What a Biden victory would mean for the mortgage industry
As results trickle in following a historic 2020 general election, results seem to be leaning toward a Joe Biden victory, but potentially also a Republican-led Senate. What would the impact of a Biden presidency be on housing?
“For the mortgage industry, a split government might be the best possible outcome,” said Rick Sharga, senior vice president at RealtyTrac. “Because it would probably prevent overarching new tax policies that could impact investment and could impact the cost of homeownership.”
Gridlock in Washington won’t stop Biden’s administration from attempting to push through sweeping changes into housing, where the former vice president has promised to invest $640 billion over the next 10 years so Americans can have “access to housing that is affordable, stable, safe and healthy, accessible, energy efficient and resilient,” according to his campaign website.
He has pledged to introduce a tax credit for first-time homebuyers upwards of $15,000, reintroduce sharper regulatory teeth to agencies such as the Consumer Financial Protection Bureau, alter a spate of restrictive zoning laws to increase development, build millions of units of affordable housing, and cap payments for certain renters. It is also widely believed a Biden administration would keep the GSEs under conservatorship.
Regardless of who’s in the White House, observers from across the housing and mortgage industries believe interest rates will continue to hover near historic lows for the next several years and volumes will remain high, largely due to simple economic realities: there simply isn’t enough inventory and the economy is too fragile for rates to increase.
Some say it might even be business as usual, globally speaking. Such is the state of politics in a polarized nation with frequent election cycles.
“At this moment, there will be very little change if Biden wins and the Senate remains,” said Patrick Stone, CEO and Chairman of Williston Financial Group. “People think Biden’s going to do this, going to do that. But he’s going to be handcuffed by the makeup of Congress.”
On Wednesday, interest rates and the 10-year Treasury dropped primarily because the market doesn’t expect another massive CARES Act-like stimulus if Republicans still control the Senate, Stone said. It might be just a trillion or two dollars.
Despite potential roadblocks put in the way from Republicans, Biden has wide latitude to use agencies and regulatory bodies to shape housing policy.
Federal Housing Finance Agency director Mark Calabria and Treasury Secretary Steven Mnuchin have made it clear that they want Fannie Mae and Freddie Mac out of conservatorship.
“And they are working very diligently to get to that outcome,” said Tim Rood, head of government & industry relations for SitusAMC. “So I would imagine that if they continue on this path, they’ll have a capital framework released this year.” He added that the Trump administration would likely do what they could do make the GSEs “as durable as possible” before a new administration is seated.
Should Biden take office, he would likely wind back any progress Mnuchin and Calabria made in taking the GSEs out of conservatorship.
“If Biden wins, he is going to look to use Fannie and Freddie as instruments of public policy to help close the homeownership gap, the wealth gap, cap people’s payments on both rental and occupied housing, support the construction of 1.5 million to 2 million affordable housing units,” said Rood. “So I would imagine that the GSEs are going to have a much longer road to hoe getting out of conservatorship with a Biden administration.”
Biden will undoubtedly also select a new leader of the CFPB , after the Supreme Court passed a ruling saying a new president could make staff changes when elected. The CFPB, led by Donald Trump-appointed Kathy Kraninger, was put in place during the Obama administration in 2011 to protect consumers from financial abuse and predatory practices in several services – including credit cards, mortgages and loans.
“Biden would tend to take the approach to apply regulation in favor of consumers, balanced with interests of business, including on environment, workplace and consumer regulation,” said Mark Hamrick, a senior economic advisor at BankRate. “One could see a Biden presidency more aggressively, and potentially more effectively, finding room for compromise. As was seen on the question of stimulus here in the second half of the year, the Trump White House was unable to forge a middle ground between the Senate and House, leaving individuals and businesses going without.”
About that $15,000 homeowner tax credit…
Biden’s aforementioned plan to inject more than $600 billion into better housing isn’t all the new potential administration has its eye on. It also plans on providing financial assistance to help Americans buy or rent housing – including “down payment assistance through a refundable and advanceable tax credit and fully funding federal rental assistance,” per Biden’s campaign website.
This tax credit, announced at $15,000 for qualified applicants, is aimed to help young, first-time homebuyers and Black and Hispanic homebuyers. An early draft of the proposal, put together by the Tax Policy Center, would cost approximately $25 billion annually, according to Eugene Steuerle, Fellow at the Urban Institute.
“The basic rationale for any homeowner’s subsidy rests on a few basic notions, such as the likelihood that people take better care of their own property than someone else’s, the stability that home ownership gives to a community, and the wealth reserves homeownership provides to families for retirement, emergencies, and other purposes,” Steuerle said.
Industry observers who spoke to HousingWire on Wednesday weren’t optimistic that Biden would have the legislative muscle to get the full initiative through, unless Democrats also take the Senate.
“As a standalone bill I don’t think it would get the traction,” said Rood, of SitusAMC. “It would have to be coupled with something else, some sort of other stimulus relief bill. Biden had it tied to this infrastructure plan, which is going to have a hard time getting any traction with a Republican-controlled senate.”
A similar tax credit was implemented during the Obama administration, when home ownership rates were sinking.
Sharga said doing it again in 2021 could actually exacerbate an existing problem – low inventory.
“Washington, in general, likes to put a stamp on anything that gives the impression they’re giving away free money,” he said. “A first-time homebuyer tax credit would have a chance of getting through a divided congress – maybe not $15,000, but something significant. I am a little concerned that that might be a solution in search of a problem.”
Back in your cage, Fannie & Freddie!
The appointment of a new FHFA leader by Biden could directly impact the future of the world’s two biggest mortgage financiers, Freddie Mac and Fannie Mae.
Whoever Biden appoints in Calabria’s seat would likely take an approach similar to the Obama administration in holding Fannie and Freddie responsible for advancing certain affordable-housing goals.
“I believe that a Biden administration would tack on fees to government backed loans, the proceeds of which would be used to offset housing costs for lower-wage earners,” said Sharga. “And under that scenario, it’d be hard to see Fannie and Freddie getting sprung free from conservatorship anytime soon, because those funds for affordable housing have to come from somewhere.”
With a Biden-appointed FHFA director in place, the government could declare Fannie and Freddie critically undercapitalized, said Rood. “Hypothetically, a new FHFA director could evaluate the COVID-related credit losses that are kind of pending, and require them to reserve an extra, say $20 billion a piece, for credit reserves. And that would throw them into the category of critically undercapitalized.”
Rood said expectations are that a Biden administration will use regulatory authority far more often than Trump did, which he said will increase the cost of credit and drive the availability down.
“It’s clear that the enforcement regime is going to be far more punitive and aggressive than under the Trump administration,” he said. “Customers and lenders, as they used to describe the 2000s, they would find themselves waking up in fear of the government. Once they find themselves waking up in fear of the government again, they’re going to do the least risky thing, which is to only use government-backed programs and use less of anything that would fall under scrutiny.”
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