In less than two weeks, President Trump has fulfilled his major campaign pledge to shake up Washington and change the way the government operates. That is exactly why many of his supporters love him. He already has political and business leaders in Washington and around the globe guessing what his next move will be.
A new president's first weeks in office revolve around a carefully planned and scripted effort to translate the positive momentum from a successful election to get major things done. This requires discipline across the new administration and close coordination with congressional leaders of the same party. Trump's efforts to deliver on the two largest campaign promises, to repeal and replace the Affordable Care Act and comprehensively reform taxes, are still being developed with congressional input.
Each day of this new administration seems to bring new action, much of it controversial to the point that spontaneous demonstrations have sprung up around the country. The passionate Trump opposition is reminiscent of the energy and intensity of the Tea Party in the early days of the Obama administration. The momentum of that organic movement took charge of the direction of the whole Republican Party at that time. It would seem that today's unnamed and unorganized opposition to the new president will demand similar support from the Democratic Party, making bipartisan cooperation with the current administration less likely than ever.
Government Funding Bill Update
In December, Congress passed a short-term government funding bill that expires April 28. Senate Majority Leader Mitch McConnell (R-Ky.) wanted the government funded through the entire fiscal year (until Sept. 30), but House Republicans insisted that the funding expire sooner to allow the new Congress and administration to have greater impact on federal spending. Sen. McConnell, sensing that Congress already has a very full plate, is once again seeking a funding bill through the end of the fiscal year at existing levels to obviate the need for complex, contentious legislation. It remains to be seen if House Republicans will agree.
Congressional Budget Office (CBO) Updates Budget and Economic Outlook
Budget pressure will be lurking behind every major legislative effort this year, be it tax reform, health care reform or the President's infrastructure initiative. The administration has suggested that it is willing to have these initiatives added to the deficits (i.e., not be revenue-neutral). Drafting legislation that is revenue-neutral is more complex and will result in less short-term impact. Enacting legislation that is not revenue-neutral, while easier in some respects (no one's ox is gored), presents a whole different set of challenges.
A recent CBO report, issued before the presidential inauguration, shows that budget pressure will continue to grow, driven by mandatory federal spending (Social Security, Medicare and interest on the national debt). CBO projects that, under current law, the deficit in 2017 will total $559 billion (or 2.9 percent of GDP), but over the next decade, budget deficits will eventually follow an upward trajectory, as growth in revenues will be outpaced by rising spending for retirement and health care programs for older people and for interest on the federal debt.
West Virginia Congressman Joins House Financial Services Committee
Rep. Alex Mooney (R-W.Va.) has been named to the House Financial Services Committee. The Committee has jurisdiction over banks, credit unions, housing and the FHLBanks.
Heritage Foundation Paper Calls for Removal of FHLBank Government Ties
The Heritage Foundation is playing a key role in advising the Trump administration. The Foundation's 2017 budget blueprint will be used as a starting point in the development of the Trump administration's FY 2018 budget.
The Foundation recently issued a paper that calls for shutting down Fannie Mae and Freddie Mac. While it does not suggest shutting down FHLBanks, it does advocate eliminating all major ties to the government that result in the FHLBank debt's agency status. Such a move would increase the cost of funding for FHLBanks and, in turn, their members. It would also hurt funding available for the FHLBanks' Affordable Housing Program. The paper states:
- Similar to the other two housing government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, the FHLBanks benefit from the implied guarantee of the federal government that is assumed by market participants given the various special privileges, including the exemption of certain taxes and regulatory requirements, as well as lines of credit to the federal government.
- The federal subsidies have led to higher levels of debt liability at the FHLBanks, and increases the risks to federal taxpayers of covering the cost of bailouts should the banks begin to experience severe financial losses.
- The FHLBank system could be legally allowed to continue operating as a mutual organization, owned by its member financial institutions, and without a line of credit from the U.S. Treasury. Any other special privileges given to GSEs, such as the exemption of certain taxes and regulatory requirements, should also be eliminated.
Mortgage Bankers Association (MBA) Releases GSE Reform Plan
On Jan. 31, the MBA
released a
paper
outlining its recommended approach for secondary mortgage market reform with the objective of ending the conservatorship of Fannie Mae and Freddie Mac and establishing a new, durable foundation for the secondary mortgage market.
The MBA supports:
- Multiple privately owned guarantors, preferably more than two, organized as privately owned utilities with a regulated rate of return.
- These guarantors would be chartered to acquire eligible single-family and multifamily mortgages and issue single- or multifamily mortgage-backed securities "wrapped" with an explicit guarantee provided by the federal government.
