The upcoming election has implications for several game-changing policies that could affect companies that lend on income-producting properties and housing.
At the time of this writing, the presidential race and the composition of congress were still largely a toss-up, but polling pointed consistently to a Republican Senate, David McCarthy, managing director, chief lobbyist and head of legislative affairs at the Commercial Estate Finance Council.
READ MORE: Election 2024 coverage from NMN
That means outcomes where power could be divided between the parties are possible, and it’s caused the council to engage in projections for a range of election scenarios that could create a need for compromise. The council plans to update its analysis over time.
What’s at stake for key policies in different scenarios follows, based on comments from McCarthy and an analysis he co-authored with Sairah Burki, managing director and head of regulatory affairs, and James Montfort, manager of government relations. An Oct. 7 Cook Political report informed the original study.
GSE reform
Based on Trump’s first term, it looks like government-sponsored enterprise reform could re-emerge as a priority if he won the election, achievable through presidential appointments at the GSEs’ regulator, the Federal Housing Finance Agency, and the Treasury Department.
However, a release from government conservatorship is not a certainty, even with a Republican controlled Senate, McCarthy said. Roadblocks could arise if nominees’ views on freeing Fannie Mae and Freddie Mac from government ties they’ve had since the Great Financial Crisis’ housing crash are unpopular and Congress objects to them.
The two GSEs could provide less support and pose more competition for the industry in privatized form, depending on how their role evolves.
If released, the two enterprises will need to strike a balance between their efforts to fulfill their affordable housing mission and remaining competitive in the market as private entities, McCarthy said.
However, he sees risks to the status quo too.
The GSEs could be more of a housing policy tool if Harris wins and follows in President Biden’s footsteps. Fannie, Freddie and their regulator have recently implemented some measures, such as mandatory tenant protections, which are a concern for companies financing income-producing real estate, according to McCarthy.
“They’re able to dictate certain terms in terms of notice requirements for eviction or rent raises,” he said. “It seems like a kind of backdoor way to regulate certain aspects of the multifamily housing market.”
Taxation and broader housing policy
While some Democratic tax initiatives and other policy inventions could be unfavorable for real estate and corporations, that party’s proactive interest in supporting housing could funnel more public funding toward residential properties than under a Republican administration.
“Programs like the low-income housing tax credit could see additional resources and expansion,” the CREFC noted in its report. “Sustainability and climate incentives, especially popular programs under the Inflation Reduction Act, could see additional funding and support.”
While a Republican administration may look to reduce red tape and taxes for domestic companies broadly, they might discontinue other programs that support real estate financing.
There’s concern that “lawmakers may look to rollback other provisions to ‘pay for’ other tax cuts,” according to the council.
A recent survey conducted by National Mortgage News parent company Arizent found that 42% of mortgage industry professionals felt a Harris presidency would have a “very negative impact” on their business, while 30% believed that about a second Trump administration.
Bank capital rules
A Harris presidency could move the Basel III endgame reproposal process forward while a second Trump administration could increase the chances that the original proposal rolls back through a congressional review, particularly with a Republican-controlled Senate.
The original proposal contained capital charges and other provisions that could complicate commercial real estate lending and securitization, McCarthy noted. Other industry analyses have noted it could reduce depository interest in low-downpayment single-family mortgages, warehouse lending and mortgage servicing rights.
Republicans may be more apt to scrap the original proposal aimed at ensuring rules around banks’ financial soundness are adequate and up to date, while Democrats would be more likely to continue looking at how they could ease the standards without compromising their intended purpose.
“I think that it would be very unlikely that Harris would support a wholesale repeal if that rule got finalized, even if Congress was controlled by Republicans,” McCarthy said.
That said, the momentum for scaling back some of the capital requirements in the original proposal could grow under some scenarios in a Harris administration, even though it currently appears to be running into opposition, according to McCarthy.
“While it might not be able to be repealed. I think its final form would still be somewhat up in the air, and would be tempered by a Republican Senate,” he said.
The Community Reinvestment Act
Fissures between banking advocates over the Community Reinvestment Act could be bridged if the election results in a situation where chambers of congress and the White House have to compromise.
“There are critics of the Community Reinvestment Act on both sides of the aisle for different reasons, so I actually think that there could be some common ground in fixing it,” McCarthy said.
Clarified community reinvestment goals could be an opportunity if they funnel more money toward real estate, but risks also lie in the possibility for overly prescriptive or expanded requirements under a Harris administration, McCarthy said.
On the other hand, a Trump administration could take a neutral stance on CRA reform that could potentially weakening support it provides for real estate investment.
The composition of Congress might become more influential at this point, as the White House could follow its lead.
