Could a second Trump administration dismantle the Consumer Financial Protection Bureau (CFPB)? Will Fannie Mae and Freddie Mac be released from conservatorship? Could burgeoning federal debt force mortgage rates to remain high no matter what the Federal Reserve does?
Everything and anything seems to be on the table for the mortgage business during President-elect Donald Trump’s second term in office. It all depends upon how much his new administration focuses on the industry.
The White House and a Republican-controlled Congress will almost assuredly devote the early days of this year to taxes, which could have an enormous impact on real estate. The 2017 Tax Cuts and Jobs Act passed in Trump’s first term, for instance, reduced the tax benefit of owning a home, limiting the deduction of interest to the first $750,000 of a mortgage.
Deregulation won’t be too far behind tax cuts, but it’s possible that regulations such as the Community Reinvestment Act modernization, which addresses online banking practices, and Section 1071, which requires demographic data collection on business-purpose loans, may be far enough along that they won’t be derailed. One of the most immediate shifts will be a changing of the guard among federal regulators.
“(CFPB director Rohit) Chopra will be out whether he walks out on his own or whether he’s pushed out,” says Loretta Salzano, a founding partner of law firm Franzen and Salzano. “That’s good news, I think, for the industry, and I mean shoot, it could be good news for consumers.”
Salzano says the CFPB often sidestepped formal procedures in implementing rules, saying the agency tried to “regulate by blog.” Her firm, which advises banks and mortgage lenders on compliance issues, had taken to parsing Chopra’s speeches.
“I don’t think it’s going to be a wholesale change in the existing statutes and regulations as much as a change in the supervision and enforcement tact — they’ll color within the lines,” Salzano says of a new administration.
She heard someone at a conference say that Trump could jettison the CFPB altogether. She doesn’t think that’s the case: “The CFPB supervises and pays attention to things like overdraft fees and other fees that maybe play to Trump’s fan base.”
American Enterprise Institute’s Edward Pinto, however, noted that the legislation that created the CFPB was passed without a single Republican vote. He expects the Trump administration will attempt to “rein in the CFPB substantially, because of the anti-financial services tack it’s taken.” Congress may revamp how the bureau is overseen, he says.
“There’s a possibility that that the Trump administration could use the opportunity they have to take out the CFPB, at least temporarily,” said Pinto, who is co-director of the institute’s Housing Center.
He notes that the CFPB was designed to be insulated from congressional review. The bureau is funded by the Federal Reserve, which hasn’t made a profit for three years.
“The basis for funding the CFPB is the profits of the Fed, but there are none,” Pinto says. “If that were to be litigated, then we would go up to the Supreme Court to decide whether that statute is being complied with.”
Another major change could come with the government-sponsored enterprises (GSEs), which have been in conservatorship to the federal government since the housing crisis in 2008. The first Trump administration attempted to release them from conservatorship, but didn’t reach the finish line. Pinto expects a second attempt.
“That’s a multi-year process and whether it succeeds or not is a big question,” Pinto says. “Whether it’s done administratively or done legislatively is another issue. It’s hard to handicap that.”
The Trump administration may have learned lessons from its first attempt, says Scott Olson, executive director of Community Home Lenders of America.
“Just the passage of time has put them in a better position to do this,” Olson says. “Some people are speculating that because the government owns the warrants for the preferred stock (on the GSEs) that if they went private and then went public, the government could reap tens of billions of dollars in revenue and, in an environment where budget concerns are paramount, that might be attractive.”
An indirect impact the federal government could have on the mortgage market is on interest rates. The federal debt topped $36 trillion last fall. The first Trump administration borrowed $8.4 trillion in four years, or about 23% of the total federal debt.
“Classical economics would say this has got to have an impact in either increasing inflation or increasing interest rates,” Olson says. “It’s still important to pay attention to budget deficits and the impact on the economy.
“On the other hand, classical economics theory is kind of proving wrong because, the way they used to talk about the deficits we’ve been running under both (parties), there should have been more problems than there are. So, I don’t know what the answer is.”
Pinto agrees that the “national debt is one of the reasons interest rates are where they are.” He says the institute believes that if the U.S. were to have a credible deficit reduction plan in place — not even implemented — that mortgage interest rates would drop 75 to 125 basis points. He says he’s encouraged by Treasury Secretary nominee Scott Bessent’s plan to reduce the federal budget deficit to 3% of gross domestic product while growing the economy by 3%.
“If you could do all of that then I think we’d be well on our way to having that credible plan and interest rates would come down on their own,” Pinto says. “We wouldn’t need the Fed to be manipulating them.”
