8.17.26 Escrows and Midterms; Bipartisan Policy Center’s Emma Waters on Housing Reform; Rate Review

Robbie ChrismanWelcome to the Chrisman Commentary, Daily Mortgage News Podcast. I'm your host, Robbie Chrisman. Topics on today's episode include federal escrow laws. Mortgage rates are doing pretty well considering what? And my interview with Bipartisan Policy Center's, Emma Waters, on the shift from legislation to execution now that the 21st century Road to Housing Act is law. Here.Robbie ChrismanIn your opinion, what's going to make for the most successful implementation of the act versus where could we see it kind of get lost and watered down or diluted?Emma WatersYeah, I think it's a good question. I think there are a lot of parts of the bill that are just trying to simplify and improve existing programs. And there are things in here that will have an effect without funding necessarily needing to be appropriated. For instance, one that we are very excited about is the statutory removal of the permanent chassis requirement for manufactured homes, which basically just allows manufactured homes to have some more flexibility in what they look like. Maybe they want a permanent chassis, maybe they don't want a permanent chassis. The vast majority of manufactured homes aren't ever removed after they kind of get to their first destination. So, you know, we're requiring like a permanent steel chassis for transportation to be like affixed to the home can drive up costs and is not really necessary. So this change just sort of like introduces new flexibility and makes things simpler. So I think that's sort of those are the areas where you will be able to see quicker impact. It's the the a lot of the grant programs, I think, have a lot of possibility to really help state and local governments make changes and provide resources that they need in order to build more housing and get at this supply gap that's driving up costs. But it still remains to be seen sort of how quickly fund like how we'll receive funding and then be able to distribute that.Robbie ChrismanFrom application to close, JazzX is a new operating model that helps you scale growth, boost productivity, and transform how your team performs. To learn more about the first true end-to-end AI platform built for mortgage, visit jazzx.ai. Ten states have sued the office of the Comptroller of the Currency over new federal rules that would prevent them from enforcing laws requiring national banks to pay homeowners interest on money held in mortgage escrow accounts. Some weren't fans of 10% credit card caps, 50-year mortgages, portable and/or assumable mortgages, but proponents say that the administration is at least making suggestions. Congress's effort to boost the nation's housing supply passed both chambers with overwhelming bipartisan support and became law. Although it also left a mountain of paperwork for Washington's significantly shrunken federal agencies, which are now tasked with turning dozens of new policies into reality. And at this point, from now through election day, we pretty much have Congress on vacation or campaigning to keep their jobs. The big takeaway from last week is that inflation is stabilizing rather than reaccelerating, which strengthens the case for the Fed to remain on hold and retain a wait-and-see approach at the Federal Open Market Committee meeting next month. Were you expecting a rate hike anyway when inflation isn't accelerating, the labor market is deteriorating, and retail sales, even without adjusting for inflation, are now printing negative? Agency mortgage-backed securities and treasuries sold off to close last week as investors shrugged off weak July retail sales. Longer duration bonds underperformed even as the two-year yield briefly fell to its lowest level since late June, reflecting the gap between expectations for Fed easing and continued pressure on the long end of the yield curve. U.S. retail sales fell in July by the most in more than a year as consumers pulled back on purchases at online stores and auto dealers. The retail purchases, which aren't adjusted for inflation, decreased 0.6 percent, the most since May 2025, according to the Trump administration. The University of Michigan's preliminary August Consumer Sentiment Index fell sharply in July. Only 8% of consumers expect their incomes to outpace inflation over the next year, signaling growing pressure on household purchasing power that could translate into weaker discretionary spending. For today's interview, I wanted to welcome to the show Bipartisan Policy Center's Emma Waters to talk about the shift from legislation to execution now that the 21st Century Road to Housing Act is law and how quickly its provisions will translate into tangible effects for builders, lenders, local governments, and home buyers. She's a senior policy analyst on BPC's housing team and was previously the project manager for BPC's energy program.Robbie ChrismanLet's start by giving people some background on the bipartisan policy center and maybe specifically the uh J. Ronald Terwilliger