The New Administration and the Future of Mortgage Lending

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Todd Austen Walker
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The New Administration and the Future of Mortgage Lending Virginia Mortgage

2 Outline Introduction / Overview Macro Policy Housing Policy Political Outlook Questions 2

3 Overview: The First 100 Days, Where are We? Donald Trump is changing how Washington operates: Twitter, not surrogates, communicate for the President Deals are how policy will move Executive Orders provide the ability to deliver on campaign promises Congress has considerable work in front of it: Reconciliation will be used for health care overhaul and tax reform; average time to pass a reconciliation bill: 5 months Tax reform: last major tax bill was 1986 Nominations: 4,000 positions to be filled Supreme Court: 60 votes required for a nominee to win approval Other nominees require 51 votes 3

4 Overview: Presidential Approval / Disapproval 4

5 Overview: Congressional Job Approval 5

6 Overview: Early Actions Demonstrate Desire to Execute on Key Campaign Promises Four key executive orders for banking / financial services companies: 1) Freeze Memo January 20 2) Regulatory Reduction Order January 30 3) Principles Order February 3 4) Regulatory Reform Order February 24 6

Marco Policy: Budget, Health Care, Tax, Infrastructure Dominate the Agenda, not Housing Budget: President Trump enters office facing the highest debt-to-gdp ratio since WWII: Continuing resolution

7 Marco Policy: Budget, Health Care, Tax, Infrastructure Dominate the Agenda, not Housing Budget: President Trump enters office facing the highest debt-to-gdp ratio since WWII: Continuing resolution will run through April 28 Debt limit must be addressed in Q3 Healthcare: Affordable Care Act repeal moving through House; fate in Senate unclear Taxes: last major tax reform was 1986: House Republican plan calls for a border adjustability tax to offset a lower corporate rate and a larger standard deduction and fewer itemized deductions; fate in Senate unclear Infrastructure Spending: design still evolving: Part of tax reform or repatriation? Deficit funded? Tax credit based? 7

8 Overview: Key Trump Appointments with Oversight of Housing and Regulatory Issues Steve Mnuchin Treasury Ben Carson HUD Gary Cohn NEC?? FHA Commissioner Ginnie Mae President 8

9 Housing and Regulatory Policy: Top Issues and Challenges for Senate Banking and House Financial Services Committees Top policy issues before the Committees: 1. Re-authorization of National Flood Insurance Program 2. Regulatory Relief 3. Housing Finance Reform Top challenges: 1. 6: new members of Senate Banking 2. 14: new members of House Financial Services 3. Almost half of current U.S. Senate was elected post financial crisis 4. Over half of the U.S. House of Representatives elected since the financial crisis 9

Housing Policy: Regulatory Relief Agenda Create Hope and Opportunity for Consumers, Investors and Entrepreneurs (CHOICE) Act Key Provisions: CFPB: retain single director (?

10 Housing Policy: Regulatory Relief Agenda Create Hope and Opportunity for Consumers, Investors and Entrepreneurs (CHOICE) Act Key Provisions: CFPB: retain single director (?) who can be fired; place commission on budget Subject financial regulators to the REINS Act and cost-benefit analysis requirements QM: exemption for loans held on balance sheet Dodd-Frank relief for banks that hold additional capital 10

11 Housing Policy: Universe of Reform Options Reform Option Proposal Government Guarantee? Corker-Warner / Johnson-Crapo PATH Act (Hensarling Bill) Eliminate GSEs; turn IP and systems over to new regulator, Federal Mortgage Insurance Corporation (FMIC) and small lender mutuals. FMIC becomes "super regulator" of entire system (i.e. primary and secondary markets) and enforcer of fair housing, affordable housing, and duty to serve. Private capital must take 10 percent of first loss. Eliminate GSE; create standards for "conforming" private label securities. Make FHA a standalone agency with higher capital standards. Yes (explicit on MBS) Only through Ginnie Mae; no more conforming market. Ginnie Mae Model Leverage Ginnie Mae infrastructure to allow for private credit enhancement to in addition to FHA / VA / RHS. Yes (explicit via Ginnie Mae) Utility Model / MBA White Paper GSEs converted to utilities, but charter is opened for others to come in as utility. Utility will have a duty to serve requirement and affordable housing goals. Yes (explicit on MBS) Government Corporation GSEs are converted to a government corporation; corporation provides an explicit and catastrophic guarantee and regulatory oversight of system. Yes (explicit on MBS) 11

