How the Presidential Election Could Play out for the Mortgage Banking Industry

By Pfotenhauer, Kurt | Mortgage Banking, June 2016 | Go to article overview

How the Presidential Election Could Play out for the Mortgage Banking Industry


Pfotenhauer, Kurt, Mortgage Banking


AS THE GENERAL ELECTION SEASON NEARS, those of us in the mortgage industry need to start paying attention with a critical eye, because much is on the line. [paragraph] Despite the unexpected rise of Donald Trump to become the likely Republican Party nominee and the surprising influence of Bernie Sanders on a Democratic primary that many expected to be a Clinton coronation, much is still knowable in our nation's politics. These predictable elements should factor into our industry's game plan for 2017 and beyond.

We elect a government, not just a president

It is important to remember that Americans don't just elect a president; we elect a team of approximately 3,000 professionals who are appointed and tasked by the new president to run the permanent government apparatus of approximately 4.4 million federal employees.

If the president is the head coach, it's his or her players who determine success on the field, as those 3,000 appointees shoulder the burden of enforcing old rules and writing new ones. Regardless of whether we elect a Republican or Democrat to become the 45th president of the United States, the new president will draw the majority of those 3,000 appointments from the professional political class of his or her party, which is made up of campaign staff, congressional staff, lobbyists, state officials and former administration officials. Consider which team---not just which person--will run the federal government.

Congress sets the schedule

The 114th Congress seems to have all but disappeared under the shadow of an outsized presidential election, but the newly elected 115th Congress will have much to say about the ultimate success of the new president's agenda. In particular, the speaker of the House and the Senate majority leader, who set the agenda of each chamber, will be essential to anything new and big that the president wants to accomplish.

The odds are strong that the House will remain in Republican control and be led by Speaker Paul Ryan (R-Wisconsin), who is known to be a fair-minded, policy-driven leader with a strong desire to do big things. He would be a check on a President Clinton's power, but she is also known to be policy-driven and the two might find a common language.

A President Trump would have a leg up in having his party control the House, but his first artful deal would have to be with Speaker Ryan to convince him to endorse a set of legislative priorities and drive them through the House. Should the Democrats pull off a surprise by winning control of the House, they would likely reinstall Nancy Pelosi (D-California) as speaker.

Control of the Senate is firmly in play this election as Republicans fight to defend a 54-seat majority. Structurally, the election does not work in the Republicans' favor, as they must defend 24 seats compared with only 10 for the Democrats. Moreover, nine of those Republican seats are in swing states--all of which will get an enormous amount of attention in the presidential race. The extra money that pours into swing states every four years during the presidential elections completely scrambles turnout models and makes it difficult for Senate candidates to punch through all the noise with a message independent of their presidential nominee.

Unless they are very well known by voters, swing-state Senate candidates will often share the same fate as the top of the ticket. That means it is reasonable to expect the winner of the presidential election will also bring into office a narrow majority in the Senate.

If it's a Republican president, Sen. Mitch McConnell (R-Kentucky) will set the Senate's agenda; if it's a Democrat, Sen. Chuck Schumer (D-New York) will be in control. Both men are formidable advocates for their parties' priorities, but are also known for their pragmatism when it comes to closing legislative deals.

A new president can reset a counterproductive enforcement environment

A new president and a new attorney general will have an opportunity to change the regulatory enforcement environment--specifically, to clarify what constitutes a material defect in a mortgage worth pursuing as fraud, and to create rules that are clear and easily followed in what will become an increasingly automated compliance environment, where every step in the loan manufacturing process must be interpreted as a binary, yes/no question. …

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