Center for Housing Policy and what it its mission is, what it's been doing. And I would say anecdotally, it's nice that housing has become such a bipartisan issue and everybody can get behind it and people want more affordability in general. It's no longer a red versus blue sort of thing. Sure, NIMBYism, I'm sure, still exists everywhere. But what is the BPC's mission? How do you get involved with them? What do you like about what you do? And uh give us a little background.Emma WatersYeah, sure. I've been at BPC for uh almost seven years now, I think. I started uh as a project assistant on our energy team and then it sort of found my way into housing policy. BPC has been around for a long time, but the Terwilliger Center was launched in 2021 uh with the goal of making sure that every American has access to a safe, decent, affordable home. We're guided by the idea that that's sort of foundational to opportunity and that it should be a bipartisan issue. It shouldn't be a partisan issue. We've been working on a lot of the ideas that have been incorporated into this big housing package for a long time. The bill incorporates provisions from over 60 by our count standalone pieces of legislation that have been introduced sort of before this package took off. Somewhere around 36 of them had bipartisan sponsors to start off with. So it's it's a very bipartisan package and it incorporates a lot of things that we as an organization have been supportive of for a long time. So we are really excited to see it get over the finish line.Robbie ChrismanOne of the reasons I wanted to have you on today, or maybe the main reason I wanted to have you on today, was talking about moving from statute to practice when it came to the Road to Housing Act. What agencies are going to act first, what rules get written, how quickly builders, lenders, local governments, most importantly, Americans feel the effects. Before addressing certain provisions of this bill, can you talk about in general how we move from something being passed and signed into law, maybe on that the housing side of things when it comes to a bill, just moving from signing into practice, generally speaking?Emma WatersYeah, I think it probably looks different for every bill. Uh, and this one is is gonna be different provision to provision. Uh there are 12 different titles, 60 different provision, uh, you know, sections, something like that. And I think by our count, it'll involve at least 12 different agencies, um, many different sub-offices within those agencies. Also, you know, there are things that state and local governments will need to do, there are things that institutional investors will need to do. It's gonna involve a lot of people, and it's gonna take a lot of time. The, you know, statutory deadlines and things that are involved in this bill, some of them start this year, but then others stretch for 10 years. So full implementation is not something that's gonna be achieved immediately. It's gonna be a process. And so that's sort of why BPC is turning our focus now to monitor implementation, make sure things are sort of happening at a pace that we're expecting them to be happening at, and ensuring that everybody who has a vested interest in seeing this bill be successful sort of knows where to be paying attention.Robbie ChrismanCan you talk about how the BPC does that in practice? Is it a nudge? Is it a we're calling this out to some higher authority? How do you actually make sure things are progressing?Emma WatersWell, so so a lot of it, I think at this point is going to be monitoring. So we are sort of starting, we have on our website right now, we have an implementation tracker that lists all of the statutory deadlines. I will say one thing to note is that there are certain provisions in the bill that are very clear. They direct an agency to do something by this date. But there are also a lot of provisions that maybe direct an agency to do something, but there's no clear deadline. There are also provisions that give agencies authority to do things or allow agencies to do things, um, but don't necessarily direct them to or require them to. So there are some that will be up to mostly HUD to decide how they're going to implement. And then a big piece of this also is gonna come down to funding. So one of the interesting things about the bill is it includes a lot of new programs, expansions of existing programs, things like that. Um, but it does not include any new money. So the biggest thing that we're gonna be looking at next, this actually the ball is still in Congress's court on some level, because there's gonna need to be funding appropriated for new grant programs and things like that if HUD is gonna be expected to launch them.Robbie ChrismanDo you have a timeline for any of that? I was going to ask you what provisions have implementation deadlines and kind of you could walk us through those, but maybe maybe laying out the entire timeline for anything getting done here would be good, not to be too broad, but just in general, what are the next next things we