I've Made a Huge Mistake

Rep. Baker: "Come on, can't you vote for this? It’s just a study.

Rep. X: "We just approved a big flood control project back home. I'd love to help you out. I'm sorry, I just can't."

The politics of flood insurance in less than 40 words, according to my recollection.

***

The bill in question was H.R. 4320 (109^th Congress). As introduced, H.R. 4320 expanded mandatory flood insurance purchase requirements from the 100-year floodplain to the 500-year floodplain. The bill took fire from all directions. 

Chairman Oxley, who included the mandatory purchase expansion at the Bush Administration’s request, retreated. He asked Rep. Richard Baker to offer an amendment to strike the 500-year floodplain standard from the bill and replace it with a study. The study would be conducted by FEMA, which would report results and policy recommendations to the committee.

Even the FEMA study was toxic and an acrimonious debate ensued with committee members openly questioning FEMA's ability to conduct an impartial study. There was disagreement over what exactly should be studied and if the committee was interested in receiving policy recommendations.  

The eventual outcome? By a vote of 34 to 31, which splintered party discipline among both Republicans and Democrats, a substitute study amendment was approved. Under the substitute, GAO, not FEMA, would examine a 500-year mandatory purchase requirement and report its findings, without policy recommendations, to the committee. The underlying bill eventually died and the study never conducted.

***

If a simple study on expanding flood insurance coverage requirements caused such acrimony and division in the Financial Services Committee in 2006, what changed in the intervening 6 years that led to the Biggert-Waters Act?  How did members get from arguing about a study to almost unanimously passing Biggert-Waters?

Senior members of House Financial Services retired or were defeated. Reformers moved up the line of seniority. The NFIP’s debt burden couldn’t be ignored. Industry was desperate for a 5-year NFIP reauthorization. Against this backdrop, Biggert-Waters became law of the land on July 6, 2012.

About 250 days later Rep. Steven Palazzo was the first to introduce legislation reducing most Biggert-Waters premium increases. All it took was half a year, barely enough time for the ink on Biggert-Waters to dry.

In what is by any measure a spectacular shift, the House is now set to eliminate some Biggert-Waters premium increases and slow down most others. The issue has become such a high priority that Majority Leader Cantor has personally intervened, committing to bringing legislation to reform Biggert-Waters directly to the House floor.

And this brings us back to the conversation between Rep. Baker and his colleague on the 500-year floodplain study amendment. Baker simply couldn’t convince members to go along with a study they thought might somehow lead to more properties being required to buy flood insurance. Now that members are facing this as a real possibility, they're saying, "I've made a huge mistake."

Is this all that surprising? No.

***

What I find most interesting in this story is the decision of Majority Leader Cantor to circumvent the committee process and bring a flood insurance bill directly to the House floor. The House Republican Conference prizes regular order and quite frankly, it is unusual for Leadership to interfere with an A-committee chairman's jurisdiction.

There are political reasons for this interference that involve a Senate race in Louisiana. There are another 235 reasons in the form of cosponsors for Rep. Michael Grimm's Biggert-Waters reform bill, too.

Here's the thought I keep coming back to—why is it that Leadership and the Republican rank-and-file are unwilling to wait on Chairman Hensarling? One legislative disagreement does not a trend make or precedent set, but the fact still remains that Leadership has seized the reins on this issue.

Consider, too, that flood insurance is not the most controversial financial services issue facing House members at the moment. If members thought they are being lobbied aggressively on Biggert-Waters, they should wait until GSE reform is brought to a vote.

Biggert-Waters has been little more than a warm up for the housing finance industry. I don’t mean to oversimplify or drift into hyperbole, but this fight has strengthened industry relationships with rank-and-file Republican members in very basic, important ways. Industry roots in member districts have only grown deeper and lists to support a persistent, guided campaign of visits, phone calls, emails, and social media have been grown. It’s like how every member of Congress used to keep a very close eye on their yard sign campaign chair. It’s hard to understate the importance of voter lists and voter contacts.  

Now, it’s a grave mistake to underestimate Chairman Hensarling and truthfully, the GSE reform fight was always going to make Biggert-Waters seem like child’s play. Further, I have to believe the Leadership's intervention in Financial Services Committee jurisdiction is limited to this one issue. But that it occurred at all, and the implications for the next big housing vote—that’s the real story.

