The real estate finance business has been steering through continuous change for a full decade. The 2008 housing meltdown precipitated a set of policy changes that sparked legal, procedural and structural transformations throughout the market. Even commercial real estate lending, largely immune from heavy regulatory scrutiny, is being affected. As we look towards the coming year, we see continued movement and even more reforms. The various developments from 2018 presage dynamic evolution in 2019, with numerous elements that will affect industry for years to come. To ring in the new year, ABA policy staff have identified the top 10 issues that we expect to be in play for banks in 2019.[divider] 1Ability-to-repay. The Ability-to-Repay/Qualified Mortgage rules have imposed novel and significant restrictions on residential loan underwriting, business models and risk considerations. Palpable difficulties remain in the new regulatory scheme. We predict substantial movements on the ATR regulatory scheme in 2019, starting with a thorough review of the regulations by the Consumer Financial Protection Bureau, and followed by earnest proposals to improve them. There will likely be much focus on facilitating banks’ abilities to reach more segments of their communities, and finding ways to replace the lapsing “GSE QM” provision, the safe harbor that sustains huge swaths of residential lending activity in mortgages markets. Expect intense multisector and multidisciplinary discussions aimed at ensuring that ATR/QM succeeds in its objectives of ensuring consumer access to credit on terms that are fair and reflective of their ability to repay. The outlines of a proposed rule—if not an actual proposed rule—are certain in 2019. 2HMDA reforms. 2018 saw a significant transformation to the Home Mortgage Disclosure Act landscape. Massively expanded reporting requirements have imposed major costs and daunting risks on covered institutions. The CFPB will publicly release the new HMDA data fields in the first half of 2019, which will force banks to focus on their fair lending exposure. In addition, the bureau has announced that it will reopen rulemaking in May 2019, focusing on what data should be released to the public and other comprehensive assessments of the rule. Expect very strong reactions on all sides of the debate surrounding HMDA data reporting requirements and access to that data. Congressional attention is certain. The future of HMDA will be much shaped, and perhaps fully defined, in 2019. 3Fair lending. With Democratic leadership in the House of Representatives, we anticipate hearings on affordable housing, fair lending and redlining in the coming months. This will place fair lending issues in the congressional spotlight. Beyond that, regulators are revisiting disparate impact standards, and this will be a major and significant topic for 2019. The reassessments are based in large part on a 2015 Supreme Court ruling that recalibrated the application of disparate impact laws and guidelines under the Fair Housing Act. The Department of Housing and Urban Development will likely issue proposed amendments to the Fair Housing Act regulations before the summer of 2019. In addition, other agencies—most significantly the Department of the Treasury and CFPB—have called attention to the need to reexamine whether a disparate impact test applies under the Equal Credit Opportunity Act. We expect meaningful movement in the coming months, and we foresee keen congressional attention on these issues in 2019. 4Appraisal thresholds. Regulators have proposed raising banks’ threshold for requiring appraisals in residential real estate transactions from $250,000 to $400,000. This latest regulatory move follows on a series of other appraisal reforms enacted over the past 36 months, including a threshold increase for CRE transactions finalized in April 2018. Banks should expect additional policy discussions on property valuations and alternative methods in 2019 and beyond. 5ADC construction opportunities. Bankers have been resolute in their requests for regulatory clarifications to the risk-based capital treatment of high volatility commercial real estate loans. Congress made legislative revisions to HVCRE exposures, and banking agencies have responded with a proposal that would retain risk weighting applicable to HVCRE exposures at 150 percent, but would apply that weighting to a narrower scope of loans, defined as HVCRE acquisition, development and construction loans. We expect that the agencies will finalize regulations that will soften impact of HVCRE provisions on banks and therefore allow banks to continue needed support for construction lending. Further incentives to such lending are likely to come from Treasury in its pending rulemaking on Opportunity Zones. 6Mortgage servicing regulations. In 2013, the CFPB issued comprehensive new mortgage servicing rules under Regulation X and Regulation Z, followed by technical amendments, interpretive rules, and a sweeping set of revisions, the last of which became effective in 2018. In January 2019, the bureau is expected to release its assessment of significant portions of the servicing regulations, as mandated by the Dodd-Frank Act. The report will evaluate the effectiveness of the servicing rules in meeting the relevant statutory objectives, and will likely delve into operational costs and effects on borrowers, particularly in the areas of default and loss mitigation. We expect this report to serve as a unique catalyst for needed reforms to these overly complex rules, and we believe that the discussions that will be generated in 2019 are likely to result in proposed rulemakings from the bureau. 7Accounting standards and mortgage lending. The Financial Accounting Standards Board’s Current Expected Credit Loss impairment standard requires “life of loan” estimates of credit losses to be recorded for unimpaired loans at origination or purchase. The requirement poses significant challenges for banks, as the “life of loan loss” concept presents complexities that can decrease capital, add volatility to ALLL estimates and raise additional costs, especially for long-life assets like mortgages. Furthermore, it has the potential to change how banks run their mortgage businesses. The coming year will see increased focus on this matter, with attention on bankers’ abilities to properly implement CECL, and heightened discussions with regulators, auditors, and investors related to regulatory capital requirements and assuring that the standards are workable for the long-term. 8Reforming the GSEs. The nearly decade-old question remains on the table—will there be meaningful reforms to the Fannie and Freddie structures in 2019? There is bi-partisan interest for housing finance reform in Congress, and potential actions may also originate in the Administration and the Federal Housing Finance Agency. Much focus will be on whether a new agency director (Mark Calabria has been nominated to replace Mel Watt, and Comptroller of the Currency Joseph Otting will serve as acting director of FHFA until there is a confirmation) might affect the scope of the government-sponsored enterprises. Even absent further reform efforts, Fannie and Freddie are slated to move onto the common securitization platform by mid-2019. 9Flood insurance. The National Flood Insurance Program’s authorization was extended by the last Congress until May 31, 2019, but other reforms have not been agreed upon. It is likely that the new Congress will seek further changes to the program before extending its authorization for a longer term. We forecast real advancements in 2019, as new House Financial Services Committee Chairman Maxine Waters (D-Calif.) will take a strong interest in maintaining the affordability and availability of NFIP and ensuring the program’s long-term viability. 10Digital developments and fintech. Last but not least, the incessant advance toward more digitized financial services requires the industry and policymakers to view business strategy and policy issues through a fintech lens. In 2019, we expect Congress and regulators to pay increasing attention to the opportunities and challenges arising from the ongoing digital revolution, including such headline issues as the effects of digitized lending on credit accessibility, data standardization in mortgage servicing, automated data transmission standards, the use of artificial intelligence (including concerns around the “black box” of underwriting algorithms), fair lending considerations in online lending and the growing adoption of online remote notarization and acceptance of e-notes. We do not expect 2019 to be a watershed year, but rather, a year in which the industry and policymakers take surer steps forward toward digital mortgage lending.