December 15, 2020

Bags Are Packed, Ready to Go

Housing Policy
Capital Commentary

1,669 words. Six-minute read.

Whether due to the pandemic, low interest rates, unemployment or the desire for a new start, Americans are on the move. Most are doing it willingly; some have no choice. Here in Washington, the Bekins Van Lines Man will have his work cut out for him. The “Congressional Casualty List,” tallying senators and representatives who won’t be returning to office, topped 60 officials. And, come Jan. 20, 2021, there will be a high-profile move from Wilmington, Delaware, to Washington, D.C., for another official. Capital Commentary looks at some movers (and shakers) in our final issue of 2020.

1. Hit the Road, Jack

Nearly 50% of Americans are thinking of moving soon. That’s according to a new survey by Lending Tree, which cites the ongoing COVID-19 pandemic, higher than usual unemployment and a desire to flee high-priced cities for suburbia.

  • 27% of respondents want to remain in their current area.
  • 12% want to move to a different city in the same state.
  • 8% want to relocate to another state.

Data from the U.S. Postal Service and Pew Research reported that nearly 16 million people moved between February and July of 2020, many leaving crowded urban areas.

  • No surprise, Manhattan led the way, up 500% from the year before. More than 110,000 departed.
  • Residents of Chicago, San Francisco, Los Angeles, Washington, D.C. and Houston also saw large drops in population. Also, Naples, Florida. Naples?

Some destinations are hot. But for all the wrong reasons.

  • Over half of the 20 areas most at risk for wildfires have increasing populations, reports the website SmartCitiesDive. Six of those areas are among the top 15% fastest-growing counties in the nation.
  • Placer County, an area northwest of Sacramento, California, is tied for the top spot of highest wildfire risk in the country and is expected to see 28,498 acres burn annually by 2050. Despite those projections, the local population has grown 7% in recent years and is among the top 15% of the most rapidly growing counties.

Economists at ClimateCheck point to one primary reason people are moving into such dangerous regions: Homes are more affordable.

  • “We’re being forced to build in more places that are riskier because that’s where we can, and that’s what’s affordable,” said ClimateCheck’s Skylar Olsen.

We need a better solution to affordable housing than building in disaster-prone regions. This isn’t a “disaster waiting to happen.” Wildfires aren’t waiting for anyone. California alone reported 7,921 wildfires between Jan. 1 and Nov. 29 of this year. Those fires consumed more than 1.4 million acres.

2. Oh, Fudge! Marcia Tapped for HUD Post

Congresswoman Marcia Fudge, D-Ohio, just re-elected to her seventh term in the U.S. House of Representatives, is likely moving, too: A short seven blocks southwest from the U.S. Capitol where she would become the second Black woman to head the Department of Housing and Urban Development (HUD).

Assuming Rep. Fudge is confirmed by the Senate, her soon-to-be-new home at HUD is seven blocks closer to the Capitol than what many observers expected.

  • The CBC was publicly lobbying President-Elect Joe Biden to tap Rep. Fudge to be Secretary of Agriculture due to her expertise on nutrition and federal food-assistance programs. Nearly a quarter of the residents of her Cleveland-area district were on food stamps in 2018, according to Bloomberg.
  • At his announcement, Biden said Fudge “understands where you live impacts on your health, access to education, jobs and economic opportunity. ZIP code should not determine the outcomes on all those issues.”

She explained that her childhood experiences motivate her to succeed in the new role:

“I remember the feeling I had as a kid of the safety, security and peace of mind contained in one word: home. I remember the comfort of knowing that no matter what happened, I could always go home. But far too many Americans live without that feeling.”

You can read Rep. Fudge’s official congressional biography here.

3. ʼTis the Season: Wish-List Letters

Santa Claus isn’t the only geriatric public figure receiving letters asking for favors this December. So, too, is President-Elect Joe Biden.

Case in point: U.S. Rep. Maxine Waters’ 45-page(!) letter asking the new administration to “reverse actions of your predecessors.” What’s on her wish list?

  • Halt any fast-tracking to end conservatorships of Fannie Mae and Freddie Mac.
  • Roll back the recently finalized capital rule for the GSEs.
  • Issue an executive order to prevent evictions.
  • Roll back higher fees on loans that go into forbearance before being purchased by Fannie Mae and Freddie Mac, or endorsed by FHA.
  • Fire Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger (probably already high on Biden’s wish list, too).
  • Prioritize fair lending enforcement at the Department of Justice, CFPB and bank regulatory agencies.

For good measure, Rep. Waters called for Federal Housing Finance Agency Director Mark Calabria to be fired, too.