Housing Policy: Key Players in Reform Discussions Senate Banking House Financial Services Trump Administration Housing Groups Housing Groups Continued Mike Crapo R- ID, Chair Jeb Hensarling, R- TX,

12 Housing Policy: Key Players in Reform Discussions Senate Banking House Financial Services Trump Administration Housing Groups Housing Groups Continued Mike Crapo R- ID, Chair Jeb Hensarling, R- TX, Chair Treasury Steve Mnuchin Mortgage Bankers Association American Bankers Association Sherrod Brown, D-OH, Ranking Member Bob Corker, R-TN Mark Warner, D-VA Elizabeth Warren, D- MA Charles Schumer, D- NY, Senate Minority Leader Maxine Waters, D-CA, Ranking Member Ed Royce, R-CA Patrick McHenry, R-NC Rep Blaine Luetkemeyer, R- MO Rep. John Delaney, D-MD Rep. Gwen Moore, D-WI NEC Gary Cohn OMB Rep. Mick Mulvaney FHFA Mel Watt HUD Ben Carson FHA? Ginnie Mae? National Association of Realtors National Association of Home Builders Independent Community Bankers U.S. Mortgage Insurers Housing Policy Council Securities Industry Financial Markets Association Community Home Lenders Association Community Mortgage Lenders Association Structured Finance Industry Group 12

13 Housing Policy: Reform Bills Have Never Been Considered in Either the Full House or Senate President s Desk Conference Committee House Floor Amendments and Final Passage Senate Floor Amendments and Final Passage House Floor - Consideration of Rule House Rules Committee Committee Mark-Up and Vote (31-27) Hearings High Water Mark Senate Floor Cloture requires 60 votes to proceed Committee Mark-Up and Vote (13-9) Hearings Bill introduction House PATH ACT Bill introduction Senate Johnson-Crapo 13

14 Housing Policy: FHFA Remains Central to Reform Initiatives As conservator of the GSEs, FHFA is the key the key catalyst for making changes to the operational, risk, and business elements of the Enterprises. Efforts effectively mimic reform and move forward in the absence of legislative progress. Annual Scorecard for the GSEs dictates priorities. High level priorities remain unchanged while lower-level projects are modified annually: 1 Maintain 40 percent scorecard weight 2 Reduce 30 percent scorecard weight 3 Build 30 percent scorecard weight Post-crisis modification plan Servicing compensation Assess credit scoring models Credit risk transfer PMIERs 2.0 Wind-down retained portfolio Common platform Single security Uniform closing disclosure dataset 14

(Tester) North Dakota (Heitkamp) West Virginia (Manchin) Democrats standing for reelection in states won by Trump in

15 Political Outlook: 2018 Senate Map Favors Republicans, Will Factor into Policy Decisions Democrats standing for reelection in states won by Romney in 2012 and Trump in 2016: Indiana (Donnelly) Missouri (McCaskill) Montana (Tester) North Dakota (Heitkamp) West Virginia (Manchin) Democrats standing for reelection in states won by Trump in 2016: Florida (Nelson) Ohio (Brown) Michigan (Stabenow) Pennsylvania (Casey) Wisconsin (Baldwin) Source: UVA Center for Politics 15

16 Conclusion Trump Administration will continue to challenge how Washington works. Early agenda items on taxes, ACA, fiscal issues will be big lifts. Regulatory relief and GSE reform will continue to be issue of interest; when / how the two parties and chambers come to agreement remains to be seen. Don t expect major changes in mortgage industry in the immediate future; changes are likely to evolve slowly in the coming years. 16

17 Thank You and Questions Contact Information: Matt Tully Vice President, Government and Industry Relations Essent Guaranty

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