can expect when it comes to this bill?Emma WatersYeah, that's a it's a good question. I will be honest, we have a spreadsheet. It's over uh a hundred pieces long. There are a lot, a lot of deadlines in here. It's not quite finished yet. Um we'll be updating.Robbie ChrismanAny big ones worth sharing with the audience?Emma WatersYeah, some of the first ones is there is uh an August 10th deadline to issue for HUD to issue federal a federal register notice with updates on the CDBG-DR formula allocation methodologies. That's one that will move a little bit faster. The community development block grant disaster funding program was authorized for three years in this bill. So it'll sunset after that. So there are quite a few deadlines for that program that HUD will need to act on before that sunset happens. So there's a lot of other specific deadlines. Another one that everybody is paying attention to is the institutional investors ban. That goes into effect on January 7th of next year when the ban takes effect. And then institutional investors themselves are supposed to notify HUD if they meet the definition at that point. So that'll be interesting to see how that is done and how HUD tracks that. HUD is also responsible for establishing a renter outreach resource under that provision for renters who are tenants of large institutional investors. And then there will be a report required two years after the ban takes effect, sort of looking at the impact of that ban. And there'll be um a report from HUD, but also another from the GAO on that topic.Robbie ChrismanYou brought up HUD a couple of times. I'm wondering if, and obviously, like you said, it's you know, there's 60 pieces or 100 deadlines, or 60 provisions or 100 deadlines, whatever it might be. What agencies are responsible for which pieces of the without getting too much into the yeah, big big agency responsibilities here.Emma WatersLargely HUD is the primary uh agency that's gonna be responsible. There are also things that will affect USDA, the VA, CFPB is responsible for some reports on small dollar mortgages, but largely the vast majority are probably gonna be requirements of HUD.Robbie ChrismanAnd you've also mentioned state and local governments. What is still falling under federal purview? Because obviously HUD's a federal agency. What's falling under state purview? What's falling under local purviews?Emma WatersYes, that's a it's a good question. It's it's hard to summarize. Um so, so like big picture, um, a lot of what the bill does is it tries to simplify certain federal regulatory barriers that make it harder for state and local governments to build more housing. So things like the federal environmental review process, simplifying that, but that will you know potentially leave more responsibility on state and local governments to take that over. I'm trying to think of other responsibilities, is not quite the right word. There are a lot of unfunded grant programs in here, though, for state and local governments and tribal governments to take advantage of once they are in place. So I do think that you know it makes sense for those places to start thinking about how they would put together, you know, a grant proposal for a program like that, what they would do with the money, things like that. But again, that will all come back to funding.Robbie ChrismanI saw out there that there's still a lot of rulemaking or guidance that's pending. And I'm obviously very uninformed here. Where where are we still seeing some of this pending?Emma WatersI don't think the in general, the rulemaking process for a lot of this stuff has not started yet. So that will take a long time in a lot of situations.Robbie ChrismanDo you know much about the way the rulemaking process works?Emma WatersSo, like in general, like HUD would need to put you know something in the Federal Register about it. There's generally a public a public comment period, then they put out a final rule. It will take time. And there are deadlines in in here for some of that rulemaking to say it has to be posted in the federal register by X State, but that's all still in the future.Robbie ChrismanLet's end with something kind of fun. This has all been fun, right? What are you most encouraged about from this bill? What are you most excited to see enacted? What do you think is going to move the needle the most?Emma WatersIt's a good question. There's so much in the bill, honestly, and I think that's what maybe I find the most encouraging is that there is so much bipartisan agreement about all the different ways that we can be working towards improving housing supply. There are deregulatory things, there are grant programs, there are tweaks to financing mechanisms. There were a lot of people on both sides of the aisle that were really involved in this process. And the fact that that many members of Congress could agree on something, sort of the environment that we're in right now, I think is really encouraging. And it says a lot about there is just a broad understanding that this is an issue that everybody needs