Trump’s first term provides some insight to potential changes and impacts
The State of the Housing Market
Today, housing is generally unaffordable for would-be middle-class families. The silver lining is that elevated home values have helped homeowners tap into a larger portion of their housing wealth. As the key interest rate used in part to determine the federally insured reverse mortgage’s loan proceeds remained below one percent throughout most of 2021 and below two percent throughout 2021 existing reverse mortgage borrowers returned to refinance their existing loan to access more money.
The bad news is that macroeconomic forces such as massive economic stimulus and low post-pandemic interest rates have created an untenable distortion in the housing market. That’s concerning as the housing market accounts for 15-18% of the U.S. GDP.
Experts Chime in on Potential Impacts of Trump’s Second Term
All this begs the question, how will a Trump presidency impact the housing market? That all depends on which economic policies he chooses to enact first. Realtor.com Chief Economist Danielle Hale told Newsweek “Despite a strong mandate from voters, the impact on the housing market remains a toss-up.” Lawrence Yun, Chief Economist and Senior Vice President of Research at the National Association of Realtors (NAR) said, “If government spending can be restrained in combination with the tax cut or the economy booms, then the Federal Reserve cuts will make a bigger impact on lowering mortgage rates”.
Government spending may see monumental reductions if the newly-formed Department of Government Efficiency or DOGE follows through on its promise to dramatically downsize the government cutting trillions in spending. If seen as successful it could positively impact market perceptions of the U.S. economy and potentially lead to lower long-term treasury rates.
Reimagining Fannie & Freddie
However, another potential outcome of the incoming Trump administration has raised concerns about the underlying infrastructure of U.S. housing finance– changing how the government-sponsored enterprises Fannie Mae and Freddie Mac are managed and financed.
In his first term, the Trump administration attempted to remove both agencies from their government control and conservatorship. If they succeed in Trump’s second term the result could upend the mortgage market and real estate industry. “It’s really a question, not so much of ‘whether,’ but ‘how’” the change gets made, Michael Fratantoni, chief economist at the Mortgage Bankers Association told the Washington Post.
The Post notes, “Economists and housing experts say the government has to be especially careful not to reshuffle the companies in a way that raises uncertainty or spooks investors, with mortgage rates already high and affordability at a crisis point”. These concerns may be warranted as Freddie and Fannie guarantee roughly half of existing mortgages in the U.S. Both government-sponsored enterprises or GSEs came under the control of the federal government in 2008 when the Bush administration nationalized the agencies amid the great housing and financial crisis. Also, investors who buy mortgage-backed securities from Fannie and Freddie may insist on higher interest rates without a government guarantee.
In other words, the federal government supports the housing market financially and reverse mortgage lending. What the housing market will look like in the coming years may depend on how quickly and drastically the Trump administration chooses to proceed.
Shannon Hicks
Editor in Chief: HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.
3 Comments
It’s REALTOR NOT REALATOR !!!!I
Already known yet even an experienced host can make this mistake. I will do better. Unfortunately, the challenges the reverse mortgage industry are far beyond mere mispronunciations.
The hypo in the room is Trump’s nominee for Sec. of HUD. As someone who was affiliated with Dr. Ben Carson while Dr. Carson served as Sec. of HUD in the first Trump Administration, what is the nominee’s positions on Dr. Carson’s views expressed directly and indirectly in Project 2025 regarding HECMs?
Will the nominee, if approved by the Senate (or through other means),
1) seek to lower PLFs still further,
2) lower the statutory MCA limit,
3) make HECMs essentially term loans with balloon UPBs,
4) put HECMs in their own fund,
5) lower the expected rate floor below3%, or
6) increase MIP?
While it is hard to support any of these measures,
I do agree that HUD’s accounting systems need improvement and specifically for the HECM portion of the MMIF starting on 10/1/2008 forward. Besides other results, changes affecting the HECM portion of the MMIF should result in a schedule of the Capital Resource account broken down annually into each cohort starting with fiscal year 2009 in the same manner as the net present value of future cash flows.
Will Senate confirmation hearings cover these issues? How soon will we hear the nominee’s views on these specific topics? Or will we hear anything about them at all before such changes are initiated?