Jan. 4: The MBA's state-level regulation database; path for Freddie & Fannie's release; Saturday Spotlight: Polly
I don’t want a computer to decide what I want to buy, and where to buy it. I want to feel like a person more than an app. But now we have Samsung’s “smart refrigerators” linking up with Instacart. Call me old fashioned. I remember when all orange juice came from Florida, but now (and I bring this up because it is inflationary and neither the Fed nor the president can do a thing about it) the future of the citrus industry in Florida is in serious doubt. The citrus greening bacterial infection has spread to millions of acres of groves and has reduced the state’s total citrus production by 74 percent. The orange crop is expected to be the lowest in a century, but there may be breakthroughs in addressing the disease, spread by the Asian citrus psyllid insect, or editing genes. Regardless, the consumer will pay. In other food news, since we all pay for food, if you don’t like the price of sugar, just eliminate it from your diet. A new study looked at the long-term health impacts for the British children who grew up under post-war sugar rationing, which had the unintended side effect of essentially keeping the average diet within modern guidelines for daily sugar consumption. The study found lifelong health benefits of the involuntary restriction of sugar: kids who were young under sugar rationing had a 35 percent lower risk of diabetes and a 20 percent lower risk of hypertension in their fifth and sixth decades of life compared to those children who missed the sugar rationing.
Saturday Spotlight: Polly
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“Product and pricing, revolutionized.”
An open letter from Polly Founder and CEO, Adam Carmel
As we near the end of another incredible year, I am reflecting on Polly's mission, our vision, and what we have been able to achieve in collaboration with our customer partners. When Polly was founded in 2019, it was clear then, and even more so now, that legacy technology was doing the mortgage industry a disservice. The average cost to originate a loan has increased over 500% in the last 20+ years, and yet, the mortgage industry was burdened by the same antiquated capital markets software. I thought to myself: “I love this industry; it is the bedrock of the American economy. I don't know if the capital markets space can be disrupted, but Polly is going to try. Someone has to, because it can't go on like this. Our industry deserves better.”
Leading industry transformation is not easy. Polly certainly had our fair share of growing pains in 2023 and early 2024. Yet, we emerged from that maturation process even stronger, faster, and more focused. I want to begin by acknowledging my phenomenal team; our people and culture are what I am most proud of. Day in and day out, this team demonstrates an unwavering commitment to our customer partners' success and happiness and is deeply focused on driving meaningful ROI and value. We are intentional, we are intense, and we are devoted. We are not only disrupting the status quo, but we are also reimagining the industry's capital markets infrastructure entirely. Polly's relentless passion to be the change agent in the mortgage industry will continue to push boundaries, drive improved profitability for our customer partners, and deliver a revolutionary loan officer and consumer experience.
2024 marked Polly's best year yet, and here are just a few highlights. Polly experienced strong growth across every dimension of the business, and we are just getting started. We are grateful to have welcomed a record-setting number of new customer partners, grew lock volume by more than 150%, and added 40+ new team members.
As a result of our humbling growth, we took the opportunity to raise the bar, both in our products and in our customer support/success programs. Polly's product and engineering teams had a prolific year across the board, deploying thousands of new features and further extending our competitive moat over the antiquated, legacy pricing technologies of the past. We also continued to invest in our operations team to further support our customer partners. Polly's customer centricity, bolstered by our white-glove service, remains unmatched. Internally, we are firing on all cylinders, and our team's pride in what has been achieved is palpable.
We launched the revolutionary Polly/™ AI platform, further solidifying Polly's authority as the leader in mortgage capital markets technology and artificial intelligence. Polly/™ AI has been instrumental in increasing conversion rates and volume, automating workflows, and facilitating differentiation for loan officers and mortgage brokers amid an increasingly competitive market environment. And our pace of innovation in AI only continues.
Polly's momentum and demonstrated market leadership culminated in an additional $25 million in funding to further accelerate growth and continued innovation. We are doubling down on our commitments to our customer partners and innovation, and we are energized by what's to come in 2025.
Since 2019, our vision has been to reimagine and entirely transform the mortgage capital markets vertical. In 2025, that vision will become even more of a reality and here's what you can expect from Polly in the New Year.
We will continue to pioneer the most cutting-edge features and functionality across all platform products, further setting us apart. We will continue to innovate and build. In fact, our engineers are already hard at work on Polly's next product (or two!). We remain uniquely positioned to continue leading the charge in disruptive AI capabilities, delivering even greater profitability, meaningful time savings, and much more. Stay tuned for more announcements on this front!
