A hatchet or a scalpel?
If there’s one man who has the ear of President-Elect Donald Trump it’s the world’s richest man and entrepreneur Elon Musk- owner of Telsa, SpaceX, and X–formerly known as Twitter. Since Trump’s election night victory in November Musk has spent several days at the President-Elect’s palatial mansion at Maralago and later treated Trump to a front-row seat of a recent SpaceX launch. Musk wasn’t always a Trump supporter as evidenced by his shifting political allegiances. The self-described moderate has a long history of supporting candidates on both sides of the aisle. However, lawmakers from both parties are likely to balk at several of the proposals from the Department of Government Efficiency or DOGE which Musk and Vivek Ramaswamy have been tapped to head. The non-governmental agency would identify areas of alleged waste and inefficiency and make recommendations to the White House, members of Congress, and agency leaders.
Gutting the size of a bloated government. What are the risks?
Gutting the size of a bloated and inefficient government is a target-rich environment for DOGE. The question is how could such drastic measures impact housing finance, lending regulations, and reverse mortgage lending. In one word substantially. The adage of using an axe instead of a scalpel comes to mind.
“Delete CFPB. There are too many duplicative regulatory agencies”, Musk posted on his social media platform X on November 26th. Many mortgage professionals who’ve weathered the Consumer Financial Protection Bureau’s swath of regulations may be inclined to agree. But is the CFPB the proverbial Department of Redundancy Department?
The Consumer Financial Protection Bureau was authorized by the 2010 Dodd-Frank Act in the wake of the 2008 Great Financial Crisis and Housing Crash and functions under the Federal Reserve.
The CFPB’s role in mortgage lending
Some of the notable CFPB policies enacted in the last 14 years include the Ability-to-Repay Rule (ATR) which mandates that lenders verify a borrower’s ability to repay a mortgage based on income, assets, existing debts, and credit history. In 2015 the TRID or Truth in Lending RESPA Integrated Disclosure Rule combined the Truth in Lending and Real Estate Settlement Procedures Act or RESPA into two documents. Other CFPB rules governing mortgage lending include revised mortgage servicing rules, the prohibition of prepayment penalties for Qualified Mortgages, an update to the HMDA or Home Mortgage Disclosure Act, and most controversially Loan Originator Compensation Rutles which prohibited compensation based on loan terms.
The CFPB and the HECM reverse mortgage
While the CFPB doesn’t create HECM-specific rules, it does enforce compliance with rules that HUD has implemented and wields influence over HECM policies. Key HUD rules changes supported by CFPB enforcement include the HECM Financial Assessment and Non-Borrowing Spouse protections. enhanced consumer disclosures, the prohibition against cross-selling of financial products, and increased scrutiny of reverse mortgage advertising.
So how would mortgage lending change if DOGE or the Department of Government Efficiency eliminated the CFPB? Critics claim consumer protections would be substantially weakened which could lead to an increase in risky lending practices, fewer foreclosure protections, and regulatory confusion. The confusion could result from state regulators and other federal agencies (e.g., the Federal Reserve, OCC, or HUD) stepping in to fill the void, resulting in gaps that could lead to fragmented oversight. Lenders operating across state lines might face varying rules and increasing complexity.
However, mortgage lenders may argue the elimination of the CFPB could save billions in compliance costs nationally–savings that could be passed onto the consumer. What if DOGE slashes the Department of Housing and Urban Development’s budget? Inside the reverse mortgage industry, some are expressing concerns such an action could hinder the ability of HUD to effectively manage the FHA Home Equity Conversion Mortgage and endorse new loans.
While overregulation is costly and inefficient the impacts of eliminating the CFPB or slashing the funding of other regulatory agencies are certain to draw criticism and resistance from Republicans and Democrats alike. Moreover, neither Trump nor DOGE would be able to dissolve the agency without authorization by Congress.
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.
1 Comment
Many in the industry do not understand how the HECM program is funded. There are two main sources: 1) MIP which goes into the MMI (trust) Fund and 2) the budget and appropriations process. Although seldom seen, there is another way the HECM has been funded in the last 12 years and that is a mandatory appropriation when HECM losses exceeded the positive reserves of the other programs in the MMIF. The amount of the mandatory appropriation was $1.7 billion which was specifically and exclusively allocated to the HECM portion of the MMIF in the last four years.
While the MIP can be used to fund HECM counseling when the reserve permits, its primary and only use to date has been in paying the insurance losses and property related costs of the HECM program and in specific circumstances being available to pay off the negative reserves of other programs (an event that has not occurred in the last fifteen years plus). According to HUD there is about $9 billion in the net cash (i.e., cash equivalents) reserves in the HECM program (including the $1.7 billion mandatory appropriation from 2013) and the projected net present value of the future cash flows of the HECM program of almost $7 billion per HUD.
As to the HECM portion of the MMIF and the MMIF overall, why would DOGE look into the MMIF since it has not cost taxpayers anything since September 2013? Not having any knowledge of DOGE, its authority, its purpose, its mission, its funding, or much of anything else, I will leave the discussion about DOGE’s possible activities up to those who are experienced in and aware of such matters.
However, it is the funding of HECM operations, its administration, and other cost areas through the budget and appropriation process that is of greatest concern. It seems highly unlikely that HUD will be defunded (meaning losing their total budgetary funding). Like every other program overseen by HUD, it is possible that specific programs like the HECM program could be target for extinction but that seems unlikely as to HECMs.
There are about 410,000 active HECMs, meaning that they are endorsed and have not terminated. About 285,000 are unassigned and about 125,000 are assigned. There is no count of closed HECMs waiting for endorsement that is released in public reports. The question becomes what is the budgetary cost to 1) endorse HECMs, 2) oversee the HECM portion of the MMIF, 3) care for the assigned HECMs, and 4) all other budgetary expenses related to the HECM program? Are these costs out of line with what those costs would be for private industry to perform the same level of work?
Besides specific targeting of HUD/FHA/GNMA programs, DOGE could simply recommend an across the board cut in costs. Then there would be a need to prioritize HUD programs and identify the costs of running those programs. The remaining funds for those programs not prioritized could all but shut them down. How would the HECM program fare in that scenario?
These kinds of cut backs occur in private companies with some regularity. To a limited degree they happen in the federal government; however, the idea of using DOGE to cut federal spending to the bone is something new. Will it work? Will the HECM program be spared? There are many questions with few answers. In the next 12 months, we should start finding out how serious the new Trump administration is about this goal.