Broeksmit: Big Challenges, Big Opportunities

AUSTIN–The last few years have seen big challenges for mortgage bankers: COVID, market disruptions, inflation, and high interest rates to name a few. But there are many opportunities for mortgage bankers to be part of something that will benefit our industry and our customers, according to MBA President and CEO Bob Broeksmit, CMB.

Speaking here at MBA’s Independent Mortgage Bankers conference, Broeksmit noted that voters signaled their desire for big changes in Washington last November.

“And big changes have already taken place,” Broeksmit said. “At HUD, Scott Turner’s leadership as Executive Director of the White House Opportunity and Revitalization Council in the first Trump administration will serve him well.” He noted MBA led an effort to secure the support of two dozen organizations in endorsing his nomination.

“Just before the Inauguration, I had the chance to get acquainted [with Turner] and establish some rapport. He’s knowledgeable about some of our issues and I look forward to working with him,” Broeksmit said.

“I also have had the chance to meet several times with Bill Pulte, the nominee for FHFA director,” Broeksmit added. “In addition to the housing experience the Pulte name brings, he will be a thoughtful and deliberate leader of the agency that regulates the GSEs that sit at the center of our housing finance system.”

Speaking of the FHFA, Broeksmit noted that addressing the many unanswered questions and roadblocks that MBA members have regarding the transition to FICO 10T and VantageScore 4.0 as well as a bi-merge option is very important. “All of these things must help lenders lower costs and qualify more borrowers, and if it doesn’t, they need to go back to the drawing board,” he added.

Broeksmit said the credit-scoring entities and the credit bureaus are “taking advantage of market positions that the government bestowed on them” by having MBA members be required to get a tri-merge credit report. “You all know there are three providers,” he said. “That means you use each one every time. And while VantageScore may come online in the future, FICO is currently your only option for a credit score. So the government bestows the market position by requiring it for government-backed loans, and then the entities that produce these services raise prices in a way that has no bearing that we can see on the cost of providing them. That’s an inappropriate use of a market benefit bestowed by the government, and it’s costing your businesses and your borrowers millions of dollars in extra expenses.”

MBA made it clear during the past administration with several different agencies that could do something about it that this is wrong, Broeksmit said. “You can be sure it’s on our day one list for all of the agencies in the new administration. It’s wrong, and it has to end.”

Broeksmit turned to one of the biggest changes that could be on the horizon in Washington: ending the conservatorship of the GSEs, Fannie Mae and Freddie Mac.

“With the new Administration and Congress, we anticipate there will be new momentum for ending the conservatorships of Fannie Mae and Freddie Mac,” he said. “For generations, Fannie and Freddie have been at the foundation of the best housing finance system the world has ever seen. Created by government charter, they ensure liquidity and stability in the home finance marketplace, even as conditions vary through economic cycles and by region.”

American homebuyers have options that are simply not available in other countries – notably the 30-year, fixed rate, pre-payable mortgage. It is synonymous with the American Dream, Broeksmit said.

By definition, a conservatorship is a temporary arrangement to stabilize the finances of an institution. “But the conservatorship of Fannie and Freddie has gone on for 16 years,” he noted. “I have spoken with President Trump’s choice to lead FHFA, Bill Pulte. He will bring strong roots in the homebuilding industry and experience in the private equity arena to overseeing Fannie and Freddie.”

Across several presidential administrations, administrative reforms undertaken by the FHFA, as both regulator and conservator of the GSEs, have resulted in significant progress in stabilizing the companies while paving the way for reform, Broeksmit said.

“MBA led the advocacy for many of these reforms,” he added. “They are governed by directives and rules that ensure the GSEs establish a level playing that supports pricing parity in the primary market, require transparency and public comment on new activities, and establish the Uniform Mortgage-Backed Security. And now, the GSEs are building capital.”

But at the same time, more than 16 years of hands-on conservatorship by FHFA has created inefficiencies, blunted some of their competitiveness and led to challenges in retaining and attracting the best talent in the housing finance space, Broeksmit said. 

“Both the progress and the problems of prolonged conservatorship suggest it is time to plan for a potential exit,” he added. “MBA stands ready to work with key policymakers in the incoming Trump Administration and the Congress to ensure that the transition to a post-conservatorship era for the GSEs is handled with precision. It is time to bank those reforms and begin the conversation about an exit from conservatorship.”

A “thorough and thoughtful” approach is essential to avoid disruption in the mortgage market and ensure consumers will not be hurt, Broeksmit said. “At MBA, we envision a new era in our relationship with Fannie and Freddie. We welcome the strengthening of our partnership. Lenders of all types and sizes and servicing firms can and should be partners with the GSEs to sustain a housing finance system that is stable, liquid, enables homeownership and the creation of generational wealth.”

The roles of the GSEs and mortgage lenders and services are different, but our relationship need not be adversarial, Broeksmit added.

He added that MBA has convened a high-level task force on what the companies should look like post-conservatorship. It has identified four over-arching principles it believes should frame the release of Fannie and Freddie.

First, an explicit backstop – An explicit federal guarantee is essential for maintaining stability and liquidity in our unique (30-year fixed-rate mortgage) market and for continuing the GSEs’ critical commitment to affordable housing. Without it, global investors’ confidence in buying, holding, and selling GSE mortgage-backed securities could be jeopardized, which would greatly impact the liquidity in the market and drive rates up even higher than they are today. “To be clear – this backstop would require private capital to stand in front of the guarantee on the MBS only – mortgage insurance, CRT, and GSE capital would stand in front of any call on the Treasury,” Broeksmit said. “This is a limited, but explicit, backstop.”

