Broeksmit: U.S. Needs a National Housing Policy Director to Untangle ‘Regulatory Knots’

A new senior-level National Housing Policy Director would bring order to the “spider web” of federal agencies and policies that affect housing, MBA President and CEO Robert Broeksmit, CMB, said in a speech at the Exchequer Club in Washington, D.C.

Broeksmit noted a growing number of federal regulatory agencies increasingly determine the course of our economy. “The bureaucracy is essential to modern society’s functioning, and I think we all agree that sound regulation matters now more than ever,” he said. “This realization has spurred both Republicans and Democrats to steadily give the administrative state more authority while adding more agencies to the mix.”

But the growth of the administrative state has led to a corresponding growth in “regulatory confusion,” Broeksmit said. “Many industries are now governed by multiple agencies that–despite their overlapping authority–often under-collaborate. They may often meet, but they rarely coordinate. Contradictory regulations are often issued from multiple sources, and sometimes, from the same source. Overall, there’s too little regard for how such mandates interact, much less how to implement orders that are at odds with each other. And in some cases, agencies now show a shocking ignorance about the very industries they regulate.”

Taken as a whole, the administrative state is creating what Broeksmit calls regulatory knots. “As these regulatory knots grow, they restrict and even strangle businesses and consumers,” he said. “To be clear, I’m not discussing mere over-regulation, which is a real problem. Rather, I’m advocating for regulatory clarity and consistency. We need to untangle the regulatory knot, for the sake of the American people. They’re the real victims here, and so long as the knot exists and keeps getting tighter, it will sap our country’s economic strength.”

The Mortgage Bankers Association represents an industry that encounters federal agencies every day, in endless ways, Broeksmit said: “The mortgage industry is the perfect case study because of our enormous impact on America… At some point in their lives, most families will lean on mortgage lenders to help them achieve their life goals.”

Given the size, scale and importance of the mortgage industry, you might think the regulations that govern it would be carefully crafted. “But [they are] not,” Broeksmit said. “Not even close. There are too many cooks in the regulatory kitchen–and they’re too often using different recipes.”

Broeksmit said just after the Great Recession, MBA created a chart of the various federal agencies and authorities that govern housing policy. “There were more than a dozen, and each one was charged with implementing multiple laws. Some laws gave multiple agencies regulatory power over the same rules. We put everything into the chart, drawing lines between the agencies and the laws. The final version looked like a spider web–a confusing jumble of crisscrossing strands. It was the earliest version of the regulatory knots that I’ve described.”

To be clear, not all the rules were bad, Broeksmit noted. “Some, like the Qualified Mortgage rules, were salutary and important to the strong, stable mortgage market we have today. But there was–and still is–little coordination and attention to the overall compliance and implementation burdens and costs.” 

One example is what’s currently happening at the CFPB, Broeksmit said. “Right after the State of the Union, the Bureau suddenly announced in a blog post that it would soon target what it called ‘junk fees’ in mortgage closing costs,” he said. “The bureau stated unequivocally that such fees drive up costs, and it asked consumers to submit complaints. The CFPB is now collecting information, presumably as a precursor to issuing a regulation or guidance that will force lenders to absorb these costs. But here’s the thing: These fees they are targeting? By the White House’s own definition, none of them are junk fees. What’s more, some of them are for services required by other federal agencies.”

“According to the White House, a junk fee isn’t disclosed to consumers. But everything the CFPB mentioned is thoroughly disclosed, and in a supreme irony, these fees are disclosed because of CFPB regulations, on forms designed by the CFPB itself,” Broeksmit said. “In 2015, the bureau comprehensively reformed mortgage disclosures to ensure that consumers have full transparency and locked-in pricing for most mortgage costs. It simultaneously empowered borrowers to shop for the services to obtain the lowest costs. If these are “junk fees,” then the word junk has no meaning.”

But there’s another, more important problem. “What the CFPB calls junk fees, federal agencies call mandatory,” Broeksmit said. “They pay for services like appraisals, credit reports and flood certifications, which are required precisely because they’re integral to a sustainable mortgage market, provide benefits to borrowers and protect taxpayers. Today, Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs can’t guarantee a mortgage without these things. They are obligated to require the very thing the CFPB is moving to force mortgage lenders to absorb.”

