MBA’s Bill Killmer on how the midterms could change housing

0:00Change is constant and so is MGIC. For nearly 70 years, MGIC has been the original choice for mortgage insurance. With tools, resources, and expertise to help you close more loans and manage risk, market-tested, industry-trusted, authentically MGIC. Visit MGIC.com Welcome, everyone. My guest today is Bill Kilmer. He's the Chief Lobbyist at the Mortgage Bankers Association to talk about what might we see in the midterm elections and how that could affect housing. Bill, thank you so much for being here. Thank you, Sarah. I appreciate the invitation. We just got off stage a little while ago at the Mortgage Banking Summit here in Dallas and great discussion there that I wanted to continue here because this is a big one. So let's start at the top and talk about what do the polls show? Do we think there's going to be a big change in the midterms? There usually is some change at two-year political cycle. What are you guys seeing? Well, Sarah, you and I were talking earlier that historically,

1:02any president, Republican or Democrat, typically in the midterm election cycle has some pressure based on that administration being held accountable, particularly if their party also is in control of the Congress. And that's the situation for Republicans. But even since you and I were first talking a couple of weeks ago about this event, things have really been moving in the Democrats direction and the polling reflects that. I think there's so much more polling that a lot of it's erratic, but the trusted polling sources are really showing that Democrats have got a tailwind, particularly in the Senate. The House, the conventional wisdom has been that, you know, because of the historical precedent and just the way that redistricting and some of the other factors have played out that Democrats have a very serious shot to retake the majority from Republicans. The question is how large were the margin of majority be if they, in fact, do get that kind of mini-wave to help them do that? And, you know, a month ago, I would have said there are 24 or 25 really competitive House seats.

2:06Now it's probably more like 35 to 40. And I do think it's a question of what margin of majority is. If it's 10 or less, that's not a real large working majority. We've seen how that's impacted Republicans and Speaker Johnson and his leadership team and how tough it is for them to corral votes. I think the same thing would be true for Democrats. But if you asked me today, I'd say Republicans are looking at holding the majority but maybe just with a 50-50 ratio, and that would mean Democrats had netted three seats. It's entirely possible that they could have a clear majority and actually be in control. But if it's 50-50, the vice president is the president of the Senate and would break ties. And we've been through that as a country several times here recently. But that would have major implications for the administration in terms of oversight. And that will bleed not only from the White House to national security and the Pentagon and those agencies that are affected, but certainly into the housing space as well. So if we take a conservative, not conservative, but maybe a middle of the road view that, you know,

3:06one House we're going to, is going to change as per normal. What does that look like versus if there's, you know, a blue wave if you love both houses? Yeah, and I'm kind of laughingly referring to a blue wave would mean a majority of more than 10 seats and definitely having the Senate flip to go democratic. It would be more like purple rain if only one, you know, Chamber of Congress flipped. But more consequential, there will be more oversight if that's true just in the House, but doubly so and more intensely. If the Senate is also democratic, there would be coordination between the two chambers and the leaders of the various committees. And that would be true for housing regulators, just like it would for, you know, officials across the entire Trump administration. So lots of hearing invitations, document requests, subpoenas, probably to compel people to testify. But, you know, that would be true for HUD officials for FHFA, I think USDA, VA, CFPB, all the presidential banking regulators, and then obviously there'll be a different kind of scrutiny on the president and his family.

4:12And that'll be the real trick is, you know, what kind of policy agenda our Democrats going to want to pursue and how much time are they going to allow to the oversight? I personally think that if Congress flips one or both chambers that the administration two more years and they're going to kind of double down to try to finish regulatory modernization and some of the agenda that they've set forward because there'll be the only Republican game in town in terms of pursuing that policy direction. That's really interesting. Two towns, 10 minutes apart, can behave nothing alike. One's moving, one's stalled, and the average of the two tells your client nothing. All those tracks every zip code on its own, what's listed, what's selling, how long it's taking. So the number you quote is the one that applies to their street. Start your free trial at altos.re. You know, we've talked on this podcast and you and I talked earlier like a two year political cycle is so tough to get stuff done.

