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Update: Election Scenario Analysis on Housing Finance (GSE) Reform

October 22, 2024

As part of our continuing analysis leading up to the Nov. 5 election, CREFC’s Government Relations Team is updating its Election 2024 Scenario Analysis. This week focuses on housing finance reform, specifically if, and how, Fannie Mae and Freddie Mac—the Government-Sponsored Enterprises (GSEs)—will exit conservatorship.

• Click here for the updated document.

Why it matters: The Federal Housing Finance Agency (FHFA) took over as conservator of Fannie and Freddie on Sept. 6, 2008. While there have been regulatory changes to some key elements of the structure, there is still no clear exit date or active plan to release the housing agencies from the conservatorship.

• By the numbers: Although the single-family mortgage business dominates the GSE headlines, the agencies are a large component of the multifamily lending market, backing $870 billion worth of multifamily mortgages.
• What they’re saying: The mechanics of GSE reform are not a key campaign talking point, but housing and affordability are priorities for both campaigns.

Trump Positions: While in power, the Trump Administration prioritized a GSE conservatorship exit, which kicked off with a White House Memo in March 2019 directing Treasury to develop a housing finance reform plan that included setting the conditions necessary for an exit.

• Treasury and FHFA followed suit with a September 2019 Housing Finance Reform Plan that laid out the steps for a conservatorship exit.
• FHFA and Treasury also amended the Preferred Stock Purchase Agreements (PSPA) to curtail all of the GSE profits going to the Treasury, allowing Fannie and Freddie to build capital.
• Former FHFA Director Mark Calabria also reworked the multifamily caps with a hard limit that required a certain percentage of mission-driven lending.
• However, the pandemic likely derailed these efforts and even a last-minute amendment to the PSPAs in January 2021 before President Biden took office did not end the conservatorship.

Yes, but: After leaving office, former President Trump sent a letter to Sen. Rand Paul (R-KY) in November 2021 indicating he would have ended the conservatorship earlier if he could have fired the then-FHFA Director Mel Watt:

“The Supreme Court’s decision asks what I would have done had I controlled FHFA from the beginning of my Administration, as the Constitution required. From the start, I would have fired former Democrat Congressman and political hack Mel Watt from his position as Director and would have also sold the government’s common stock in these companies at a huge profit and fully privatized the companies.” -Former President Trump

Harris Positions: While Vice President Kamala Harris has made housing affordability a campaign priority, she has not specifically weighed in on GSE conservatorship. And the Biden Administration has not made an exit a specific policy priority.

• However, FHFA Director Sandra Thompson has continued to finalize GSE regulatory capital rules and allow them to build capital, with a combined net worth of $125 billion in April 2024.
• Instead of facilitating an exit from conservatorship, FHFA under the Biden Administration has been exploring and implementing ways to use the GSEs to advance housing priorities. A 2023 FHFA Request for Information sought public response on a number of tenant protections, including rent control.
• This RFI culminated in a July 2024 release mandating certain tenant protections in new multifamily loan agreements, starting February 2025.

If Harris wins, she could keep Director Thompson on through the end of her term in 2027 or replace her, but it is unlikely that Harris would move aggressively to unwind the conservatorship.

The bottom line: In either scenario, we expect most of the GSE action to be via the regulatory process rather than a wholesale legislative reform. While legislation to remake the GSEs has gained some traction in past Congresses, the outsized role of the agencies coupled with the importance of housing makes any lawmaking effort politically difficult.

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Election Fundraising Update

October 22, 2024

Last week’s third-quarter political campaign fundraising data gives us insight as to where things stand financially for Democrats and Republicans with two weeks to go until Election Day.

• In the race to control the House, Senate, and Presidency, the Democrats are raising significantly more money than their Republican counterparts.

Why it matters: Fundraising impacts a candidate’s ability to get their message out to voters but doesn’t always predict victory in high-profile races. You can read more at this link, which offers some analysis of how often the highest-spending candidate wins the election.

On the presidential campaign, Vice President Kamala Harris and her affiliated committees have raised $1 billion since entering the race in July, while former President Donald Trump and his affiliated committees raised $430 million in roughly the same time period.

