2020 (and, by the looks of it, 2021) has taught us that predicting the future is no longer merely a fool's errand as not even Nostradamus would find success in the prognostication business these days. Yet, as we said in our similar post on the subprime auto industry, we can't let the uncertainty of the times prevent us from preparing for what may lie ahead in policy and programs from the Biden/Harris administration related to housing and residential mortgage lending and servicing.
Clues in the Transition
Biden's transition team largely consists of consumer-centric housing experts, including former Obama-era housing officials, who are expected to have long-term roles within the administration. Now that Congress is blue, Biden's housing team will likely lean progressive, as the administration will have an easier time with key appointments than it would have under a Republican-controlled Senate.
Biden's campaign platform included a sweeping list of mortgage and housing plans aimed at reshaping the industry to benefit borrowers and consumers, including a $640 billion housing plan with components to both expand financial support for those that cannot afford housing and expanding availability of housing through:
- A $20 billion expansion of the Section 8 voucher program;
- $5 billion renter tax credit for low-income individuals/families (who may earn too much to qualify for a Section 8 voucher);
- Expanded funding for subsidized housing;
- Strengthening of anti-discrimination policies; and
- Zoning reform.
Biden's plan also establishes a "Homeowner's Bill of Rights" designed to, among other things, prevent mortgage brokers from leading borrowers into loans that cost more than appropriate, and mortgage servicers from advancing a foreclosure when the homeowner is in the process of receiving a loan modification.
It remains to be seen, however, the degree to which these plans can be implemented over the next two years. The Democrats will have a majority in the Senate, but that majority is slim. The democratic voting base is expecting certain "high-ticket" legislative achievements, such as universal health care and student loan forgiveness (which we'll cover in a separate post shortly). And it's unclear what political muscle the administration will have left in the tank after dealing with - against the backdrop of an impeachment trial in a time of historic polarization - the pandemic and its economic fallout, including preventing the evictions of 30 million Americans.
The Four Horsemen: Fannie Mae, Freddie Mac, the FHFA and the FHA
The Trump administration previously indicated an intention to privatize Fannie and Freddie and release them from their government conservatorship. Biden will likely keep them in conservatorship and possibly even move them towards utilities status, which could reduce risks to tax payers and enable Fannie/Freddie to focus on lowering costs to borrowers.
Under Biden, the Federal Housing Finance Agency, which regulates Fannie and Freddie, and the FHA are expected to further extend forbearances to aid struggling homeowners.
One place where there is likely to be great change is at the Consumer Financial Protection Bureau (CFPB), which, under Trump, experienced a dramatic reduction in mortgage lending enforcement cases (consumer relief in mortgage lending declined by over 99% and restitution to consumers went down from a pace of over $10 million to less than $5,000 per week). The days of CFPB's $1 fines are likely over.
Biden has nominated Rohit Chopra to head the CFPB, who, as an ally of Senator Elizabeth Warren, will undoubtedly have an eye toward increased mortgage lending enforcement actions.
The Progressive Change Campaign Committee (PCCC) called Chopra's nomination a victory for consumers; "If Biden selects someone of Rohit Chopra's gravitas to lead the CFPB, that would be a big win for consumers and a sign that executive power will be used to get tangible results for the American people." Biden also formed a CFPB agency review team, headed by Leandra English (a former acting director ultimately replaced by Trump), which recently put out recommendations proposing systemic change.
Mortgage servicers should also expect increased scrutiny from a Biden CFPB. In particular, servicers that don't work with borrowers on loss mitigation strategies could face enforcement actions and fines. As Melissa Richards, a nationally recognized specialist in federal and multistate compliance we've worked with over many years reminds us, "VP Kamala Harris, while she was AG of California, authored the California Homeowner Bill of Rights for distressed homeowners, and this became the model for CFPB's RESPA Mortgage Servicing Rule. The HBOR prohibits dual tracking foreclosure while loan modification application is under review, robo-signing, and proceeding with foreclosure sales with improper or lost documentation, and provides further protections and procedures for distressed homeowners to be evaluated for foreclosure alternatives."
A renewed focus on consumer protection in mortgage servicing will likely extend to the states. Melissa notes we should "expect the CFPB to coordinate with the Conference of State Bank Supervisors (CSBS) on adopting prudential standards for all non-bank mortgage servicers licensed by states and enhanced standards for the largest servicers in that class. Prudential standards will cover capital, liquidity, risk management, data standards, data protection (including cyber risk), corporate governance, servicing transfer requirements and change of control requirements."
Although Congress passed a $908 billion coronavirus rescue package last month, on top of the $2 trillion package passed in March 2020, Biden has said that "[a]ny package passed in a lame-duck session is, at best, just a start."
Biden has already announced a new $1.9 trillion stimulus plan, the "American Rescue Plan." Key features include cutting $1,400 checks to individuals; a $400 supplement to unemployment benefits; funding for schools; a rise in the federal minimum wage to $15 per hour; hundreds of billions for communities, states and local governments; grant and loan assistance for small businesses; $160 billion for a national vaccination program; and increased tax credits for families. In terms of housing, the plan includes $30 billion for emergency rental, energy and water assistance for hard-hit households and $5 billion in emergency assistance to people experiencing or at risk of homelessness.
It's unlikely that this stimulus plan would be passed into law in its entirety. Goldman Sachs has estimated the ultimate cost of the plan to be a whopping $1.1 trillion.
The Biden/Harris administration's policies and programs related to housing and mortgage lending will be both born of and limited by the five crises - political, economic, social, climate and health - against which the administration must make its way. Coronavirus-related relief, and potentially other high-ticket democratic policy goals, will take precedence over comprehensive mortgage and housing reform.
Regardless, lenders and servicers should expect and prepare in the near-term for more aggressive enforcement from the CFPB and efforts by the FHFA to extend forbearances and curb evictions. The efficacy of relief programs and the strength of headwinds created by any one or all of the crises will determine whether a sixth crisis emerges in 2021 - mortgage loan foreclosures approaching peak levels in 2010 following the Great Recession.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.