On January 19, Matt Tully, Sagent’s own Chief Compliance Officer and VP of Agency Affairs, was joined by Kelley Barnaby, Partner at Alston & Bird LLP, to talk about the housing and compliance policy outlook for 2021 and the drivers shaping policy development as we transition into a new presidential administration.
If you missed the webinar, you can watch the full webinar here. Or, if you’re in a hurry, bookmark the full video to watch later and read on for our key takeaways from the webinar.
1. Macro Factors Driving Policy in 2021
Key economic drivers include:
- Stubbornly high unemployment rate at 6.7% as of December
- High likelihood of imminent stimulus in wake of Democratic majority in Senate
- K-shaped recovery impacting sectors of market differently
- Impact of COVID & unknown vaccination distribution outlook
As you well know, the Biden administration is inheriting a nation in turmoil characterized by an uncertain economy. Biden has already expressed an focus on deficit spending to provide relief to both businesses and citizens impacted by COVID, but it remains to be seen exactly how further COVID relief bills would impact the economy and the job market.
2. How New Administration Will Impact Housing Policy
Key policy drivers:
- COVID (obviously)
- Congressional focus on stimulus, nominee confirmations, and aggressive initial 100-day plan by Biden administration
- Tax reform on table, influenced by Senate moderates
- Regulatory administration shifts at CFPB, HUD, and beyond will impact regulatory enforcement across financial services
The Biden administration is kicking off their tenure in government with a “personnel is policy” approach, and Biden appointees will be critical to advancing their policy agenda.
Democratic control of the Senate has encouraged the Biden administration to make some more aggressive nominations, including Warren darling Rohit Chopra as Director of the CFPB. But with such a narrow margin, Dems will have to play ball with Senate moderates to pass meaningful legislation.
We are already witnessing a flurry of executive orders as Biden sees to reverse many EOs enacted by Trump, and more executive orders and other creative measure like budget reconciliation may be forthcoming if legislative initiatives do not quickly materialize.
In fact, Senator Bernie Sanders, Chair of the Senate Budget Committee, has recently stated that Dems will use budget reconciliation — which is used for fiscal bills and requires a simple majority vote in the Senate rather than a 60-vote majority to pass — to avoid a filibuster and quickly pass the next round of COVID relief if it is met with pushback from Senate GOP.
As for the House, with a Democratic majority, we will likely se ample oversight of the financial services industry, though major legislation may be harder to push through with current Senate dynamics.
3. Housing Policy Outlook
Key housing market and policy drivers:
- Low rates expected to persist in 2021 and drive both origination and refi activity
- Strong housing demand as millennials on the upside of K-shaped recovery flock to suburbs
- Recent policy proposals (QM, FDCPA) may be revisited by Biden administration
- Forbearance continues to create unique challenges and uncertainty for servicers
- Reg X/loss mitigation rule updates expected in Spring
In 2021, forbearances will continue to be top-of-mind for servicers.
Though overall forbearance volume per the MBA has dipped slightly over the past few months, it remains stubbornly high and has not seen many meaningful decreases as many homeowners move into their second period of forbearance allowed by the CAREs Act.
A few key concerns for servicers:
- As MBA Chief Economist Michael Frantantoni pointed out recently, the longer you’re in forbearance, the harder it is to get back on your feet. Those homeowners who have not exited forbearance by now will likely not have an easy time getting out at this point.
- Loss mitigation measures expected to grow in 2021 as second forbearance periods begin to expire.
- Servicers getting ‘ghosted’ by needlessly delinquent borrowers whose initial forbearance period has expired but they have not requested an extension and are not responding to outreach from servicers trying to help them extend their forbearance
All of this puts servicers in a tough spot as they are required to quickly and competently implement new regulatory measures as COVID-related policy evolves. A good fintech partner helps to ease that burden on servicers.
4. Agency Admin Changes
We’re already seeing some shifts in agency priorities as Biden appointees emerge, including Rohit Chopra at the CFPB and Marcia Fudge at HUD, with Michael Barr rumored to be Biden’s pick for OCC Comptroller.
Once confirmed, these appointees may trigger some structural changes at their respective agencies.
A Chopra-headed CFPB is anticipated to ramp up on all fronts, with increased requests for funding, strengthened capacity for fair lending enforcement, process development for initiating investigations, and collaboration with progressive state mini-CFPBs (particularly in CA and NY) expected.
Meanwhile, HUD is expected to focus on affordable housing initiatives, as well as on investigation and enforcement activity around CARES Act forbearance and servicing.
Finally, the OCC/Fed/FDIC emphasis will likely be on the Community Reinvestment Act, though the OCC and Fed will likely take different approaches.
For more on Biden administration implications, housing and economic policy drivers, and the future of the GSEs, stream the full webinar on demand:
And don’t forget to sign up for Matt Tully’s monthly compliance newsletter, Compliance Compass: