Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.
In the days since the election, observers on both sides of the political divide found themselves shaking their collective heads at the frequency at which the name Goldman Sachs is a prominent feature on the resume of one of President-elect Donald Trump’s cabinet nominees.
Chief among those in the bank’s second-in-command, Gary Cohn, who announced late last year that he is leaving Goldman Sachs to join the Trump administration as its chief economic advisor.
Goldman Sachs’ ties to the Trump administration also include, Steve Mnuchin, the former head of mortgage bond trading at Goldman Sachs and former chairman of OneWest Bank, who is Trump’s choice to lead the Department of the Treasury.
Trump’s top advisor, Steve Bannon, also previously worked at Goldman Sachs before transitioning into media and becoming the executive chair of Breitbart News.
And that list doesn’t even include Jay Clayton, Trump’s choice to chair the Securities and Exchange Commission.
Clayton, a top Wall Street lawyer, represented Goldman Sachs after the financial crisis, aiding with Berkshire Hathaway’s $5 billion investment in the bank as well as the Treasury Department’s $10 billion bailout of the bank through the Troubled Asset Relief Program.
So, what exactly does Goldman Sachs expect out of the Trump administration?
A new report from the bank’s economic research team sheds some light on the bank’s expectations for 2017 and beyond, and given the bank’s connections to Trump’s team, the report carries a bit more weight than some other analysts’ views (no offense intended to other analysts, of course).
Admittedly, much of the report focuses on areas outside of housing.
For example, Goldman Sachs expects, as most do, that the Trump administration will move quickly to repeal Obamacare and to enact tax reforms.
Those moves will involve Congress, where Republicans control both the House of Representatives and the Senate.
But Goldman Sachs notes that there a number of regulatory issues that Trump can address without Congressional involvement.
From the Goldman Sachs report:
The Trump Administration will have significant discretion in revising regulations promulgated during the Obama Administration, subject to a few general constraints: they must follow federal rulemaking procedures, which can often take over a year to finalize a regulation; they must remain within the bounds of the laws Congress has enacted—regulatory actions are generally about filling in the missing details in the laws that Congress has passed; and Obama Administration appointees might continue to serve at independent agencies or commissions after inauguration, as their terms do not follow the four-year presidential cycle. That said, we expect to see the Trump Administration attempt to modify some of the Obama Administration’s regulatory initiatives.
According to Goldman Sachs, there are also a number of moves that Trump can make with the aid of the Republican majority in Congress, including the “reversal of certain regulatory actions.”
Goldman Sachs explains:
The Congressional Review Act allows Congress to overturn recently issued regulations by passing a resolution in the House and Senate with protections similar to the reconciliation process, i.e., limited debate and a simple majority vote in the Senate. This process has rarely been used, because it still requires presidential approval, and presidents are unlikely to sign a resolution overturning one of their own regulatory initiatives.
The exception to this is at the start of the new administration, where a new president has the opportunity to enact legislation overturning some of the prior administration’s most recent regulations. Timing is important: the CRA applies only to regulations finalized within 60 legislative days of the end of the last session of Congress, which the Congressional Research Service estimates covers regulations issued after June 13, 2016.
For such regulations, Congress will have a limited period in 2017 to overturn Obama Administration regulations using this expedited procedure; the exact date depends on a number of procedural issues, but Congress would probably have until sometime in June 2017 to take advantage of this process.
We would expect to see regulations identified fairly quickly in the House, with passage of legislation to overturn several regulations in late January and February. In the Senate, where each resolution of disapproval would still be subject to up to 10 hours of debate, the process would proceed more slowly and would compete for time with more pressing matters, such as presidential nominations, budget legislation, Obamacare repeal, and tax reform.
The first real test of Congress’ resolve when it comes to backing Trump will come this week, as the first of Trump’s cabinet nominees are due on Capitol Hill for their confirmation hearings.
As HousingWire reported last week, the confirmation hearing for Ben Carson, Trump’s choice to lead the Department of Housing and Urban Development, is set for this Thursday at 10 a.m. Eastern.
Also on the agenda is the confirmation hearing of Wilbur Ross, Trump’s nominee for the Department of Commerce.
Ross’ ties to housing run deep, as detailed here.
With the confirmation hearings for a number of other significant cabinet positions, including Secretary of State and Attorney General, on tap for this week, CSPAN is probably going to be must-see TV for the next few days.
And finally, in decidedly non-Trump and non-United States news, Canada’s housing market may be even more screwed up than anyone thought.
Over the last few years, Canadian home prices have skyrocketed, including in Vancouver, where home prices doubled in the last 10 years.
The rapidly rising prices have some predicting a Canadian housing crash, but are those prices based on a broken system and completely flawed data?
A new report from The Globe and Mail suggests exactly that.
From the Globe and Mail report:
Flaws in a national databank that helps determine the value of houses across Canada have helped fuel inflation in home prices, putting mortgage lenders and borrowers at greater risk, key players in the housing sector have warned.
Documents obtained by The Globe and Mail detailing confidential statements from banks, appraisers and mortgage insurers show rising worry over the use of a database operated by the Canada Mortgage and Housing Corporation. The documents suggest the data are flawed and help push home prices up.
The Canada Mortgage and Housing Corporation is Canada’s largest mortgage insurer, and the database in question is known as Emili.
Emili is an “automated value model” that banks and other mortgage market participants use to gauge property values.
Here’s the Globe and Mail again:
Emili is an automated system that uses figures such as recent sales of nearby homes to gauge values, without sending an actual appraiser to the address. However, the potential margin of error in calculations may pose significant problems. For home buyers, or homeowners with home-equity lines of credit, an inaccurate valuation by the database could allow them to overpay or borrow much too heavily for the home, industry members argue.
For banks, it could mean the collateral they have against the mortgage is not worth as much as believed.
And as the report continues, some lenders rely on Emili for property information rather than using an appraiser, as Emili is cheaper and faster than using an appraiser, despite the fact that Emili is not based on specific property information.
Again from the Globe and Mail:
Because the database does not evaluate a specific property, but uses generalities to determine the risk level of a mortgage, “CMHC insured loans are often granted without truly taking into account the property’s market value,” the respondent says. “This poses a real danger of altering housing market data.”
So maybe living in Canada isn’t so great after all.
With that, have a great week everyone! And be sure to check back with HousingWire for coverage of the Senate confirmation hearings throughout the week.
