Last week the Senate invoked the “nuclear option” and the housing market might be the beneficiary. The President's nominee to head the FHFA will have a lot to say about it.
What is the nuclear option?
The "nuclear option" would be the changing of Senate rules to enable judicial and executive nominees to be confirmed with just 51 votes instead of 60. Apparently you need 60 votes to do just about anything in the Senate but change the rules. That only takes 51 votes.
The symbolism of "going nuclear" also portends a sort of mutually assured destruction in the future, to borrow another Cold War term. Democrats won't always control the Senate. And when Republicans are in charge, you can bet they'll return the favor.
Politics aside, invoking the nuclear option could have a significant effect on the direction of the housing market.
The person 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.
What policy changes can the industry expect if Watt does take the helm at the FHFA?
The acting director, Edward DeMarco, has focused on improving Fannie and Freddie’s bottom line (not a bad thing) and cutting back on multi-family financing. His most controversial proposal is reducing the maximum mortgage amounts that will be guaranteed by the agency which has industry groups in an uproar.
Watt, on the other hand, is expected to shift the focus to aid struggling homeowners (not a bad thing either).
“We 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,” said Jaret Seiberg, an analyst for Guggenheim Securities LLC.
Watt could also reverse a DeMarco rule that prohibits Fannie and Freddie from cutting the principal balance on delinquent loans. That could breathe new life into the HARP refinance program and bring HARP 3.0 to the market.
There’s still a lot of this story to be written but in a housing market that is still struggling to recover it may be a step in the right direction.
Of course I could be wrong
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