What Election 2020 uncertainty means for mortgage lending

As ballots continue to be counted in battleground states past election night, the country faces days or even weeks of uncertainty, with the presidential race between President Donald Trump and former Vice President Joe Biden still undecided.

A delayed outcome was not unexpected, given the increased use of mail-in ballots amid social distancing measures. But with no clear leader in the counts thus far, the election could enter a complicated next phase that stands to impact financial markets.

Jeenah Moon/Bloomberg

"If we get for a day or so of some uncertainty, I don't think it's a big deal," Brian Gardner, chief Washington policy strategist at Stifel Financial told American Banker’s Neil Haggerty. "We got that in 2004 with Bush versus Kerry. … I think the markets are fine with that. If there are signs that the uncertainty is going to be protracted, that it could take several days, several weeks, then you are going to start to see some kickers in the markets."

The past few months have seen a number of nonbank mortgage lenders either go public via IPO or SPAC with Rocket launching its IPO in August, followed shortly thereafter by UWM and Finance of America each going public via SPAC. Guild Mortgage followed with its own announcement of an IPO. Analysts credit an ongoing surge in originations for the trend, and while that may continue to benefit public mortgage lenders, two others, Caliber Home Loans and AmeriHome, delayed their IPOs at the end of October as market volatility intensified.

A number of stimulus measures also hang in the balance as the election remains unresolved. The CARES Act, for example, could create liquidity problems for servicers should the market take a turn, and that will require a legislative intervention, analyst Chris Whalen argued.

The regulatory landscape stands to be altered under a Biden administration given that Trump’s time in office has been defined by deregulation. Four more years of the Trump administration could remove barriers for increased construction — though his immigration policies create strains on the sector’s workforce. A conservatorship exit for government-sponsored enterprises would also be on the table under Trump.

"It's very likely that the Fannie Mae and Freddie Mac conservatorship would end in a second Trump term, which would reduce the government's role in the mortgage finance industry, and would probably bring more private capital into the market," Rick Sharga, VP at RealtyTrac, said in a statement to National Mortgage News. "This could make loans more readily available for more borrowers, but could also make loans more expensive and somewhat riskier."

A Biden win would tip the scales the other way. Reinstating the eliminated consumer protections and regulations would be near certainties. Given a Supreme Court ruling over the summer, Biden would the option of replacing Kathy Kraninger as CFPB director. Given that precedent, Biden could also choose to replace Mark Calabria, the director of the FHFA, and possibly keep Fannie and Freddie in conservatorship longer.

While President Trump cut affordable housing trusts, Biden has called for more investment in it, funded in part by fees attached to government agency-backed home sales, according to Sharga.

"This would make buying a home somewhat more expensive for most people, but might also provide affordable rental properties to people who are currently rent-burdened," he said.