5:13And then I think about, you know, if you're in this industry, if you're in mortgage or real estate or particularly let's say mortgage because that's where so much of the regulation is, and you were like, I started covering mortgage under Obama. So if you think about, okay, Obama and then you went to Trump and then you went to Biden and now you're back at Trump and it's like, it can feel like whiplash as far as like when it comes to regulatory stuff, but maybe especially this time because there was such a real determined dismantling of some of those regulations. What a present Trump ran on one on. So can you be a little bit more specific about what you think that looks like? Sure. I mean, let's start with the CFPB. I think there was a concerted effort, particularly with respect to enforcement activity to reduce personnel. No secret. That was all very public and it kind of flowed out of the doge efforts to reduce the size of government staffing. I think what policy teams in the White House and throughout OMB and and the Trump administration realized is if you want to directionally change regulatory attitude of an agency. You need rule writers to actually help you do that and accomplish that.

6:14So I'm a big believer that personnel is policy and that'll be a really important function of the Senate. It'll be very different in terms of the scheduling of Trump nominees that would need to fill vacancies if Democrats are in control of the Senate. If Republicans maintain control, then their chief function may well be personnel management to like we see every time. If there's you get to the two-year point with any administration people leaving and then vacancies that need to be filled. We see that at the CFPB Brian Johnson who was a deputy director is now back as the nominee from the administration to be the director of the CFPB. I think he'll get confirmed before the end of the year after whatever the outcome of the midterms with Republicans still in control to January. When the Senate returns in November the same things true at HUD FHA commissioner that job. The nominee to fill the current vacancy at HUD is Matt Jones and he literally today while we're sitting here had. An nominations hearing in the Senate banking committee that went fairly smoothly.

7:17I think aided by the fact that senators were ready to get out of town after their final floor votes last night. But he's very able grew up in the industry is data to mortgage companies and I am B. He's been a licensed loan officer so he knows this stuff cold. He's a former colleague of ours at NB.A. And I think a subject matter expert but somebody's got the right attitude about what he'll do at FHA in the last two years. So there'll be opportunities to try to help consumers maybe with the mortgage insurance premium reduction. That's not where Republicans at HUD start. They always want to manage the safety and soundness of the MMIF, the single family fund. But that capital ratio has been high. So there are ways to reasonably and responsibly think about reducing premiums and can work on a lot of servicing and loss mitigation rules as well with his team there. So those are some examples of things that I think will be focused on. I think the push to try to reduce regulatory frictions and help the private sector writ large will creep into housing too. And again, like I said a minute ago, I think that the administration will want to try to accomplish as much as they can in a durable way.

8:24So that it could survive legal challenges if it's close to the edge in terms of being an aggressive posture for some of the change because they won't have a Congress to work with. And you talked about starting to cover mortgage during the Obama administration. That's a real example of the way our system has kind of worked. He had democratic control for a couple of years. And Dodd Frank was enacted with him as president in 2010. And then it was implemented by his administration. And then you saw parts and shifts back and forth several times. So it's only when you get a political party aligned with the Congress and the executive branch that you see these really big swings that are taken like the tax bills or healthcare reform or Dodd Frank. Things of that. So so if you have divided government, then it makes it much tougher to get those kinds of things even out on the playing field much less, you know, enacted and signed into law. I think one of the things that hopefully listeners of this podcast know who controls what controls mortgage rates. But one of the big questions has got to be for people in our industry and housing at large is like does one of these outcomes, one of these scenarios lead to lower mortgage rates more than the other and if so, which one?

9:31You know, I think really in control of Congress, whether it's a democratic or Republican majority in charge, there could be policy shifts. There could be directionally Democrats wanting to take housing policy in a direction, particularly in terms of regulatory enforcement. They'd have a tough time getting that past the president's desk. I think he'll be exercising of Edo Pan a lot more aggressively. So then you have to have durable bipartisan consensus, you know, over 60 senators on a bipartisan basis in particular, but a pretty substantial bipartisan majority. You know, housing is kind of having a moment and just like with the road to housing bill, when those bills got altered several times, when they made it to the floor out of committee, they would get close to 400 votes in the house and almost 90 votes in the Senate on a couple of different occasions. And that was true in the final instance, and you know, the version of the proposal that became law in July. So I think there will be bipartisan opportunities, but building that bipartisan consensus will be tougher.

