It's the Politicians, Stupid

"Reader, suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself." - Mark Twain

"I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."   - Thomas Jefferson

James Carville coined the phrase "it's the economy, stupid" during the 1992 presidential campaign. With this very powerful talking point Bill Clinton was able to defeat incumbent President George H.W. Bush, who had enjoyed a 90% approval rating after Operation Desert Storm. 

According to Gallup, President Obama enjoyed a 53% approval rating just after the 2012 Presidential Election. This reflected his highest approval rating since 2009. In 2012, things were looking very good for the returning incumbent President. The Health Care Reform Act was in full gear, the economy was showing signs of an impressive recovery, the unemployment numbers were dropping precipitously, and the Consumer Financial Protection Bureau (CFPB) was formed in the wake of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Fast-forward now to 2015, following the worst recession since the Great Depression, the housing market and the economy appear to have stabilized. Additionally, oil prices are at record lows which only helps propel the economy through new consumer spending. But the Republicans still stormed through the 2014 midterm elections and took control of both the House of Representatives and the Senate. Now it appears that Capitol Hill and the White House are on a collision course. Despite the optimistic economic outlook, American politicians are waging unprecedented political warfare in Washington.
 
With two years left on his term, President Obama faces a very hostile Congress. Since returning from recess in January, the new Congress has already flexed its muscles by voting to approve the Keystone XL pipeline despite threats of a Presidential veto. It has been reported that the Speaker of the House, John Boehner (Ohio-R) went clandestinely behind the President's back to invite the Israeli Prime Minister to address Congress on the issue of increasing sanctions against Iran, which the President vehemently opposes. There are also rumblings about repealing the Healthcare Reform Act, which seem certain to gain more traction as the 2016 election season draws nearer. So there is very little reason to hope that Congress and the President will see eye to eye on just about anything in the next two years.

Will 2015 be the final gasp for James Carville's talking point about the economy, and how will the new political landscape affect the mortgage industry?

In a recent interview on Bloomberg TV, Secretary of Housing and Urban Development Julian Castro was quoted saying that reforming the mortgage finance system would be a "priority" for the administration over the next two years.¹  But, what kind of reform can we expect in such a divisive political climate? Some analysts suggest that Congress may seek to reform the Dodd Frank Act by overhauling the CFPB. This would be attractive because consumer protection is a bi-partisan issue and Congress seeks to exert more influence over the CFPB.²

Over the next two years, Congress is expected to tighten the strings on the CFPB through oversight and accountability by appointing an independent Inspector General. It may also amend Dodd-Frank in order to loosen lending restrictions on larger banks, while at the same time enhancing regulators ability to monitor the financial system for signs of irresponsible lending practices.³  In 2015 we should expect to see a trend of increased mortgage lending on account of these initiatives as both consumers and lenders will have more confidence in the housing market. 

Perhaps it's still the economy that needs to stay in focus in 2015. Lawmakers on both sides of the aisle should seek ways to improve these financial regulations, and this is very good news for those in the mortgage industry. Financial policy has always been the launching pad for bi-partisan efforts. And if Washington can find ways to keep the momentum of consumer spending going, then mortgage lending should boom, and that just might be the recipe to bridge some of the other broad divides facing Washington today.