The biggest housing policy initiatives for 2024

Due to the election-year dynamics and the composition of the current legislature, there are questions about getting bipartisan agreement. Lack of consensus could limit action on housing policy outside of that impacted by pressing budget negotiations, at least at the outset of 2024.

As the mortgage industry well knows, those negotiations can be disruptive to originations, with the largest threat next year potentially springing from uncertainty around the continuation of flood insurance and federal services required in the course of originations.

A prior shutdown in 2019 led to a wave of legislation in some states designed to provide automatic contingencies in the event of future breakdowns in budget negotiations, and a recent Covius report suggests that if there's another impasse next year, more such efforts could arise.

(There's been an attempt to pass legislation at the federal level as well that could be revived.)

Other state and local policies that show signs of looming large for housing and mortgages next year are those related to taxes and insurance charges that have already shown signs of rising in a limited number of jurisdictions.

"We'll start to receive the updated assessment valuations from the different counties across the country over the course of 2024, which we know will translate to higher millage rates and higher billings," said Jim McGurer, senior vice president of operations at Lereta.

Anecdotal evidence suggests the average property tax hike recently has been more on the order of 30% than a historical average of 10%, McGurer said. But he noted that there are exceptions like Texas, where voters recently approved an $18 billion property tax cut billed as the largest in the Lone Star State's history.

Another potential 2024 policy issue related to funds that lenders escrow on behalf of borrowers is the pending outcome of a Bank of America lawsuit the Supreme Court has agreed to hear that would determine whether national depository legislation preempts state provisions.

Any policy changes, or lack thereof, to interest rates or the Federal Reserve's mortgage-backed securities portfolio are perennially at the top of the list of what to watch for. Policy could be more favorable for lenders in an election year, but that might only go so far.

"Mortgage rates might decline, but they could stay high relative to previous years, which would continue to challenge originations," said Jennifer Keys, vice president, compliance solutions, Covius.

Lenders may continue to hope for a response to industry calls for the Fed to take additional steps to support housing through its MBS portfolio. But at the time of this writing it was considered unlikely absent a severe market disruption.

Another thing lenders are keeping an eye out for is additional Consumer Financial Protection Bureau regulation, which could add to loan costs. So how the Supreme Court rules on a challenge to its powers in a decision expected next year is important to watch.

A decision against the CFPB could be a game changer not only for the bureau but for other independent directorships such as that of the Federal Housing Finance Agency. But an early read on it was that the justices involved are skeptical of the challenge.

Absent the court reining the CFPB in, given election year pressures, there's likely to be an intensified raft of both formal and information directives from the bureau.

"I would say we can expect more 'regulation by blog' coming out of the CFPB, not only in the housing finance industry, but the consumer finance industry more broadly," said Jim Milano, a partner at law firm McGlinchey Stafford.

Fair lending actions in the vein of the CFPB and Department of Justice's 2023 warning about not discriminating against customers based on immigration status are likely to be part of that. 

Fair lending won't be the only thing the CFPB is watching for, but it'll probably be one of the most prominent themes, and will intersect with some technology rules on artificial intelligence and automated valuation models that are on track to move forward next year.

Also, data security has been an issue, so mortgage firms also should watch for new actions there, such as an amendment to Federal Trade Commission rules that becomes effective next year, adding nonbank reporting for incidents affecting 500+ customers.

New technology policy also may help move electronic home-equity lines of credit forward, given how use of those products has grown in an era of high rates and home prices in which they can be made without disrupting an older primary mortgage.

An issue that's arisen in originating e-HELOCs is that they don't have an electronic promissory note like a first-lien mortgage does, said Angel Hernandez, chief strategy officer, Stavvy. 

Primary mortgage e-notes have established policy and information technology that are considered reliable standards for digital transfers. 

"Absent additional guidance, instead, the transferability of e-HELOCs is governed by an agreement and a portion of the Uniform Commercial Code," Hernandez said. 

That agreement requires all participants in the deal to agree on a common framework capable of supporting the creation, transfer and liquidity of the assets. It's a strategy that's actively used but its customized nature limits widespread adoption.

"This underlying regulatory framework, as well as the IT framework, need to be put in place to really have the comfort needed by sponsors and investors so these deals can really create liquidity in the secondary market for e-HELOCs," Hernandez said.

The Uniform Law Commission under the new Article 13 of the Uniform Commercial Code and amended Article 9 hands down to the states the task of establishing digital transferability standards. So the HELOC market may want to watch as a growing number roll out these rules.

"People tend to think of this rule as being about digital assets in terms of things like crypto, but it does come into play with something like a HELOC when it's an electronic instrument too," said Hernandez.