Election’s Impact on Multifamily

Bill Killmer, senior vice president of legislative and political affairs at the Mortgage Bankers Association, talks to MHN about the impact of the election results on the multifamily industry.

Bill Killmer

Bill Killmer, senior vice president of legislative and political affairs at the Mortgage Bankers Association, talks to MHN about the impact of the election results on the multifamily industry.

MHN: How do you expect commercial real estate, and multifamily more specifically, to be affected by the results of this election?

Killmer: This is a pretty tectonic shift, and certainly it was a huge movement in terms of control of the House and building a substantial majority for the Republicans to work their will in the House, but we still have divided Congressional government, so I think on issues that impact the commercial and multifamily sectors and other sectors as a whole, my prediction is incrementalism. You’re really going to have to build a strong consensus on any issues—whatever level of economic concern or controversy are attached to them—because getting consensus to get things to the floor of the Senate and out of committee when it’s 53-47 as a ratio as opposed to when it was 59-41, obviously it’s still going to be a difficult process. … There will probably be differences that are fewer and far between on the real estate issues, with the one exception of that being the GSE issue.

MHN: What do you see as the future of the GSEs?

Killmer: I think that the electoral outcome by definition threw sand into the gears of the GSE debate and means that it will take longer than it would have otherwise. I think the football really starts to get kicked into play when the administration releases its proposal in January, and I think there’s no question that House Republicans will look at this within a very different context than if Barney Frank were still holding the gavel in the House Financial Services Committee, and if either a Spencer Bachus or an Ed Royce is chairman, they’re going to start with the presumption that you’re winding down the level of government involvement in the mortgage finance chain and in the delivery system. The Senate Banking Committee will also be under new direction with Senator Johnson from South Dakota. … I think the further the Republicans get into the process of holding hearings and starting to examine what that sort of transition [could work toward] removing a role for government and moving toward privatization, they’ll grapple more and more with the reality of trying to limit and explicitly define what the role for the government might be.

MHN: What is going to be on MBA’s agenda going forward with this new Congress?

Killmer: Two things. GSE reform would certainly be at the top of the list of items on our agenda. We’ve been major stakeholders and have acted as thought leaders proposing a model that would preserve a role for the government with a very explicitly defined but limited government guarantee as a wrap for mortgage-backed securities but with a structure that would contemplate different entities that would be privately created, privately held, but regulated by the government to be the delivery system that removes some of the trouble, some of the excess that we’ve seen over the last two years with Fannie and Freddie placed into conservatorship. I think actually there’s an appeal for both sides of the aisle, given that more explicitly defined role for the government with the guarantee and the wrap, but contemplating that you’re going to try to get the private mortgage market reinvigorated. That will be at the top of the list. I expect that that debate will take a little bit longer as a result of the electoral changes.

The other thing that we’ll be pushing for is something you’ll see Republicans pushing for, which is strong oversight of the regulatory agencies that are involved in the implementation of the Dodd-Frank law. I think there will be a lot of scrutiny on that process. Ultimately you’ll probably see some move for technical corrections, but I think probably the most likely outcome is an awful lot of testimony by the regulatory community that’s engaged in the rulemaking, with a lot of scrutiny and oversight from the congressional committees, particularly on the House side.

MHN: What are some of the areas you have your eye on in the regulatory arena?

Killmer: There’s a great deal of scrutiny from our perspective on the whole notion of risk retention—quantifying and defining that. The Congress we think was wise to differentiate how that would be impacted on the commercial side as opposed to the purely residential side. That work is already really strongly apace, with the regulatory agencies operating on pretty tight deadlines … to move forward pretty quickly. It’s really an unprecedented interagency collaboration that’s been contemplated and mandated under Dodd-Frank, so we’re watching that closely.

One of the other areas that we’ll keep our eye on is oversight of FHA, particularly on the multifamily side, ensuring that there will be adequate commitment authority to ensure that lenders will have the appropriate resources to serve their communities. Reflexively, in a time when there is a great deal of scrutiny and there was a lot of election messaging about making the most efficient use of government resources, there was already a lot of concern and scrutiny that has been given to FHA and the attention the agency needs to focus on its risk management practices and its solvency, and I think that that will increase as a result of the election. There will be some tougher choices … to make sure that FHA will have the resources it needs at a sensitive time, as it is determining what its correct role in market shares should be.

I would throw one other thing out there. The debate over tax issues is certainly going to be affected by the change in the Congress. And I don’t mean just that Republicans on the House side are going to want to push more for tax cuts; it just really changes the dynamic on a lot of issues that will have an impact on the commercial and multifamily sector. Like the taxation of carried interest as ordinary income, there is a real change in dynamic there. … I think we’re also going to have a real robust new twist on the debate about homeownership versus housing choice and rental housing. You’re going to see some interesting and controversial proposals, and I think the Congress is going to have to grapple with those at some point.

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