January 3, 2025

By Makenzy Mohrman, Capstone Financial Services Director

Capstone expects elevated housing and real estate policy action in 2025, with the Trump administration initiating government-sponsored enterprise (GSE) reform and stepping up pressure on the rental and hotel industry’s use of rent-setting algorithms. We expect recent changes to the commission structure to hurt real estate brokerages. We also expect state-rent protection measures to surge as a response to Republican control on the federal level.

Outlook at a Glance:

• Trump Administration to Lay the Groundwork for GSE Recapitalization and Release Efforts, Posing ~60% Upside for Fannie Mae, Freddie Mac Junior Preferreds
• Regulators and Policymakers to Crack Down on Algorithmic Pricing, a Risk for Rentals and Hotels
• Final Stamp of Approval on National Association of Realtors Settlement to Drive Real Estate Agent Commission Compression in 2025
• State-Wide Rent Control Measures and Single-Family Rental Bills toRegain Traction in 2025, Given the Federal Red Wave
• Regulators Likely to Ease Closing Cost Scrutiny Under Trump, a Positive for Title Insurers

Trump Administration to Lay the Groundwork for GSE Recapitalization and Release Efforts, Posing ~60% Upside for Fannie Mae, Freddie Mac Junior Preferreds

Winners	Preferred shares of Federal National Mortgage Association (FNMA; FNMAS, FNMAT), Federal Home Loan Mortgage Corp (FMCC; FMCKI, FMCKJ)
Losers	N/A

Capstone believes recapitalizing and releasing the GSEs from conservatorship (GSE reform) will be a top housing priority for the incoming Trump administration. During the prior Trump administration, the Treasury and the Federal Housing Finance Agency (FHFA) took important steps to prepare the GSEs to exit conservatorship and left behind a clear roadmap for a future administration to complete the job. After four years of inaction on the GSEs under the Biden administration, we believe the second Trump administration will pick up where the first left off—with a roadmap laid out in 2025, material action beginning as soon as 2026, and a potential exit from conservatorship as soon as 2027. However, accomplishing GSE reform will entail addressing several thorny questions that may impact, or be impacted by, other policy goals within the administration.

Procedures for Exiting Conservatorship

Since September 2008, Fannie Mae and Freddie Mac have been under the conservatorship of the FHFA and beholden to the Treasury via preferred stock purchase agreements (PSPAs) in which the Treasury committed to financially support each GSE to preserve mortgage credit availability and investor confidence in the financial markets. To date, Treasury has purchased a combined $191.5 billion of senior preferred stock under the agreements. In 2012, the Treasury amended the PSPAs, imposing a variable dividend (and replacing a prior 10% dividend) equivalent to all GSE net profits earned above a reserve amount (a “net worth sweep” or NWS).

The GSEs’ conservatorships were never intended to be long-term, but due to complexities surrounding the political and financial stability of the GSEs, they remain in conservatorship today. The prior Trump administration took several actions to prepare the GSES for conservatorship, including establishing a GSE regulatory capital framework and suspending the NWS. The incoming administration now has an opportunity to finish the job. In our view, releasing the GSEs from conservatorship will require (at a minimum) ending the NWS and determining the fate of Treasury’s ownership stake in the GSEs. It would also likely require executing a substantial public offering for the GSEs. Absent these steps, the GSEs would need about 15 years to have enough capital to exit conservatorship.

While we believe confirmation of leadership at Treasury and FHFA will take time and Treasury will be initially focused on tax reform in 2025, we expect to see action on GSE reform in 2026 with a possible exit from conservatorship by as early as 2027.

Impact on Fannie/Freddie Junior Preferreds

We believe reform represents a significant opportunity for holders of the GSEs’ junior preferred stock. The most liquid junior preferred have already traded up between 111% and 120% from pre-election levels, but we believe there is another potential 60% of upside that will be driven by the administration’s GSE reform efforts. We expect the junior preferreds and common stock to react to incremental news over the next year. Near-term, we expect staffing decisions to drive movement—including Trump’s choice for FHFA Director (which we believe could be announced by year-end 2024), news regarding additional staffing decisions within Treasury (such as the Undersecretary of Domestic Finance), and responses given by nominees during their respective Senate confirmation hearings regarding the GSEs. We also believe that while the Treasury will be preoccupied with tax reform in 2025, FHFA could refresh prior Trump administration blueprints for recapitalizing and releasing the GSEs from conservatorship, finalize Congressionally-mandated rules to reduce “clutter” around a GSE release and take other incremental steps to clear a path for substantive action in 2026. These and other actions are likely to drive price movement.

