In its first months in office, the Trump administration aggressively made changes at all levels of the federal government, including to the mortgage and housing industry regulators. Bill Pulte, new Federal Housing Finance Agency (FHFA) director, fired most members of the Fannie Mae and Freddie Mac boards and then appointed himself as chair of both.
Russell Vought, Consumer Financial Protection Bureau (CFPB) acting director, was accused of trying to reduce the agency to “five men and a phone” amid a spate of firing. The Federal Housing Administration (FHA) jettisoned policies aimed at preventing appraisal bias and the U.S. Department of Housing and Urban Development (HUD) canceled fair housing grants.
Loretta Salzano, founding partner of Franzén and Salzano, a law firm that advises mortgage companies, spoke to Scotsman Guide about the initial moves by the new Trump administration.
What are you hearing from your clients and counterparts?
Our clients are asking a lot of questions about their need to comply. Is the CFPB going away and what if it does? I think there’s a lot of confusion about that. If the CFPB goes away, the states are ready with their sabers out swinging to come in and enforce all of the federal regulations. That’s not just the banking and mortgage regulators but also state attorneys general.
The ‘five men and a phone’ line has made all the headlines about the CFPB. What do you think of the leadership put in place there?
(New director Jonathan McKernan) has indicated from what I’ve read — I have no experience with McKernan — that it’s important for the CFPB to continue and to maintain its statutory path. There are certain things that CFPB is charged with doing, these are congressional mandates and the statutes. Now, just because certain things are required by statute, doesn’t mean that they will be as robust in the areas where there is more room for discretion.
What could job cuts at these agencies mean for the mortgage business?
There’s concern, and I share this concern, that loans won’t be processed, insured and serviced appropriately. There’s a lot of things that have to happen for government loans that require staff. Certainly, we’re always excited when investigative and examination forces are diminished, but even then, sometimes that can result in less experienced examiners that create additional trouble unwittingly.
What could it mean for the housing market?
Some of the efforts that are underway or have been underway at HUD, FHA and even FHFA are geared toward serving underserved markets and making housing availability and affordability a priority. We’re already in a challenging housing market, so those efforts could be hampered and probably will be hampered.
What about the removal of all the Fannie and Freddie board members, including a Nobel Prize-winning economist?
There’s concern about people with industry knowledge and experience being replaced by political appointees. I hate to see someone with experience and contributions to make at those agencies (be removed), especially people that have a lot of good experience to help shape policy.
Fresh blood is always good and sometimes you see people that are lifelong administrators, they’re out of touch with what really happens in the market. A little shake-up is good, but I think we really have to be sensitive to gutting these agencies.
If the Biden administration was overly restrictive on compliance, is the Trump administration going too far the other way?
I’m not worried about that. Many of these laws have private rights of action, and the states are still there to enforce them. There are some laws now that are rarely enforced, and there are a lot of people who are violating them, and it makes it very difficult for people who are trying to play by the rules. I was concerned with the Biden administration’s expansive interpretation of laws when there are so many people just violating the laws as written.
What is the private right of action?
That a consumer could sue you or a party could sue you for violating the law, and that you would have to pay a substantial amount of money either through prescribed statutory penalties, damages or in class actions. People always worry about the regulators, but I believe a plaintiff’s attorney, whether they’re motivated by passion or greed, they’re going to be far more difficult to negotiate with than a regulator.
Any final thoughts?
Hold on, it’ll be a wild ride. I guess the final comment is, make sure you’re getting your information from reliable sources. There are all kinds of rumors out there and fake news and it’s very difficult to know sometimes what the truth is. If I were a lender, you have to worry about employment issues, you have to worry about products, you have to worry about the laws. Make sure that you have good resources and that you’re getting the right information to shape your decisions.
