2011: Inertia Or Invigoration…Or Both?

BLOG VIEW: Now that the toxic dust of this year's election has settled, we can consider what to expect from the federal government in 2011. As far as I can determine, I don't predict any great movement to a new spirit of bipartisanship – which could be the best thing for the mortgage banking industry, in a weird way.

A newly divided Congress, with a Republican-controlled House of Representatives and a Democrat-controlled Senate, will probably fall into an advanced state of deadlock. The Republican leadership has repeatedly made it clear that it will continue with its mission of pushing back at everything and anything proposed by the White House. Rep. John Boehner, R-Ohio, spun the Election Day results as a signal for course change.

‘I think it's a mandate for Washington to reduce the size of government and continue our fight for a smaller and less costly and more accountable government,’ Boehner said.

But maybe Boehner needs to pay closer attention to the voice of the voters. Dr. Peter Morici, a professor at the University of Maryland's Robert H. Smith School of Business, was closer to reality with his diagnosis of the Election Day returns.

‘Republicans don't have a mandate to impose a rigid conservative agenda,’ Morici said. ‘Voters want less government and smaller deficits, but polls indicate upwards to 80 percent want Republicans to compromise with Democrats to get things done.’

From the mortgage banking industry's perspective, there are several key issues where compromise is going to be required for progress to take root. Whether compromise actually happens remains to be seen.

The long-delayed reform of the government-sponsored enterprises will be the first major financial services-related task of the new Congress, but no one has stepped forward with a route to reform. The Obama administration repeatedly refused to offer any ideas on bringing Fannie Mae and Freddie Mac out of conservatorship, except to promise that the subject will be addressed in early 2011 – yet the Republicans, in their ‘Pledge to America’ platform during the election campaigns, vaguely alluded to the problem of conservatorship without offering any specifics on resolving the matter.

Will there be any compromise here? My guess is that both sides will continue the Washington game-playing of obstructionism for the sake of obstructionism, thus requiring a continuation of conservatorship and taxpayer support of the government-dominated secondary market.

A more contentious fight will probably unfold regarding the implementation of the Dodd-Frank Act, particularly in regard to the creation of the new Consumer Financial Protection Bureau (CFPB). The Dodd-Frank Act was not a hot-button topic with voters this year, so neither side can claim that they are entrusted with a public mandate regarding the future of this legislation.

But the Dodd-Frank Act represents a lose-lose situation for both parties. If the Republicans – especially the new Tea Party-approved legislators – are seen as favoring Wall Street over Main Street, their credibility will be immediately tarnished. If the Democrats continue to push for the wider regulatory bureaucracy envisioned by the Dodd-Frank Act, they could be seen as ignoring the will of the voters.

Within this turf battle will be the fate of Elizabeth Warren and her role within the new CFPB. President Obama, uneasy about the prospects of a Republican filibuster, declined to nominate her for Senate confirmation as CFPB director while the Democrats still controlled Congress, and it is unlikely that he will push for her Senate confirmation after the new Congress convenes. Barring a recess appointment, Warren's days in Washington appear to be numbered – in this case, the White House will need to compromise by offering a less-polarizing (and, perhaps, less effective) candidate for filling the CFPB job.

One possible wild-card issue that could emerge in 2011 is the push for a national covered-bonds market. Rep. Scott Garrett, R-N.J., Capitol Hill's chief advocate for covered bonds, is expected to take the chairmanship of the House Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises. Garrett's covered-bond push has, to date, been quixotic – the administration has repeatedly kept the proposal at arm's length, and the congressional Republicans have never truly embraced it. Garrett's party, however, may be the biggest obstacle to achieving his goal, because the creation of a covered bonds market will require a host of new regulatory standards that run counter to the smaller government push advocated by the party in the elections.

On the plus side, there is one area where the White House and the congressional Republicans can agree: There will be no foreclosure moratorium in 2011. In fact, the whole robo-signing controversy may wither or even evaporate in early 2011 due to a lack of leadership. Ohio Attorney General Richard Cordray, who sparked the investigation by all 50 state attorneys general, was defeated in his re-election campaign, while two prominent state-level agitators for investigating ‘foreclosure-gate’ – California's Jerry Brown and Connecticut's Richard Blumenthal – are taking on new jobs as governor and senator, respectively.

Actually, the fractured nature of the Washington power structure may be a blessing in disguise to the mortgage industry. Without a frenetic push for new regulations, the industry could easily have the chance to catch its breath and finally get up to speed on the new requirements imposed upon it in the past couple of years. And if the economy finally gets back into its groove and a genuine recovery occurs, we will see the housing market correct itself. If that happens, a fractured federal environment might be the cure that the industry needs!

– Phil Hall, editor, Secondary Marketing Executive

(Please address all comments regarding this opinion column to hallp@sme-online.com.)


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