Ed. #91: "Interesting Times"

CFPB and GSEs vs. DOGE and the Trump 2.0 Administration

Thank you for being a subscriber to Levy’s Mortgage Musings and welcome to my new Substack format! Subscribers to Mortgage Musings should now be able to see posts in their email or you can view it in the Substack app.[1] This should make it easier to read on your smartphone. For now, please continue to go to the www.mortgagemusings.com website to see all prior editions and bear with me as I make this transition.

Why we need the CFPB?

The above photo for fast-food financing was not AI generated. It is a real pop-up store that actually appeared in New York City next to an iconic fast food hamburger place that has its name and logos blurred out. So, there you have it. I owe an apology to the consumer activists and Warrenista doomsayers who were right about what might happen if you shutter the CFPB. No sooner did the CFPB (almost) go dark than the truly craven impulses of consumer financers were brazenly actualized into full rip off mode: in the most consumer finance regulated state of New York, no less!

Apparently, the on-the-spot NY state regulators (or the tongue-in-cheek Chili’s marketers of the stunt) shut it down after 2 days, but I really would have liked to see the disclosures and ability to repay calculations to finance a couple Happy Meals. And how would they deal with the right of rescission on a Quarter Pounder? [2]

Interesting times?

Meanwhile, on a serious note, I am annoyed with the glut of folks in my inbox and ears using some variation of that “may you live in interesting times” curse to describe everything from the economy and foreign relations to domestic battles over critical issues like the Constitution and the rule of law. The worse part about using that interesting times quote is that it doesn’t clarify problems or even shed any light on a path towards solution. It’s just a lazy and, frankly, passive aggressive way to describe one’s frustration with the uncertainty and changes facing the world today.

I’m from Mars

As my wife knows all too well, I am impatient with discussing problems and too quickly move to solutions.[3] Telling my readers we live in interesting times would be a waste of your time and wholly unsatisfying. That said, I am really struggling to put my observations in perspective because information is changing daily. Even while I have been writing this, the push and pull of CFPB news has been headspinning. Lurking in the background, however, is the greater threat to housing of what may happen with the GSEs. Housing is at a crossroads, and things could go in multiple directions at once.[4] I’ll quote the great oracle of intergalactic politics, Yoda, “Hmmm… The dark side clouds everything. Impossible to see, the future is.”

CFPB gyrations

Despite on-again/off again staff reduction gyrations and curious Trump administration responses to complying with the meaning of words with the federal judiciary,[5] I have reason to be optimistic about where the CFPB is headed as a regulatory and enforcement agency. The human cost to people getting laid off from their jobs at CFPB is nothing to celebrate, but, one thing has become clear to me; the CFPB is unlikely to be fully deleted. When the smoke clears, CFPB is, however, going to be dramatically reformed in the name of limited government a lot more accountable to the people through the executive (the President).

Ideally, we will come through these gyrations with needed and durable regulatory reforms and a more humble enforcement culture as I suggested in my open letter to CFPB leadership dated March 23, 2025. To that end, in addition to welcome comments made by Director-nominee, Jonathan McKernan at his confirmation hearing about prior CFPB overreach, on April 16, Mark Paoletta, CFPB’s Chief Legal Officer sent a memo to staff that very clearly laid out a more restrained enforcement and supervisory agenda for the agency focused on actual consumer harm,[6] and avoiding novel legal theories or duplicative government oversight.[7] Then, just day later, on April 17, we heard that nearly 1,500 (out of 1,700) CFPB employees would be RIF’d, starting another round of hearings in Judge Amy Berman Jackson’s federal courthouse about whether terminations were the result of a “particularized assessment” which led to an April 18 temporary restraining order temporarily preventing the mass firings. Again, I struggle to provide a perspective while the news changes daily.

Optimistically, once the staffing situation settles down in the coming weeks and months, it is not impossible to imagine Congressional legislation proposed to modify the CFPB’s leadership structure to become a commission like the SEC or FTC.[8] With a lot more “Hill” work,[9] CFPB could also encourage Congress to pass sensible and market friendly amendments to the various consumer protection statutes it administers like RESPA, TILA, HMDA to provide clarity and flexibility and/or even repeal laws and regulations that are outdated and/or serve no useful purpose.[10]

Durable change?

The long-term durability of change for the CFPB, however, is still my big unknown. Many changes can be reversed quickly with different leadership and policy. For example, interim CFPB Director Vought recently announced a review of all regulatory guidance issued by the CFPB. Based on how “guidance” was used (and misused) by Chopra and Cordray to attempt to create rights or obligations,[11] Vought has good reason to review the use of CFPB’s guidance materials. According to American Banker, Vought’s memo stated that the use of guidance to regulate,

“is unlawful and deprives the public a fair notice of what conduct is prohibited. The bureau will no longer engage in this practice, … Effective immediately, Bureau components may not issue guidance documents that purport to create rights or obligations binding on persons or entities outside the bureau."