Broeksmit noted the CFPB’s campaign against legitimate and legally required fees came one day after President Biden floated a proposal to scrap title insurance. But, again, title protection is required by Fannie Mae and Freddie Mac before they purchase a loan, he said.

“Such confusion poses a serious threat to a smoothly functioning market,” Broeksmit said. “And even if it’s just a political stunt, it betrays a lack of knowledge about the processes and policies that govern an industry that’s a critical part of our economy. Blog posts and the bully pulpit are no substitution for real, thoughtful, informed regulation, and as this episode shows, they lead to contradictory and unworkable policies.”

Broeksmit called for “common-sense” rules of the road. “We don’t need regulators to build the car as they drive it at a hundred miles an hour,” he said.

Broeksmit turned his attention to the so-called Basel III end-game proposal. “[The rules] were mainly drafted by Europeans, and the U.S. has announced plans to implement them in the near future,” he said. “Yet while the goal of Basel III is to strengthen financial markets, it will profoundly weaken the mortgage side of the market. It’s the definition of a cure that’s worse than the disease. Look at Basel’s treatment of mortgage servicing rights. It places an absurd 250% risk weight on MSRs and significantly reduces the amount of servicing rights a bank may have on its balance sheet. Yet according to the Biden administration’s own Financial Stability Oversight Council, the current treatment of mortgage servicing rights has already driven banks out of mortgage lending and servicing. Doing so even further would only drive banks further away from mortgages and weaken the entire market for MSRs, severely impacting IMBs, most of whom buy and sell MSRs, and driving up costs for every borrower.”

At the same time, by increasing the amount of capital that banks must hold against their warehouse lines, Basel III makes it much more expensive for IMBs to get credit from other banks–which is key to the IMB business model, Broeksmit said. “As a result, they won’t be able to offer as many loans. All told, Basel III will lead to higher prices on fewer mortgages. That’s a disaster for Americans, especially first-time and low-income homebuyers,” he said. “And it’s especially bad for communities of color, which often have lower homeownership rates. On the one hand, the Biden administration is fighting hard to make homebuying more equitable. Yet on the other hand, with Basel III, the Biden administration is pushing a home even further out of reach for disenfranchised communities.”

This is more than a problem; it’s a crisis–and we have to address it immediately, Broeksmit said. “It’s in that spirit that I’ll now turn to some proposed solutions. Whether it’s in mortgage finance or any other industry, regulatory knots exist because no one has the ability to untangle them. The current system allows far-flung agencies to issue far-reaching rules, without consulting each other or even considering the rest of the regulatory landscape. The buck doesn’t stop anywhere. But it should stop somewhere, with someone. That’s why I’m proposing a ‘National Housing Policy Director.’  This is not a new idea, but with CFPB and FHFA effectively no longer independent agencies, it is much more achievable.”   

A single National Housing Policy Director would bring order to the chaos, Broeksmit noted. “The director would oversee every policy that affects housing, no matter which agency it comes from. The official, and his or her team, would have a deep knowledge of existing laws and regulations, enabling them to spot contradictory rules from a mile away. And the director would be empowered to stop agencies from making regulatory knots worse, and better yet, to start the long overdue process of unraveling them.”

The White House has some staff who deal with housing, but there’s no senior- or Cabinet-level official who has cross-agency authority on housing. “The singular focus is key. We don’t need someone who jumps from housing to a dozen other issues every day–someone who, I might add, may not even be a housing expert. This can’t just be part of someone’s job. It needs to be their full-time job–twenty-four-seven, with a dedicated team to boot. There’s no other way to grapple with such a massive issue,” Broeksmit said.

Broeksmit called his proposal for a National Housing Policy Director “a basic matter of good government.” He noted that before September 11th, 2001, the intelligence community was overseen by fragmented and often competing agencies. A new Director of National Intelligence was appointed to make them work together, ultimately strengthening national security.

“We need the same kind of streamlined, collaborative and commonsense leadership when it comes to regulating the most important facets of our economy,” Broeksmit said. “The current approach is clearly failing. The costs are too high, and so are the stakes. We need to encourage a new era of safe growth, trust, and innovation, not continue this slouch toward stagnation and discontent. The mortgage professionals I represent are more than ready to lead the way. So are you, as leaders in many other industries and fields. Now, it’s time we had the leadership in government to match.”