Regulators and Policymakers to Crack Down on Algorithmic Pricing, a Risk for Rentals and Hotels

Winners	N/A
Losers	RealPage Inc., Camden Property Trust (CPT), Essex Property Trust (ESS), Equity Residential (EQR), UDR Inc. (UDR), Caesars Entertainment Inc. (CZR), MGM Resorts International (MGM), Hilton Hotels Corporation (HLT), Marriott International Inc. (MAR), Hyatt Hotels Corporation (H), Wyndham Hotels and Resorts Inc. (WH), CoStar Group Inc. (CSGP)

Capstone believes that growing scrutiny of algorithm-based platforms used to make pricing decisions across various industries will continue and intensify in 2025 despite the incoming Trump administration. We expect scrutiny to persist on multiple fronts, including in private class-action litigation, within state and local legislatures, and via action by federal antitrust regulators. Next year, we believe the Department of Justice (DOJ) will continue to pursue its civil lawsuit against RealPage Inc.—which alleges that the Texas-based multifamily revenue management software company facilitates price-fixing of rental rates across corporate landlords—even under new DOJ leadership, given likely continued focus on tackling consumer pricing and housing affordability. We believe the DOJ’s case against RealPage will be a bellwether for future action against other industries that utilize third-party digital information exchanges and algorithm-based platforms to make pricing decisions—such as the luxury and casino-hotel industries.  

Scrutiny of RealPage and Multifamily Property Managers

Over the last two years, RealPage and many of the nation’s largest multifamily property managers have faced intense scrutiny from the DOJ, state attorneys general, private litigants, and, more recently, local government lawmakers over allegations that RealPage is facilitating collusion among property managers to fix and inflate rents. As outlined in the private party litigation (over 30 suits consolidated in multidistrict litigation [MDL]) and in the DOJ’s August 2024 civil antitrust suit—brought alongside eight state attorneys general—the parties allege that RealPage leverages competitively-sensitive pricing and supply information provided by its customers (property managers) to inform recommendations made to property managers—with the effect of artificially inflating rental rates. We believe the MDL and the DOJ suit represent substantial risk to the industry. The private litigation survived motions to dismiss in December 2023 and will move forward into the discovery phase in 2025. While we do not believe the suit would progress to trial until 2027 at the earliest, damages awarded due to an unfavorable ruling (or settlement) could be substantial. The DOJ suit is in the early innings but, if successful, could force RealPage to cease incorporating proprietary information into its pricing recommendations — potentially reducing its effectiveness and attractiveness to customers. We estimate that action requiring RealPage to substantially curtail or reform the functionality of its software could reduce property managers’ average annual rental income growth by as much as 5.5 percentage points (a ~68.7% reduction from average annual rental growth of 8%) for property managers utilizing RealPage’s platform. We believe Camden Property Trust (CPT), Essex Property Trust Inc. (ESS), Equity Residential (EQR), and UDR Inc. (UDR) are the most exposed.

In 2024, lawmakers added to the scrutiny of RealPage. On the federal level, Senators Amy Klobuchar (D-MN) and Ron Wyden (D-OR) introduced legislation that would prohibit the use of algorithms that use competitively sensitive information to set rents or make consumer pricing decisions. While we do not expect the bill to gain traction in a new Congress, we will likely see further action at the state and local levels. Earlier this year, Colorado introduced legislation to prohibit the use of algorithms in rent-setting decisions, which narrowly failed to pass in the state assembly. However, both San Francisco and Philadelphia passed local ordinances banning the use of algorithms in rent-setting this year, and we believe more local ordinances could follow in 2025.