While I generally agree with Vought’s assessment about the use of guidance materials, last year’s administrative law cases already emasculated most of the legal authority behind that kind of regulatory shorthand. Meanwhile, it is unclear if Vought’s review will include prior guidance from other agencies adopted by the CFPB or if it could unwind other guidance liked by industry as much as guidance it dislikes.

The Courts, the “Deep State”, Congress, and the Unitary Executive

In virtually all federal agencies, the Trump Administration seems hell-bent on unwinding any entrenched hold the alleged “deep state swamp” has on the federal government. In response to these developments, many media outlets have provided a continuing refrain of breathless outrage at the massive cuts. CFPB news stories have quoted old school consumer advocates and Warrenistas[12] calling the firings such things as the “blueprint for would-be cheats and lawbreakers”.[13] But “deep state” or even subservient bureaucrats can’t impact policy if they are fired or told not to do their jobs at all, so rhetoric aside, the only effective efforts to stop the firings and shut downs are in the federal judiciary.

CFPB staff and other bureaucrats’ ability to successfully appeal to the judiciary to identify “pesky”[14] constitutional and statutory issues where the executive overstepped, however, have proven limited. For most positions, the courts seem reluctant to support a right for bureaucrats to (a) demand firing only for individual cause, or (b) hang onto a job if the job is eliminated entirely. But, you’ll have to tune in to live updates of the judicial challenges if you want to stay up to date on all this.

As a practical matter, however, those “pesky” lawsuits[15] have slowed the move fast and break things mentality and chainsaw reforms sought by this extreme version of the unitary executive. Changes to the CFPB may only need to be resisted for long enough to make it to the next election(s) when a divided Congress and/or a new administration can just reverse all the executive action thereby whipsawing the housing finance industry back to the prior status quo (or something worse). This whipsaw model is essentially what the mortgage industry has been living through since Dodd Frank. That is, we have had CFPB directors with vastly different agendas, changing interpretations and reversals before. Whipsawing of the CFPB’s approach is business as usual.[16]

What about the GSEs?

Through Fannie and Freddie, the government supports lower interest rates mostly for mid-and-upper-income people to buy homes. Roughly 95% of the home finance market is controlled by the GSEs (and FHA/VA). That reflects housing policy choices made a long time ago supporting the demand side of the housing market which everyone recognizes has a supply shortage today. But, as I pointed out in one of my earliest posts back in 2020, the housing industry is hooked on the low cost financing and liquidity provided by the GSEs. So GSE financing is the lynchpin for home finance. With that as background, the news has been eerily quiet on the FHFA/GSE front except for some employees fired apparently due to a matching donation fraud issue and replacement of many Board members.[17]

Knocking over Chesterton’s fence

What would happen if the GSE liquidity punch bowl was suddenly taken away? I am confident that the impact to the housing market of that would be much more severe than shuttering the CFPB. At a minimum, home loan interest rates would increase, and perhaps home values could also decline due to reduced liquidity in the entire housing market generally. So, most experts are calling for an orderly release from conservatorship of Fannie and Freddie and offering suggestions for time frames, recapitalization, and continuing government backstops. Libertarian economist Mark Calabria tried really hard to create an orderly path for release from conservatorship for the GSEs nearly 10 years ago when he was FHFA Director during the first Trump administration. But Calabria couldn’t get that over the goal line due to (among other things) Congressional inertia and COVID-19,[18] and since the Biden administration basically had no housing policy goals,[19] Fannie and Freddie remain government wards in 2025.

Fortunately, Calabria is back on the Trump 2.0 administration team, but he has his work cut out for him. Looking at how the Spirit of DOGE, tariffs, foreign aid, disdain for Western allies, mass firings of bureaucrats, and unthinkable policy reversals have played out in the first 100 days, “orderly” just doesn’t seem to be a priority for how this administration deals with the consequences of its decisions. Rather, Chesterton’s fences[20] get knocked over or circumvented without thoughtful consideration of implications. “Shut it down and see what happens” is clearly the modus operandi. And with that as the playbook, what reason is there to think Calabria (or any other “expert”) can convince the rest of the team that Fannie and Freddie should be handled differently?

I hope I’m wrong about the GSEs

While I remain hopeful for better outcomes, the type of action this unitary executive is inclined to take should be setting the mortgage finance industry’s hair on fire right now vis the GSEs. Just as Mick Mulvaney said of the CFPB in 2016, Trump’s DOGE mentality team could easily say that Fannie and Freddie are an unaccountable sick sad joke too.[21] A few years ago, I asked in a Musing, “Are Fannie and Freddie the Government”?[22] After 16 years in Conservatorship what other answer could there be?

So, after quietly overhauling the Board of Directors for both companies with little resistance, the Trump team might just ask some big private funds like Blackrock or Citadel if they would like to buy a couple mortgage finance behemoths the “government” has decided to sell to the highest bidder. DOGE could claim a big win by saying they generated $100’s of billions of dollars by selling the GSEs and getting those businesses back into the private sector with no ongoing government liability.[23] I wish Mr. Calabria (and other government experts) good luck., but this isn’t like the last time around. All the experts are suspicious. If Trump suggested everyone inject bleach this term, the death toll would be staggering.