10:32So I still think, you know, the traditional levers at the Fed and the treasury would be kind of the traditional way to think about what could impact rates. But we're in a really new, as people that are listening to this podcast, you know, should recognize, like you were saying, we're in an unusual market situation where the data is not seeming to make the same difference in terms of the direction of rates. Now, if the conflict in the Middle East, you know, came to an end, then maybe that impacts, you know, oil and gas prices and diesel and, you know, you see some deflationary effects and that could have a positive impact on the on the 10 year Treasury and on mortgage rates. But probably the most consequential thing that Congress could do would be focus on fiscal policy and the debt and the deficit because March, you know, the capital markets are not buying the traditional levers as a means of trying to direct interest rates. And, you know, this president talks more about mortgage rates and interest rates than just about any of his predecessors given his real estate background. That was true in the first term as well. And, you know, job voting hasn't worked.

11:35So I think some serious acknowledgement by the markets that Congress was trying to reform entitlement programs to save money or to really kind of directionally shift the debt and the deficit might be the most consequential thing that Congress could do, you know, to impact rates. I think those are great comments because it is that larger picture. And we've seen in this administration the limits of what a president can do to try to lower rates and some of the things that we're seeing now, even the limits to what a Fed German can do to try to impact rates is Kevin Worsh is dealing with a new set of realities. It's true. It has been fascinating for Fed Watchers. A little less fascinating when you're out in the, you know, boots on the ground trying to make all this work. Yeah, and you're trying to get people to the closing table at seven and a quarter. Right. The housing wire homebuilder summit brings together home building executives and leaders in Dallas on October 19th through the 21st real strategies, real conversations, real operators tackling what shaping home building today when the industry is changing the right room matters.

12:38Register for the homebuilder summit October 19th through the 21st at the Adolphus and Dallas at housing wire.com. Okay, so a couple of things that I know were priorities for you guys this your first of all, you know, I want to say congratulations on the road to housing act. It's been a couple months, but that was such a monumental thing to accomplish. And it took multiple years and so many stakeholders. So I think that's first of all, that's great. And don't want to go too far past that when it comes to things like LLPAs, for instance, credit score models things like this. Where is the MBA right now? What do you think, you know, what is a priority? What do you think you can accomplish? Yeah, there are essentially three things that we've been pressing the administration to try to do that could, you know, reduce the amount of money that a consumer would have to be laying forward at the closing table. One of those is to try to reduce the cost of credit score reporting that is passed along to the consumer from lenders by ending the trimmerge requirement and looking again at either a buy merge or maybe a single score with the appropriate guard rails in place because, you know, we want safety and soundness and underwriting.

13:44You know, relative to the conventional market and the GSCs that could save hundreds of dollars for closing transaction. I mentioned a minute ago a possible reduction to the mortgage insurance premium for FHA loans. That's something the administration could do. Still responsibly do that and keep the capital ratio of the single family insurance fund in a safe place and save borrowers, you know, hundreds to thousand dollars, you know, at the closing table. And then loan level price adjustments like you're mentioning that grid for the GSCs there could be substantial savings there. Director Palti has taken some action just over the last couple of days, you know, relative to manage score and integrating the grid with FICO for the use of both those scores. You know, the jury's out on exactly how much of a savings that's going to mean, but a lot of our lenders and, you know, prominent members are estimating a substantial reduction in cost potentially for consumers. I think there will be an uptick in the use of vantage, you know, particularly at the jump here with it with the change, but we'll have to see what the reaction is over time and investor reaction, the MBS investor and their comfort level with vantage versus classic FICO.