Growing Adjacent Risks to Luxury Hotels and Casino-Hotels

The scrutiny and media attention around RealPage has invited a wave of similarly-structured lawsuits to be brought against companies in other industries that use algorithm-based and information-sharing platforms to make pricing decisions—including within the luxury hotel and casino-hotel industries. The suits have had mixed success in federal courts, given the lack of precedent around using algorithm-based pricing under antitrust laws. Some suits in the casino-hotel industry that were dismissed in 2024 will be heard on appeal in 2025. Further, motions to dismiss key suits brought against companies in the luxury hotel industry will be considered before the courts in 2025. The outcomes of these suits will help size the legal and monetary risks they pose to the hospitality industry. We estimate that up to 19% of hotels’ recent annual revenue growth can be attributed to their use of pricing algorithms.

Final Stamp of Approval on National Association of Realtors Settlement to Drive Real Estate Agent Commission Compression in 2025

Winners	N/A
Losers	Anywhere Real Estate (HOUS), Re/Max Holdings (RMAX), Compass Inc. (COMP), eXp World Holdings (EXPI), Redfin Corporation (RDFN), Zillow Group Inc. (Z)

On November 26^th, the National Association of Realtors received approval from a federal court for a landmark $418 million settlement that will mark a substantial change to the real estate brokerage industry. Approval of the settlement provides the industry with near-term relief and certainty regarding a path forward after five years of fighting home seller class-action litigation. While there is still substantial uncertainty around the exact impact the settlement will have on the market, given that the industry only began complying with it in August, we expect 2025 to bring more clarity around what it will mean for the industry in the long term.  We predict the settlement will create long-term headwinds for the industry that will likely drive real estate agent commission compression (we estimate roughly 100 bps compression) and some agent attrition from the market (we estimate a decline of between 20% and 40%, primarily among low-producing, part-time agents).

Potential Future Industry Scrutiny

During the November 26^th settlement approval hearing, the DOJ interjected, seeking assurances that approval of the settlement would not hinder any future investigations of, or enforcement actions into the NAR. Its views were also documented in a statement of interest filed by the DOJ just 48 hours before the hearing. While we believe near-term action is unlikely, the department could take action longer-term even under a change of administration (though we expect this to be less of a priority under new DOJ leadership). Earlier this year, the DOJ was granted the power to reopen prior investigations into several NAR rules and practices as a result of a US Circuit Court ruling. One of the rules the DOJ had previously investigated and has resumed investigating this year—is the NAR’s Clear Cooperation Policy (CCP), which requires agents to list homes on a NAR-affiliated multiple listing service (MLS) within 24 hours of marketing it. In recent months, the NAR also has received criticism from industry participants who allege the policy unfairly restricts brokerage operations and restricts consumer choice. The NAR has also received criticism from industry participants in recent months over its requirement that brokers and agents become NAR members to gain access to its MLS system. Several NAR members filed a class-action lawsuit against the trade association earlier this year in the US District Court for the Eastern District of Michigan, arguing that the rule unfairly restricts competition within the industry and exposes agents and local/state chapters to liability associated with the NAR. We expect pressure on the NAR to continue into 2025 over these and other policies that could culminate in future litigation—and bring additional changes to long-standing industry practices.  

State-Wide Rent Control Measures and Single-Family Rental Bills Likely to Regain Traction in 2025 Given the Federal Red Wave

Winners	N/A
Losers	Apartment real estate investment trusts (REITs), including AvalonBay Communities (AVB), Essex Property Trust (ESS), Camden Property Trust (CPT), Equity Residential (EQR), and single-family rental investors such as InvitationHomes (INVH)

Capstone believes that the Republican trifecta on the federal level will motivate state legislatures in blue states to ensure state-level rent control or tenant protection measures are firmly in place. According to the US Census Bureau, new multifamily starts have declined 30% over the last two years, which we believe will put greater pressure on rent prices and likely draw state lawmaker attention to rent control/tenant protection measures. In 2024, California failed to repeal Costa Hawkins, the state’s longstanding law outlawing local rent control measures, but New York state successfully passed legislation enhancing tenant protections. We believe that while new attempts at enhancing rent regulations in California are almost certainly to be introduced in 2025, any attempt to repeal Costa-Hawkins will likely suffer the same fate as previous attempts. We believe other blue states will be emboldened by low multifamily supply (likely to increase rental rates) and a Republican trifecta at the federal level to push forward their own rent regulations. Separately, state-level legislative initiatives to curtail institutional investment in the single-family rental (SFR) market are likely to resurface in 2025. However, we expect the measures will face the same challenges they have for the last few years as opponents argue limiting investment will slow new development, further exacerbating supply issues.  

