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CRE Finance World, Winter 2014

A publication of Winter issue 2014 sponsored by CRE Finance World Winter 2014 7 In the meantime, CREFC along with our industry colleagues are visiting every Hill office in our education campaign. Bearing in mind that about two-thirds of Congress has turned over since the last authorization in 2007, there is a steep learning curve indeed. GSE Reform — Political Breakthrough or Breakdown? Strikingly plentiful press coverage of GSE policies and potential reform this year hasn’t really advanced the goal of passing a bipartisan plan to deal with the GSEs in conservatorship. As discussed further below, the FHFA director will — in the absence of Congressional action — have wide latitude in setting Freddie and Fannie policies. By default, those policies would affect over 90% of all home finance, since the government stands behind that percentage of new mortgages. Many of the recent press counts have focused on the privatization plans advanced by the hedge funds controlling billions of dollars in junior preferred securities. While they successfully attracted lots of attention, policymakers mostly dismissed the proposal as self-dealing and not serious. The momentum at the moment clearly belongs to the Corker/Warner (S. 1217) bill that has been accepted as the defacto bipartisan alternative in the Senate to the very conservative PATH Act that has passed out of the House Financial Services Committee. While gathering steam and much-needed Congressional deliberation, observers see GSE reform efforts unlikely to bear fruit until 2015 at earliest. Some see 2017 as the far more likely timing due to midterm elections this year and a wide-open presidential contest in 2016. One Wall Street analyst put it more bluntly, saying the Senate Banking Committee needed to approve housing finance reform bill on bipartisan vote in next 3-4 months for any real chance that the legislation would be enacted during Obama administration. We suspect that goal is less than probable, considering no draft legislation has been unveiled as of yet. However, the Banking Committee has officially wrapped up its hearing series on the subject and should begin drafting the Chairman’s Mark (draft legislation) shortly. Administration, Congress Sound Optimistic “Let’s all make our voices heard with the goal of getting a bipartisan bill through the Senate by the end of this year,” U.S. Department of Housing and Urban Development Secretary Shaun Donovan said in October. Similarly, Consumer Financial Protection Bureau Chairman Richard Cordray said, “it is timely now to climb out from under the existing regulatory overhang as other pieces of the mortgage reform puzzle are being contoured around the bureau’s Qualified Mortgage rule. The CFPB needs to keep moving forward on mortgage rules so market has “greater degree of certainty.” Donovan said that the President has stressed to him that ending the GSEs was a White House priority and that their old model was, “heads we win, tails you lose,” referring to the public guarantee on the bonds issued by the agencies. The Secretary called for a “new limited and targeted role” for the government in housing finance. CREFC’s best case scenario for 2014: • House passes a variation of Hensarling’s housing finance reform bill (the PATH Act) • Senate passes bipartisan GSE reform bill from Banking Committee leaders Johnson (D-SC) and Crapo (R-ID) • Bicameral Conference Committee merges bills into final product and signed into law by White House • However — this scenario faces long odds in 2014. We don’t believe that House Majority Leader Eric Cantor currently has the votes to pass PATH Act as is, and we have heard that Senate Majority Leader Harry Reid does not have an appetite for GSE reform given their current performance (and dividends to Treasury) • DC analysts put the odds of GSE reform in 2014 less than 50% CREFC views prospects for a full-blown GSE reform passing in the next six months as remote. We view the Corker/Warner legislation as the most likely vehicle to gain momentum in the Senate. However, Majority Leader Reid has appeared less than enthusiastic about GSE reform and whether or not any legislation could be slotted for a full chamber vote remain in doubt. Deja Vu: Mid Term Election Edition


CRE Finance World, Winter 2014
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