Divisions in mortgage industry emerge ahead of 2020 election

August 27, 2020 12:47 PM

Conventional wisdom suggests that in business, it's often smartest not to take sides in politics. Figures in the mortgage industry have long understood this, largely supporting both Democrats and Republicans in about equal measure over time.

But this isn't any ordinary election year.

"With the pandemic, everybody’s mind is somewhere else," said Bill Cosgrove, president and CEO of Union Home Mortgage.

Between the coronavirus, increased party polarization and protests that have put more of a focus on racial equity issues, the mortgage industry is contending with the impact of various national crises, which are affecting the various segments of the field in different ways.

Achieving a bipartisan consensus these days "is tough on any issue, and certainly will be on fair housing," said Bill Killmer, senior vice president for legislative and political affairs at the Mortgage Bankers Association.

The industry will need to be more flexible in its positions because the business depends on broad coalitions to exert federal influence.

But achieving cohesion amid difficult conditions isn’t altogether unfamiliar territory.

"This happens every four years and it does result in a little disruption," said Allen Price, a senior vice president at BSI Financial Services. "We particularly saw disruption in 2008 and now we’re seeing it in the current election cycle. The mortgage … industry is doing now what it was doing then: adapting."

Below we examine five divisions within the ranks of the housing industry that are likely to emerge or deepen in the course of the election and how the business will bridge them, comprised of larger players out-donating the rest of the field, partisan splits on industry priorities, disagreement on the best approach to fair housing, the niche considerations of mortgage brokers, and the varying philosophies on creating influence in Washington.

One company has a disproportionate influence

Affiliates of the largest nonbank in the business, Quicken Loans, and its corporate parent, Rock Holdings, dominated mortgage banker and broker contributions for the 2019-20 cycle, according to the Center for Responsive Politics' most recent analysis of Federal Election Commission data available at deadline.

Affiliates of Rock Holdings account for nearly $1.7 million or 26% of the industry’s $6.53 million in contributions. The enter for Responsive Politics generally defines affiliates as individuals employed by an organization or their spouses.

Rock-related donations are split 64%-37% between Republicans and Democrats, respectively. Rock Holdings did not respond to a request for comment for this article, but when asked about its contributions by The New York Times recently, a representative emphasized that it gives to both parties and called the particular split involved "irrelevant."

The MBA was the second-largest donor, with more than $1.2 million or 19% of total contributions from the field, with the partisan mix being closer to a 50-50 split. Contributions from the MBA's political action committee to federal candidates, which totaled $835,500, were split 52%-48% between Democrats and the GOP, respectively.

While Republicans have a substantial amount of high-dollar donors within the industry, Democrats generally have raised more money collectively in this election because they have had more candidates to back.

"Democrats, across the board nationally, are outraising Republicans," said Brendan Quinn, outreach and social media manager for the Center for Responsive Politics. "There was a competitive Democratic primary. There wasn’t a competitive Republican primary."

Barring an unforeseen development, history suggests that donations will likely increase as the election nears and the party split in contributions is expected to remain somewhat consistent, he said.

Partisan positions are getting tougher to reconcile

In keeping with its donation patterns, the MBA positions the broader interests of the real estate finance industry as split between GOP and Democratic agendas.

"There's a little bit more of an emphasis with Democrats on issues related to affordable housing production and financing. With Republicans, we have a little more opportunity to work with them in issues related to regulatory clarity and relief," Killmer said.

But the two views aren't always easy to square, and there are always individual executives with leanings that may depend on the niche a particular company works in, Killmer acknowledged.

"From a corporate standpoint obviously certain issues may mean more for certain companies, but the MBA's got the luxury and the burden of having to represent the whole sweep of residential, commercial and multifamily business formations, and regulatory platforms that our members utilize, so we have to take a broader view," he added.

The MBA's positions on the issues may also depend on the opinions held by the broader housing coalitions it joins.

These groups include a mix of larger and smaller entities and can be effective in getting politicians to hear them out on policy issues, said Tim Rood, head of government and industry relations at SitusAMC and chairman of the Collingwood Group, a consultancy that has ties to several former officials from key government-related housing agencies.

"I think that probably is helpful. Each group has its own strengths, and it’s probably better received," said Rood.

But identifying common ground in the mortgage industry has always been a challenge that's only growing, particularly given the current polarization between parties.

The mortgage industry "does a good job of educating stakeholders, policymakers and influencers. So that's good, but it’s about getting everybody to rally around a common set of issues and getting everyone to speak on point and focus on group rather than self-interest. They’ve struggled with that," Rood said.

Industry figures are at odds over fair housing initiatives

The pandemic and the protests that arose from the murder of George Floyd have made fair housing a central issue in the election. But mortgage industry figures hold differing opinions on how to create greater equity.

"The COVID-19 pandemic, the economic crisis, and the national reckoning on racial injustice are closely intertwined issues that have become the dominant lens through which almost all policy issues in the 2020 election are seen," Melissa Stegman, senior policy counsel at the Center for Responsible Lending, said in an email.

