The re-election of President Barack Obama may lead to some type of metamorphosis on the housing-mortgage finance front. However, experts don't expect this to happen any time soon.
Analysts at Compass Point Research & Trading say don't bet on Ed DeMarco, acting head of the Federal Housing Finance Agency, leaving his post anytime soon. At this point, changing what may be considered the most important post in mortgage finance could prove unnecessarily disruptive.
DeMarco can only be called a political ping-pong at this point for his firm stance against the FHFA allowing principal write-downs. And with Congress desperately needing a deal to stem the threat of the fiscal cliff in early 2013, Compass Point expects Obama to punt on DeMarco in the short term.
Plus, unlike Richard Cordray, who was appointed CFPB director after facing a Senate Banking Committee, there is currently no new nominee for DeMarco's spot — no obvious replacement. This alone makes it unlikely that the president will use a recess appointment to replace DeMarco in the near future, Compass Point suggests. Plus, the research firm says President Obama needs the type of political capital that comes with reaching across the aisle to get deals done and now is not the time to jab with recess appointments and ousters of appointees.
After all, there are more immediate decisions looming.
"The combination of an Obama victory and the maintenance of the status quo in Congress, in which the Republicans still have a majority in the House of Representatives and the Democrats retain control of the Senate, may actually make it easier for Congress to reach a deal to avert the fiscal cliff sooner rather than later," said economists Paul Ashworth and Paul Dales in a letter from Capital Economics. "Over the next couple of years the US economy will remain saddled with an uncomfortably high unemployment rate and will struggle to grow by more than 2% a year. And at some point, some combination tax hikes and spending cuts will be needed to prevent Federal government debt from spiraling towards 100% of GDP."
In housing, lawmakers on both sides of the aisle may be willing to push forward with the Responsible Homeowner Refinancing Act of 2012, which is known as the Menendez-Boxer Bill. The bill would expand refinancing options – a deal that could prove a boon to lawmakers on both sides of the aisle who want to aid 3 million homeowners and claim the stimulative effects of $2,500 in savings for families through refinancings. After the votes were counted, the GOP retained control of the U.S. House of Representatives, while the Democrats retained the U.S. Senate.
The Menendez-Boxer bill would take away reps and warrants risk for new servicers, eliminate up-front refinancing fees and appraisal costs and would be covered by a 10-basis points surcharge on refinanced home loans, Compass Point said.
"We believe this proposal is still unlikely to gain traction, especially given what we expect to be a disappointing actuarial report from the FHA on Nov. 16 which will likely be followed by a request for a backstop from the Treasury Department," Compass Point explained. "While the president’s proposal would not use the FHA’s primary fund – the Mutual Mortgage Insurance Fund – it is our view that the FHA’s need for a backstop from Treasury will make expanding its mandate politically difficult."
But everything going forward on the housing front is masked in a high degree of uncertainty. The future of the government-sponsored enterprises is still undecided. And banks and financial firms reaction to the roll out and implementation of final Dodd-Frank rules in 2013 is something that the markets have been worrying about for two years now. What's still unknown is whether the CFPB will grant a safe-harbor provision to the qualified mortgage rule, so lenders know exactly what requirements they must follow when issuing new loans to avoid liability.