Getting to 60 may be the Core Question

The incoming Trump Administration and Republican-controlled Congress have important housing policy questions to consider. And to paraphrase Donald Rumsfeld, what we have so early after the election is a case of the known knowns and known unknowns.

We know that President-elect Trump is working through appointments, but what isn’t known is who will be appointed (or approved) for key positions impacting housing policy. Consider just some of the relevant appointments that will be made; some almost immediately and in some cases perhaps over the next 18 months: HUD, FHA, GNMA, CFPB, FDIC, FTC, SEC, NEC, Treasury, Federal Reserve, and the OCC.

It is known that Republicans will attempt to use the Congressional Review Act to reverse certain rules issued in final form after May 30, 2016. But, it’s also known that there isn’t much chance of materially impacting housing policy via this effort since most significant rules were in place prior to this date.

Let’s look at some of the other big questions that are known.

First, what happens to Fannie and Freddie (aka the GSEs)? FHFA Director Watt has a five-year term that doesn’t expire until January 2019 so President Trump’s appointee will impact the GSEs’ regulator, but it will be half way through his term. Absent finding a way of passing GSE reform via budget reconciliation (that is how the Affordable Care Act was passed) Senate Republicans will have to find 60 bipartisan votes. These may be hard to come by. This is known.

Is the Consumer Financial Protection Bureau on the endangered species list? The idea of changing its structure into a commission and tying its budget to the appropriations process is on the table. But can Republicans get a bipartisan 60 votes? A known unknown.

The financial services marketplace would like to see some relief from some of Dodd Frank’s intended and unintended effects. But, the Democrats will be aggressive in defending the law and the CFPB. Opposition will be led by significant national voices including Senators Brown (D-OH), Warren (D-MA) and Sanders (D-VT).

What about expanding the so-called “mortgage credit box?” Maybe this is an unknown that is becoming a known. The GSEs are trying to address rep and warrant issues tied to buyback risks. Many believe this risk is first on the list of reasons why the credit box isn’t opened more widely today.

What about the mortgage interest deduction? Critics have been trying to gore this sacred cow for years. The odds of a change look slim when you consider the significant voices of support including community banks, credit unions, realtors and home builders. Were such a change to be enacted the effects of it could be moderated if the personal deduction is raised significantly (and) or the personal tax rate is cut. So mostly unknowns when it comes to housing tax policy.

We’ll come back to these topics in 2017 as the known unknowns become known.

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