We will continue to hire aggressively and grow our team, further investing in our products and service for our valued customer partners. Our unwavering and unique passion, dedication, and commitment to our customer partners' success is paramount. This is at the center of all that we do and will be further demonstrated in 2025.
This is a movement. A movement of change. A movement of saying 'Good enough is no longer good enough.' This is a movement against the status quo; a movement to be a part of the future and not stuck in the past.
Here at Polly, we are more ambitious and committed today than ever before. Building on this year's many successes, we will continue to push the boundaries of what is possible in mortgage technology, to redefine the standards of tomorrow, and to shape a better future for our industry. We will innovate with intention and without compromise.
As 2024 comes to a close, I want to extend my heartfelt gratitude to our dedicated team members and customer partners. You are the foundation of this year's achievements and the many to come. Thank you for an incredible year, and here is to an even bigger 2025. Happy holidays!
(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
Our MBA on state-level legislation ahead: it’s not a cakewalk
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Last Saturday’s Commentary posted several state-level regulatory and legislative changes, reminding folks that the CFPB, while easy to point at, is not the only “serpent in the grass.” The information prompted Pete Mills with the MBA to write, “Thank you (and the Weiner Brodsky team!) for the round-up of recent state regulatory actions, many of which arise from state legislation passed last year (or earlier). As we head into 2025, the pace of play in the states is only expected to increase, especially in blue states that may choose to fill a perceived gap in CFPB enforcement. I say ‘perceived’ because there was not a sharp drop off in enforcement under former Director Kraninger in Trump I… The difference was that her CFPB largely enforced the rules as written and understood, and did not use enforcement, litigation, or blog posts to create new rules of the road. But perception is often reality, and many state legislatures, regulators, and AGs, are expected to ramp up in 2025.
“To help MBA member companies and member law firms stay abreast of emerging state issues, we have relaunched our comprehensive database of state legislation. It is available to staff at member companies and current state association partners. Once a member logs into MBA’s website, they can track any current piece of housing finance-related legislation in any state. In addition, we have resumed the biweekly email updates on the status of major bills to MBA’s State Legislative and Regulatory Committee (SLRC).
“The policy challenges facing member companies are voluminous, and the database will be tracking thousands of introduced bills. The system offers members an effective way to stay abreast and be informed of any developments by ‘flagging’ or ‘grouping bills’ for automatic email updates. For more information on the functions of the database, please contact William Kooper at (202) 557-2737 or Liz Facemire at (202) 557-2870.
“Free monthly database trainings sessions will recommence this month. To sign up for the next training session or to be added to the SLRC for biweekly updates, please contact Ainsely Zimmer at (202) 557-2796. And if you are not an MBA member but want to check out this and other member benefits, reach out for Laura Hopkins.” Thank you, Pete!
The Agencies have been recapitalized somewhat… now what?
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No one expects conventional conforming rates to drop if & when they leave conservatorship which they’ve been in for over 16 years. The Federal Housing Finance Agency (FHFA) and the U.S. Department of the Treasury (Treasury) announced amendments to the Preferred Stock Purchase Agreements (PSPAs) governing the conservatorships of Fannie Mae and Freddie Mac (the GSEs).
The MBA points out that the amendments “make various modifications, including deleting previously portions of the PSPAs that were suspended through the September 14, 2021, Letter Agreements, clarifying that the GSEs must meet the capital requirements established by FHFA as those rules are modified over time, and technical changes or clarifications applicable to the GSEs’ financial reporting. Notably, the amendments also reinstate the requirement for Treasury's consent prior to terminating the conservatorships and incorporate a side agreement between Treasury and FHFA to establish a process for eventual public input on termination options and potential impacts.
In a press statement, MBA President and CEO Bob Broeksmit, CMB, said, “The MBA believes strongly that any efforts to remove Fannie Mae and Freddie Mac from their federal government conservatorships must fully consider the impact on single-family and multifamily housing markets and overall financial stability. This includes the critical move that Congress establishes an explicit federal backstop for mortgage-backed securities. Conservatorship was never intended to be perpetual, and we support efforts toward the GSEs' release. We appreciate the rationale behind today’s changes to the PSPAs, which are designed to foster transparency across government agencies, share market impact analysis, and give appropriate time for market participants to provide feedback on proposed reforms.
