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After the Election: The Fate of Fannie, Freddie, More

NOV 6, 2012 12:24pm ET
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While the election on Tuesday remains a nail-biter in many respects, one piece of the puzzle is all but certain: Republicans are highly likely to retain control of the House.

The GOP leadership has not doled out committee leadership assignments yet, but most industry and Capitol Hill observers said they expect outspoken free market conservative Rep. Jeb Hensarling to lead the House Financial Services Committee next year.

“It doesn’t seem like anyone has put together a full campaign to challenge him for that spot,” said Edward Mills, a financial policy analyst at FBR Capital Markets and former Hill staffer. “It seems extraordinarily likely that he ascends to the top spot.”

The Texas Republican is likely to be sharply different in tone, if not substance, than current chairman Rep. Spencer Bachus, who is term-limited from retaining his gavel.
 
Many said they expect Hensarling to merge two issues he sees as intertwined: revamping Dodd-Frank and reforming the government-sponsored enterprises.

“Hensarling is going to see these two issues as connected–financial reform isn’t separate from mortgage finance. There will be some attempt to build an agenda around that,” said Mark Calabria, director of financial regulation studies at the Cato Institute.

Hensarling, a native Texan, began his political career early, launching a Republican club in high school, according to the National Journal Almanac. Several years after graduating from law school, he started working as an aide for Sen. Phil Gramm in 1985, and was appointed as his campaign manager in 1990. Hensarling also served as executive director of the National Republican Senatorial Committee after Gramm was named chairman of the committee.
 
Observers say that his behind-the-scenes Hill experience, along with a decade of service in the House, should prepare Hensarling well to be effective as chairman.

“This is not a guy who’s going to lose a fight because he doesn’t understand the process,” said Calabria. Hensarling has garnered a reputation for his public defense of the free market and limited government, voting with his party 95% of the time, according to the Washington Post’s U.S. Congress Votes Database. He’s also known as a fierce debater.

“I always thought Bachus’ biggest strength and biggest weakness is he’s just a nice guy,” said Calabria. “There were too many instances where [Ranking Member Rep. Barney] Frank was able to steamroll Bachus. I don’t see anybody steamrolling Hensarling in a debate.”
 
Hensarling hasn’t been shy in expressing his frustrations with the Dodd-Frank law, and those following the committee point to a number of ongoing issues he could raise as chairman. Those include changing the management structure of the Consumer Financial Protection Bureau to a five-person commission, making the agency subject to the budget appropriations process, imposing changes to derivatives requirements and altering instructions for how regulators should deal with “too big to fail” institutions.
 
He’s also taken a keen interest in GSE reform, repeatedly introducing legislation to cut off Fannie Mae and Freddie Mac from taxpayer dollars and privatize the institutions.

But on any of those issues, it’s unclear whether Hensarling will be able to make big inroads.
With an issue like GSE reform, his first challenge will be getting his own caucus on board. While Hensarling has taken the conservative tack, many housing groups, including important players like the National Association of Realtors and National Association of Home Builders, remain opposed to completely removing the government involvement in the secondary mortgage market. Those groups have allies among many House Republicans.

“The untold story is how much division there is among Republicans on exactly what to do,” said Mills, pointing as an example to California Republican Gary Miller, who has proposed legislation to merge the two GSEs. “You can see even within the same party how different the solutions would be.”
 
It’s also unclear what kind of appetite Congress will have for GSE reform over the next term, given other pressing issues like the fiscal cliff, deficit reduction and taxes.

“He’s been one of the loudest people on that issue over the last two years. But it’s unlikely that House Republican leadership has the stomach for that at the moment,” said Brandon Barford, a vice president at ACG Analytics and former Hill staffer.

“Congress has shown it’s incapable of doing more than one monumental piece of legislation at a time, and this year it’s going to be taxes. GSE reform will have to play second fiddle to that. I just don’t think they can do both at the same time.”
 
Others point to the likely split with the Senate, where Democrats are expected to keep control, albeit by a slimmer margin.

“How successful he will be for the large part doesn’t depend on his relationship with [House] Democrats, it’s more his relationship with the Senate,” said Brian Gardner, a policy analyst with Keefe, Bruyette and Woods. “The Senate is really more important to getting things done because they need some kind of bipartisan cooperation.”

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