Groups like the CRL, which have lobbied on behalf of lenders funding affordable housing, are focused on issues like a Department of Housing and Urban Development initiative to rollback of "disparate impact" rules used to determine fair-lending claims, as well as broader related concerns like evictions and foreclosures.

"The proposed rule from this administration would make it nearly impossible to use disparate impact under the Fair Housing Act," Stegman said.

That's led to a new schism between some mortgage companies on the issue, with some large bank and nonbank lenders questioning the rollback of the in light of current events, while smaller entities remain more typically concerned about the regulatory burden.

The MBA's position has evolved in line with larger players' opinion to date, but it's still hoping to find a middle ground.

"I think that there's been some greater intensity as the players evolved this time around," said Killmer. "The fair housing issue is obviously one where we think it's a good time for people to step back and try to pull all stakeholders together and be part of the current dialogue."

Because mortgage bankers generally have interests that bridge both parties' agendas, they may be in a good position to find a middle ground, if anyone is.

"It is much more partisan now, but in my experience, most mortgage bankers don't let their personal views interfere with their business views," said Brian Chappelle, a partner at the Washington, D.C., consultancy Potomac Partners, who worked for the Department of Housing and Urban Development and the MBA under a broad range of Republican and Democratic administrations.

For example, while affiliates of Rock Holdings and Quicken Loans show a strong preference for Republicans in their contributions, the company was among those that asked the Trump administration to reconsider its plan to weaken disparate impact.

There's a business case to be made for mortgage bankers and brokers that serve the demographic now coming into focus first-time homebuyers to support racial equity issues like fair lending, said Chappelle.

"The millennial generation is one of the most diverse in history," he said.

Mortgage brokers have their own unique issues to advocate for

While mortgage brokers don't amass the political donations mortgage bankers do, their numbers have grown as lenders have turned to them to help handle an influx of borrower demand. And that faction has their own interests to attend to.

One key issue for mortgage brokers, for example, is a bill introduced by Rep. Lacy Clay, D-Mo., that would ban "trigger leads" — sales of consumer credit data by companies that have no business relationship or transactional connection to the borrower.

The use of this data to generate mortgage leads has bedeviled brokers for years by creating competition for them. It's also been an irritant for some borrowers, and there's some concern it could lead to identity theft.

While Clay lost the primary and is not running for re-election, his bill serves as an example of the kind of issue a group like the National Association of Mortgage Brokers will back on the basis of legislation.

The broker group is a relatively modest donor to date, its PAC having contributed over $10,000 to a handful of individual candidates. The association received $35,000 from a group of individual donors that each gave $200 or more to the group. It boasts more than 27,000 individual members; the MBA has more than 60,000 members.

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The gap between the mortgage industry and Washington is wider

While mortgage bankers are more influential than some trade groups, their donations are dwarfed by others in the financial and real estate industry, which makes wielding financial influence a challenge.

At roughly $6 million, contributions from mortgage bankers and brokers are smaller than those of commercial banks, which have brought in almost $27 million. Depository donations look small next to those from the real estate industry, which totaled nearly $186 million.

Add to that pandemic issues that have made even larger groups' housing issues more of a second priority for voters, and the distance between politicians' agenda and the mortgage industry expands even further.

"In the midst of the pandemic and the national debate over leadership styles and so much else, I don't think housing is a priority issue," said Karen Petrou, co-founder and managing partner at Federal Financial Analytics, a nonpartisan Washington-based think tank that refrains from lobbying in order to objectively analyze policy developments in finance.

"I think you will see over time critical questions like what happens when mortgage forbearance ends assume political proportions," Petrou said, "but I don't think that’s likely before November."

However, there are strategies mortgage bankers and brokers can employ to address this, in addition to coalition building. They can make up for what they lack in donations and numbers by, for example, hiring staff with Washington connections.

"We don't have a PAC. We try to work with the [House Financial Services and Senate Banking] committees, where things happen, and do it through persuasion, not through money. No one thinks of us as a lobbying powerhouse," said Scott Olson, executive director of the Washington-based Community Home Lenders Association.

Olson worked on Capitol Hill for more than 20 years, including 15 years as housing policy director for the House Financial Services Committee. While he hasn’t worked on the Hill in for more than a decade, he still has connections. Donations help with political access but they may only go so far unless they're significant, he said.

"Maybe the Realtors have enough money to go to leadership, but most groups, even decent-sized groups, don't," Olson said. "They go to the chairman of the House Financial Services Committee, the chairman of the Senate Banking Committee and ranking members — the top people that make these policies when the doors are closed. That’s where the giving is and that's really where, increasingly, the lobbying is."

"The only way to be effective in Washington is you figure on all issues a third support you, a third oppose you and a third's on the fence," he added.

"The key is to find those issues where you can persuade the people that are against you that they don't have a dog in the fight."

Another strategy the mortgage industry can use to assert its influence is to remind politicians that while its issues may not seem like an immediate priority during election, they very well could be down the road.

"No one's ever going to get elected based on their, say, GSE or housing reform program. However, heads are going to roll and careers are going to be lost if you pass something that raises the cost of credit or drives down property values," said Rood. "Those are the things that will get public opinion moving."

— Paul Centopani contributed to this story