Rent Control Measures & California’s Prop 33  

We believe that blue state lawmakers in 2025 will respond to the red wave at the federal level by introducing new rent control and tenant protection measures as multifamily development remains low, posing risks to property managers and apartment REITs with portfolio concentrations in these states. Over the last several years, lawmakers in blue states have continuously pushed forward rent regulations and tenant protection measures, with states such as Oregon, Washington, California, and New York leading the charge.

In 2024, New York passed statewide rental regulations during state-wide budget funding debates, which included good cause eviction provisions, further enhancing tenant protections, and implemented statewide rent regulations on all housing not already subject to local rent regulations. In California, a repeal of Costa-Hawkins made its way on the state’s 2024 ballot—Prop 33—but ultimately failed to pass after 62% of Californians voted “No.” We would expect a similar initiative repealing Costa-Hawkins to make its way onto the ballot again, but it will likely receive pushback from the California Apartment Association (CAA), which has repeatedly argued that rent control measures will stymie multifamily development and further exacerbate the housing affordability crisis. In Washington state, HB 2114—which would have imposed a 7% state-wide cap on most rental units—failed to receive enough support despite a Democratic majority in the state senate and ultimately died in committee in February earlier this year. In 2019, Oregon passed legislation that instituted state-wide rent control, capping rent increases at 7% + CPI for rental properties 15 years or older. However, in 2023, the state amended the law to address growing inflation by imposing a 10% cap when the previous “7% + CPI” would be greater than 10%.

As states enter new congressional sessions, any outstanding bills that failed to pass in the previous session must be reintroduced. On his campaign trail, former President Biden mentioned a plan for a nationwide rent cap, which, while already unlikely to pass through a divided Congress, is effectively dead under a GOP trifecta, leaving rent regulations to states. We believe that housing affordability remains a key issue for lawmakers, and failure to pass rent regulations in 2024 will not limit lawmakers’ appetite for pushing forward such legislation. A Republican trifecta at the federal level, coupled with low multifamily housing supply, will likely spur state-level activity.

Scrutiny of Institutional Investment in Single-Family Rental

Several pieces of legislation have been introduced at the federal level and within several state legislatures that would limit institutional investment in single-family rental (SFR) properties over the last several years and throughout 2024. While none of the measures across both the federal and state levels have garnered enough support to pass, we believe that the recent outcome of the 2024 Presidential Election and the now-elected GOP trifecta will effectively eliminate any chances that SFR legislation will pass at the federal level, but could spur further action from states who introduced legislation in the last few sessions.

At the federal level, several bills remain outstanding in the 2022-2024 session brought by Senate Democrats alongside companion bills brought by House Democrats, including the Housing Acquisitions Review and Transparency (HART) Act, the End Hedge Fund Control of American Homes Act, and the Stop Predatory Investing Act. The bills were introduced in late 2023 and early 2024 but failed to make it out of committee for a first reading or mark-up, indicating low support for the legislation. The Stop Predatory Investing Act was introduced by Senator Sherrod Brown (D-OH), who lost re-election in the 2024 Senate elections, likely killing the bill moving forward.

At the state level, we believe there is likely to be some momentum to reintroduce legislation regulating institutional investment in SFR that failed to pass in previous sessions, but that bipartisan support will still be difficult to obtain. Several states, including California, Minnesota, Nebraska, North Carolina, and Ohio, had introduced legislation in 2023 or 2024 that would limit institutional investors’ SFR portfolios or implement new guardrails for investors purchasing single-family homes. In Texas, Governor Greg Abbott came forward earlier this year calling on lawmakers to address the growing “rise of corporate ownership” in housing, though our research indicates that no legislative momentum or specific bills moved forward during the session. We believe California will likely be the bellwether state for legislation limiting institutional investment in SFR, as it has been the most active in introducing bills and has had several bills pass the Assembly, coming close to being voted on in the Senate and being enacted. However, we believe ultimately that bipartisan support to pass the bills will be difficult for the same reasons that Prop 33 and rent control legislation failed in the state, as limitations on institutional ownership in SFR could limit new development in the state, contributing further to housing supply-side issues.

