The national midterm elections take place on November 8. The outcomes of these races could have major consequences for all Americans.
Control of the Senate could determine whether President Joe Biden can confirm new federal judges and potentially move the center of gravity on key social issues in the U.S. Supreme Court. The midterms will decide whether Democrats add another senator or two to their razor-thin margin, enabling the party to enact some or all of its sweeping $2 trillion in tax, housing and social policy provisions from the Build Back Better Act that were scaled down in the recently enacted Inflation Reduction Act.
The midterms also will determine whether Republicans regain the House of Representatives, enabling them to conduct aggressive oversight of federal policies and agencies while laying out a conservative legislative agenda heading into the 2024 presidential election. Elections also have life-or-death consequences for members of Congress and their staffs. Congressional jobs and careers can hang by a few thousand votes or less.
When it comes to mortgage policies in Washington, D.C. — i.e., when it comes to things that make a difference for mortgage professionals — this election is not likely to have much of an impact, if any. To use the well-worn adage, the more things change, the more they stay the same.
Why is this the case? When it comes to mortgage policies, Congress has been largely absent in recent years and is likely to continue to be. Remarkably, unless something surprising happens between now and January 2023, the current 117th Congress will expire without having passed any major (or even minor) legislation that affects the mortgage industry.
There are many reasons for this. The most obvious one is partisanship. Congress used to resolve differences in legislation by giving the party in power more favorable consideration than the minority party but including good provisions and ideas from both parties. Both sides would compromise and pass legislation rather than let things bog down in gridlock. Today, neither party in power seems willing to even consult the other side on most bills.
The most important reason for congressional inaction is the Senate filibuster. Under the quilt of current rules, the Senate can pass certain items such as mandatory spending changes with a simple majority (which today means the 48 Democrats and two independents who generally vote with the Democrats, plus the vice president). All other policies effectively require 60 votes. This means Republicans have a key role in passing most legislation — including housing and mortgage policies.
It is possible that the Senate will eventually end the filibuster. If that is accomplished — and done at a time when the same party also controls the House and the presidency — Congress will no longer be characterized by gridlock but by unprecedented activity.
Since Democrats currently control the White House, the only way this could happen in 2023 is if they maintain their majority in the House while picking up at least a few Senate seats, then decide to pull the trigger on ending the filibuster early next year. But even if that happens, Congress is likely to focus on other hot-button issues it views as more politically consequential than mortgage policies.
Moreover, congressional differences over mortgage policies are usually not that partisan — not so much Democrats versus Republicans or left versus right. A case in point is the congressional effort to take Fannie Mae and Freddie Mac out of federal conservatorship, which lawmakers have failed to accomplish.
Congress failed not because of ideological differences, but because the issues are too complex and intractable for Congress to resolve. Since these issues often pit one powerful industry sector against another, there is not much political upside to tackling hard issues that could alienate one group or another. For this and many other reasons, there is an argument that the Federal Housing Finance Agency (FHFA), not Congress, should take charge of the conservatorship debate.
Regarding the other federal mortgage agency programs — such as the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture’s Rural Housing Service — Congress generally seems willing to defer to the agencies to set policies, unless there is a crisis.
What about regulation? Surely that is more partisan? The answer is yes. But even if Republicans take back the House and Senate in 2023, Biden is likely to veto any legislation that rolls back the Consumer Financial Protection Bureau (CFPB) or other key provisions from the Dodd-Frank Act, which created many federal oversight rules that mortgage originators follow today.
The main point here is that when it comes to mortgage policy, the real action is not with Congress — it is with the federal agencies themselves. Since the Biden administration is only two years in, control of these critically important agencies will not change after this month’s election. And neither will their policies.
So, do the midterm elections matter at all to mortgage lenders and servicers? The answer is yes, but only at the margins. If Republicans win the House and/or the Senate, they have the power to hold oversight hearings or insert riders in spending bills to try to pressure federal agency heads to modify their policies.
Case in point: Senate Republicans have criticized FHFA director Sandra Thompson’s equitable housing initiative. They argue that it exceeds the agency’s basic responsibilities to supervise Fannie Mae and Freddie Mac — and that it amounts to FHFA pursuing a policy agenda.
Same with the CFPB. Congressional Republicans have criticized CFPB director Rohit Chopra for what they claim are disproportionate enforcement activities; an unwarranted broadening of the authority to use unfair and deceptive acts or practices rulemaking
In these cases, if Republicans have the committee gavel, their criticisms will be front and center in congressional hearings. It is not unreasonable to conclude that this enhanced scrutiny could have some impact on how the heads of agencies conduct their business. At the same time, the fact that these are independent agencies means that their directors are legally free to run their agencies as they see fit until their term expires or they are removed by the president.
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Let’s check back a year from now. Your world as a mortgage professional may be profoundly affected by a host of things, such as interest rates, housing prices and how the industry shakes out in what may be a difficult economic period. But you can be relatively confident that you won’t be saying the 2022 congressional election changed the way you do business in any meaningful way. ●