Washington-based Community Home Lenders Association.

Olson worked on Capitol Hill for more than 20 years, and spent 15 of those years serving as the housing policy director for the House Financial Services Committee. While he hasn’t worked on the Hill in for more than a decade, he still has connections. Donations help with political access but they may only go so far unless they're significant, he said.

"Maybe the Realtors have enough money to go to leadership but most groups, even decent-sized groups, don't. They go to the chairman of the House Financial Services Committee, the chairman of the Senate Banking Committee and ranking members — the top people that make these policies when the doors are closed. That’s where the giving is and that's really where, increasingly, the lobbying is," said Olson.

"The only way to be effective in Washington is you figure on all issues a third support you, a third oppose you and a third's on the fence," he added.

"The key is to find those issues where you can persuade the people that are against you that they don't have a dog in the fight."

Another strategy the mortgage industry can use to assert its influence is to remind politicians that while its issues may not seem like an immediate priority during election, they very well could be down the road.

"No one's ever going to get elected based on their say, GSE or housing reform program. However, heads are going to roll and careers are going to be lost if you pass something that raises the cost of credit or drives down property values," said Rood. "Those are the things that will get public opinion moving."

Paul Centopani contributed to this story