WASHINGTON, Nov 29 (Reuters) – Jeb Hensarling and Maxine Waters are about as far apart politically as two U.S. lawmakers can get.
But there is one thing they have in common, other than sharp tongues: They care deeply about the government’s role in housing and how home loans should be financed.
That’s where the common ground ends.
Hensarling, a conservative Republican from Texas, and Waters, a liberal California Democrat, will have a chance to steer housing policy when the new Congress convenes in January.
This week, Republicans tapped Hensarling to take over as chairman of the House of Representative’s Financial Services Committee, while Waters is expected to be selected by her party later on Thursday to be the panel’s top Democrat.
Observers expect the future of mortgage finance giants Fannie Mae and Freddie Mac to loom large when Hensarling and Waters assume their posts in January. The two companies, which were seized by the government in 2008, have drawn nearly $190 billion in taxpayer aid since then.
Hensarling favors privatizing the companies, while Waters worries that a smaller government role could choke off mortgage credit for lower-income families.
Given their divergent views, which are evident on other financial regulatory issues as well, it is far from clear how much the committee will be able to accomplish.
“They are both historically seen as very partisan individuals,” said Jason Rosenstock, government relations director at consulting group ML Strategies. “The question will be how to define some kind of balance between their partisan backgrounds with their new leadership roles.”
Fannie Mae and Freddie Mac were untouched by the Dodd-Frank regulatory overhaul in 2010 as lawmakers, over Republican opposition, decided the time was not ripe to determine their future. But the clock has been ticking.
“Without question, housing and housing finance reform is something that is very close to the legislative hearts of Congresswoman Waters and Congressman Hensarling,” said Waters’ chief of staff, Mikael Moore. “We believe it is something that has to be paid attention to and focused on.”
Fannie Mae and Freddie Mac are the two biggest players in the U.S. mortgage market. To provide a steady stream of funds, they buy mortgages from lenders and either hold them or repackage them as securities, which they sell to investors with a guarantee.
Their footprint grew as private credit evaporated after the housing bubble burst. Now, the government backs about nine out of every 10 new mortgages, whether through Fannie Mae, Freddie Mac or the Federal Housing Administration, a loan insurer.
Economists say shuttering Fannie Mae and Freddie Mac before a replacement is in place would curtail access to home loans dramatically and send the housing market into a downturn.
“The challenge for all parties involved will be providing for the housing needs of low and moderate income Americans,” said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable.
Reform of the current system will impact the financial services sector, with banks, home builders and mortgage brokers all having a stake in the outcome. Lawmakers and administration officials expect a full-scale overhaul of the housing finance system will take years.
Some analysts say that despite major differences, it is possible for Waters and Hensarling to make progress. Last week, they had lunch to map a path forward, and Waters has been holding meetings with the financial sector as well.
“I think they will find a way to get along,” said Joseph Engelhard, the senior vice president of Capital Alpha Partners. “I don’t think there will be the kinds of sparks flying that people expect.”
Even Representative Scott Garrett, a conservative Republican on the committee who strongly opposes any government guarantee in the U.S. mortgage system, expressed optimism.
“We have a whole new environment to work in. And I look forward to working with Maxine,” he told Reuters in an interview. “She has been reasonable on other matters and we’ve worked in a bipartisan manner before.”
Housing isn’t the only issue where Hensarling and Waters don’t see eye-to-eye.
Hensarling has denounced the Dodd-Frank law as helping to codify taxpayer-funded bailouts of large financial institutions and criticized the new Consumer Financial Protection Bureau.
Waters is a big fan of the law and helped champion the creation of the consumer watchdog. She also argued for some stricter provisions that never made it into law, such as a ban on credit default swaps, insurance-like products that can allow investors to bet on the financial health of companies.
The committee is expected to continue its oversight of some of the thornier Dodd-Frank provisions, from derivatives regulations and the CFPB to the Volcker rule, which bans proprietary trading by banks.
There could also be an effort to push through “technical” fixes to Dodd-Frank, such as adding a privacy protection provision so that documents banks hand over the CFPB cannot be released to the public or during litigation.