Regulators Likely to Ease Closing Cost Scrutiny Under Trump, a Positive for Title Insurers

Winners	Title insurers, including Fidelity National Financial Inc. (FNF), First American Financial Corp. (FAF), Old Republic International Corp. (ORI), Stewart Information Services Corp. (STC), the national consumer reporting agencies, TransUnion (TRU), Equifax Inc. (EFX), and Experian plc (EXPN on the London exchange)
Losers	N/A

Capstone believes that housing regulators under a new Trump administration will take a less aggressive stance towards cracking down on housing closing costs than the Biden-Harris administration. Amid record-low housing supply—and tight margins in Congress making action on housing supply politically unfeasible—the Biden administration sought to use administrative tools to achieve “wins” on housing to incrementally bring down the costs of homeownership. The targets of these efforts were title insurance companies and credit reporting agencies. We believe these efforts, as detailed below, will be largely sidelined under the incoming administration.

GSE Pilot Program Likely Sidelined Under New FHFA Leadership

Title insurance costs have been in the GSEs’ crosshairs for several years. In May 2020, Freddie Mac began permitting the use of alternatives to title insurance, specifically attorney opinion letters (AOLs)—that meet certain specifications to satisfy its requirements. In April 2022, Fannie Mae followed suit, announcing that the GSE would also accept AOLs in lieu of title insurance if the letters meet specific criteria. Since then, the GSEs—at the direction of the FHFA—have intensified their focus on reducing closing costs for borrowers to make homeownership more attainable in an increasingly expensive market.

In June 2022, FHFA announced the approval of the GSEs Equitable Housing Plans, designed to tackle affordability and accessibility issues in the housing market. Both Fannie Mae and Freddie Mac included in their plans various actions they plan to take over the next three years to reduce the cost of title insurance, including setting up pilot programs to promote the use of AOLs and exploring other title alternatives to lower closing costs. In March 2024, FHFA announced that it approved a new Fannie Mae “Title Acceptance Pilot” that will allow participating lenders to bypass the GSEs’ title insurance requirement on certain refinances with LTVs at or below 80% where the property is “free and clear of any prior lien or encumbrance.” While we believe the pilot program will be relatively small and that the impact will be muted, it represents the GSE’s continued focus on title insurance and the risk that future action by the GSEs could have on the industry.

We believe the FHFA, under the incoming Trump administration, will reverse course on the GSEs’ equitable housing finance plan initiatives and other business activities that the new FHFA leadership does not deem to be core to the GSE’s chartered missions. Capstone will continue to follow likely priorities under new FHFA leadership and how this could affect initiatives like Fannie Mae’s Title Acceptance Pilot.

CFPB Likely to Reverse Course on Closing Costs Scrutiny

On March 8, 2024, the CFPB published a blog post titled, “Junk fees are driving up housing costs. The CFPB wants to hear from you.” In it, the CFPB highlighted closing costs as a hurdle to homeownership and indicated that it believes certain closing costs are “junk fees.” The CFPB has been highly focused on cracking down on “junk fees”—fees charged by various financial services companies that it believes are excessive and, in some instances, predatory. In the blog post, the CFPB specifically names title insurance and credit reporting fees as two costs borrowers pay at closing that could be problematic. The Bureau argued that both of these costs to borrowers are high due to “little competition” in the market, arguing that borrowers “cannot pick the provider and do not benefit from the service.”  

On May 30, 2024, the CFPB released a request for information (RFI) seeking input on the costs imposed on borrowers through the homebuying process. In it, the CFPB again highlighted title insurance costs as excessive and burdensome to homebuyers. The RFI is the first step to rulemaking, which likely would have been promulgated under a second Democratic administration. However, given Republican’s disdain for the CFPB’s perceived overreach and broad expectations that the CFPB will be curtailed under a second Trump administration, we believe a rulemaking is unlikely to occur—a boon to title insurance companies and other service providers who would have likely been subject to a new regulation.

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