4. But Calabria Can’t be Fired … Not Yet

His term as FHFA Director is for five years. (He was sworn in as Director in April 2019.) The Supreme Court could change that, however, in a decision expected to be announced next spring. (So, he doesn’t have to call the moving van just yet.)

  • The nine Justices heard oral arguments in Collins v. Mnuchin last week. (Read the 115-page transcript.) One of the issues to be decided in the complex case is whether the current structure of FHFA is constitutional.

“Most federal agencies are under the full control of the president. … The FHFA, however, is unusual in that its director serves a five-year term and can only be removed by the president ‘for cause,’” reported Vox.

  • But the plaintiffs in the case – shareholders of Fannie Mae and Freddie Mac – argue that the arrangement violates the Constitution by limiting the ability of a president to fire an agency head at will.
  • Earlier this year, in a similar (but not identical) case (read the decision of Selia Law LLC v. CFPB), the high court ruled that the president has the authority to fire the Director of the CFPB without cause. Previously, that official, too, served a five-year term.

Based on the interactions between Justices and attorneys, there was no clear winner in the view of court watchers. That uncertainty, however, might lead Calabria to quicken his pace in crafting a deal with Treasury Secretary Steven Mnuchin that sets a path for the GSEs to leave conservatorship, while making it difficult for the incoming administration to reverse course.

  • “While the forthcoming Supreme Court decision could prove consequential for both GSE shareholders and the mortgage market more broadly … the near-term focus remains squarely on what Mnuchin and Calabria will accomplish in the Lame Duck,” reported Isaac Boltansky of Compass Point LLC. (Read his full analysis here.)

5. Kraninger’s Last Stand? QM Rule Finalized

Empowered by the decision in the Selia Law case, Biden is expected to replace CFPB Director Kraninger with a more-consumer-friendly director soon after taking office. Until then, though, it is business as usual for the agency charged with ensuring consumers are treated fairly by financial service providers.

To that end, Kraninger last week finalized the Qualified Mortgage (QM) rule, a long-awaited regulation designed to ensure that consumers have the ability to repay before a lender originates a mortgage loan. According to the CFPB news release:

  • A loan receives a conclusive presumption (also known as the “safe harbor”) that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate (APOR) for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set.
  • A loan receives a rebuttable presumption that the consumer had the ability to repay if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points.

The new price-based regulation replaces the 43% debt-to-income (DTI) cap for a QM loan. It also replaces the “GSE patch,” which enabled loans to qualify as QM even if they exceeded 43% DTI if they qualified for purchase by Fannie Mae and Freddie Mac. GSE patch loans disproportionately helped minority and low-income borrowers become homeowners.

Removal of the 43% DTI cap was largely supported by both housing and consumer advocates who were concerned it unfairly restricts loans to minority borrowers. Soon, any investor will be able to buy loans exceeding the 43% DTI threshold without legal risk assuming the loan’s price is no higher than 1.5 percentage points above APOR.

However, numerous trade associations and consumer advocates recommended to CFPB that it raise the safe harbor threshold to 2 percentage points above APOR rather than 1.5 percentage point. They cited two specific reasons that a higher threshold is needed:

  • Lenders don’t want to lend in the space between a safe harbor and rebuttable presumption. They want assurances they won’t be sued for originating a loan.
  • Statistical analysis found that a significant share of loans originated between 1.5 and 2 percentage points above APOR went to minority and lower-income borrowers. In the GSE channel, up to three times as many minority loans exceeded 1.5 percentage points above APOR compared to loans to white borrowers, concluded a study by the Urban Institute.
  • Those borrowers may not qualify for conventional loans (those that can be sold to Fannie Mae or Freddie Mac) under the new rule and may need to turn to more expensive FHA-insured loans, instead.

Capital Commentary isn’t moving anywhere. But we are taking the rest of the year off from publishing the newsletter. I hope you will rejoin us in the new year when we will also christen the Capital Commentary Contest. We will ask readers to answer a question found in the biweekly newsletter. Then, we will reward one correct respondent with a special prize. (To be fair, the prize won’t necessarily be awarded to the first right answer.) Happy Holidays and Happy New Year 2021 to our readers.

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About Arch MI’s Capital Commentary

Capital Commentary newsletter reports on the public policy issues shaping the housing industry’s future. Each issue presents insights from a team led by Kirk Willison.

About Arch MI’s PolicyCast

PolicyCast — a video podcast series hosted by Kirk Willison — enables mortgage professionals to keep on top of the issues shaping the future of housing and the new policy initiatives under consideration in Washington, D.C., the state capitals and the financial markets.

About Kirk Willison

As VP of Government and Industry Relations for Arch MI and a mortgage finance expert with more than 25 years in government relations, Kirk speaks candidly with an array of the most influential industry and policy thought leaders in the nation.

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