Three Big Policy Trends for 2018

AMELIA ISLAND, FLA.–GSE reform. Tax reform. Regulatory reform. Three issues that will keep the real estate finance industry busy this year.

Throw in potentially huge changes at the Consumer Financial Protection Bureau, said Mortgage Bankers Association President and CEO David Stevens, CMB, and you have a potentially volatile year that could radically change how the real estate finance industry does business.

“The status quo is going to end,” Stevens said here at the MBA Independent Mortgage Bankers Conference.

“We’ve talked about GSE reform ad nauseam, but we are probably now at more of a crossroads than any time previously,” said James Parrott, founder of Falling Creek Advisors, Chapel Hill, N.C. “The Senate seems poised to move forward, so we could either see some real progress or a spectacular collapse.”

If Senate legislation falls apart, “then you’ll see this Administration pivot pretty aggressively toward administrative reform,” Parrott said. “[The Trump Administration] has a lot of flexibility going forward.”

One change that will come, Parrott noted, is that Federal Housing Finance Agency Director Mel Watt will be out in 2019. “The Administration is likely to replace him with someone fairly conservative who can and will crack down pretty dramatically on loan limits, and ramp up additional fees,” he said. “They could undermine ‘duty to serve’ regime and other key issues. The industry has no idea how dramatic this could be.”

Secondly, Parrott noted, the Administration would likely move to get Fannie Mae and Freddie Mac out of conservatorship, “although not in a way that the industry might like. They are focused on getting the government out of the GSE business,” he said, which could dramatically change the concept of the secondary mortgage market.

“In the absence of legislations, the status quo will not hold,” Parrott warned.

On the House side, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, is retooling his approach toward GSE reform, acknowledging that his previous bill, known as the PATH Act, lacked support in the House. Hensarling now prefers a model proposed by former Federal Housing Finance Agency acting director Ed DeMarco and current Ginnie Mae acting president Michael Bright. However, Parrott said Hensarling “will have a very hard time building support for an issuer-based model.”

Last year, MBA introduced its secondary market reform plan, GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market (, which outlines a path for new roles for Fannie Mae and Freddie Mac while promoting a strong, vibrant private secondary market.

Andrew Bon Salle, executive vice president of single-family business with Fannie Mae, Washington, D.C., noted 10 years into the federal government receivership, Fannie Mae continues to function well. “Regardless of what happens, I don’t anticipate we are going to be changing our business model,” he said.

Dave Lowman, executive vice president of single-family business with Freddie Mac, McLean, Va., agreed. “We continue to move ahead and create new programs,” he said.

With Watt leaving in 2019, Lowman said the GSE footprint could shrink under a more conservative director. “If we don’t exist, we have to rely on the private markets to take on our risk,” he said.

“It’s a big risk to lenders,” Bon Salle said. “GSE reform is going to happen, and until things change, we’re going to do what we do.”

The massive tax reform bill, which passed Congress at the end of the year, “is adding a tremendous amount of disposable income to consumers,” said Peter Norden, CEO of HomeBridge Financial Services, Iselin, N.J. “However, there is going to be some risk in high-price housing states, such as New York, New Jersey and California,” he added.

Ken Richey, AMP, Managing Partner of Richey May & Co., Englewood, Colo., said his clients’ concerns during the tax debate were less on the mortgage interest deduction, but the impact on state and local tax deductions. “In the end, there was a win and a loss, which offset each other,” he said.

Bill Killmer, MBA senior vice president of legislative and political affairs, said regulatory reform looms huge for 2018.

“There’s been this discussion among both Republicans and Democrats that they want to do something for independent lenders,” Killmer said.

For example, the Qualified Mortgage exemption for small banks has been an issue for which MBA has made the case for years, Killmer said. “We’ve argued throughout this process that this should apply to any lender, but momentum appears to be headed to a more narrow definition for smaller lenders,” he said.

“This is an issue in which MBA differs,” Stevens noted. “We think the exemption should apply to all lenders.”

The status of the CFPB remains uncertain, Killmer noted. “On the whole, there are more substantial hopes for regulatory relief in this Administration than in the past,” he said. He reiterated MBA’s call for a five-person commission to run the CFPB, similar to that of other federal agencies. He also observed Hensarling, who called for abolition of the CFPB, is retiring and a number of his staffers are leaving his office to work for–the CFPB.

“We hope they won’t be agents of destruction, but rather they are committed to make some meaningful changes to how the CFPB does its rulemaking,” Killmer said.