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CRE Finance World, Winter 2014

Life in the Post-Nuclear Age: High Profile Nominees Advance No doubt readers are aware that the decades-old Senate rules governing certain nominees were very publicly upset a few weeks ago when the Senate’s Majority Leader, Democrat Harry Reid from Nevada invoked the so-called “nuclear option.” Simply put, the chambers’ rules can be changed with a simple majority, and that majority can set the rules under which bills are considered in the chamber. Typically, controversial legislation – including nominees – requires 60 votes to overcome a filibuster and advance. This is called “cloture” and is the final step before bills are passed or defeated. It is the procedure that was famously invoked by John Kerry during his 2004 presidential bid when he said, “I actually did vote for the $87 billion, before I voted against it.” The new rules eliminate the filibuster for executive branch and judicial nominees, except for the Supreme Court. As we go to press, Congressman Mel Watt’s (D-NC) nomination to head the FHFA was affirmed. Senate Republicans, still incensed by the majority’s embrace of the nuclear option, could use a number of parliamentary procedures to slow the consideration of future nominees but would be unable to change the outcome. Next up is Janet Yellen, the White House’s nominee to head the Federal Reserve is likely to be confirmed shortly before the Christmas holiday. Unlike Mr. Watt, Ms. Yellen enjoyed the support of several key Republicans on the Senate Banking Committee, which all but guaranteed her confirmation regardless of whether Leader Reid had employed the “nuclear option.” Analysts expect a Yellen Fed to continue to pay special attention to the employment side of the agency’s dual mandate, reinforcing her dovish image. DC insiders have less assurance, however, of what Mel Watt’s leadership at FHFA would immediately mean for Agency investors and issuers. CRE Finance World Winter 2014 8 Mel Watt vs. GSEs and Agency Investors A Watt-led FHFA will not likely backtrack on Acting Director Ed DeMarco’s efforts to wind down Fannie and Freddie, but it could seek to overhaul the broader mortgage market in different ways. This would include the development of a new platform to facilitate a broader overhaul of the mortgage-backed securities market. One of the touted features of this plan is the subordination of first-dollar risk to private investors through GSE programs such as Freddie Mac’s K-Series. Meanwhile, the White House appears concerned that mortgage credit is too constrained and underwriting too conservative — look for capital availability to be a top priority for Watt’s team. Additional priorities would be broadening the transition plan for the GSEs absent Congressional action on reform. This was one of DeMarco’s signature achievements in presciently moving the agency in the direction where Congress now finds itself heading. If Mr. Watt reverses DeMarco’s very public stance on principal write-downs, he could cite a Congressional Budget Office study that suggested the policy could potentially result in a small savings to the government. That could make the decision to implement a tailored principal-forgiveness option — a major crusade for liberal political activists last year – less controversial now. Deja Vu: Mid Term Election Edition


CRE Finance World, Winter 2014
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