The Home Buyer's Korner

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November 28th, 2013

The Senate’s Nuclear Option

Guy looking up in colorLast week the Senate invoked the “nuclear option” and the housing market might be a beneficiary. The President’s nominee to head the FHFA will have a lot to say about it. The “nuclear option” was a long thought threshold never to cross of changing Senate rules to enable judicial and executive nominees to be confirmed with just 51 votes instead of 60. Although not a constitutional requirement Senate rules over the year have made 60 votes the rule to do just about anything, but that’s old news now. The symbolism of “going nuclear” also portends a sort of mutually assured destruction in the future between Republicans and Democrats to borrow another Cold War term.  Politics aside, now that the nuclear option has been has taken place it’s going to have a significant effect on the direction of the housing market.

The nominee at the forefront of this “historic” change is Mel Watt (D-NC), the President’s nominee to head the Federal Housing Finance Administration (FHFA). The FHFA is the conservator for Fannie Mae and Freddie Mac, so they carry a lot of clout when it comes to the direction of the mortgage market.Going Nuclear

The acting director, Edward DeMarco, two main focuses at improving Fannie and Freddie’s have been its bottom line and cutting back on multi-family financing. His most controversial proposal was creating participation agreements with selling bank of mortgage backed securities whereby the originating lender had to retain at least a 10% equity in loan sold to Fannie Mae or Freddie Mac and has industry groups in an uproar. Watt, on the other hand, is expected to shift the focus to aid struggling homeowners. Most in the financial sector who have been following Watt believe he is less inclined to lower the conforming loan limit, raise guarantee fees or take other steps that could make housing finance more expensive. Watt could also reverse a DeMarco rule that prohibits Fannie Mae and Freddie Mac from cutting the principal balance on delinquent loans and could breathe new life into the HARP refinance program, bring HARP 3.0 to the market?