Also on HuffPost:
The former chairman of the House Financial Services Committee, Frank (D-Mass.), whose name is on the bill, is concerned that the law is experiencing “death by a thousand cuts.”brbrFrank a href=”http://www.investmentnews.com/article/20110711/FREE/110719991” target=”_hplink”blames/a Republicans rather than industry lobbyists for impeding the implementation of the bill. “They have had an impact by having the SEC and CFTC underfunded. That’s a serious problem. I do not see this coming from the financial institutions. I see this coming from the ideology of the Republican Party.”brbrHe compares the onslaught to the battle over health care reform in 2009. “They recognize that the financial reform is more popular,” he told a href=”http://www.npr.org/2011/05/10/136057308/republicans-propose-tweaks-to-new-financial-rules
” target=”_hplink”NPR/a. “So with health care, they just did a flat-out repeal, and they also offered budget amendments. With the financial reform, they’re trying to nibble it to death … They are able to do it — they think; I don’t think they’ll get away with it — because attention is focused on the debt limit and on health care. They are trying to do this … beneath the radar screen.”
The former Connecticut senator (D-Conn.), who now run Hollywood’s main lobbying group, defends the bill but doesn’t seem very proud of it. At a conference in Las Vegas, he a href=”http://nakedphiladelphian.blogspot.com/2011/07/dodd-backs-away-from-namesake-bill.html” target=”_hplink”joked/a that he did not want the bill named after him, quipping, “my children are going to have to change their name.” brbrBut he called the Dodd-Frank Act “our best effort. The markets needed certainty. At first, people complained that the provisions were going to take too long to take effect. Now they are saying we are moving too quickly. “We didn’t want to strangle innovation and needed to balance it with good regulation and offer harmonization of rules.” When we were working on the bill, we were faced with time constraints and high emotion,” Dodd said.
Former Delaware Senator Ted Kaufman was a big proponent of stronger regulation of the financial sector. He replied via email to HuffPost’s questions about Dodd-Frank.
blockquoteI think it has been an extremely tough year for Dodd Frank implementation. To hit the highlights – brbrIt has been a very uneven fight with bank lobbyists fighting against regulations and spending $251 million last year and $51 million more in the first quarter, with very little being spent on the other side. Chairman Bachus pretty much summed up the congressional Republican position when he said, “My view is that Washington and the regulators are there to serve the banks”. They are trying to intimidate the regulators, and cut their budgets. The Senate Republicans say they will block the CFPB director’s confirmation until there are major structural changes in the agency. …brbr
A year later I find very few who believe that the major financial institutions are too big to fail. Standard and Poor’s in their July 12, 2011 statement said “we believe that under certain circumstances and with selected systemically important financial institutions (SIFI), future extraordinary government support is still possible”. In addition the megabanks still borrow more cheaply than the smaller banks, giving them a “too big to fail subsidy”. Not many believe that “Resolution authority” can be applied to a complex mega banks with so many foreign relationships and businesses.brbrIt is very discouraging that after so many Americans have gone through so much pain and agony in lost jobs, homes, and self-respect, that we cannot institute the kinds of regulations to avoid another financial meltdown./blockquote
Former Rep. Paul Kanjorski (D-PA) was a sponsor of the Dodd-Frank Act. He talked to HuffPost about the status of the law.brbr
blockquoteOf course, speed and time isn’t of the essence, it’s getting it correct. Quite frankly, we did our job, we passed legislation but it was just a skeleton and we authorized rule makers to put the flesh on the skeleton and that implementation determines whether we create a Frankenstein or a human being. It will take years before the full impact of Dodd-Frank is implemented. … brbrIf you starve the SEC, you can frustrate its ability to carry out the rules. … Now Congress is frustrating the appointment of regulators, to put up stumbling blocks to the legislation. … brbr[On the Consumer Financial Protection Bureau] I was never the strongest proponent of the concept and I don’t know if I would have supported Elizabeth Warren. … brbrThere is one section, ratings agencies, that still fails to do the job. I’m not sure what the answer is because we looked at all the past models. I’m not sure if we should have for-profit ratings agencies. … brbrI worked very closely with Paul Volcker on the Volcker Rule, we had a discussion one afternoon where I was saying, ‘Can’t we give discretion to the regulator?’ And he said, ‘Look I was a regulator. Unless you make it mandatory, it won’t work.”
