A narrowly divided electorate has spoken and it appears that, for the most part, the status quo in Washington has been maintained. The 2012 House and Senate elections brought more than 80 new members to Washington, but the House will remain under the control of the Republicans while the Senate will continue to be dominated by a Democrat majority.
For some in the industry, President Obama’s re-election has dashed hopes of getting a technical corrections bill on the table to address what many believe to be onerous provisions of the Dodd-Frank Act. It has also dramatically slowed down the possibility of restructuring the CFPB.
For others, a Democratic administration and a Democratic Senate promise continued support for the program. With this in place, we are likely to see support for HECM counseling remain as strong as it was in 2012. The key, however, will continue to be garnering support for counseling appropriations from House Republicans, something that has been a primary mission for CIS.
Personal politics aside, the new order in Washington will be in charge of instituting anticipated change to the industry in the coming year. It’s still unclear what these changes may be, but a closer look at the legislative climate post-election may help shed some light on what lies ahead for the HECM in 2013.
The Congressional Agenda
The most immediate challenge facing both the White House and Congress is the so-called “fiscal cliff”—the December 31 expiration of the Bush-era tax cuts, the payroll tax cut and the automatic implementation of mandatory, across-the-board cuts in federal spending (the “sequester”).
There will probably not be enough time to come to a long-term bargain on tax reforms and spending reductions. The most likely scenario is a short-term deal to avoid a tax hike and the implementation of steps to reduce federal spending come January 1. But even that is not a given. What is certain is that Congress will be consumed with these issues during the lame-duck session.
On the spending side, the president will likely be more willing than congressional Democrats to accept steep cuts in domestic spending if he can get Republicans to agree to a tax reform plan that results in more net revenues. But that is a big “if.”
While these negotiations go on, look for the House to embark on efforts to repeal parts of the Dodd-Frank Act, more investigations of the botched “Fast and Furious” gun-running scam, additional hearings on Benghazi and possible plans to reform entitlement programs. Most of those efforts will die in the Democrat-controlled Senate.
As for the annual appropriations process, what Congress does on the 12 appropriation bills to fund the federal government (which have to be passed and signed into law by September 30) will depend largely on the negotiations surrounding the grand bargain. That will be the blueprint Congress will use. If an agreement cannot be reached, then look for the Republican-controlled House Appropriations Committee to start passing its own version of the 12 spending bills in late spring/early summer based on the severe constraints of the sequester and/or a budget resolution approved by the Republican-controlled House Budget Committee. It is not likely that the Senate Appropriations Committee will move at the same pace as the House and it is also unlikely that the Senate Budget Committee will produce a budget resolution.
We also expect there to be continued criticism surrounding the funding of regulatory agencies and the importance of addressing housing finance reform. Indeed, both the Democratic Senate and the Republican House can be expected to put forth proposals to address the reform of government-sponsored enterprises (GSEs) and the privatization of the housing market. GSEs like Fannie and Freddie were not addressed in the Dodd-Frank Act. The Federal Housing Finance Agency (FHFA) and HUD have also begun dedicating significant resources to the reform effort in 2013.
How much work Congress gets done in 2013 will largely depend on whether or not a grand bargain can be struck between Congress and the White House on taxes and spending. If a bargain can be reached, the appropriations process will go rather smoothly and we might see some bipartisan action on issues such as immigration and education. But seven weeks is not a lot of time for legislators to craft an agreement, and they may be forced to kick the can down the road and allow the new Congress to tackle the cliff issue.
Dodd-Frank Reform
Of the nearly 400 rules established under the Dodd-Frank Act, only about one-third have been finalized, with the rest still in the works or not yet proposed. With growing criticism over the international implications of the law, the delayed rulemaking process and potentially burdensome regulations, the 113th Congress will face important questions regarding the need to make technical, and even substantial, amendments to the law.
We expect legislative activity for the financial services sector to focus on continuing the oversight of regulatory processes that arose from Dodd-Frank to ensure that regulators stay within
the “intent” of the Congress. A recently successful judicial challenge to the regulatory requirements may cause agencies to prolong the implementation of Dodd-Frank, as they would likely seek to avoid promulgating rules that would not withstand judicial scrutiny. As has been the case with President Obama’s health care law, the most serious challenges are likely to come in the courts. In fact, Dodd-Frank’s opponents in the financial services industry and the broader business world have had some success: Two judges have struck down regulations to implement the law. The gravest threat to Dodd-Frank may come from a lawsuit that challenges the constitutionality of its fundamental components. The architects of Dodd-Frank, of course, dismiss this challenge, but some legal scholars believe that parts of the suit may indeed have merit. Time will tell.
