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MBA chairman: 2018 will be a year of change

2018 could prove to be a key year of change for the mortgage industry as Congress takes up housing-finance reform, the future of Fannie Mae and Freddie Mac, and regulatory reform. J. David Motley, the 2018 chairman of the Mortgage Bankers Association (MBA), discussed the trade group's priorities and a range of pending issues that affect the mortgage industry. Motley is president of Colonial Savings, a federally chartered thrift institution headquartered in Fort Worth, Texas. 

What are a couple of the MBA’s top priorities this year?

motleySome are legislative, some are regulatory. No. 1 would be GSE [government-sponsored enterprise] reform. It is huge, and that is our top priority. But close behind that would probably be regulatory reform and, more specifically, regulatory clarity. What I mean is we need to have written, reliable guidance from the CFPB [Consumer Financial Protection Bureau], specifically. We get that from the other financial regulators, but we haven’t gotten that from the CFPB. So, that is No. 2. And No. 3 is how this tax reform that got passed so quickly at the end of 2017 gets implemented in 2018. Those are the top three.

As for GSE reform, the Senate banking committee seems ready to adopt many of the ideas set forth by the MBA plan in a reform bill. Do you believe Congress will get something done this year?

I think we have a good chance of getting it done. We have the right players in place. Yes, it is an election year. Yes, there are a lot of other things on Congress’ plate, but this is a big deal. It is something that is really important. Everybody needs to understand that you’ve got some changes that are coming.

[Federal Housing Finance Agency, or FHFA, Director] Mel Watt’s term is going to expire almost exactly a year from now. Who is going to come in and replace Mel Watt? Mel Watt has done a really great job in leading the GSEs and supporting housing. Is he going to be replaced by somebody who would like to shrink the government’s footprint in housing? The FHFA director has immense authority over what the GSEs do. [The new director] could shrink maximum loan balances, for instance. He could say, well, we are not going to do second homes anymore, or we are not going to do two- to four- [unit homes] any more, or we are not going to do investment properties. He can change the entire complexion of what the GSEs offer, so it is a very important role. That is one of the reasons we think it is so important that this GSE reform be handled legislatively, and that it be done this year before Mel leaves.

There have been a lot of internal changes going on at the CFPB. What sort of agency would MBA like to see it evolve toward?

At CFPB, our No. 1 goal is that it start issuing clear guidance documents that tell lenders, and other industries that are regulated by the bureau, how to comply with the law, as opposed to the recent practice of just providing guidance through enforcement. Former Director [Richard] Cordray, at one point, said that lenders would be committing compliance malpractice if they failed to take note of the enforcement actions that were being put upon various lenders. Well, that is not really that helpful in my opinion. Certainly, you can read the enforcement action and the consent order, but you don’t know exactly what was going on in that shop. That shop may not be exactly what your shop is like. You don’t know exactly what they were doing wrong, so it is difficult to figure out just exactly what you need to do in order to comply with the law, absent having some formal, written, reliable guidance from the CFPB.

So, the first thing that we would like to see happen is to get reliable, written guidance from the bureau on how to comply with their various rules. Then there are some other things that the MBA has been recommending over the years: A few changes in the CFPB rules, in the Dodd-Frank Act and the qualified mortgage rules that would allow lenders to better serve their customers in a clear, fair way.

Do you think the tax overall, on balance, will be a good thing for the mortgage industry and housing?

Yes I do. I think it puts more dollars in Americans’ pockets. When they have more wages, when they are making more money, they are more likely to invest in housing. So, I think, on the net, it is definitely a positive for the housing industry.  

Do you have any concerns about it?

There are some concerns about it. Of course, we have got this $10,000 limit on SALT, which is [the itemized deduction] for state and local taxes, as well as a limitation on the mortgage interest deduction. That has been reduced from $1 million to $750,000.  

The $10,000 limit on state and local taxes, including property taxes, is a big deal here in Texas, because our average tax rate is well over 2 percent, pushing 3 percent in some municipalities. A limitation on the property tax deduction affects a lot of people. Let’s just say, round numbers, that your total property tax is 3 percent. That [enables a full tax deduction] to a property valued at around $330,000, right? A lot of people live in houses that are more than $330,000. So, it does have an effect there. Will it have an effect on property values? It might have a small effect over time, at least initially, but I don’t think it will have a tremendous negative effect on property values.

So, back to the original question, yes, I think it is a net positive for the economy. It is a net positive for housing. Of course, with any reform so big as this, we need to continue to watch how it is implemented, and time is going to tell what changes to the mortgage interest deduction and treatment of state and local taxes, how that is going to affect homeownership.

Why has the MBA taken up the cause of promoting diversity hiring?

Well, I have used this phrase in a number of speeches that I have given over the last nine months: The industry is a little bit too pale, male and stale. Meaning that, we are majority white. We are majority male, and we are old. We are old guys. We need to try to develop an industry — and all we can be is really a thought leader on this and a resource for best practices — but we need to be thinking about ways where we can transform our companies into entities that look a little bit more like what our future customer is going to look like.

By that I mean this: Over the next 10 years, we estimate that there are going to be 16 million new households created in the United States. They may be renters or they may be owners, but 16 million new households. The vast majority of those households are going to be comprised of minorities. It just makes complete business sense that we try to transform our companies into entities that look a bit more like the customers that we are going to try to serve. The other thing is that when you include diverse thought, diverse backgrounds and diverse experiences in the management of a company — in other words, when you are inclusive of those different ideas --- I think you get a more robust, a more thorough, responsive strategy for the company by incorporating some of those ideas that just weren’t thought of. So, diversity and inclusion, there is a business side to it, and it is also just the right thing to do. There is a compelling reason for companies to embrace diversity and inclusion. And those that don’t do it, I think they are going to get left behind.

The MBA, as an organization, is preparing a big change when President David Stevens retires later this fall. How is the search going, and what type of person you are looking for to assume that job?

We want a Dave Stevens clone. By that I mean someone with his superb business savvy, political skill, and industry knowledge. David has done a magnificent job for the MBA. The board of directors has established a search committee of 13 members that represent the entire mortgage industry. We have engaged with a search firm out of Washington, D.C. We are taking a very methodical approach to this. Dave was really good in giving us a long lead time. He actually informed us of his intentions last October at the annual convention.

So, we have got a good amount of time to make a thorough, methodical search for the right candidate to take over Dave’s job. The key thing is that it be the right person for the job. We are not going to short circuit the process. We are going to do a very thorough evaluation and search of all potential candidates, and nobody is going to get a sidestep advantage. And we are absolutely keeping diversity and inclusion at the forefront of this process. It is a challenge, but it is exciting, and we are looking forward to having somebody in place hopefully by July 1, at least identified. 


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