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[1] Substack allows bloggers to post and email for free, but they seem to encourage bloggers to charge for certain content (it’s how they make money too) allowing for “free” subscribers to get partial access. I have no current plan to make this a paid publication, but if I do, everyone will get plenty of notice.

[2] I have so many questions about collateral and amortization periods too.

[3] I am writing this around my 34^th wedding anniversary. As one can imagine, my wife’s annoyance with me in many conversations with this Men are from Mars problem comes up frequently. She’s not the only one annoyed either. Sorry, it’s just how I’m wired.

[4] Likewise, Realtors might need to quickly figure out how to charge consumers for the actual value they provide and not depend on access to a closed marketplace that can easily be served with technology and transparency. It is unclear to me what the Justice Department’s position in a Trump administration is on the anti-trust issues posed by the Realtor control of listings on MLS, but this seems like low-hanging fruit for iconoclasts in an age of Amazon and E-Bay.

[5] Remember my “Brady Bunch” Musing in which I mentioned Greg Brady’s perils of “living by exact words”? This administration may be falling into the same trap with words like “facilitate” and “particularized assessment.”

[6] Interestingly, Paoletta’s memo contrasted a focus on consumer harm with a prior focus on consumers making “wrong” choices and also stated, that “the Bureau’s primary consumer enforcement tools are its disclosure statutes. The Bureau shall not engage in attempts to create price controls.” Sounds like good news for rules like TRID and bad news for junk fee initiatives.

[7] Notably, the memo identified that the Bureau will prioritize cases involving actual fraud against consumers, with mortgages receiving the “highest priority.”

[8] Beware, however, Humphrey’s Executor may be on borrowed time which could change the whole nature of independent agency leadership. Also see fn. #21.

[9] With the intended massive staff reductions at CFPB, trade associations should be thinking about how to help CFPB policymakers achieve durable change through assisting with writing legislation to repeal or clarify existing laws and/or proposed regulations with CFPB support.

[10] Yes, this is the footnote where I again ask for the LO Comp Rule to be repealed.

[11] Including the incredibly misguided comment of former Director Cordray that to fail to adhere to Consent Order “guidance” was “compliance malpractice”.

[12] Senator Warren said of the (attempted) firings on X, "another assault on consumers and our democracy by Trump's lawless administration. We will fight back with everything we've got." Ok, but what’cha got, Senator Warren?

[13] I bet that Chili’s fast food financing idea wasn’t in the “blueprint”.

[14] This word is in quotes because it is used sarcastically by someone who believes that constitutional issues and, in particular, its promises of due process and the opportunity to be heard are essential to our social compact.

[15] Ironically, one court challenge we still haven’t seen is Harvard Law Professor Hal Scott’s idea that CFPB is violating its funding authorization because the Federal Reserve Banks are not operating at a profit. Unfortunately, while he is not giving up, Professor Scott appears to only want his argument heard by people with a Wall Street Journal subscription or those who listen to Ballard Spahr’s outstanding Consumer Finance Monitor podcast hosted by Alan Kaplinsky for the latest CFPB happenings.

[16] To poignantly remind everyone of this history, noted consumer finance industry scold and CFPB creator Elizabeth Warren recently spoke at the MBA Advocacy Conference without chastising the industry. You can be virtually certain Warren won’t be asked to speak by MBA (nor would she accept an invitation) if the midterms flip the House and/or Senate. Does anyone think Senator Warren will ever thank a mortgage banker for helping to responsibly finance the American Dream instead of complaining about all the people who might get foreclosed upon?

[17] That Board of Directors shake-up, however, is more significant than most folks realize.

[18] Admittedly, the COVID-19 pandemic demonstrated one of the benefits of having government-controlled housing finance system in enabling lenders to exercise forbearance in an unprecedented situation impairing consumer income but it also set back any recapitalization plans for the GSEs.

[19] Perhaps this would have been a better place to reference that Juusi Saaros’ “No Goals” commercial I used in footnote 16 of Musings #90.

[20] From G. K. Chesterton's 1929 book, The Thing: Why I Am a Catholic,

“In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, "I don't see the use of this; let us clear it away." To which the more intelligent type of reformer will do well to answer: "If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it."

[21] Please don’t ask me (or SCOTUS) either about the Federal Reserve’s status under the Constitution. “Sanctioned by history” may be the best we can do for the Fed, but if Humphrey’s Executor is overturned, Jerome Powell’s job could be in jeopardy too, and the President has been chirping at him a lot lately.

[22] A question I hadn’t considered then is “does the False Claims Act apply to breaches of representations and warranties made to Fannie and Freddie just like FHA?” This recent SCOTUS case seems to raise that ugly possibility.

[23] And no, common shareholders won’t see a penny in this scenario because DOGE is going to keep all of it for the taxpayers-maybe to fund a sovereign wealth fund or to buy Greenland.