#MBASecondary23: Broeksmit: ‘You Don’t Need Punishment or More Regulation; You Need Praise and Relief—and You Need it Now’

(MBA President & CEO Bob Broeksmit, CMB, addresses #MBASecondary23 on Monday in New York.)

NEW YORK—When Mortgage Bankers Association President & CEO Bob Broeksmit, CMB, stepped on stage Monday here at the National Secondary Market Conference & Expo, he promised a presentation “more pugnacious than normal.” And he delivered.

“My job gives me a front-row seat to the workings of government,” Broeksmit said. “Every day, I hear from policymakers. Every day, I see the rules they roll out, and the ones coming down the pike. Frankly, what I’m witnessing is deeply concerning.

Broeksmit noted whether it’s in Washington D.C., or state capitals, “elected officials see the same economy that you and I do. They know your businesses are struggling. They know you’re making difficult decisions, and that many of you are fighting just to keep your doors open. And they absolutely know you’re making sacrifices to keep serving your customers at the highest level.

The logical reaction would be to find ways to give lenders or servicers relief, Broeksmit said. “Instead, policymakers are piling on with more enforcement and stifling levels of red tape,” he said. You and your customers need things to get easier. Instead, officials are often making things harder. It’s astounding, isn’t it? There seems to be a sense, at the highest levels of government, that the mortgage industry needs to be reined in. It’s a stark contrast to where things stood throughout the pandemic.”

As recently as last year, Broeksmit said, policymakers were thrilled with industry leadership. “From the moment the pandemic hit, you stepped up with real action and record achievements,” he said. “Millions of families stayed in their homes thanks to your forbearance. And millions more benefitted from new loans, better loans, and their first chance at homeownership. What has changed in the intervening months? Well, I’ll tell you what hasn’t changed. To start, your leadership. You continue to look for new and better ways to serve your customers. Your commitment to them hasn’t changed, either. You’re pulling out all the stops to help them achieve the American Dream.”

What has changed, though, is the economic landscape. “People are hurting, and policymakers want to do something,” Broeksmit said. “Yet in their rush to react, they risk doing more harm than good.”

A case in point is the response to bank failures; Broeksmit noted at the start of this year, hardly anyone expected SVB, Signature and First Republic to implode. “When it happened, it was a shock, and it was over almost as quickly as it started,” he said. “No one likes a bank failure, of course, and no policymaker wants to be blamed for the next bank failure. That means there will likely be a rush to regulation, instead of a sober analysis of what happened and why.”

In reality, Broeksmit said, recent bank failures clearly resulted from their unique business models, their corporate mismanagement of interest rate risk and their customer homogeneity. “There were also serious regulatory lapses, as officials have admitted,” he said. “The solution to this crisis starts by addressing those lapses, not looking for an excuse to expand government power. If regulations weren’t followed, or if regulators missed something they should have caught, then policymakers should make sure the relevant agencies do better next time. The best path forward is to enforce the rules that are already on the books. But that’s not happening.”

Broeksmit said some policymakers are pushing new rules on completely different parts of the economy. “We’re talking about one-size-fits-all mandates that will do extraordinary damage,” he said. “And let me be clear: They’re likely to impact companies like yours, even though you had nothing to do with these bank failures.”

A case in point is the Consumer Financial Protection Bureau; CFPB Director Rohit Chopra has suggested he may unilaterally push for prudential standards for non-banks, including IMBs and mortgage servicers. At the same time, the CFPB and the Financial Stability Oversight Council are now seeking comments on subjecting nonbank financial companies to Federal Reserve supervision.

“Where to start?” Broeksmit asked. “How about the fact that non-banks played no role in the current banking crisis. There’s also the fact the CFPB’s legal authority in this space is profoundly unclear and utterly untested. To be blunt, this looks like a power grab. And not only that, it looks like a clear-cut attempt to punish an industry that some policymakers seem to personally dislike or distrust. The entire premise behind this policy is flawed. It’s based on the assumption that non-bank financial companies like IMB servicers pose a systemic risk to the economy.

“My question is simple: Where’s the proof? The answer: there is none – because it doesn’t exist.”

Broeksmit also observed the Financial Stability Oversight Council has also proposed eliminating the cost/benefit analysis that would tell them the damage this policy would do.

“Let me be clear: You can’t have good policy without a cost/benefit analysis,” Broeksmit said. “It’s the bare minimum, and the MBA is making that clear, with maximum volume. Make no mistake: MBA vehemently opposes labeling non-bank servicers as systemically risky. This is a solution in search of a problem. And if these proposals move forward, who will be left to service millions of loans? Onerous policies have already driven so many banks out of the market. It makes no sense to punish the IMBs who stepped up to fill the void. Who will lend? Who will service? These are serious questions that policymakers need to answer, before it’s too late.”

