The first vote of the 118th Congress, for Speaker of the House, made it immediately clear that slim majorities are going to make things difficult. Small groups within and across parties will have outsized influence on nearly every vote—impacting important legislation—over the next two years. When majorities are larger, losing a few votes isn’t typically a problem for a party. In fact, it is understood that at times a member of Congress may need to vote against their party to align with the interests of their district.
The dynamics of the small majorities in both the House and Senate may play out in many different ways. While the Speaker vote showed the power of a small group of more conservative Republican members, similar-sized groups of moderates, from both parties, may form a voting block particularly on essential bills such as the debt ceiling and government funding. This happened during the 2014 debt ceiling debate, and despite Republican control of Congress, 193 House Democrats and 28 House Republicans including all leadership voted for a clean debt ceiling increase. Regardless of the final path that these bills ultimately take to complete, a significant amount of time and effort will be needed to negotiate any compromises.
As mentioned in my last update, with all the proposed legislation in the new Congress requiring bipartisan support, Democrats and Republicans alike have incentives to find places to work together beyond the must do legislation; 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.
Committees in both the House and Senate are expected to using hearings to highlight priorities. For the Republicans this is expected to include numerous investigations and oversight of government agencies. Of specific interest, due to its jurisdiction, the House Financial Services Committee’s (HFSC) new chair, Patrick McHenry (R-NC10) has reorganized the Committee adding a subcommittee on Digital Assets, Financial Technology, and Inclusion. He also eliminated the Subcommittee on Diversity and Inclusion while pledging that instead the topic will be addressed by each subcommittee. Pennsylvania added Dan Meuser (R-PA) to the HFSC while Madeleine Dean (D-PA) will not return to the committee. Alex Mooney (R-WV) from West Virginia was retained as well.
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. From Pennsylvania John Fetterman (D-PA) was added to the Committee maintaining representation for the Commonwealth following Pat Toomey’s (R-PA) retirement.
HUD Fair Housing Rule
The U.S. Department of Housing and Urban Development (HUD) announced a proposed rule titled “Affirmatively Furthering Fair Housing” (AFFH). The proposed rule builds on HUD’s 2015 rule that was eliminated under the Trump administration, only to be restored under the Biden administration.
Like the 2015 AFFH Rule, the proposed rule implements the Fair Housing Act’s AFFH mandate by requiring state and local communities—as well as public housing agencies—to identify and address fair- housing issues. The proposed rule retains much of the framework of the 2015 AFFH Rule, with some refinements. As before, program participants would identify fair housing issues, prioritize the issues of focus over the next three to five years, and develop goal-based initiatives to overcome issues.
Under the proposed rules, program participants would submit an Equity Plan, which is a modified version of the Assessment of Fair Housing (AFH) performed under the 2015 Rule, to HUD for review and acceptance. The Equity Plan will be developed following community engagement and will contain the fair housing analysis, goals, and strategies. An Equity Plan would be submitted every five years. The proposed rule streamlines the required analysis from what was required under the 2015 AFFH Rule. It also includes more robust community engagement requirements so that program participants can receive input directly from their residents about their specific fair-housing needs.
The proposed rule would require program participants to incorporate fair housing goals from their Equity Plans into subsequent planning documents (e.g., Consolidated Plans, Annual Action Plans, and Public Housing Agency (PHA) Plans). In addition, program participants would be required to conduct and submit to HUD annual progress evaluations that describe progress toward and/or any needed modifications of each goal in the Equity Plan. Both the Equity Plans and the annual progress evaluations would be posted online.
Fannie and Freddie Pricing Changes
The Federal Housing Finance Agency (FHFA) announced further changes to Fannie Mae’s and Freddie Mac’s single-family pricing framework by introducing redesigned and recalibrated upfront fee matrices for purchase, rate-term refinance, and cash-out refinance loans.
This is part of the priorities outlined in the 2022 and 2023 Scorecards that called for developing a pricing framework to maintain support for single-family purchase borrowers limited by wealth or income, while also ensuring a level playing field for large and small sellers, fostering capital accumulation, and achieving commercially viable returns on capital.
The pricing changes broadly impact purchase and rate-term refinance loans and build on upfront fee changes announced by FHFA in January and October 2022, which have been integrated into the new fee grids. The new fee matrices consist of three base grids by loan purpose—purchase, rate-term refinance, and cash-out refinance loans—recalibrated to new credit score and loan-to-value ratio categories. Associated loan attributes for each purpose category are also included.
The updated fees will take effect for deliveries and purchases beginning May 1, 2023. Click here for details.
NDAA Financial Services Provisions
The National Defense Authorization Act (NDDA) signed by President Biden on Dec. 23, 2022 included a few financial services provisions.
- Banks Hiring Ex-Offenders: Federally insured banks and credit unions could hire additional individuals who have faced employment restrictions due to their criminal records, similar to the House-passed H.R. 5911
- Financial Regulator Data: Federal financial regulatory agencies would have to adopt specified data standards for the information they collect from regulated entities, similar to the House-passed H.R. 2989
- Master Account Database: Requires the Federal Reserve to create and maintain a public, online, searchable database of institutions that have access to a master account, as well as entities that have requested access to a master account. The database must be updated quarterly and include the status of any request for access, including whether a request was rejected.
The Debt Ceiling
The debt ceiling was reached once again on Jan. 19. This happened most recently in August 2021 causing the Department of the Treasury (Treasury) to use extraordinary measures to keep the federal government from defaulting on its debt obligations. Congress finally reached an agreement in December 2021 to raise the limit to $31.38 trillion. Treasury is once again utilizing extraordinary measures that is anticipated to allow the U.S. to meet obligations until at least June.
The debt ceiling does not authorize spending but has been leveraged at times by Republicans to tie an increase to reductions in government spending. There is concern that Speaker Kevin McCarthy made promises during the vote for speaker that will make it impossible to negotiate a House bill that can pass the Senate. Although most believe a default is still unlikely, lack of progress in the negotiations may cause economic harm as concern grows that the U.S. might be unable to make its debt payments for the first time in history.