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Lawmakers Want to Oversee AI Adoption by Financial Services, Housing Industries

July 23, 2024

A report from a bipartisan working group in the House Financial Services Committee (HFSC) examined the use of artificial intelligence (AI) in financial services and housing industries. The group’s early findings were outlined in a July 18 report titled “AI Innovation Explored: Insights into AI Applications in Financial Services and Housing.”

• AI Working Group. Chair Patrick McHenry (R-NC) and Ranking Member Maxine Waters (D-CA) in January announced the bipartisan Working Group on Artificial Intelligence, equally divided between 12 Republicans and Democrats.
• The AI Working Group’s overarching goal was to consider the sector-specific risks of AI and examine the sufficiency of the existing statutory and regulatory framework.
• Lawmakers conducted a series of roundtable meetings focused on how financial services use AI, related technological developments, and regulatory implications associated with AI.

Key takeaways from the AI Working Group’s roundtable meetings include:

Regulators said regulated entities are expected to follow all laws, including anti-discrimination and other consumer protection laws, in a “tech-neutral manner.”

• The Federal Housing Finance Agency told lawmakers that the government-sponsored entities have explored the use of AI and how it can help make homeownership more attainable. However, the regulator emphasized the importance and need for a comprehensive and standardized set of data before employing AI.
• Regulators “generally noted that the use of AI did not absolve entities from complying with anti-discrimination laws and other consumer protection laws.” While some agencies said they did not need federal legislation from Congress to manage unique challenges related to AI, others indicated that legislation could be helpful.

Capital markets participants are taking a “measured approach” to implementing AI because of the regulated nature of their industry and current requirements.

What they're saying:

• Participants, including a securities exchange and a broker-dealer firm, said AI is useful for market research, synthesizing large quantities of data, and verifying know-your-customer information.
• One industry participant warned widespread adoption of certain AI models may encourage “herd-like behavior” in capital markets.
• Housing and insurance businesses, including a lender and credit underwriter, said they are deploying AI to underwrite mortgages and insurance policies, screen tenants, and perform data analytics that guide responses to consumers.

Yes, but: While AI offers benefits and conveniences, it has presented challenges related to fair housing and consumer protection.

• One participant told lawmakers that AI tools allow large property manager employees to manage and maintain up to 20 apartment buildings at a time.
• AI is helping developers to identify the most productive plots of land to build on based on local land-use requirements.

Financial Institutions and Nonbank Firms.

• Discussions also focused on specific use cases by financial institutions of all sizes, specifically in loan underwriting, customer service, fraud detection, and debt collection.
• A second panel focused on the AI lifecycle at a financial institution or nonbank, from acquisition of the technology to development and integration. Members and panelists discussed how financial institutions use AI to comply with anti-discrimination laws, as well as the need for cybersecurity and privacy safeguards.

What’s next: Given the critical role of the financial and housing markets, committee staff recommended the Committee should serve in a leading role in overseeing AI’s adoption. To that end, the report recommends the committee:

• Ensure regulators apply and enforce existing laws, including anti-discrimination laws, and assess regulatory gaps as market participants adopt AI
• Ensure that financial regulators have the appropriate focus and tools to oversee new products and services
• Add a chief AI officer at each regulator to oversee the agency’s approach to AI, including risk mitigation processes
• Continue to focus on how to reform data privacy laws given the importance of data, especially consumer data, to AI

Please contact Aleksandrs Rozens (arozens@crefc.org) for additional questions.

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Analysis: Biden Pre-Dropout Polling 

July 23, 2024

As covered above, President Joe Biden announced on Sunday that he would exit the 2024 presidential race, ending weeks of speculation about his candidacy in the wake of a poor performance at the June 27 debate.

However, polling results in the race remained more stagnant than might have been expected.

• Former President Trump had gained on President Biden in every swing state, except North Carolina, but only by an average of 1.1%.
• These gains in polling for Trump and subsequent doubts about President Biden’s health led him to drop out of the race on Sunday.
• As the standard margin of error is 3% to 5%, this polling increase for Trump had pushed Nevada, Arizona, and North Carolina out of margin-of-error territory.
• Trump, who held an average lead of 1.5%, nationally on June 27, now has a 3% lead. Still, Trump’s increased polling average in the swing states (1.1%) runs behind his increase in national polls (1.5%).

