Underwater homeowners, tight credit availability, and foreclosures have continued to threaten the nascent economic recovery. So when the nation's serious housing issues were barely mentioned during election campaigning, it left many scratching their heads, especially with the battleground states of Florida, Nevada, and Arizona among the hardest hit by the housing crisis.
But even if housing was absent from serious debate this election, it will play a significant role in President Obama's second term. With the election behind us, Americans from Wall Street to Main Street are curious how the President will address the issue that has crippled household budgets and stunted the broader economic recovery. Here are five big things to watch for housing in Washington:
More refinancing efforts. Expect the Democrats to reintroduce a major refinancing initiative that stalled in the last Congress. The Menendez-Boxer—sponsored by New Jersey Democratic Sen. Robert Menendez and California Democratic Sen. Barbara Boxer—would streamline refinancing for millions of Fannie Mae and Freddie Mac borrowers and help struggling homeowners lower their monthly mortgage payments despite being underwater.
"I expect it to be one of the first votes when we come back," Menendez told The Hill in late September.
Congress reconvenes Nov. 12 and while the Senate couldn't get any traction on the bill before the election, both sides could strike a deal this time around."I think we have strong support in our caucus, and I think there are some members on the Republican side who could be supportive," Menendez said.
Regulatory certainty. There are three big rules the housing industry is waiting for that the National Association of Realtors has dubbed "The Perfect Storm of Regulation," all of which impact how banks lend. The Qualified Mortgage (QM) rule—part of the Dodd-Frank Wall Street Reform Act—gives a borrower the right to sue if they received a loan that courts deemed the borrower did not have the ability to repay. The Qualified Residential Mortgage (QRM) rule—also part of Dodd-Frank—requires lenders to keep a 5 percent capital cushion on certain loans they make so that if a loan goes belly up, a lender has some skin in the game, too. Finally, what is known as Basel III will mandate how much capital banks have to keep on hand for all their mortgage-related business.
All the uncertainty surrounding the ultimate form these important regulations will take has kept banks hesitant to lend.
The mortgage interest deduction. With the looming fiscal cliff—the combination of deep government spending cuts and tax hikes economists predict could send the country into recession in 2013—comprehensive tax reform will be a major focus for Congress. Of course, with broad tax reform, and the need to decrease spending to lower the deficit, the mortgage interest deduction faces reduction or elimination to lower its projected $98.5 billion price tag. It won't be easy. The write-off is extremely popular and the real estate industry is not likely to give up its "sacred cow"
Principal reduction. Acting Director Ed DeMarco—the regulator of government-sponsored enterprises Fannie Mae and Freddie Mac—is a holdover from the Bush administration and has adamantly declined to allow the two mortgage giants to write down the principal on mortgage loans backed by the government. Replacing him would allow the Obama administration to pursue its goal of principal forgiveness when it comes to the GSEs. But don't look for a push on principal reduction to happen quickly. The move is certain to draw political fire, and Obama will probably wait until after cementing a deal on tax reform to seriously consider a move.
GSE reform. The government mortgage giants currently provide more than 90 percent of all new mortgages, and bHowever, after that Democrats and Republicans part ways. Republicans favor eliminating any government role in housing finance and turning the entire system over to the private markets. Democrats believe in reducing government participation, but that some central role is necessary in providing a government backstop to make sure affordable, fixed rate mortgages are available on a widespread basis.
With the imminent tax reform debate, conventional wisdom was GSE reform was on deck. But with Fannie and Freddie now both turning a profit, and election results putting immigration reform squarely in play, lawmakers may have a diminished sense of urgency to reform the GSEs.
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