We are now under 60 days remaining until we have President Biden and Vice President Harris leading a new administration in D.C. Beyond any political views of the election and the ensuing drama, industry is asking: What will a Biden regime mean to housing and mortgages? How should we think about regulation, the GSEs, HUD and more?
Here are a few thoughts to consider as to what the next four years may look like.
In a general sense, Democratic regimes tend to be more bullish for government support to housing, while Republican ones are more bullish for lowering the aggressiveness of regulators and oversight. While not a universal truth, we can all remember the eight years under President Obama and the impact of a new, aggressive, regulator tasked under congressional legal mandate to implement the required rules set forth in Dodd Frank.
Those were challenging years, and while the implementation was hard and every rule has imperfections, today we are past those statutory obligations as all the rules required are now in place. For that reason, I do not expect the aggressive regulatory posture overseeing mortgage lenders to be like it was under Obama.
So how should we think about a Biden administration? Here are some key elements:
Transition: At this point the transition team has assigned ‘Agency Review Teams’ to each regulator and, not surprisingly, there are many familiar names on these teams that will affect housing. The HUD team is headed by a former political from the Obama years, Erica Poethig, and the team consists of several others from that administration, as well as names like Julia Gordan, a long-time credible consumer advocate for housing policy in Washington.
Treasury, NEC, CFPB, and more have known similar members. Treasury, for example, has Helen Kanovsky. Kanovsky was the general counsel at HUD during both Secretary Donovan and Castro’s tenure. She then joined the Mortgage Bankers Association as the general counsel there until her recent retirement.
Key Takeaway: There are two. First is the noticeable absence of a transition team for FHFA. Second, there is a deep bench of knowledgeable experts who will help bring experience to the task of filling key positions, evaluating policies made and proposed, and more.
Treasury: The pick of the Treasury secretary is critical along multiple fronts. From the future of the GSEs to the role of non banks in mortgage financing, the Treasury secretary plays a key role. Hamilton’s genius in establishing a central bank and the geographic location just steps away from the White House make this the most powerful regulator in regard to our housing and housing finance system.
I only have one Key Takeaway: Do not expect a progressive Elizabeth Warren-type to be the pick. President Elect Biden is far too practical and centrist to entrust this most powerful department to someone who would create excessive dissent among partisan political leadership in Washington. The ability for this secretary to work both sides of the aisle will be simply too important with a challenging economic agenda ahead.
CFPB and FHFA: As stated above, there is a noted absence of a review team for the FHFA, while there is one at CFPB. This would indicate a clear intent of the Biden Administration to implement the Supreme Court ruling and terminate CFPB Director Kathy Kraninger early into the new year.
The FHFA is trickier, however.
First, the Supreme Court ruling on the single director role at the CFPB did not include the FHFA and the president would have to extend a precedent to the SCOTUS ruling if he were to attempt to remove FHFA Director Mark Calabria. This could embroil the new administration in potential litigation and would likely offend the preference of a Republican-led Senate Banking Committee who are supportive of Calabria’s role there.
With home sales being a bright spot in the U.S. economy, this is likely one of the last things the new administration wants to get tied up with. So unless the FHFA becomes too acerbic in its policies and actions, something that frankly might be happening with a series of recent questionable actions, expect Calabria to stay put for the time being.
The Supreme Court is hearing a case early in 2021 about FHFA that includes, in part, a question about the single directorship. If they rule as they did on the CFPB, then Biden and team would have a clear path to removing Calabria.
Key Takeaway: The CFPB is a priority for a Biden team and expect a new director nominee with strong legal chops. The good news here is that the focus is likely not to be on prime mortgage lenders. Payday, student, and consumer lending should take the spotlight.
HUD: Biden comes in with many talented political leaders who supported the campaign and have earned seats in a new administration. For HUD, expect a political pick that satisfies one of the “thank you’s.”
There are many mayors, even perhaps a former candidate for President during the primaries, who could be options for the role. But HUD is a perfect spot for a leader who represents the diversity of housing as well as urban communities.
As to the Federal Housing Administration and Ginnie Mae, those decisions are typically decided after the secretary comes in. Depending on the outcome in Georgia in January, the control of the Senate and the stature they take in regard to working with the Biden team will tell us how long it might take to fill some of the less important roles. The HUD secretary is on the lower end of the priority list for cabinet positions and consequently the under secretary positions will be even more removed.
Key Takeaway: A new HUD regime will focus on bringing key rules back that the Trump regime removed such as the Affirmatively Furthering Fair Housing rule. But don’t expect any significant changes beyond that at HUD.
GSE Reform: Expect a Biden administration to freeze the exit strategy that the FHFA director has been working on for Freddie and Fannie. Nothing formal on recap and release can be completed without the Treasury secretary agreeing to an amended PSPA (Preferred Stock Purchase Agreement).
In a new administration, the Treasury secretary is typically among the first, if not the first, confirmation to a president’s cabinet. As such, Director Calabria will find himself isolated on a policy island. While he can continue to trim away at the GSEs’ footprint as he has been doing with the new multifamily caps, the refinance fee, and the newly released capital rule, permanent change will be stopped in its tracks.
Expect a Biden regime to be focused on keeping the GSEs in conservatorship, leveraging the value they can provide in supporting housing needs in the years forward, and likely favoring more of a utility model over the long run.
Key Takeaway: The clock is ticking on Calabria’s ability to accomplish his goal of releasing a much smaller pair of GSEs in these final two months, as reported in the Wall Street Journal this week, and a Biden team will likely have a very different view about the path forward.
Final Thoughts: There are many other key roles to fill that impact our industry including NEC, CEA, OMB, SEC, and many other acronyms. These are actually really important roles. For example, the head of the NEC (National Economic Council) plays a key role in leading things like the housing team that directly advises the President. Jared Bernstein, a well-known policy expert and an active advisor on the transition team would be an easy pick for this role.
There will be many moves ahead as we see the entire transition develop. From my vantage point, I expect to see many more jobs filled, nominees set forth, and a more robust group of experts in the new Biden administration than what we have seen in the exiting one.
Times like these are where key leaders inside the beltway show their value. The MBA, ABA, NAR, NAHB, ICBA, and other voices will need strength and engagement to help ensure the interests of all stakeholders are considered in the months ahead. In other words, stay tuned, there is more to come.