Trump should act quickly on financial regulation and housing

In a recent op-ed in the Wall Street Journal, Elon Musk and Vivek Ramaswamy set out their vision for the work to be undertaken by the newly formed Department of Government Efficiency, or DOGE. Taking swift executive action on housing and consumer financial protection regulation are important and can be done in alignment with the goals and objectives of the DOGE initiative. These changes can quickly begin to reduce the burden of complex regulatory requirements, reverse discriminatory diversity, equity and inclusion, or DEI, policies and improve housing affordability.

One agency that has been rumored to be on the DOGE “chopping block” is the Consumer Financial Protection Bureau. While future legislation may succeed in making more fundamental reforms to the CFPB, much can be accomplished by an effective director of the agency. In fact, as soon as a new director of the CFPB has been named by the incoming president, the work of reforming consumer protection regulation in financial services can begin.

The first step in this reform should be regulatory rescission, a strategy DOGE has recommended. For instance, rules that exceed statutory mandates, or that are not specifically required by statute, should be identified for rescission. A review of any existing rules that may run afoul of the constitutional separation of powers should be undertaken (increasingly referred to as a “Loper Bright review” in honor of the recent Supreme Court decision). The director should immediately move to modify the litigation strategy concerning the Small Business Data Collection rule, while seeking to rescind the current rule and replace it with a new, less burdensome one.

As a general rule, the director should aim to encourage industry best practices, rather than focusing on punitive measures, and should redouble the bureau’s efforts on educating consumers as the Dodd-Frank Act envisioned. A renewed innovation policy, much-needed clarity in UDAAP standards and a permanent end to regulation-by-enforcement would all be welcome improvements. Also, the new director should begin to use the CFPB’s lawful discretion on behalf of the American people, rather than consistently applying it in order to increase the regulatory burden, hamper innovation, and raise costs while providing few and questionable benefits.

For example, the CFPB enforces and writes rules for more than 20 federal statutes. The bureau is empowered with a great deal of flexibility in implementing these statutes. This flexibility could be applied to simplify requirements, set reasonable thresholds that exclude smaller institutions, exempt certain classes of transactions and allow for states to regulate conduct, rather than imposing a one-size-fits-all federal approach. Tiered approaches to regulation that “right-size” rules for smaller institutions, thereby enabling them to compete effectively with larger lenders, are an important and underutilized strategy that is often specifically authorized by the underlying statutes. Not taking this approach results in significant burdens on community banks (and others), drives consolidation in the industry and, ultimately, harms consumers.

In addition, the director should utilize the bureau’s UDAAP authority to quickly end the practice of “de-banking” individuals based on unfair discrimination on the basis of politics, religion or any other protected classification.

Lastly, the director should immediately act to eliminate “special purpose credit programs” that discriminate against borrowers based on immutable characteristics, like race or gender. These and similar programs continue a long and shameful history of government intervention in private financial markets in promotion of discriminatory policies and lend a false appearance of legitimacy to these reprehensible actions.

Housing affordability is a pressing problem that shows no sign of easing in the near term. Housing prices have increased rapidly, along with interest rates, pricing many out of the housing market. Interest rates should come down gradually as spending is brought under control, and housing prices may recede a bit, or at least grow more slowly, with reductions in legal and illegal immigration (reducing demand) and if the housing stock increases (increasing supply). While this may signal relief on the distant horizon, the incoming administration should take prompt executive action to give immediate relief to homebuyers.

The solution to housing affordability is not to choke off capital provided by the Federal Home Loan banks to community banks, as the FHFA has been proposing. Rather, the FHFA and HUD should take immediate steps to streamline the mortgage loan assumptions process, providing measurable benefits to housing affordability.

The majority of residential mortgages originated in the United States are insured by HUD’s Federal Housing Administration or sold to one of the quasi-governmental agencies supervised by Federal Housing Finance Agency (Fannie Mae and Freddie Mac). Due to the refinancing boom that occurred during the recent periods of historically low interest rates, a large proportion of existing mortgages have interest rates substantially lower than current market rates. This situation results in sellers that are unwilling to sell, and buyers that are unable to buy. Expanded availability of mortgage loan assumptions could substantially lower the combined interest rate buyers will need to pay when purchasing an existing home. This would save homebuyers hundreds of dollars per month and impose no direct cost on taxpayers.

Streamlining credit qualification for new buyers through FHA and GSE actions and supporting the development of new subordinate lien products that will cover the gap between existing mortgage balances and current prices are likely all that is required for a significant housing market reset. (Allowing sellers to retain their “first-time homebuyer” status following an assumption could provide a further incentive.)

An additional, important step to reducing housing costs would be to increase the availability of suitable housing units by empowering local communities and reducing the burden of federal regulation on residential development by rescinding HUD’s Affirmatively Furthering Fair Housing rule and enabling municipalities to ensure minimally acceptable housing units by rescinding the Discriminatory Effects rule.

Additional issues that can be addressed by HUD without federal legislation include withdrawing HUD guidance supporting discriminatory special purpose credit programs that violate the Fair Housing Act; keeping a focus on safety by excluding dangerous, violent convicted criminals from participating in some public housing programs; and reforming the grant-making activities of the agency to better align with the incoming administration’s policy objectives.

By undertaking these executive actions as soon as possible, the new administration can quickly deliver a large measure of much-needed relief to the American people.