to buy into solving. I don't think that we will have seen the last of bipartisan housing legislation. I'm hoping that there is sort of continued momentum and this is a beginning of the recognition of the problem, but not necessarily the end of the progress that we'll see.Robbie ChrismanYeah, it seems like it kicked the door open a little bit, which is great news. And it's it's good to see representatives on both sides of the aisle come together to get this pass. Are your focus going to be on this for a while? Are you already on to hey, what more can we pass legislation-wise? Like how's the BPC dividing their attention?Emma WatersYes, I think we are dividing it. I definitely think that going forward, making sure that this is implemented as effectively and as quickly as possible is going to be a priority. But there were a lot of housing policy ideas that were not included in this bill. It didn't touch on tax policy at all. I think there's a lot more room for additional legislation. So we're continuing to sort of think through that. And then also, you know, making sure that we are providing helpful resources to state and local governments and other groups that could benefit from this bill, but maybe could use some help figuring out where to turn because it is so massive.Robbie ChrismanAny other thoughts that or final parting words for the audience that you think are important today? Things that have been on your mind when it comes to the bill, things that you think would be cool for people to hear?Emma WatersI think it's really exciting and I do think that it will move the needle, but I also don't think that we should expect it to have an immediate impact. It will take some time. Um, and so just having a little bit of patience and making sure that we are still checking in on this in, you know, six months to a year from now and not necessarily writing it off because we didn't see something happening, you know, 30 days after it was passed.Robbie ChrismanFantastic advice. Emma, thank you very much for the time. I really appreciate it.Emma WatersOf course. Thank you for having me.Robbie ChrismanAbility to repay requirements help mortgage performance. For people wondering why mortgage rates aren't even higher, considering the 10-year Treasury yield is at its highest level in nearly three years. The answer is that the mortgage treasury spread has compressed meaningfully. Unlike in 2023, when elevated rate volatility, weak mortgage-backed security demand, and Fed balance sheet runoff push mortgage spreads unusually wide. Today investors are demanding less of a premium to hold mortgage-backed securities. Yes, the ten-year yield is high, but the extra spread on top of it to price a mortgage has fallen substantially. Creating a gap between the administration's economic narrative and how households feel. With the midterms approaching, the White House appears poised to roll out additional measures, including potential capital gains reform reforms that could both index gains for inflation and substantially increase the tax exemption on home sales. Both have the potential to unlock housing inventory by giving long-time homeowners more incentive to sell. But because meaningful changes would require congressional action, these proposals are still more campaign promised than policy. And there's an ironic near-term risk. Simply signaling a future tax break could cause would-be sellers to wait, further constraining housing supply in an already tight market. This week is lighter on the domestic data front with focus on Wednesday's FOMC minutes. The minutes will likely reiterate that most policymakers remain patient on adjusting rates due to a softer labor market and inflation data since the July meeting. Tomorrow, July housing starts are expected to edge lower, reflecting ongoing pressure from weak affordability and a challenging environment for builders. Today's economic calendar includes August Empire State Manufacturing Index, August NAHB Housing Market Index, and some short duration Treasury auctions. We begin the week with agency MBS prices, little change from Friday's close, two-year yielding 4.16, and the ten-year yielding 4.1%, also unchanged from Friday's close. Let's wrap up with a joke and some housekeeping. Here's some things we know because of TB. If you're being chased through a town, you can usually take cover in a passing St. Patrick's Day parade at any any time of the year. All grocery shopping bags contain at least one loaf of French bread. The ventilation system of any building is a perfect hiding place. No one will ever think of looking for you in there, and you can travel to any other part of the building without difficulty. Should you wish to pass yourself off as a German officer, it will not be necessary to speak the language. A German accent will do. And a man will show no pain while taking the most ferocious beating, but will wince when a pretty nurse cleans his wounds. JazzX is a new operating model that helps you scale growth, boost productivity, and transform how your team performs. Learn more at jazzx.ai.