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The housing finance sector has generally viewed Donald Trump’s election as a reprieve from four years of progressive restrictions and oppression. The penalties imposed on mortgage lenders during Rohit Chopra’s leadership at the Consumer Financial Protection Bureau (CFPB) exemplify regulatory overreach and political bias.
Chopra’s actions at the CFPB appear far more aggressive compared to Joe Kennedy’s initial term at the Securities and Exchange Commission in the early 1930s. Under Chopra’s direction, mortgage lenders and servicers were essentially compelled to pay exorbitant fines and settlements that should have been contested in court; however, only the most prominent financial institutions can afford to pursue such lengthy legal battles against the government.
Rocket Mortgage takes pride in contesting unjust fines, as they possess the resources to engage in extensive legal warfare against the government, which can easily cost millions of dollars. Chopra’s team at the CFPB frequently matched penalties to the firm’s financial capabilities, often, in this author’s perspective, selecting firms for enforcement actions based on their potential to pay substantial fines. It’s unclear how any of this benefits consumers, since many of the enforcement actions from the Chopra period lack a clear indication of consumer harm.
“Although a judge has temporarily halted firings at the CFPB, the bureau under Trump
While the industry’s overall reaction to Trump remains positive, there are worrying signs that the quest for cost savings occasionally leads to significant issues. For instance, Elon Musk and his Department of Government Efficiency (DOGE) claimed to have recovered $1.9 billion at HUD that was “misplaced.”
“$1.9 billion of HUD funds was retrieved after being misplaced during the Biden administration due to a flawed process,”
Without these funds, a default by a Ginnie Mae issuer could result in the U.S. defaulting on its guarantee of timely payment of principal and interest on government-insured MBS. “These funds were allocated for financial services administration, but are no longer necessary,” falsely stated Musk’s DOGE taskforce.
HUD Secretary Scott Turner ostensibly “assisted” Musk in addressing the “problem” of the missing $1.9 billion at HUD. In reality, there is no issue, and importantly, Musk’s claims regarding budget savings are incorrect. Turner then
Last week, the Trump Administration declared significant reductions at HUD, cutting more than 40% of the total workforce, primarily impacting those involved in financing for multifamily housing. Together with the GSEs, HUD plays a crucial role in supporting the multifamily sector at much higher loan-to-value ratios than typically offered by private lenders.
Conservatives have long sought to eliminate government-sponsored enterprises (GSEs) and HUD from financing multifamily housing, which could lead to substantial credit issues in both red and blue cities across the nation. Many assets financed by HUD and GSEs are smaller properties with high LTVs that lack private financing options. Absent federally supported lending, the small multifamily sector operates in a hard money, cash market, driving down valuations.
A withdrawal or reduction of credit support from HUD and/or GSEs for multifamily assets could lead to considerable distress for both investors and banks. Bank-held multifamily loans amount to approximately $600 billion in unpaid principal balance, while non-bank multifamily loans—including those from GSEs—total an additional $1.6 trillion in unpaid principal balance, culminating in a grand total of $2.12 trillion. The GSEs alone constitute two-thirds of the non-bank multifamily real estate market.
As the Trump FDIC moves to dispose of the remaining rent-stabilized assets from Signature Bank’s estate, the market for low-end rent-stabilized multifamily properties could face further adverse consequences. The financing options for rent-stabilized properties in New York are severely limited, primarily restricted to cash investors. Additionally, there are other banks in New York that hold mortgages on various rent-stabilized properties.
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While President Trump has skillfully employed financial leverage to advance his commercial real estate ventures, many of the conservative policies currently being implemented in Washington echo a 19th-century or perhaps even New Deal outlook. The notion of withdrawing funding to support Ginnie Mae’s credit backstop or abolishing support for over $1 trillion in multifamily real estate appears overly drastic.
Moreover, HUD Secretary Turner has expressed intentions to serve as the “quarterback” for a cross-governmental initiative to
If the Trump Administration plans to withdraw GSEs from multifamily lending, along with second homes and second lien mortgages, it could negatively impact profitability. Exiting the multifamily lending space could trigger a crisis in residential housing markets, particularly at a time when Turner aims to promote the development of more affordable housing.
As anyone involved in housing is aware, affordable housing in the U.S. cannot be constructed without some form of public subsidy. The notion of using the GSEs as a revenue source is equally questionable. Reports indicate that House Republicans are considering increasing guaranty fees for Fannie Mae and Freddie Mac to fund tax cuts and/or a dividend for taxpayers.
Norbert Michel of Heritage
The Trump Administration must cease portraying the GSEs as an inexhaustible source of funds and begin to consider how these entities will fare during the forthcoming housing downturn. In response to the protectionist agenda of the Trump Administration, a weakened dollar and rising long-term interest rates could pose significant challenges for the U.S. housing finance market.
