While much of the country’s attention is focused on the seemingly unexpected election of Donald Trump, it shouldn’t be lost that the Republican Party also maintained its control of the House of Representatives and the Senate in this election.
Now one party will control the legislative and executive branches of the government for at least the next two years.
So what does that mean for the financial services industry, given the seismic changes the industry has seen in the last eight years?
The short answer, at least as of now, is that no one really knows. One thing that’s almost certain: change is about to happen.
As HousingWire’s Sarah Wheeler wrote early Wednesday morning, one of the main changes could come at the Consumer Financial Protection Bureau, the regulatory agency championed by Sen. Elizabeth Warren, D-Mass., and borne of the Dodd-Frank Wall Street Reform Act.
Even before this election, there were already Republican-led efforts underway in Congress to change the structure of the CFPB (or eliminate it entirely) and repeal Dodd-Frank.
Earlier this year, House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, introduced a bill in the House that would replace Dodd-Frank with a “pro-growth, pro-consumer” alternative that would bring significant reforms to the CFPB, and much more.
The passage of that bill seemed highly unlikely under President Obama or under President Clinton, but now, all bets are off.
The bill, which passed out of the House Financial Services Committee in September, would “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators.”
At the time, Hensarling said that the Financial CHOICE Act would overhaul not only the CFPB and its leadership structure, but other significant regulators as well – including the Federal Housing Finance Agency.
According to the executive summary, the Financial CHOICE Act would actually change the name of the CFPB to the “Consumer Financial Opportunity Commission,” and establish a new mission for the consumer watchdog of not only protecting consumers but also ensuring competitive markets.
Under the Republican plan, CFPB Director Richard Cordray would be replaced by a “bipartisan, five-member commission which is subject to congressional oversight and appropriations.”
Cordray’s position at the top of the CFPB and the CFPB’s actions under Cordray have long been a target of the Republican Party.
Cordray’s power was blunted by the recent PHH ruling, in which the CFPB’s leadership structure was declared unconstitutional and the court overturned Cordray’s $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks.
So, will Republicans dismantle the CFPB and undo much of the changes it brought? Will the changes required by the TILA-RESPA Integrated Disclosures Rule be repealed?
What about the national mortgage servicing rules, the Ability-to-Repay rule, and the Qualified Mortgage rule?
President-elect Trump has spoken often on the campaign trail about enacting a moratorium on new regulations as one his first moves if elected, so could those rules be on the chopping block? It’s certainly possible, if not probable.
Clues to what might happen could be found in the Republican Party platform, which included several significant potential changes to the country’s housing finance system.
“We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders and avoid future taxpayer bailouts,” the Republican platform states.
“Reforms should provide clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices,” the platform continues. “Compliance with regulatory standards should constitute a legal safe harbor to guard against opportunistic litigation by trial lawyers.”
The Republicans also call for a “comprehensive” review of federal regulations, “especially those dealing with the environment,” that make it “harder and more costly for Americans to rent, buy, or sell homes.”
And what about Fannie Mae and Freddie Mac, the two government-sponsored enterprises that have spent years in suspended animation, all the while sending all of their profits to the Treasury?
“For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current Administration and Democrats have prevented any effort to reform them,” the Republican Party platform states.
“Their corrupt business model lets shareholders and executives reap huge profits while the taxpayers cover all losses,” the Republicans continue. “The utility of both agencies should be reconsidered as a Republican administration clears away the jumble of subsidies and controls that complicate and distort home buying.”
But it should be noted that the Republican Party that Trump now leads could be vastly different from the one that currently operates in Washington.
So is the death clock officially ticking on the CFPB, Dodd-Frank, Fannie and Freddie? As the dust is still settling from a status-quo-shattering election, the only thing any of us knows for sure: No one can predict what’s going to happen next.
Better buckle up.