“The suspended portions of the PSPAs that were deleted through this amendment were the artificial limits on GSE acquisitions of loans secured by second homes and investment properties, loans with multiple risk factors, lenders’ use of the cash windows, and multifamily lending volumes caps. These disruptive and unworkable backward-looking limits were initially suspended in response to intense MBA advocacy, and we welcome their removal from the PSPAs… The MBA strongly believes conservatorship was never intended to be permanent and supports efforts toward a careful and deliberate release of the GSEs' with appropriate reforms.”
Ed Groshans with Compass Point Research and Trading, LLC, has thoughts that are blunter. “Treasury’s and Federal Housing Finance Agency’s (FHFA) action clearly indicate that the Biden administration is concerned that President-elect Donald Trump will attempt to release Fannie Mae and Freddie Mac from conservatorship, in our view. Publishing these documents is positive for the GSEs in our assessment.
“The Biden administration last amended the Preferred Share Purchase Agreements (PSPA) in September 2021, and now, 17 days before Trump is sworn into office, it amends the PSPAs and attempts to establish a notice and comment period for an orderly exit as well as a requirement to brief the Financial Stability Oversight Council (FSOC), an entity that since its inception has not determined the GSEs to be systemically important financial institutions (SIFI).
“If the Trump administration determines to recap and release the GSEs, there are several actions it could implement: 1) amend the PSPAs again and modify the elements that hinder recap and release, 2) issue an executive order nullifying the recent changes, 3) determine that the changes exceed the statutory authority of FHFA and rescind them, 4) adhere to the changes and complete them in an expedited process (i.e., <12 months), or, less likely, 5) ignore them and face potential litigation.
“Our take is Trump is likely to release the GSEs. There is no other reason for the Biden administration to make these changes other than to attempt to prevent the release of the GSEs. The Trump transition team is working with each federal agency to prepare to implement Trump’s agenda once he is inaugurated. It appears that the preparations at Treasury and/or FHFA have raised concerns for the Biden administration, which resulted in the publication of the letter agreement and side letter agreement.
“Treasury and FHFA are part of the government’s executive branch. The President oversees the executive branch. Yesterday’s action to amend the PSPAs were done at the direction of or in consultation with President Biden. Once sworn in, Treasury and FHFA will report to Trump who will direct the agencies’ actions and any of the recent changes that are not aligned with Trump’s goals will be undone.
“The Housing and Economic Recovery Act (HERA) created FHFA and set its authority as conservator of the GSEs. HERA Section 1367 (a)(7) states: AGENCY NOT SUBJECT TO ANY OTHER FEDERAL AGENCY. ‘When acting as conservator or receiver, the Agency shall not be subject to the direction or supervision of any other agency of the United States or any State in the exercise of the rights, powers, and privileges of the Agency.’ The changes yesterday would require FHFA to receive Treasury’s written consent prior to ending conservatorship, to receive public input on options for ending conservatorship, and brief FSOC on the public input received.
“Each of these requirements appears to be in direct contravention of the statutory text of HERA. The letter agreement’s clarifications would set heightened standards. The letter agreement’s PSPA changes would require the GSEs to meet the Enterprise Regulatory Capital Framework (ERCF). Specifically, it states, the GSEs ‘shall comply with the’ ERCF. Our assessment is this means the GSEs must meet the minimum RBC requirements plus the buffers. ERCF requires Fannie to hold adjusted total capital of $187 billion as of 3Q24. Freddie's adjusted total capital requirement was $141 billion for 3Q24.
“The amendments specifically state that any paydown of Treasury’s investment would be applied to the liquidation preference. As of 3Q24, Treasury’s liquidation preference of its FNMA senior preferreds were $208 billion compared to the book value of $121 billion. Its Freddie senior preferreds liquidation preference was $126 billion versus the book value of $73 billion as of 3Q24.”
Ed’s note wrapped up with, “Our primary takeaways are that the Biden administration implemented these changes to prevent the incoming Trump administration from releasing the GSEs from conservatorship. The changes will only hold any force to the extent they are permitted to remain in place by the Trump administration. Congress did not pass a law requiring these changes. Any changes implemented by one administration can be altered or eliminated by a subsequent administration. We view the action as the clearest signal yet that the Trump administration will begin the process to release the GSEs.”
The more I get to know people, the more I realize why Noah only let animals on the ark.
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