You can bet your life the reason we were able to win the Volcker rule and my amendment on TBTF, it came down to [Charlie] Rangel being under ethics investigation. Charlie had always been a true friend and protector to Wall Street and they were immensely opposed to Volcker rule and my amendment. If they had Charlie in a healthy condition, they probably would have brought more weight. He was distracted by his other problems./blockquote
A University of Maryland law professor, Michael Greenberger worked as the director of the CFTC’s Division of Trading and Markets in the late 1990s.
blockquoteI know to someone looking from the outside in, who isn’t experienced with rulemaking, that it appears to be moving too slowly. Contrast that with Wall Street, which is crying that it’s moving too fast. brbrThe CFTC has acted very effectively. With over 50 new regulations, for a small agency with 700 employees, that is an awful lot of work to do. … As someone who was in Clinton administration for four years and prior to that spend 26 years litigating rulemaking, they’ve done an effective job. It’s a lot of work, they just started adopting final rules. On balance they’ve worked very hard, very effectively and very competently.brbrThey’re moving from regulating swaps with $50 trillion of notional value to $300 trillion to off-exchange swaps, building the infrastructure, the clearing facilities, the alternative swaps execution facilities – it’s very intricate complicated stuff.
The delay on position limits has the most immediate adverse effect. That has turned out to be the most controversial of all these controversial rules. … I think the chairman and the commissioners have done an admirable job amid intense opposition from House Republicans. … brbrTwo regulations that came out that I commented on, agricultural swaps and manipulation, I agree with those rules. The new manipulation regulations, especially in food and energy sector, will see series of new manipulation cases, will have an effect on commodity prices. By the fall, you’ll see enforcement actions, a series of manipulation cases dealing with alleged malpractices in food, energy and metals. Crude oil is a prime candidate [for such an action], also basic food staples where you’re seeing run-ups and copper. The canary in the mine for this is that they brought crude oil case using the more difficult standard that didn’t go into effect until these new rules were in place in which they can prove intent through circumstantial evidence. There is no division in commission over that rule, even hardline anti-regulation types agree that if there is an intent to manipulate prices, that should be gone after by CFTC. There was industry opposition but this is an unassailable. … brbrThey’re much more split over position limit rules. … And there are very controversial ownerships rules for clearing facilities. The proposal had two alternative tests, one was very favorable to Wall St, to keeping control of these groups in the hands of Wall Street. Those are all pending./blockquote
The whistleblower who repeatedly brought evidence of Bernie Madoff’s Ponzi scheme to the SEC to no avail, Markopolos replied to HuffPost’s questions about Dodd-Frank via email. brbrblockquoteThe only thing I can figure out is that the agencies don’t have enough staff on hand for rule-writing within the time period that Congress gave them. And that makes sense, since the main job of these agencies is supposed to be oversight and enforcement not rule writing. Rule writing to the extent we have under Dodd-Frank you get to do only after major crises, so no agency is staffed up for this.brbrFar better that they get it right than on time. Other than that I have no thoughts, only opinions.brbrI’m glad the CFTC is finally going to bring Forex under a regulatory umbrella. I’m eager to see what they do on that, ditto for OTC derivatives.brbrAs for the SEC, I’m eager to see if two dark areas of corruption are addressed – municipal bond financing/disclosures/accounting and bond trading./blockquote
A professor at the University of Missouri – Kansas City, Bill Black worked as a counsel at the Office of Thrift Supervision during the savings and loan crisis. This comment on Dodd-Frank is excerpted from a column he wrote earlier this year for a href=”http://dollarsandsense.org/archives/2011/0111black.html” target=”_hplink”emDollars and Sense/em magazine/a.
blockquoteWhat about the long-awaited bank reform law, which Congress finally delivered in July 2010 in the form of the Dodd-Frank Act? The law does not address the fundamental factors that have caused recurrent, intensifying financial crises: fraud, accounting, executive and professional compensation, and regulatory failure. The law does create a regulatory council that is supposed to identify systemic risks. The council, however, will be dominated by economists of the same theoclassical stripe who not only failed to identify the systemic risks that produced the recent financial crises, but actually praised the criminogenic incentives that caused those crises.