14:51It probably accelerates FICO to get their 10-T score out more quickly, but our lenders immediate reaction was, hey, we need some time to assimilate what this means. And so it may take some time for some of those savings for consumers to be realized as the guardrails are set in place for how to approach those transactions. Just this week we got UAD 3.6. We got a waiver for that for the lenders that weren't ready. I was kind of surprised that maybe I shouldn't have been. I don't know the inner workings, but I was like, oh, okay. Well, it's big. And again, that's something that had been in the works for a while. And it just goes to show that operationalizing these things in the complex mortgage ecosystem. You think you've had enough time for people to get ready and, you know, the market just wasn't so it's great that there's now this ability to get an exception for that and have a little bit more time to work through that. But we're, you know, very pleased and have been lobbying pretty heavily to see that kind of change we put in place. So we're encouraged by that. Again, I just keep going back to the notion that housing's, you know, in a moment. And even if the House flips and mixing waters is the chair of the House Financial Services Committee, she and

15:52Friendsheil worked really well on this road to housing project. And it really became more of an arm wrestling between the House and the Senate as two institutions. And the legislation was better as a product because of that back and forth, instead of just nuckling under to what the Senate could get, you know, a real big majority vote for. And I've done this now for a while. So I'm kind of old school, but I think that that's an appropriate way to do a serious legislative effort where you can get bipartisan consensus, because it's more durable. But to take your time to make sure that you get it closer to right. So I think we accept your congratulations. I think it was a consequential package, but almost directly showed, hey, Congress can work together on something where they're trying to be responsive to a need because there is a crisis in somebody of the housing markets around the country. And this was an attempt to try to influence affordability and remove some of the impediments to increase housing supply. I think if there is a road 2.0 attempt, whatever the outcomes in the midterms, it will focus more on the nuts and bolts of housing finance than perhaps this original road proposal did.

16:55So we look forward to that opportunity. And, you know, I think responding to the way that the political continuum shifts, if Democrats are in control, they're going to put more emphasis on the mission side of the, you know, improving in the utilization of housing programs. So probably some deeper subsidy down payment, you know, proposals that are going to emerge. I think they'll look at trying to use the tax code. How much of that they can get across the veto pin. We'll have to see whether they can build that kind of consensus. But the fortunate thing for us is, you know, I heard one of the other panels say this today at the summit of that. It really matters less who is in charge, but that we're ready to work with both sides, because we can usually find something to agree upon with the majority on housing. That's great. So assuming there is, you know, a pretty big change. Let's say at least one house, you know, when it comes to regulation, specifically mortgage industry regulation, how quickly could something like that change from where we are now? Well, I mean, there is the pause that comes when a new director, a new regulatory agency head is put in place. I'll just go back to like the CFPB and FHA examples that I was using earlier.

18:00I mean, from Matt Jones at FHA when he's confirmed, he'll be working with a lot of the team that he's already working with now. And so he'll probably be trying to continue the direction of a lot of the work that was already ongoing and HUD. I think because of what we talked about with CFPB, the fact that there was a real reduction in workforce, the ramping up will take a little bit longer. Brian Johnson would be quicker to be able to step in given his history of working at the CFPB. But I have to prioritize what he wants. Whatever size team he ends up with, you know, to focus on and prioritize. And so, you know, there is a limit as you were saying a minute ago to what you can accomplish in two years, even on the administrative side where the executive branch, you know, it has to work through the the rulemaking process with the guard rails in place there and get things passed on the B, which has really solidified its role as a gatekeeper in this administration, even for a lot of the independent agencies. You know, their work has to go through the OMB clearance process. But again, I believe that they will make a concerted effort to kind of double down and get as much done as they possibly can in the last two years. And so we'll be reacting, you know, no matter what.

19:07I appreciate you coming on and taking on this topic because we are just a few weeks away from knowing no one really knows what's going to happen. We've got some polling even said, you know, the polling seems to be going one way. But it's really going to matter what that majority, if there's a majority, what that is, what can even be accomplished. And so I appreciate you coming on, walking us through it. We will talk again soon when we know more about what we're talking about. Look forward to it. Thanks Sarah. Thank you, Bill. You bet. Thanks for listening to Housing Why Daily. If you haven't already, we'd love for you to take a minute to rate the show or leave a comment. We'll see you back here on Monday for more news and insight. Housing Why Our Intelligence gives you the housing market data behind the headlines from national trends all the way down to the zip code. Build your own charts, compare markets and get daily insights from Housing Why Our Analysts so you can see what's changing and what it means for your business. Right now you can get Housing Why Our Intelligence for just $599 a year with our early bird launch pricing.

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