Given the narrow control of the House and the Senate, it is unlikely that Congress will substantially modify or repeal the Dodd-Frank Act. Instead, legislative changes will likely focus on technical corrections that involve a clear error or in areas where the new Congress believes regulators will require a clearer statement of congressional intent. Republicans will continue pushing for substantive changes to the law and may attempt to use the Commodities Futures Trading Commission’s (CFTC’s) reauthorization as a vehicle to make them. This will make for a contentious reauthorization process in an already divided Congress, and the Obama administration can be expected to strongly resist substantive Dodd-Frank changes.
A Shift in the House Financial Services Committee
The committee will face significant changes in the 113th Congress, with Chairman Spencer Bachus (R-AL) reaching his six-year term limit and Ranking Member Barney Frank (D-MA) retiring. Rep. Jeb Hensarling (R-TX) is in line to be the new chairman of the committee. He has been a big promoter of GSE reform that would transition Fannie and Freddie out of conservatorship after two years and privatize them at the end of the fifth year. Rep. Maxine Waters (D-CA) is expected to take over Rep. Frank’s role as ranking member and chief Democratic defender of Dodd-Frank.
Rep. Hensarling and Rep. Waters could not possibly be more diametrically opposed in terms of their political philosophies and personalities. This dynamic in itself will require a very sophisticated government-affairs strategy to manage industry objectives. It has the potential to be even more combative than the relationship between Bachus and Frank, and if this proves to be true, further polarization in the House Financial Services Committee is likely.
Changes Ahead for the HECM
At NRMLA’s October conference, HUD Deputy Assistant Secretary Charles Coulter acknowledged that the agency intends to implement some changes to the reverse mortgage sector. “The HECM program is a valuable product and we’re committed, but need to make changes to ensure they’re valuable over the long term,” Coulter said.
Coulter said he hoped to see changes take effect within the next six months, but he remained vague on precisely what those changes would be. He did specifically state, however, 8
that adjustments need to be made to the fixed-rate product, as the majority of T&I defaults are coming from seniors who are taking out larger draws at closing. The CFPB also stated its concern about the product, noting that if borrowers use most of the proceeds at a younger age, they might eventually run out of money.
There is also serious concern among regulators regarding the health of the Mutual Mortgage Insurance (MMI) fund, and changes could be made to the HEMC program specifically to ensure its solvency.
House Democrats will be searching for ways to increase federal involvement in the reverse mortgage industry and they will be inclined to bolster the impact and the effectiveness of the CFPB. In general, House Democrats predictably support continued funding for housing counseling and Senate Democrats across the board can certainly be counted on for their continued support.
Bottom line: We have a divided government and that comes with its pluses and minuses. On the one hand, you have tea party folks (and even some House Republicans) insisting on the need for the government to exit the housing industry in favor of the full privatization of the marketplace. As a result, you can, at the very least, expect a push in the House to reduce the government’s role.
On the other hand, you have many—if not a majority—of House and Senate Democrats insisting on the need to expand the government’s involvement in the housing market. This could lead to an increase in the government’s role in the reverse mortgage industry and heavy regulation by the CFPB.
As we contemplate all of this, it is also important to note that our next congressional elections will be in 24 months and we may see a slight shift of power in the Senate. The point here is that the political landscape continues to evolve even between presidential elections. Like in 2010, midterm elections can be impactful.
Whatever shape it takes, we can expect substantial changes to be made to the HECM program in 2013. It’s important for the industry to continue to educate Congress in order to ensure that politicians are aware of the value of the HECM program. If the reverse mortgage industry wants to be a part of shaping the federal legislation that governs the program, the industry must continue to have a presence on the Hill. We must participate in the process. Maintaining an open channel of communication with politicians on Capitol Hill can increase the industry’s base of reliable political support. Ultimately, this is the key to ensuring our security in the face of inevitable regulatory change.