The powerful chairman of the House Financial Services committee, Spencer Bachus (R-Ala.) recently wrote an op-ed for ema href=”http://www.politico.com/news/stories/0711/58596.html#ixzz1Sf7mc6Ip” target=”_hplink”Politico/a/em, excerpted below, to describe his critique of Dodd-Frank.
blockquoteThe Dodd-Frank Act has been described by supporters and opponents alike as the most sweeping reform of the financial services industry since the Great Depression. It can also be described as a story of the “good, the bad and the ugly.”brbrA few of its provisions represent useful reforms to a financial system that came close to the brink of collapse in the fall of 2008, but the “bad and the ugly” parts far outweigh those. And their impact on our economy will be staggering.brbrThe two primary factors that drive our economy, capital and workforce, will both be harmed by Dodd-Frank. Tucked into the law’s 2,300 pages are 400 regulatory mandates that will be imposed on the private sector. Both financial and nonfinancial businesses will be forced to shift capital from hiring, investments in new equipment and other productive uses to comply with these new rules. Likewise, these businesses will have to redirect their workers’ time and energy to compliance rather than productive work.
Sen. Richard Shelby, the ranking member of the Senate Banking committee, recently expressed his thoughts on Dodd-Frank during a hearing in Congress.brbr
blockquoteIt is now one year since the passage of Dodd-Frank and we can see more clearly the consequences of its special interest agenda. The Act has not helped investors, but has saddled Main Street and providers of capital — the engines of economic growth — with a long list of new regulatory requirements. At a time when the unemployment rate is at 9.2 percent, this hardly seems like a wise course./blockquote
Baker, the co-director of the Center for Economic and Policy Research, replied to HuffPost via email to express his thoughts on the pace of Dodd-Frank implementation.brbrblockquoteI would certainly say too slow, because as this process drags on we get further removed from the public sentiment behind reform. brbrThis means that the only people in the room will be the people from the financial industry. This will allow them to write the rules in a way that minimizes the impact of the regulation. This is why it was important to get everything nailed down in the bill itself. It is also why the industry lobbyists pushed to include all these delays and allow so much discretion in writing the rules. They know the game and at the end of the day, they are likely to make a joke of much of the bill.
Tim Ryan, the president and CEO of the Securities Industry and Financial Markets Association, recently gave a speech (partially excerpted below) at a summit held by the industry group to discuss the impact of Dodd-Frank.brbrblockquoteYou’ve heard how big the Dodd-Frank mandate is: 235 rulemakings, already generating 41 reports, 71 studies authored by 11 different federal agencies and bureaus. Much work has been already done – as of July 1, we have finalized 38 new rules. But, we still have a long road ahead of us. 26 deadlines have been missed. 215 rules have yet to be proposed. 122 rulemaking deadlines come due in the third quarter of 2011 alone. That’s more than a quarter of all required rulemakings, all taking place in the midst of an unstable economic environment. brbrRegulators are faced with a daunting task of implementing Dodd-Frank. There are a lot of balls in the air and we’re not as targeted as we should be. To complicate matters, multiple regulators have joint jurisdiction over the same markets and products. We are concerned coordination across regulators, jurisdictions and geographical borders is just not happening at the level it should. brbrWhat will happen if we lack the coordination and the time to assess the totality of regulatory burdens? brbrWe will greatly decrease the odds that when each rule is completed, they will fit with other rules to effectively regulate the markets in the efficient, cohesive manner intended by Congress. brbrWhat is the danger of rules not working together? brbrWe risk impeding the flow of capital and credit, which in turn would undermine both economic growth and job creation.brbrThis would impact not just the financial markets, not just global corporations; but would have a profound impact on the lives of ordinary Americans.