Source: RealClearPolitics

There have been a few names mentioned along with Vice President Harris as possible replacements to Biden on the Democratic ticket.

• Other potential Democratic candidates include Gov. Josh Shapiro (PA); Gov. Andy Beshear (KY); Gov. Roy Cooper (NC); Gov. Gretchen Whitmer (MI); Gov. J.B. Pritzker (IL); and Gov. Gavin Newsom (CA). Click here for more info.
• By the numbers: In a national poll conducted last week by CBS, it appears that Harris is the best equipped to win out of all possible Democratic contenders mentioned. However, Trump still leads her in a hypothetical matchup by 3 percentage points, as he garners 51 % of the vote, while she receives 48%.
• Swing-state polling with hypothetical matchups is sparse, but additional data is expected in the coming weeks. The popular polling website 538 has the latest.

However, with President Biden’s exit from the race, there is very little precedent to go on from here. If Vice President Harris wins the nomination at the Democratic Convention, she will have around 75 days to run as the party’s nominee against Former President Trump.

The bottom line: The true test of presidential polling will be in mid- September. By then, Harris or whoever the Democrats officially select as their nominee will be evident and voters will begin to make their final decision.

Please contact James Montfort (jmontfort@crefc.org) with any questions.

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White House Proposes National 5% Rent Cap

July 23, 2024

Last week, the White House officially announced a proposal to cap rent growth at 5% on multifamily properties owned by large landlords. As written, Congress would need to enact Biden’s proposal via a change in the tax code.

• On July 22, CREFC and other real estate organizations sent a letter to Biden opposing the rent control proposal.

Why it matters: The proposal, announced at an event last week in Nevada, is part of a larger initiative to reduce housing costs, which President Biden referenced at the June presidential debate and the NATO press conference earlier this month. The move also follows the recent Federal Housing Finance Agency announcement on tenant protections for GSE multifamily loans.

By the numbers: According to the White House’s fact sheet, the most recent plan includes the following initiatives:

• Legislation forcing corporate landlords to choose to either cap rent increases on existing units at 5% or risk losing accelerated depreciation for federal tax;
• Repurposing public land sustainably to build additional affordable housing units; and
• Rehabilitating distressed housing, building more affordable housing, and revitalizing neighborhoods.

Go deeper: The rent control squarely targets “corporate landlords”, who have been a continual punching bag for the Biden administration. Biden frames the proposal as “anti-gouging” as opposed to traditional rent control, as proposed in a 2021 NYU Furman Center Study.

If enacted, the rent control legislation would operate as follows:

• Coverage: Applies to landlords with more than 50 units in their portfolio;
• Exceptions: Exempts new construction and substantial renovation or rehabilitation;
• Rent Cap Tradeoff: Landlords would be eligible for existing accelerated depreciation only if rent growth is capped at or below 5% annually. The fact sheet does not provide details on what would be included in the 5% number, but the administration’s crusade against “junk fees” would suggest that other costs could be lumped in.
• Time frame: The limitations would apply in 2024, 2025, and 2026.

Last week’s announcement includes a directive to the Bureau of Land Management to assess surplus federal land that can be repurposed to build more affordable housing across the country. This would be in addition to other initiatives to examine unused federal buildings.

Yes, but: As covered in the letter to Biden, CREFC and other trades have repeatedly opposed the Biden Administration’s attempt to enact nationwide rent control, in particular, via FHFA and the GSEs.

• “Rent control policies have proven time and again to increase rents, reduce the capital needed to boost the supply of housing, and ultimately hurt renters today and in the future.” Real Estate Coalition Letter to President Biden.
• Instead, the coalition supports production and cost-reduction measures designed to increase the overall supply of housing.
• Click here for yesterday’s letter to Biden.
• Click here for our previous joint letter to FHFA on the issue of rent control.

The bottom line: The rent control proposal is unlikely to be enacted this year in a divided Congress, but we expect the White House to continue implementing tenant-focused policies via regulation and FHFA.

• However, the use of the tax code to implement a rent cap could be more easily passed via the “reconciliation process” if Democrats were to win the House, Senate, and Presidency.

Contact David McCarthy (dmccarthy@crefc.org) or Sairah Burki (sburki@crefc.org) with questions. 

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