What the Biden administration may do in the housing sector
Mortgage professionals envision broader access to government-related credit sources but potentially tighter regulation under the incoming Biden administration.
However, changes won’t be quick to materialize, particularly if Republicans gain control of the Senate after Georgia’s two runoff races on Jan. 5.
And don’t expect every move President Trump has made over the last four years to be undone, industry experts say.
Some Trump administration initiatives that are already in progress, like government-sponsored enterprise reform, could proceed apace, noted Bob Broeksmit, president and CEO of the Mortgage Bankers Association.
“The open question is whether [Federal Housing Finance Agency Director Mark Calabria] would craft some sort of consent order that would permit him to release the GSEs from conservatorship, even as soon as between now and Jan. 20,” Broeksmit said.
Calabria’s term technically continues for the next three years. A pending court case, which deals with the constitutionality of the structure of the FHFA, may allow Biden to fire Calabria at will, depending on the outcome. That court case may take some time to play out but is expected to follow the same course as a similar case filed over the Consumer Financial Protection Bureau, Broeksmit noted.
Either way, at some point the Biden administration will likely want to put a new director in place.
“I would think a Biden FHFA director would want to focus more on the affordable housing mission of the GSEs and figure out ways to have those mandates in place,” Broeksmit said.
That could potentially include more leeway for the GSEs to buy loans that go into forbearance before purchase, said Brian Chappelle, partner at Potomac Partners.
“Hopefully, the 500 to 700 basis points paid on new originations that go into forbearance before loans are sold to Fannie Mae and Freddie Mac will be on the table,” he said.
Chappelle also hoped for the elimination of a partial indemnification fee of 20% for Federal Housing Administration-insured loans that go into forbearance prior to being insured.
While only a few loans fall into that category, “as a result of both of those policies, lenders have put overlays in place so that these pricing changes have definitely negated access to credit,” he said.
“It’s more difficult today for potentially eligible borrowers to get mortgages and I think those two policies contribute to it,” he said, adding that he hoped the new administration might also increase access to credit by eliminate the pending refinancing fee and restrictions on refinancing related to forbearance.
While policies that bolster affordable housing and the expansion of credit would help the industry, increased regulations often favored by Democrats could be a damper on activity for lenders and servicers.
“We’re going to have a hell of a lot more regulation than we’ve had over the last four years,” said Peter Norden, CEO of HomeBridge Financial Services. “I hope we don’t go back to the same regulatory environment we were in when it was Obama and Biden, because certainly that would be very negative to the industry … [regulation] takes time to put in though, it doesn’t happen overnight.”
Biden may seek to establish a Homeowner and Renter Bill of Rights aimed that would include penalties aimed at discouraging predatory lending, DavisPolk noted Monday in a report.
"In general, a Democratic administration is going to favor more, rather than less, regulations,” said Jennifer Keys, vice president of compliance strategy solutions at Covius. “I think with a Biden administration given everything that’s happened with the pandemic and other issues, I would expect a focus on fair housing and fair lending. It may be an administration more similar to [that of the Obama era, under CFPB leader Richard Cordray] with rule making by enforcement.”
For servicers, one aspect of this regulation could include longer loan-resolution timelines.
"I would expect with a Biden administration, obviously regulation and policy that are more borrower-friendly and more pro-borrower. And that could mean, possibly, foreclosure and eviction moratorium extensions,” said Keys.
However, some consultants expect the relative health of the mortgage market now will limit the extent to which Washington will be inclined to regulate. A wave of loose underwriting preceded the wave of regulation put in place during the Obama administration.
“It’s very different now. We have a strong credit environment lenders have adapted to all the rules that have been put in place, and the vast majority do so with extraordinary focus on ensuring that they are compliant,” said David Stevens, CEO of Mountain Lake Consulting and a former federal housing commissioner at the Department of Housing and Urban Development under Obama. “I don’t think that there is any unusual risk for lenders as it relates to servicing or oversight.”
A Biden administration is unlikely to change the outlook for mortgage risk, said Rick Thornberry, CEO of mortgage insurer Radian.
“I think Calabria is on a mission to recap and release the GSEs, you could see Biden slow that down a little bit. At some point they have to be resolved. But I would say we feel comfortable really under either scenario.”
Pending the outcome of the Senate runoff elections in Georgia, a pretty closely matched mix of Republicans and Democrats in Congress also could limit the Biden administration’s ability to put housing incentives and well as regulation in place, said Stevens. That includes the first-time homebuyer tax credit Biden has backed.
One of the most immediate mortgage moves that the Biden administration could indirectly make is to restore the ability of so-called Dreamers to get FHA loans.
Biden has said one of his early actions would be to put in an executive order that would restore the Deferred Action for Childhood Arrivals program as a means of allowing children of undocumented immigrants the right to live in the United States without being deported.
Because residency is the bar these potential borrowers need to clear to get these loans in the FHA handbook, there is speculation that DACA’s restoration could make them eligible again, depending on how it is worded.
“If there is a Dreamer Executive Order, it could have an immediate impact on DACA policy at FHA,” said Chappelle.