Congratulations Mr. President, Now, What About FHA and the GSEs?

President Obama’s re-election to a second term has dashed the mortgage industry’s hopes of getting a technical corrections bill to fix onerous provisions of the Dodd-Frank Act and restructure the Consumer Financial Protection Agency.

But even more importantly, the president may soon be faced with a huge decision on what to do about the capital-thin mortgage insurance fund at the Federal Housing Administration.

Washington sources have told National Mortgage News that when the outside audit of the agency is released next week, FHA’s Mutual Mortgage Insurance fund may require a bailout in the form of a line of credit from the U.S. Treasury Department.

Currently, FHA has a market share in the 20% range and is heavily used by first-time homebuyers.

If Mitt Romney had won the election, his administration probably would have tightened FHA’s credit standards and increased downpayments for borrowers with FICO scores below 660. Any tightening at FHA under the Obama administration is likely to be around the edges. 

As for the GSEs, Democratic control of the White House and Senate means reform of Fannie Mae and Freddie Mae could move slowly or be on hold for four more years.

Also, mortgage bankers are wondering how long Edward DeMarco–a career civil servant–will remain as acting director of the Federal Housing Finance Agency. Some Democrats want the president to appoint a permanent director who is willing to allow Fannie Mae and Freddie Mac to write down the principal on underwater mortgages, a move that would help thousands of mortgagors restructure their loans.

It’s understood that the White House is considering several candidates to be the new Federal Housing Finance Agency acting director.

In the arena of political oversight, Rep. Jeb Hensarling, R-Texas, is in line to be the new chairman of the House Financial Services Committee. He has been promoting GSE reform that would transition Fannie and Freddie out of conservatorship after two years and privatize them at the end of the fifth year.

The Hensarling approach is a non-starter with most Democratic lawmakers. The Obama administration wants to avoid any disruptions in credit while the housing market is recovering.

One major headache for mortgage bankers could be the election of Elizabeth Warren to a Senate seat in Massachusetts. Warren, who founded the CFPB, has been a major critic of mortgage brokers, and is likely to seek a seat on the Senate Banking Committee. As a senator, she will ensure that any legislation passed by the House to gut the CPPB will die in the Senate.