In an exclusive interview with GoRion, David Stevens, president and chief executive officer, of the Mortgage Bankers Association (MBA), discussed the state of the mortgage finance market as the industry transitions to the new Trump Administration, continues to await Congressional reform of the government-sponsored enterprises (GSEs), and seeks to divine the final fate of the embattled Consumer Financial Protection Bureau (CFPB).
Prior to taking the MBA’s helm in May 2011, Stevens served as Federal Housing Administration (FHA) Commissioner under President Obama. Stevens has worked in mortgage finance for more than three decades, including as president and chief operating officer of the Long and Foster Companies preceding his appointment as FHA Commissioner in 2009.
GORION: Immediately following Donald Trump’s victory in securing the White House last November, MBA congratulated President-elect Trump on his victory while the association also outlined what it believes the housing finance sector needs to see going forward. – “It is critical that President Trump focus on three main areas – ensuring an adequate supply of affordable housing, bringing first time homebuyers back into the housing market and ensuring clarity in regulations.” Given your experience working as FHA Commissioner during the early days of the Obama Administration and based on what you are hearing from informed and trusted sources, how would you judge the President’s personnel picks and the administration’s actions so far in meeting those benchmarks? Can you highlight what you find especially encouraging and where you think there is room for improvement?
DAVID STEVENS: The President has selected accomplished individuals for the key positions critical to the housing industry. MBA has been engaged with the transition team and with the new teams at those agencies and we feel like there’s a real understanding of some very complex issues and a recognition that recruiting additional key personnel with technical skills to round out any key gaps is a top priority.
Whether we’re talking about someone like [Treasury] Secretary [Steven] Mnuchin, who brings an understanding of housing finance to the job, or someone like [Housing and Urban Development] Secretary [Ben] Carson who brings a tremendous amount of accomplishment in other areas of life and an eagerness to tackle housing issues, I’m encouraged. We hope that the Administration and the Senate will continue to swiftly move on remaining appointments.
We recently released a video after Secretary Carson’s confirmation where I broke down some of the top priorities MBA has for HUD, Treasury, and other key entities within the Administration.
GORION: Calling it the final piece of unfinished business following the 2008 Financial Crisis, MBA last month released a paper which recommends comprehensive reform of Fannie Mae and Freddie Mac while outlining a series of “end-state” principles that should inform the transition to a new, more durable secondary mortgage market. Among other things, the plan encourages multiple guarantors – including the re-chartered GSEs – organized as privately owned entities with a regulated rate of return and overseen by a strong regulator. Yet to change the GSE charter, Congress must pass legislation and it must be signed into law by the president – a feat that has been a tall order for lawmakers for nearly a full decade. Can you elaborate on the most crucial components of MBA’s proposal while handicapping the prospects of real legislative action on housing finance reform during the 115th Congress?
STEVENS: Rodrigo Lopez, who is MBA’s 2017 Chairman and the Executive Chairman of NorthMarq Capital, has led for the past year a member-driven task force comprised of senior leaders from a cross-section of multifamily and residential members of all sizes and business models, bank and non-bank, with the sole goal of putting together an end-state model for the secondary market which fulfills its mission to provide affordable housing for the American people.
At the end of January, we released their first work product, the GSE Reform Principles and Guardrails. They are available in full on our website at mba.org/GSEPrinciples. We expect to release our full white paper in late April, ahead of MBA’s National Secondary Market Conference & Expo.
In short, MBA is advocating for legislation that would establish an end-state that would encourage multiple guarantors, including a re-chartered Freddie Mac and Fannie Mae. The guarantors would be organized as privately-owned utilities with a regulated rate of return. Guarantors could purchase from a newly created insurance fund an explicit federal guarantee on a defined class of eligible securities. The guarantee would only be for the securities and not the entities issuing them.
The entities would have a public purpose of providing sustainable credit availability to the conventional single family and multifamily mortgage market and providing equitable access to lenders of all sizes and business models. To address underserved markets nationwide, the entities would be responsible for executing an affordable housing strategy to ensure broad access to credit.
As to the prospects of legislative reform in the 115th Congress, all the key stakeholders have included housing finance reform as one of their top priorities. During Secretary Mnuchin’s confirmation hearing he said housing finance reform was a top priority and that the GSEs shouldn’t be left under government control for the next four or eight years without a fix and he was clear about the need to work with congress to accomplish this. There’s a lot of activity going on right now on the Hill, within the Administration, and among major stakeholders that shows a lot of promise for housing finance reform. However, there are many items on Congress’s plate and we have a lot of work left to do to help coalesce everyone around a reform plan.