MBA is pushing for clarity and common sense, Broeksmit said. “We’re talking to the CFPB, Congress and the White House about what needs to be done – and what should never be done,” he said. “Our message is simple: You helped bring America through the pandemic. You don’t need punishment or more regulation. You need praise and relief, and you need it now.”

MBA is pushing back on over-regulation in other places as well, Broeksmit said, pushing for greater certainty, stability and clarity. A good example is the recent legal effort to make lenders liable for the actions of independent appraisers. The CFPB and the Department of Justice are advancing this idea in response to instances of apparent bias in the appraisal process.

“First and foremost, we all agree that appraiser bias is unacceptable and despicable,” Broeksmit said. “That is not the way lenders run their businesses. And no lender would willingly do business with a biased appraiser. Our second point is that it’s also unacceptable to ignore the facts. Lenders are legally prohibited from interfering with appraisers. You don’t control how they work, what they do, or which numbers they come up with. As such, it is patently absurd to hold you liable for their actions. We’ve made these points in a hard-hitting brief in a federal lawsuit. And we made clear that we oppose this expansion of CFPB authority, even as we support expanding equity and fairness in lending. Now is the time to make further progress, not empower the bureaucracy at the expense of lenders and consumers.”

Another policy fight MBA is actively waging involves loan repurchases. “As you’re well aware, Fannie and Freddie are demanding that lenders repurchase more and more loans, including seasoned performing loans, with minor underwriting issues,” Broeksmit said. “Let’s put this issue in perspective. Many of these issues were the result of the unprecedented number of loans you processed in the early days of the pandemic. They reflect your swift action, during a national emergency, to help as many people as possible, as quickly as possible. Not long ago, that action earned you well-deserved praise. Now, for all your heroic efforts, the GSEs are punishing you. They want you to buy back loans when interest rates are twice as high. That would be disastrous, putting further strain on your balance sheets.”

It doesn’t have to be this way, Broeksmit said. “When it comes to loans with minor issues and seasoned performing loans, you should be allowed to address those issues through steps far short of repurchase. instead of being forced to repurchase the entire thing,” he said. “We’re making this point to the GSEs and FHFA regularly, and I’m confident you’ll see relief soon.”

Broeksmit also touted an MBA victory—earlier this month, FHFA rescinded a controversial rule on upfront fees based on borrowers’ debt-to-income ratios for loans acquired by Fannie Mae and Freddie Mac.

“We were all concerned by the pricing grid policies that FHFA released in January; the timing wasn’t great, to put it mildly,” Broeksmit said. “The changes added further hassles and costs at a time when your margins are already stretched to the breaking point and borrowers are facing higher rates and greater supply and affordability challenges. On the one hand, the revised pricing grids are more logical in some respects. But FHFA could have been more transparent about its decision-making process. That’s why we support and will comment on their Request for Input on GSE pricing that FHFA announced a couple weeks ago.”

The bigger concern for MBA was FHFA’s debt-to-income ratio proposal, Broeksmit said. “It would have added three eighths to the price for a wide swath of GSE loans. This idea was completely unworkable, and it would have hurt consumers most of all,” he said. “We told FHFA what was going to happen. It would have been an operational nightmare, raising costs at the worst possible time. What’s more, it would have left consumers with a frustrating and confusing experience – the opposite of what we all want them to have. Our ultimate point was that nobody wins, so the policy clearly needed to go.”

Fortunately, Broeksmit said, FHFA heard MBA’s feedback. “In March, it delayed the DTI proposal by three months. And just a couple weeks ago, it canceled this policy altogether,” he said. “This win was a team victory, with MBA and its members working together. We got the ball rolling. We brought our concerns to FHFA’s attention, repeatedly, starting in early March, then carried them to Congress to keep up the pressure. Then we brought in heavy hitters, which are you. Our members met with the agency and key members of Congress – and it worked. Thank you for helping us get this win across the finish line!

Broeksmit said he expects more concerning policies—and more MBA action. “We have strong relationships with federal agencies, the White House and lawmakers in Congress, on both sides of the aisle,” he said. “When we speak, they listen. And right now, we’re speaking loud and clear, on a host of issues. Everything we say, and everything we do, is grounded in the same message. Your companies are the backbone of the economy, and the cornerstone of communities. You’re struggling right now, and the last thing our leaders should do is harm you. In fact, they should do the opposite, and look for ways to help you and the tens of millions of people you serve.”

Broeksmit added “this is the message that matters most right now. And we’ll keep spreading it. If the last few years prove anything, it’s that the MBA makes a difference for you. More importantly, the recent past is a powerful reminder of the difference you make. You have a huge impact on the lives of so many people, and in the life of our nation as a whole.”