This document discusses how a Trump presidency may impact Dodd-Frank, the CFPB, and Fannie Mae and Freddie Mac. Experts believe Dodd-Frank likely won't be fully repealed due to parts being integrated into the financial system, but targeted changes could replace the CFPB director and weaken its enforcement powers. GSE reform proposals have stalled in Congress due to Republican philosophical divisions. Trump may kick reforms down the road or back recapitalizing and releasing Fannie and Freddie from government control.

1. All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Guide Media.
Reprinted from Scotsman Guide Residential Edition and ScotsmanGuide.com, January 2017
I
n the weeks following the U.S. presiden-
tial election this past November, housing
experts from across the political and
financial spectrums began scrambling to
analyze the impact that a Donald Trump pres-
idency would have on the housing market
and the mortgage industry.
Specifically, many wondered what might
happen to the Dodd-Frank Wall Street Reform
and Consumer Protection Act and the Con-
sumer Financial Protection Bureau (CFPB) as
well as to Fannie Mae and Freddie Mac, the
government-sponsored enterprises (GSEs)
brought under government conservatorship
after the housing crisis.
During the campaign, Trump said he would
repeal Dodd-Frank if elected and replace it
with policies to encourage economic growth.
Although Trump never mentioned the GSEs
during the campaign, his economic-policy
team included John Paulson, a billionaire
hedge-fund manager with financial interests
in Fannie Mae who has been a strong propo-
nent of recapitalizing the GSEs and releasing
them from conservatorship.
Dodd-Frank Repeal
Mostanalystsbelieveacompleterepealoreven
a major overhaul of Dodd-Frank and the CFPB
is not possible. “It’s easy to say with Dodd-
Frank that you want to repeal and replace it,”
says Jim Parrott, senior fellow at the Urban
Institute, who helped develop major housing
policies for the Obama administration. “But at
this point, many parts of Dodd-Frank are well
integrated into the financial system as we
know it.”
Parrott believes we’re more likely to see
targeted efforts to replace or alter pieces of
Dodd-Frank. One of these changes could
be replacing the CFPB director with a five-
person commission — a governance struc-
ture used by the Securities and Exchange
Commission and the Federal Communica-
tions Commission.
A. Sonny Abbasi, general counsel for
Lender Service Provider LLC and a former
policy director for Fannie Mae, believes this
is the most likely change. “They will change
the structure,” he says, “and then I think they
will weaken the enforcement authority of the
CFPB.”
Part of this weakening, according to
Abbasi, could take the form of a cultural
shift. “I think [CFPB Director Richard] Cordray
is going to feel slightly concerned about the
regulatory environment,” Abbasi says. He
also believes new legislation could create
some sort of new appeals process for CFPB
enforcement actions, on top of having the
five-member commission — once estab-
lished — voting to approve all major enforce-
ment actions.
What we are not likely to see, according
to Parrott, is a repeal of any major regulations
already in place, such as the TRID consumer-
disclosure rules or the expanded data-
reporting requirements mandated under
the revised Home Mortgage Disclosure Act
regulations.
“The industry is affected by Dodd-Frank
and thus affected by any dramatic pullback,”
Parrott says. “It would be expensive and
generate a fair amount of uncertainty to try
to turn back time.”
GSE Reform
GSE reform has been discussed for years
in Congress, and multiple proposals have
been put forth. To date, none of these pro-
posals have found enough backing. Part of
the reason for inaction may stem from phil-
osophical differences within the Republican
Party. According to Parrott, the business-
friendly side of the party — embodied by
U.S. Sens. Bob Corker, R-Tenn., and Mike
Crapo, R-Idaho — wants to replace the current
GSE structure with “some other form of a gov-
ernment backstop that is more insulated
behind private capital.”
BackSpace
By Will McDermott
Dodd-Frank and GSE reform are now inTrump’s court
Continued >>
Will McDermott is editor of Scotsman Guide
Residential Edition. Reach him at (800) 297-6061
or willm@scotsmanguide.com.

2. << Continued
All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Guide Media.
Reprinted from ScotsmanGuide Residential Edition and ScotsmanGuide.com, January 2017
this option. Republicans feel that if Fannie
and Freddie are once again unencumbered
by government oversight, they might return
to the profit models that contributed to the
housing collapse in the first place.
Another viable option would be to simply
leave the GSEs alone and tackle other issues
first. “I think [Trump is] going to kick the can
down the road,” says Glen Weinberg, a part-
ner at Fairview Commercial Lending. “I don’t
think it’s a win. The American public doesn’t
really care as long as the mortgage market
works, and in everybody’s eyes the mortgage
market works right now.” If Trump is looking
for early wins, then GSE reform might not
be a fight he chooses to take on right out
of the gate.
How the GSE debate shakes out could
come down to which side Trump ultimately
backs. His nominee for Secretary of the
Treasury — Steven Mnuchin, a hedge-fund
manager and former business partner of John
Paulson — has publicly stated that the GSEs
should be removed from government con-
trol. It is unclear what impact Mnuchin can
have on this issue officially, but it is likely that,
like Paulson, he would advocate for recap
and release.
Something needs to be done eventually,
however. The GSEs are set to wind down
their capital reserves to zero by 2018. Joseph
Murin, former president of the Government
National Mortgage Association, or Ginnie
Mae, believes the Ginnie model of acting as
an insurer against catastrophic loss may be
the best reform solution to “improve the
position of the taxpayer and still provide the
benefit to the potential buyer.”
Asked if the Ginnie Mae model has been
proven effective, Murin responds, “I think the
Ginnie model does that every day. n
More ideological Republicans, however,
led by U.S. Rep. Jeb Hensarling, R-Texas, cur-
rent chair of the House Financial Services
Committee, want to wind down Fannie and
Freddie completely. “Chairman Hensarling and
others of that ilk have felt strongly that the
government’s role in the market is distorting
and unhelpful,” Parrott says.
Recap and release, the option proposed
by some hedge-fund managers with a stake
in the GSEs, would allow Fannie and Freddie
to begin retaining capital instead of turning
all of their profits over to the Treasury. Once
they have enough funds to operate inde-
pendently again, they would be released
from conservatorship.
This idea might seem like the starting
point for a compromise between the two
Republican viewpoints, but according to
Parrott both sides have spoken out against