The figures above do not include the Democratic National Committee and Republican National Committee, which raised $68.7 million and $40.4 million respectively over the same Q3 period.

• Harris and the Democrats have $404 million cash on hand, compared to Trump and the Republicans who have $295 million.
• This shortfall for Republicans could potentially affect their decision-making down the final stretch.

In the 10 seats that will decide the makeup of the Senate, Democrat candidate campaigns brought in nearly 2.5 times the amount that Republican candidates raised in Q3.

• Democrat campaigns have collected $203 million, compared to the Republicans’ $83 million.
• For a full list of the breakdown of the fundraising outlook for each race, click here.

In 23 of the most competitive House races rated by Cook Political Report, the Democrats have experienced a fundraising boom since President Joe Biden dropped out of the race.

• Democrats in these races have raised nearly double compared to their Republican opponents, an average of $2.3 million to $1.25 million.
• For a more detailed analysis, click here.

Does money equal a victory? Democrats outraising and outspending Republicans in federal elections is not a new phenomenon, and it is far from predictive in a close race.

• In 2020, there was a large amount of media coverage regarding Senator Lindsey Graham’s (R-SC) re-election race. His Democratic challenger that year, Jamie Harrison, raised $130 million, the most ever for a Senate candidate. However, Sen. Graham coasted to re-election, winning with a margin of 54% to Harrison’s 44%, even though he was outraised and outspent by a margin of nearly three to one.
• Similarly in 2016, Hillary Clinton vastly outraised and outspent Trump in a losing campaign. Biden outraised Trump and won the 2020 election.

How they are spending it: It’s no surprise that the presidential campaigns are spending heavily on the seven swing states.

“79% of all presidential ad spending has gone to just seven states since Vice President Kamala Harris entered the 2024 presidential race, according to the AdImpact report. These battleground states — Arizona, Georgia, Michigan, North Carolina, Nevada, Pennsylvania and Wisconsin — are also set to receive 88% of future reservations between Oct. 10 and Election Day.” - Digiday

Political ads in multiple forms won’t be slowing down anytime soon, so buckle up for 14 more days of ads during the final sprint to Nov. 5.

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Supreme Court Upholds EPA’s Plant Emissions Rules for Now 

October 22, 2024

On October 16, the U.S. Supreme Court refused a request from states, energy companies, and other organizations to put on hold the Environmental Protection Agency’s (EPA) power plant emissions rule currently challenged in a Federal appeals court.

However, the denial does not necessarily indicate the court’s approval of the rule; it simply allows the rule to remain in effect while the D.C. Circuit hears the case.

• According to SCOTUSblog, Justices Brett Kavanaugh and Neil Gorsuch sympathized with the challengers’ claims, but said that because the litigation is moving quickly in the lower court, they are unlikely to be affected by the rule for now.

The rule seeks to reduce carbon dioxide emissions by requiring some power plants to meet emissions standards similar to what they would achieve using “90% carbon capture” – a technology that relies on chemical solvents to remove 90% of the carbon dioxide from a plant’s exhaust stream and then permanently store it underground.

Why it matters: According to the EPA, this rule could lead to significant reductions in carbon pollution, equivalent to the emissions of 328 million gasoline-powered cars over the next two decades.

Yes, but: The challengers argue that the rule is inconsistent with the Clean Air Act and not currently achievable at a commercial scale.

• They also invoked the “major questions” doctrine, which played a major role in the Court’s 2022 decision striking down the Clean Power Plan in West Virginia v. EPA. In this decision, the Court stated that Congress must explicitly state if it intends to give a regulatory agency the power to make decisions of great economic or political significance.

We expect to see regulatory agency rules (proposed and final) litigated more frequently under the “major questions” doctrine and in the wake of Loper Bright which overturned Chevron Deference (courts deferring to regulatory agencies’ interpretations of ambiguous statutes).

Today, Oct. 22, CREFC is hosting a webinar on the implications of Loper Bright and the overturning of Chevron Deference.

Contact Sairah Burki (sburki@crefc.org) with questions.

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