Last week, leaders from across the real estate and lending industry joined for a “Regulatory Outlook 2020” webinar produced by October Research.
Qualia CEO, Nate Baker, moderated the webinar alongside Dodd Frank Update Editor, Robert Rozboril. The pair directed questions toward Doug Duncan, Senior VP & Chief Economist at Fannie Mae; Valerie Jahn-Grandin, Executive VP & Chief Underwriting Counsel at North American Title Insurance Company (NATIC); and Justin Wiseman, Associate VP & Managing Regulatory Counsel at the Mortgage Bankers Association (MBA).
The experts discussed the current housing market, legislative agendas that will take shape next year, and their take on what new measures may mean for the industry.
The current housing market and predictions for 2020
Duncan kicked off the webinar with a brief overview of the current housing market and his predictions for 2020. “In 2020 relative to 2019, the housing market looks steady,” he said. His only caveat: unpredictability in the trade arena that could increase or decrease the steady year-over-year 2% growth percentage he predicts.
Duncan also provided his take on housing supply and predictions for home purchasing. “Millennials are going to be the drivers of home ownership for a while,” he said “and millennials won’t reach peak home buying age for another 6-8 years. For that reason, we’ll see strong demand [among millennials] for some time to come.”
Despite strong demand, Duncan noted that home sales among millennials are stunted due to a few factors, including demographic shifts that diverge from traditional housing market trends. For example, the Baby Boomer generation are “aging in place” (i.e. staying in their homes longer due to healthcare technology advancements, such as remote health monitoring and personal health devices) and Gen Xers are staying put and “building in place” (i.e. building on top of their existing homes instead of purchasing new homes) due to strain from the last economic downturn. These factors have led to a 30-year low in the housing supply for available existing homes for sale. Additionally, builders traditionally haven’t focused their efforts on construction for first time homebuyers. As a result, supply is not opening up for millennial home buyers.
Regulatory Outlook for 2020
Jahn-Grandin and Wiseman next discussed their predictions for key regulatory measures impacting the real estate industry next year. The pair covered 10 key regulatory items to keep an eye on in 2020.
1. Consumer Financial Protection Bureau (CFPB) Constitutionality
“The key question this year is whether the structure of the CFPB is constitutional,” Wiseman said. More specifically, there are questions around whether Congress should have the ability to vote-in a CFPB director that isn’t answerable to the president. Oral arguments are set for March 2020; however, there likely won’t be a decision until July 2020.
2. Qualified Mortgage (QM) Government Sponsored Enterprises (GSE) Patch
When the CFPB put the QM GSE patch in place, they didn’t intend for it to be a permanent solution. The patch is coming up on its 7-year expiration in 2021 and regulatory bodies and industry leaders are starting to think about what will replace the patch.
Wiseman provided the MBA’s recommendations for patch replacement. The MBA says that the debt-to-income (DTI) cap for qualified mortgages should be eliminated. According to Wiseman, it’s not a good indicator of loan performance. If the DTI cap is not eliminated, the MBA recommends one of the following:
- Allow for the use of compensating factors (if the DTI cap is maintained)
- Raise the DTI threshold (above the current 43% cap)
- Fix Appendix Q (if DTI cap is maintained)
3. TILA-RESPA Integrated Disclosure (TRID) Updates
Jahn-Grandin noted that the 5 year TRID lookback assessment is underway by the CFPB. The deadline for public comment is January 21, 2020.
The bureau intends to address TRID’s effectiveness in meeting the purpose and objectives of Title X of the Dodd-Frank Act. Jahn-Grandin said that most industry leaders are focused-in on how to fix the insurance closing disclosure (CD) and its feasibility in certain states.
While some have raised TRID elimination as a possibility, Jahn-Grandin believes there is not a lot of industry support for elimination. “Industry data proves that overall, TRID has been a helpful consumer tool,” she said.
4. CFPB changes and priorities
Wiseman followed earlier comments about the CFPB’s constitutionality with more details on the CFPB’s priorities in the coming year. He predicts the following process changes that will shift the CFPB toward the new director’s focus on prevention (instead of enforcement):
- Adjusting current enforcement practices (including CID reforms)
- Moving toward a supervisory model and resolution through remediation
- Improving processes for innovative solutions and “sandboxing” (innovators receive funding if they follow experimental design and provide performance data)
- Elevating the CFPB’s role of guidance
Wiseman predicts the following CFPB priorities to come:
- Fixing the QM GSE patch and Appendix Q
- Real Estate Settlement Procedures Act (RESPA) compliance — providing clarity on MSAs and related issues in a post-PHH world
- Loan officer compensation rule
- Property Assessed Clean Energy (PACE) rules
- Other issues including Secure and Fair Enforcement (SAFE) Act Transitional Licensing, Home Mortgage Disclosure Act (HMDA) reforms, and The Fair Debt Collection Practices Act (FDCPA) reforms
5. Remote Online Notarization (RON) and eClosings
Jahn-Grandin discussed the current eClosing landscape and her thoughts on legislative agendas that will need to move forward to make digital closings a reality nation-wide. “We moved fast in 2019 toward national implementation,” Jahn-Grandin said. “This is really unusual in my experience to see so many sectors working together to make this happen.”
