Mark Calabria

Mark A. Calabria is director of financial regulation studies at the Cato Institute.

More by Mark A. Calabria

With Obama's victory and modest Democrat gains in the Senate, the president will likely renew attempts to put in place key appointments. Among those are replacing Ed DeMarco, the Federal Housing Finance Agency's acting director. Not only will this appointment influence the modifications efforts (or lack thereof) of Fannie Mae and Freddie Mac, but it will also give the administration a larger voice in Congressional debates over the future of the government-backed mortgage giants. Given the significant differences between House Republicans, Senate Democrats and the White House on reform of Fannie and Freddie, both companies will likely still be in their conservatorship limbo at the end of Obama's second term.

The Senate is also likely to act on a permanent housing commissioner to administer the Federal Housing Administration. Such an appointment will become all the more critical, as, in my opinion, FHA will require some amount of taxpayer assistance in the years ahead. If such amounts exceed $10 billion, which I believe they will, then legislative reform of FHA becomes a strong possibility with a focus on reducing taxpayer losses.

Romney repeatedly spoke of tax reform with an emphasis on reducing deductions in order to lower rates. Despite a vocal minority within progressive circles calling for reducing the mortgage interest deduction and using the money for rental assistance, an Obama victory largely guarantees the continued existence of the mortgage interest deduction in its current form. One can almost hear the Realtors breathing a sigh of relief.

With Obama's re-election comes the likely permanence of the Dodd-Frank Act and its newly created Consumer Financial Protection Bureau. Once the battles over CFPB's existence die down, I believe bipartisan attention will shift to the agency's regulation of the mortgage market. Both Dodd-Frank's Qualified Residential Mortgage and Qualified Mortgage definitions have raised concern across the political spectrum. Whether it's a concern that low-income and minority families will be denied credit due to the restrictions of QRM/QM, or that the regulations will hold back the overall mortgage/housing market, a more substantial debate will begin, ultimately resulting in a softening of the provisions of QRM/QM.

Much of what I have discussed lies on the regulatory side of housing policy. To a large extent, the real action will remain there. Whoever was going to win was going to face some stark budget realties. With little chance of wholesale entitlement reform, discretionary spending will be squeezed. Federal assisted housing programs have their peak funding (in real terms) behind them. While the overall housing market will continue to gain momentum over the next four years, that momentum will be slow. The days of real double-digit house price appreciation are years away. Obama will not be riding a housing bubble nor will he be tasked with cleaning up another bust. That will have to wait for future administrations.

This article appeared in AOL News on November 7, 2012.


Mark Calabria

Mark A. Calabria, is director of financial regulation studies at the Cato Institute.
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