How the fate of the housing policy hinges on an arcane Senate rule

Whatever legislation Congressional Republicans try to pass will be “talked to death” by Democrats in the Senate.

filibuster-arcaneNo one knows what Donald Trump will do as President, but since he is an egocentric dealmaker, it’s likely that he will want to sign legislation — even bad legislation — if he can attach his name to something. While he wields the power to influence Congress through the threat of a veto, he isn’t an ideologue who will likely use his veto much. If Congress passes it, he will probably sign it.

Establishment Republicans see this as an opportunity. They know Hillary Clinton would never have signed anything they passed, so while the Republican establishment may not like Trump, they see him as a tool for signing their agenda into law — that is if they can pass legislation through Congress.

On the surface, Republicans appear to control all the levers of power: they possess majorities in the House of Representative and the Senate, and the President is ostensibly one of them — or so they hope. While Trump may be a wildcard, establishment Republicans first must exercise their power to pass laws.

The Republican majority in the House of Representatives will enable them to pass any law they want through that branch of Congress, but unfortunately for the Republicans, the Senate won’t be so easy.

The founding fathers intended the Senate to be a smaller body with more debate. Whereas debate times are limited in the House of Representatives, by long-standing Senate rules, no limits are placed on debate. In fact, it takes a vote of 60 Senators, 9 more than the 51 needed for majority, to stop debate on any issue. If 60 Senators fail to agree that debate should be closed, one Senator can talk forever, effectively killing legislation by preventing it from ever coming to vote.

This procedural “talking to death” of legislation is known as a filibuster, and this arcane Senate rule will thwart the desires of establishment Republicans to pass their agenda, including housing policy.

As soon as Donald Trump takes office and the new Congress is in session, expect to hear weeping and gnashing of teeth by Republicans who will undoubtedly decry the filibuster as an undemocratic tool of the obstructionist minority party — just like the Democrats complained when they last held both Houses of Congress and the Presidency from 2009-2011.


Whenever one party controls all the levers of power, partisans will complain about the filibuster. Through willful ignorance, they fail to see how the filibuster serves them. While the party in power may want to enact their entire agenda, they would also like to see those laws endure — and without a filibuster, none of it would. Without a filibuster, laws would be passed and repealed every time the power structure changed in Washington, and such political instability would lead to chaos.

Despite the filibuster, Democrats passed Dodd-Frank and Obamacare in 2010. Republicans used the filibuster to shape the legislation (for example, they scuttled single-payer). Democrats would have passed much more onerous legislation had they “gone nuclear” and removed the filibuster, but they were wise enough to recognize that the day would come when they wouldn’t control the White House and Congress, and with the filibuster intact, they would be able to defend Dodd-Frank and Obamacare when the time came — which is now.


Dodd-Frank is one of the most important pieces of legislation in housing today. Dodd-Frank effectively banned the toxic loan products responsible for the last housing bubble, and it set up the Consumer Financial Protection Bureau to prevent the financial elites from ripping off the working class, the same working class that just voted for Donald Trump in large numbers.

Many establishment Republican legislators obtain much of their campaign contributions from the financial elites. The financial elites — and thereby establishment Republicans — want to repeal Dodd-Frank because the Consumer Financial Protection Bureau actually protects working-class people from the financial elites who want to rip them off. Democrats will vigorously defend Dodd-Frank by using the filibuster.

Democrats built a legislative fortress around the Consumer Financial Protection Bureau. First, the funding for the Bureau isn’t subject to Congressional appropriation, which means that the Republicans can’t starve the agency to death by cutting off its funding. Second, the head of the Bureau can’t be fired by the President, so if the Country’s Chief Executive is angry with the head of the CFPD, he can’t fire him (well, maybe he can).

Republicans must deal with Democrats or face a filibuster. And since Donald Trump lost the popular vote by a significant margin, Democrats don’t fear opposing him or the Republicans who clearly don’t have a broad mandate for their agenda. Over the next two years at least, the filibuster will be the biggest story in politics, and thereby in housing policy.


Big Changes with a New Administration and a New Congress?

Getting to 60 may be the Core Question

Stuart Pratt, November 30, 2016keep_the_gses

The incoming Trump Administration and Republican-controlled Congress have important housing policy questions to consider. …

Republicans will attempt to use the Congressional Review Act to reverse certain rules issued in final form after May 30, 2016. But, … there isn’t much chance of materially impacting housing policy via this effort since most significant rules were in place prior to this date. …

Procedural trickery won’t accomplish much.

First, what happens to Fannie and Freddie (aka the GSEs)? FHFA Director Watt has a five-year term that doesn’t expire until January 2019 so President Trump’s appointee will impact the GSEs’ regulator, but it will be half way through his term. Absent finding a way of passing GSE reform via budget reconciliation (that is how the Affordable Care Act was passed) Senate Republicans will have to find 60 bipartisan votes. These may be hard to come by. …

This depends entirely on what bill is presented. IMO, compromise legislation exists on this issue — and unfortunately, it’s probably found with the worst possible solution.

Establishment Republicans at the bequest of their financial donors would love to turn the GSEs back over to the private sector. With the implied guarantee of the US government, these entities can borrow cheaply and generate significant profits to shareholders. When they go bust again, the taxpayer will cover the bills.

Left-wing housing advocates who want to make bad loans to poor people and create an underclass of temporary homeowners will also want to turn the GSEs back over to the private sector. They can mandate the GSEs to underwrite bad loans to temporarily boost the homeownership rate among their constituents.


Taken together the establishment Republicans and the far left Democrats could overcome a filibuster — assuming fiscally conservative Republicans don’t kill the idea from within.

Is the Consumer Financial Protection Bureau on the endangered species list? The idea of changing its structure into a commission and tying its budget to the appropriations process is on the table. But can Republicans get a bipartisan 60 votes? …

Establishment Republicans fantasize about this, and they will dutifully propose such a change. Unfortunately, it will run into an impenetrable barrier of united Democrats, and the legislation will go nowhere.

The financial services marketplace would like to see some relief from some of Dodd Frank’s intended and unintended effects. But, the Democrats will be aggressive in defending the law and the CFPB. Opposition will be led by significant national voices including Senators Brown (D-OH), Warren (D-MA) and Sanders (D-VT).

Democrats recognize Dodd-Frank isn’t perfect, and they will allow Republicans to correct some obvious problems, but the chance of a repeal of Dodd-Frank in toto is basically zero.


What about expanding the so-called “mortgage credit box?” … The GSEs are trying to address rep and warrant issues tied to buyback risks. Many believe this risk is first on the list of reasons why the credit box isn’t opened more widely today.

This is an area where far-left Democrats and Republicans can find common ground if the fiscal conservatives don’t get in the way.

What about the mortgage interest deduction? Critics have been trying to gore this sacred cow for years. The odds of a change look slim when you consider the significant voices of support including community banks, credit unions, realtors and home builders. Were such a change to be enacted the effects of it could be moderated if the personal deduction is raised significantly (and) or the personal tax rate is cut. …

I recently wrote about how Trump’s tax plan will shift housing demand from move-ups to entry-level. The home mortgage interest deduction first needs to be undermined in its support, and the easiest way to do that is to raise the standard deduction so that almost nobody itemizes and uses the HMID. Since raising the standard deduction is a tax break for the poor and working class, I expect significant Democratic support for such a measure.

The Republican path to passing legislation is clear: they must keep their party together (which won’t be easy), and they must appeal to 8 Democratic senators to avoid a Senate filibuster. If they move to the middle, many compromise positions are possible. The future of housing finance hangs in the balance.