While the eClosing landscape is shifting quickly, Jahn-Grandin noted that there is still some friction. “What we’re facing now is cutting edge technology coming to a head with local county recorders who don’t have the systems in place to accommodate digital closings,” she said.
While Jahn-Grandin believes RON is the gold-standard, she’s also certain that print-out options will be necessary for some time to allow for recordation in remote counties that do not yet have digital systems in place.
6. Fair lending and disparate impact
The U.S. Department of Housing and Urban Development’s (HUD) notice of proposed rulemaking intends to alleviate ambiguity and uncertainty around fair lending. Wiseman relayed a few areas of focus for HUD as it relates to fair lending:
- Align burden-shifting standards with Supreme Court’s 2015 Inclusive Communities decision.
- Create clarity around the applicability of disparate impact theory in algorithmic models. (Disparate impact theory refers to practices in housing that adversely affect one group of protected classes more than another even though the rules are formally neutral.)
- Clarify the role of third party rules or regulations in limiting a party’s discretion under the rule.
7. Cybersecurity and state privacy laws
Jahn-Grandin discussed the California Consumer Privacy Act (CCPA) and its implications at a national level. The passage of the CCPA in 2018 spurred national dialogue and a number of other states to propose their own state-level data privacy solutions. “There are currently hundreds of bills [related to privacy] pending in all 50 states,” Jahn-Grandin said.
The CCPA will go into effect in January 2020, and will impact businesses outside the borders of California (who do business with California residents) as well as entities that share branding with California companies. Jahn-Grandin recommends businesses do the following to ensure compliance and prepare for pending state-level bills:
- Establish clear policies on data and ensure that your entire organization is proficient with the policies
- Execute clear process for consumer data requests including web-based links and multiple phone numbers for consumers to request information
- Talk to your vendors about how they are handling your customer’s data
- Map your data to know where it is, how it’s collected, and where it resides in your systems
- Have a data breach plan in place
8. Secure and Fair Enforcement (SAFE) Banking Act
The SAFE Act passed the US House in September and is designed to allow the banking of funds from legal (by state law) cannabis businesses. This act has implications for real estate, specifically because many underwriters don’t currently insure real estate transactions when they are aware of cannabis-related transactions. Once banks begin to accept funds, underwriters will feel more confident insuring cannabis-related entities.
“The bottom line here is the legalization of cannabis,” Jahn-Grandin said. As cannabis becomes more universally accepted, there may be more impetus for the passage of federal legislation protecting marijuana-related businesses.
9. Corporate Transparency Act
Currently, no US state requires companies to disclose beneficial owners of real estate. “While there are benefits to this system for high-profile individuals who wish to hide their identity, this level of secrecy is enabling criminals to launder money in a real estate transaction,” Jahn-Grandin said.
Recently, the House passed the Corporate Transparency Act that will require beneficial owners to be reported to Financial Crimes Enforcement Network (FinCEN) at the time of filing. The American Land Title Association (ALTA) is in support of the act because settlement agents will simply need to provide a FinCEN number at closing. The American Bankers Association (ABA) however, believes the act is duplicative of certain reporting obligations of the IRS and is concerned about the privacy of information.
“The implementation of this act will be tough,” Jahn-Grandin noted due to the fact that filing will happen at a state-level but the reporting requirement is enacted at a federal level. Additionally, Jahn-Grandin noted the financial impact of the act which will require more than $5.3 billion to fully implement.
10. State regulatory oversight of underwriters and agents
Across the country, regulations are imposing greater oversight of underwriters. As a result, underwriters are digging more deeply into their agent’s files. “This shouldn’t be too painful,” Jahn-Grandin said in reference to the strong partnerships between underwriters and agents that will make greater oversight a non-issue.
“What you’ll see in a lot of states is more agent training,” Jahn-Grandin said of the increased regulatory oversight. “This will be state-specific training to make certain files have information and disclosures that comply with state statutes.”
To hear more from industry leaders on the regulatory landscape in 2020, register for a recording of the webinar by clicking below.