Next, a level playing field – When the GSEs exit conservatorship, FHFA must have as part of its oversight responsibilities a requirement to ensure the GSEs continue their adherence to the level playing field that 1) ensures that pricing and underwriting does not vary for lenders based on size, business model or charter, 2) discourages increased concentration risk from the GSEs’ picking winners and losers (as they did in the run-up to the Global Financial Crisis), and 3) supports a vibrantly competitive primary market that delivers mortgages at competitive rates for consumers, Broeksmit said.

Third, a “Bright Line” between primary and secondary mortgage functions must be clearly defined and rigorously enforced by FHFA to ensure a stable and competitive market.

Fourth, FHFA Regulatory Enhancements. Upon the termination of the conservatorships, FHFA will no longer serve as conservator and will only have powers as regulator. “As part of a release, FHFA should be granted the necessary powers and responsibilities to regulate the GSEs’ rate of return and market conduct – often viewed as ‘utility style’ authorities,” Broeksmit said. While their regulatory powers are significant, they pale in comparison to the nearly complete control — and little formal accountability — FHFA has over the GSEs as a conservator.

“With this approach, we can preserve the GSEs’ charters, their affordable housing mission, housing goals, and duty-to-serve obligations, while protecting against the risks of a major market disruption,” he said. “We are ready to go to work with the Trump Administration and members of the 119th Congress in launching a new era of home finance. One in which the GSEs are no longer in conservatorship, but one in which the American housing finance system remains the envy of the world.”

Another area where big policy changes are likely this year is taxation. One of MBA’s top three agenda items this year for Congress will be to extend our industry’s favorable tax provisions that are set to expire at the end of 2025, Broeksmit said. In whatever tax legislation that emerges later this year, key priorities will include preservation of deferred tax treatment of mortgage servicing rights, preserving the Section 199A pass-through deduction, preserving and possibly expanding and indexing of the capital gains exclusion for the sale of a primary residence to unlock inventory and encourage housing movement/market velocity as well as expanding and improving the Low-Income Housing Tax Credit and supporting other housing supply-related tax credits (including a new workforce/middle income housing tax credit, a targeted “Neighborhood Homes” residential counterpart to the LIHTC, and a new office conversions tax credit).

Any changes to the tax code should preserve the tax benefits of real estate investment and support commercial and multifamily provisions including Business Interest Deductibility and Section 1031 Like Kind Exchanges, Broeksmit said.

Turning to Trigger Leads, Broeksmit said MBA will build on the momentum it achieved in the last Congress and complete the push for enactment of legislation to curb the abusive use of mortgage credit trigger leads–while preserving their use in appropriately limited circumstances.

“We brought 43 Senators and more than 90 House Members on as cosponsors,” he noted. “The measure passed the Senate in late December by unanimous consent, but we were unable to overcome outgoing House Financial Serviced Committee Chair Patrick McHenry’s opposition to have it considered by the full House.” 

Regarding other priorities, Broeksmit said MBA has prepared “Day 1 Memos” for each of the relevant agencies to make sure they are aware of our priorities and what they can and should be doing or not doing.

Regarding HUD, priorities include reducing the Mortgage Insurance Premium, finalizing servicing reforms such as Expedited T&I reimbursements, and permanent loss mitigation. “The Waterfall is already done,” he added. “We welcomed FHFA’s update in mid-January.”

Other priorities include Ginnie Mae issuer liquidity including Early-Buyout securitization (in December MBA proposed the development of a new Ginnie Mae securitization designed to attract more private capital sources of liquidity to support Ginnie Mae issuers in the event of market stress or a severe economic downturn), strengthening the Pass-Through Assistance Program, and changes to acknowledgement agreements.

In addition to GSE reform/release, Broeksmit noted other priorities for FHFA, including addressing the many unanswered questions and roadblocks that MBA members have regarding the transition to FICO 10T and VantageScore 4.0, as well as a bi-merge option. Any solution must help lenders lower costs and qualify more borrowers—”if it doesn’t, they need to go back to drawing board,” he added.

Turning to the Consumer Financial Protection Bureau, Broeksmit said the bureau should finalize the proposed amendments to the mortgage servicing rules under Regulation X consistent with the improvements recommended in our comments. “In short, MBA urges the Bureau to refine its new loss mitigation standard to encourage distressed borrowers to engage with their servicer,” he said.

Broeksmit also recommended RESPA Section 8 reform including repealing the advisory opinion on Digital Mortgage Comparison Shopping. MBA recently released a white paper, RESPA at 50: Key Reforms to RESPA Section 8 to Better Serve the Modern Mortgage Market that addresses how comprehensive reforms are necessary to modernize Section 8 of the Real Estate Settlement Procedures Act to better serve consumers and the real estate finance industry in today’s highly regulated mortgage market.

“Meanwhile, we are deeply engaged in how Artificial Intelligence is reshaping mortgage transactions and grappling with how changes in the cost and availability of property insurance will affect our industry,” Broeksmit said.

In closing, the availability and affordability of housing was one of the top issues on the minds of voters in the 2024 elections, Broeksmit noted. “President Trump campaigned on lowering costs for Americans, and we appreciate housing supply and affordability being included in an executive order on this issue. We will support efforts to cut unnecessary regulatory red tape and to pursue federal housing program enhancements that make renting and homeownership more attainable and sustainable.” MBA will also ensure that any GSE exit from conservatorship protects taxpayers and preserves their mission without risking market disruption.

“The nominees and newly-confirmed officials in the new Administration represent opportunities to find constructive ways to reduce regulatory burdens that too often hamper access to homeownership,” Broeksmit concluded.