GORION: Regarding the Consumer Financial Protection Bureau: The CFPB appears to be in a critical period of transition and not just due to the changeover from the Obama to Trump administrations but also due the legal uncertainty revolving around the bureau’s status as an independent agency. As GoRion noted last fall: A three-judge panel of the D.C. Court of Appeals ruled the CFPB to be “unconstitutionally structured,” overturning its enforcement action of New Jersey based PHH-Corp, including a $109 million penalty. The court ordered the Bureau to be restructured to operate as an executive agency. Given President Trump’s open hostility to the CFPB and the pending court appeal that may or may not settle the open question of true scope of the Bureau’s authority, can you speak to the industry’s current working relationship with the CFPB amid such uncertainty? Do you foresee a dramatically different CFPB during the Trump era?
STEVENS: While we have had a productive working relationship with the Bureau, the industry has some fundamental disagreements with the CFPB’s general preference for enforcement actions instead of clearly written guidance.
As to how it’s going to change during this administration, there’s too much up in the air with potential Dodd-Frank reform measures under consideration by the House Financial Services Committee and the Senate Banking Committee, and, of course, the ongoing litigation with PHH Corporation to speculate. But, we have seen a different approach by the current administration to that case, which may indicate where they would like to head if given the opportunity.
GORION: You have identified “regulatory clarity” as an imperative to ensure a healthy and prosperous housing finance market, while for the last several years you’ve been a strong advocate of a housing czar-like individual in the White House – a Housing Policy Director – to reign-in and focus the overlapping regulatory framework bedeviling the industry. Given President Trump’s campaign pledges to take aim at the regulatory excesses of the Dodd-Frank Act, as well as his recent signing of an executive order to create regulatory task forces within government agencies designed to target unnecessary regulation for repeal – do you still see the need for a Housing Policy Director? If so, how would you define the HPD’s most industry-critical mandate in the current political context?
STEVENS: Housing policy under the Obama Administration was chiefly informed by the worst recession since the Great Depression and one that was brought on by a bubble in the domestic housing market. I openly pushed for the “housing policy director” function prior to this election, and I continue to advocate for it. The housing industry’s relationship with the federal government alone is very complex, and a single point person working across agencies would absolutely be ideal.
Although a newly created position could fill the role, it’s also possible that existing positions within the White House, or an entity like the National Economic Council, could serve that same function.
The Trump Administration’s initial efforts and public statements on regulatory clarity have been very encouraging. It’s critical we shift from guidance by enforcement, where consent decrees of multiple federal cases add further confusion to overlapping regulations, to a new dynamic where agencies are offering lenders clear and upfront guidance on how to comply with the law.
Regardless of the specific mechanism the Trump Administration pursues to achieve it, we must continue to push for more coordination among federal regulators and policymakers, and state and local governments, in order to have the most robust and healthy housing market possible.
GORION: Given the period of transition and uncertainty the industry currently faces, you have frequently cited the silver lining in the form of demographic tailwinds with the Millennial cohort favoring the mortgage market going forward. Can you briefly outline the demographic trends, how that has helped the shift toward a post-crisis purchase market, and share MBA’s forecast for the year ahead?
STEVENS: MBA forecasts that purchase originations will increase in 2017, while overall originations will fall due to a natural reduction in refinances as rates increase. As you note, demographic trends, including the rise of Millennials, will have a big impact on this growing purchase market. Overall, our economists anticipate the creation of nearly 16 million additional households by 2024. We break that surge in household formation down in a paper we released in 2015.
MBA’s researchers have pinpointed three key factors that are shaping how the Millennials interact with housing: demographics, long-term social trends, and the hang-over from the Great Recession.
The demographics of the Millennials are unlike anything we have seen before. The Millennials are far more diverse and over the next ten years will be passing through ages that accompany life’s most significant stages – graduating, moving out on one’s own, marrying, having children, and buying their first home.
But a number of long term trends and the Great Recession mean Millennials aren’t following the same path their parents followed. Some trends – like longer schooling and later child-rearing – have been in the works for decades. Others – like the rise in young adults bunking in their parents’ homes – grew with the Great Recession and appear ready to recede.
Taken together, we’re seeing a large, diverse group of borrowers that will demand a range of housing options and products.
By 2024, the aging of the Millennials will increase the number of homeowners aged 18-44 by 4.3 million households, and the number of renters in that age group by 700,000. (Millennials have already been boosting rental demand for years.) The growth will be driven by 2.1 million additional Hispanic households, 1 million more non-Hispanic White households, 780,000 African-American households, almost 700,000 additional Asian households and 520,000 households of other races and ethnicities.
For the mortgage market, these changes mean increasing demand – especially for affordable, first-time homebuyer products – and a need for increasing outreach to traditionally underserved communities. It also highlights a continuing need for financing for multifamily and other rental products.