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Four more years: What the Bush reelection means for the mortgage industryPeggy KernBush administration, mortgage industry, economics, forecast A month-plus after Election Day, Americans have settled back into their red-and-blue seats for another four years of the Bush Administration. On Capitol Hill, Republicans are riding high with solid majorities in the Senate and House; Democrats are still catching their breath and preparing for a tough legislative climate. With the race over and the furor finally dying down, the mortgage industry is also evaluating what the next four years will mean for their livelihood. Economic uncertainty The mortgage industry has enjoyed unprecedented growth over the past several years. However, a recent report by the Urban Land Institute and PricewaterhouseCoopers LLP found that real estate investors are cautiously optimistic about the housing market in 2005. The report cites several factors that could impede economic expansion, such as potential interest rate spikes, the weak dollar, increasing trade deficits, uneven job growth prospects and uncertainty surrounding the war in Iraq. "The last four years have seen historically low interest rates fueling unprecedented growth in new home starts, existing home mortgage refinancing, and first-time home purchases," said Stevie Kellogg, president of the National Association of Professional Mortgage Women. "This has made a huge impact upon the mortgage and lending business. Responding to this growth, lenders have generated numerous new loan programs, creating a massive learning curve for mortgage professionals at all levels. On the flip side, consumer debt has grown to an all-time high and personal bankruptcies have hit record levels. The same mortgage professionals are not only helping their clients get into homes but, in some cases, keep their homes in the face of financially difficult times." "If the second Bush Administration continues its efforts to strengthen small businesses, stabilize and fuel the economy, and push for job growth, we expect to see another four years of increased demand for knowledgeable and qualified mortgage professionals at all levels," she continued. "I hope President Bush pays attention to small businesses," says National Association of Mortgage Brokers President Bob Armbruster, noting that many brokers are also small business owners who are particularly vulnerable to a tenuous economy and increasing healthcare costs. Changes to Fannie and Freddie Fannie Mae and Freddie Mac can expect significant changes in the near future, as Congress works to tighten regulations and oversight. Both government-sponsored enterprises have faced tough inquiries about their accounting practices. Most recently, Fannie Mae was accused of pervasive accounting problems. Federal regulators claim the company deferred $200 million in expenses in 1998, allowing top managers to obtain millions in bonuses. "The administration is going to pursue reform of the Gases and regulatory oversight with greater vigor," says Steve O'Connor, vice president of government affairs for the Mortgage Bankers Association. "Republicans having strength in their majority improves the prospects of some sort of bill getting passed." Armbruster concurs, saying Freddie and Fannie can expect "major changes" in the coming months. Resurrecting RESPA reform Industry groups also expect another proposal from the U.S. Department of Housing and Urban Development to reform the Real Estate Settlement Procedures Act. Last year, HUD withdrew its proposed rule after massive industry objections and a bipartisan letter from Congress asking HUD to reconsider. Thanks in part to this successful grassroots lobbying effort, both NAMB and the MBA are confident that any future proposal will include significant industry input. "HUD Secretary Alphonso Jackson has indicated that he intends to bring the RESPA reform proposal back after some consultation with the industry," says O'Connor. "We expect that there will be consultation and collaboration with HUD as they begin to pursue this again." Federal legislative initiatives Also anticipated is the proposal of a uniform predatory lending standard that would override state laws and harmonize the regulatory environment. "The uncertainty over the regulatory regime is not good for the housing industry," says O'Connor. Many states have pursued their own predatory lending legislation, which has resulted in conflicting and sometimes over-restrictive regulationsmost notably in North Carolina and Georgia. In some cases, Standard & Poor's will no longer rate mortgage-backed securities that include loans covered by certain laws. The result is a significant decrease in available mortgages for consumers. "The reelection of President Bush and increased Republican margins in both the House and Senate significantly improve the odds for passing tough but workable uniform federal standards for non-prime mortgage lending that preempt the current patchwork of conflicting state laws," said Wright Andrews, Washington counsel for the National Home Equity Mortgage Association. "Had the Kerry-Edwards ticket won, passage of such a federal law would have been more difficult. In Congress, the Republican gains should make it easier to negotiate reasonable statutory language on key issues. However, Democratic members will remain important players in the upcoming legislative debate, as well they should. 'Predatory lending' is not, and should not be allowed to become, a partisan issue." House Financial Services Committee Chair Michael Oxley is expected to pursue some form of predatory lending legislation early next year, a bipartisan effort that is currently backed by ranking Democrat, Rep. Barney Frank. "A bipartisan majority of the full Financial Institutions Committee now appears to recognize the need to pass a balanced non-prime lending bill &" says Andrews. "And, quite significantly, Reps. Bob Ney and Paul Kanjorskithe Committee's second ranking Democratare now coming forth with a new bill that is expected to have much broader bipartisan support than the original Ney-Lucas proposal [in 2003]. The Ney-Kanjorski draft clearly will be the basic marker from which the House will begin work in early 2005." Sen. Richard C. Shelby will continue as Chair of the Senate Banking Committee, with the possible addition of Republican Sen. Mel Martinez, the former HUD Secretary who championed the original RESPA rule. Sen. Shelby is known to head his Committee in a fairly bipartisan manner and a bill similar to the new Ney-Kanjorski proposal is expected early in 2005 from the Senate. "Even if Republicans gain a larger Committee majority when the new party Committee ratios are set for next year, Democratic senators will still be key players," says Andrews. "Sen. Paul Sarbanes, the ranking Democrat, has long championed adding new legislative restrictions to HOEPA, and he cannot be expected to support preemptive legislation unless it contains significant new safeguards. A number of other committee Democrats are expected to be more moderate in their views than Sen. Sarbanes on certain key issues." Beyond predatory lending, the industry would like to see other legislative initiatives move forward as well. "The Bush administration made an effort to pass an FHA zero down payment bill, but it was bogged down [in Congress]," says O'Connor. "We hope the administration will reinvigorate this legislation, as it is aligned with Bush's homeownership goals." Overall, the mortgage industry sees positive possibilities for the next four years regarding legislative goals and improved communication with lawmakers on the Hill. However, a shaky economy, growing trade deficit, rising interest rates and uncertainty in the Middle East are making many temper their optimism. Like all Americans, the mortgage industry must wait and see what four more years of the Bush presidency will mean in the long term.