Washington Policy Update
Allison Karakis, Government Relations Director
The midterm elections have produced results reminiscent of 2020 – narrow majorities and another runoff in Georgia. However, the dynamics have shifted as Republicans gained control of the House with a slim seven seat majority with two seats remaining to be called. With all legislation in the new Congress requiring bipartisan support, Democrats and Republicans alike have incentives to work together; yet, both parties are expected to focus on positioning themselves for the 2024 presidential election. This focus is expected to cause the already limited passage of legislation to grind to a halt. Significant time and effort will be needed to negotiate compromises to simply pass the most essential bills, such as government funding and increasing the debt ceiling. 

The Senate runoff in Georgia on Dec. 6 between Sen. Raphael Warnock (D) and Republican candidate Herschel Walker appears less consequential than the 2020 runoffs as Democrats have already secured a 50-seat majority. Yet, the impact of the runoff will be significant. A 50/50 Senate will likely continue with a power-sharing agreement that includes equal committee seats and equal staff. However, a 51-seat majority will give Democrats substantially more influence in the Senate. 

Both parties are finalizing their leadership for the 118th Congress with House Republicans voting to support current Minority Leader Kevin McCarthy (R-CA23) for Speaker of the House. Rep. Steve Scalise (R-LA1) was elected majority leader and Rep. Tom Emmer (R-MN6) majority whip. 

Nancy Pelosi announced she would not seek another term in leadership for the first time in 20 years allowing a new group of Democrats to come forward. Rep. Hakeem Jeffries (D-NY8) ran unopposed for minority leader while Rep. Katherine Clark (D-MA5.) was also unopposed for minority whip. In the new Congress, Patrick McHenry (R-NC10) will chair the House Financial Services Committee with Maxine Waters (D-CA43) as ranking member. 

Senate Republicans have retained Mitch McConnell (R-KY) as minority leader while the Democrats plan to vote during the 2nd week of December with Chuck Schumer (D-NY) expected to win another term as majority leader. Sherrod Brown (D-OH) will continue to chair the Senate Banking, Housing and Urban Affairs Committee and Tim Scott (R-SC) will take over as Ranking Member following Pat Toomey’s (R-PA) retirement. 

In the new Congress, narrow majorities in both the House and Senate will continue to allow small groups to have outsized influence. This is likely to create internal party conflicts that will make it difficult for leaders to unite their members on legislative efforts. 

Democrats remain in control of Congress through the lame-duck session that ends on Jan 3. Significant agenda items remain which include government funding, which runs out on Dec. 16, Flood Insurance Reauthorization that expires the same day and the National Defense Authorization Defense Act that must be completed by year-end. 

 FHFA Continues Comprehensive Review of FHLBanks

The Federal Housing Finance Agency (FHFA) kicked off its review of the Federal Home Loan Bank (FHLBank) System with a three-day listening session that began in September. The FHFA is now holding a series of regional roundtables across the country to gather additional information and feedback. The first roundtable was held in Washington, DC on November 2, 2022, and covered the mission and purpose of the System. Details on these sessions and other roundtables are available here

Throughout the review process the FHFA is specifically interested in receiving feedback across six key areas:
  1. General mission and purpose in a changing marketplace
  2. Organization, operational efficiency and effectiveness
  3. Role in promoting affordable, sustainable, equitable and resilient housing along with community investment
  4. Addressing the unique needs of rural and financially vulnerable communities
  5. Member products, services and collateral requirements
  6. Membership eligibility and requirements

FHFA Announces Targeted Pricing Changes

FHFA announced targeted changes to Fannie Mae and Freddie Mac's guarantee fee pricing by eliminating upfront fees for certain borrowers and affordable mortgage products, while implementing targeted increases to the upfront fees for most cash-out refinance loans.

The FHFA is eliminating upfront fees for:
  • First-time homebuyers at or below 100% of area median income (AMI) in most of the United States and below 120% of AMI in high-cost areas
  • HomeReady® mortgage and Home Possible® mortgage loans 
  • HFA Advantage® and HFA Preferred™ loans 
  • Single-family loans supporting the Duty to Serve program

The new fee reductions will soon go into effect while the implementation of new fees for cash-out refinance loans will begin Feb. 1, 2023. 

New Credit Score Models for Fannie Mae and Freddie Mac

The FHFA announced the validation and approval of both the FICO® Score 10T and the VantageScore® 4.0 credit score models for use by Fannie Mae and Freddie Mac. Once fully implemented, lenders will be required to deliver loans with both scores, when available. Classic FICO has been used for the last 20 years. 

The FHFA also announced that changes will be made to allow lenders to provide two credit reports instead of the current requirement of three from the national consumer reporting agencies.

CFPB Funding Ruled Unconstitutional 

In October, U.S. Court of Appeals for the Fifth Circuit ruled that the Consumer Financial Protection Bureau’s (CFPB) independent funding is unconstitutional. The bureau is funded through the Federal Reserve System, not via a direct congressional appropriation. The CFBP recently submitted a petition for the US Supreme Court to review the decision. 

If the funding model is discarded, the CFPB likely would be subjected to the Congressional appropriations process, giving lawmakers greater leverage over the agency. 

FDIC Nominees

President Biden nominated Martin Gruenberg to chair the Federal Deposit Insurance Corp (FDIC). Gruenberg chaired the FDIC board from 2012 to 2018 and has served as acting chairman since earlier this year after the Republican-appointed chair stepped down amid a disagreement with the board’s Democrats. This follows a September announcement of two Republican nominees Travis Hill and Jonathan McKernan. If all three nominees are confirmed, it will be the first time since 2015 that the FDIC has had all its board seats filled.  

Referenced mortgage products are registered or trademarks of the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

FICO is a registered trademark of the Fair Isaac Corporation.

VantageScore is a registered trademark of Vantage Score Solutions, LLC.