The housing finance complex has generally welcomed the election of Donald Trump as a relief from four years of progressive oppression and extortion. The fines levied against mortgage lenders during the tenure of Rohit Chopra at the Consumer Financial Protection Bureau are a classic example of regulatory excess and political partisanship.
Chopra's behavior at CFPB makes Joe Kennedy's first term at the Securities and Exchange Commission in the early 1930s seem mild by comparison. Under Chopra, mortgage lenders and servicers were essentially forced to accept extortionate fines and settlements that should have been challenged in court, but suing the government is too costly for all save the largest financial firms.
Rocket Mortgage makes a virtue of fighting unwarranted fines because they have the capacity to fight the government, a chore that can cost many millions of dollars from start to finish. Chopra's team at the CFPB sized the penalties to the firm, often, in this writer's opinion, picking firms for enforcement actions based upon their ability to pay big fines. It's unclear how any of this helps consumers since often there is often no finding of consumer harm mentioned in the Chopra-era enforcement actions.
"Though firings at the CFPB have been temporarily halted by a judge, the bureau under Trump
While the overall reaction of the industry to Trump is still very positive, there are some troubling signs that the imperative of finding cost savings is sometimes causing serious problems. For example, Elon Musk and his department of government efficiency (DOGE) claimed to have found $1.9 billion at HUD that was "misplaced."
"$1.9 billion of HUD money was just recovered after being misplaced during the Biden administration due to a broken process,"
If the funds are not available, then the default of a Ginnie Mae issuer could lead to a default by the United Stated on its guaranty of timely payment of principal and interest on government-insured MBS. "These funds were earmarked for the administration of financial services, but were no longer needed," Musk's DOGE taskforce falsely claimed.
HUD Secretary Scott Turner apparently "helped" Musk fix the "problem" at HUD with the $1.9 billion in missing funds. But in fact there is no problem and, more importantly, there is no budget savings, contrary to Musk's statement. Turner then
Last week the Trump Administration announced major cuts at HUD, more than 40% of total headcount that were reported to be primarily focused on personnel engaged in financing for multifamily housing. Together with the GSEs, HUD provides significant support to the multifamily sector and at far higher loan-to-value rates than are available from private lenders.
Conservatives have long wanted to force the government-sponsored enterprises and HUD out of financing for multifamily, which will result in some serious credit problems in red and blue cities around the country. Many of the assets financed by HUD and the GSEs are smaller properties with high LTVs that cannot be financed privately. Outside of federally supported lending, small multifamily is a hard money, cash market, which further compresses valuations.
A reduction or withdrawal of HUD and/or GSE credit cover for multifamily assets is going to create a big mess, both for investors and banks alike. Bank multifamily is about $600 billion in unpaid principal balance, while non-bank multifamily loans – including the GSEs – is another $1.6 trillion in UPB, for a grand total of $2.12 trillion. The GSEs alone are two-thirds of the non-bank market in multifamily real estate.
When the Trump FDIC gets around to disposing of the rest of the rent stabilized assets from the estate of Signature Bank, the market for low-end rent-stabilized multifamily assets could be even more adversely impacted. Again, the financing market for rent-stabilized properties in New York is very limited and consists of mostly cash investors. And there are other banks in New York that hold mortgages on other rent-stabilized properties.
In my upcoming book to be released this May by Wiley Global, "
Although President Trump has relied upon the judicious use of financial leverage to advance his career in commercial real estate, many of the conservative policies being put into effect today in Washington have a certain 19th century or perhaps even New Deal perspective. The idea of withdrawing funding for the credit backstop of Ginnie Mae or eliminating support for over $1 trillion in multifamily real estate seems a tad extreme.
But there's more. HUD Secretary Turner says that he plans to be the "quarterback" of a cross-governmental effort to
If the Trump Administration is thinking of pulling the GSEs out of multifamily lending, and also second homes and second lien mortgages, that will impact profitability. Pulling HUD and the GSEs out of multifamily lending is going to create a crisis in the residential housing markets, this just at a time when Turner wants to encourage the building of more affordable housing.
As just about everybody in housing knows, you cannot build affordable housing in the US without some form of public subsidy. The idea of using the GSEs as a source of revenue is equally suspect. House Republicans are reported to be considering an increase to guaranty fees for Fannie Mae and Freddie Mac to pay for tax cuts and/or a taxpayer dividend.
Norbert Michel of Heritage
The Trump Administration should stop pretending that the GSEs are an endless cash cow and start worrying about how the GSEs will manage in the coming housing downturn. As the world reacts to the protectionist agenda from the Trump Administration, a weaker dollar and higher long-term interest rates could spell big trouble for the US housing finance market.