Kill (the) Bill

The Bride: You and I have unfinished business.

Bill: Baby, you ain't kidding.

Kill Bill, Vol. 2

For years housing finance reform was contentedly filibustered by white paper in the public square. On Tuesday, July 23rd, this long-running, polite discussion was rudely interrupted by a House committee chairman who presented his ideas for reform and then had the audacity to press them to a vote.

Chairman Hensarling, tired of the seemingly endless discussion, moved the Protecting American Taxpayers and Homeowners Act, or PATH Act, out of the Financial Services Committee. By taking this step, Hensarling advanced and focused the housing finance reform debate in ways we haven't seen in quite a while.

Everyone has an opinion on this. Mine is that a vote somewhere, on something, was way overdue.

*** 

If you’ve been to the breakfast discussions, policy conferences, committee hearings, or paid casual attention to the PATH Act mark up, you know that policymakers of all political stripes say housing finance reform is the unfinished business of the Dodd Frank Act. To be fair, there are many legitimate reasons why this issue was left on the Dodd Frank cutting room floor and there are any number of clichés that are apropos when it comes to illustrating why most were content to push the discussion to another day. 

   

Chairman Hensarling’s contribution to the housing finance reform debate is substantial in that he took ownership of an issue that other policymakers in leadership positions willingly allowed to languish. Chairman Hensarling moved members of Congress from just talking housing finance reform to actually voting on it. That’s no small feat and it is leadership.

Rep. Waters will not support the PATH Act and has lampooned it as the Path to Nowhere Act. Yet, Rep. Waters acknowledged the need to move forward. The majority of committee members seemed genuinely interested in a debate on housing finance reform legislation and in getting started on a long overdue process.

Many label the PATH Act a futile exercise in ideology and perhaps that’s what it ends up being. But no matter how Chairman Hensarling’s bill is viewed, it is serving an important purpose. This is why the PATH Act needs to take the next step in the legislative process and move to the House floor.

Speaking of taking the next step, the Corker-Warner bill needs to show it can keep pace. I’m sure the bill’s supporters are looking forward to their day in committee, but that day has yet to come. The PATH Act may not become law in its current form, but it has gotten out of committee. Corker-Warner needs to catch up.

***

I know there are many who want to use the five-point-palm-exploding-heart technique on the PATH Act. If they truly support housing finance reform and understand the process, they’ll know that trying to kill the bill at this stage sacrifices long-term goals for a short-term political win.

It is important that House Republicans have a discussion and vote on their ideas for housing finance reform. It is important for House Democrats to present, defend, and have a vote on their alternative. That is the legislative process and the House needs to be given opportunity to work its will. A similar process needs to play out in the Senate so we see the kind of legs Corker-Warner has.

I can only imagine the amount of money that will be spent, and overtime worked, during the August recess on this issue of housing finance reform. After all, I’ll be busy with it myself. That’s an important part of the legislative process, too. Members need to hear a variety of constituent views on the intersection of housing finance policy and daily life.

I just hope that when Congress returns in September, members and Senators are still willing to pursue a long-term solution to our housing finance policy problem.

Ready for what's next

Look, sir, you have to realize something. My father was a revolutionary in 1910. I was born in 1909. I was left alone with my mother, Doña Rosenda, may she rest in peace. I wanted to be a writer. After a while, I became disillusioned. I dedicated myself to what was coming, not what had gone before. That is your task, sir. To understand what it is that remains and not what has gone before. 
Don Rodrigo Pola to Abelardo Holguín, from Carlos Fuentes’ Adam in Eden

This is a tale of two hearings on one topic. Our first hearing was on May 21^st and our second on June 18^th. Our topic is the Qualified Mortgage rule.

I’ll come to my point quickly. The dynamic that gave us Dodd-Frank has changed. Not for everyone, of course, but definitely for some.

* * *

Finding a seat in 2128 Rayburn on May 21^st for a subcommittee hearing on the CFPB’s QM rule was much easier than I expected. In my mind the hearing summary was mostly drafted. Republicans attack the CFPB and the QM rule while Democrats offer a spirited defense of the same. Details to be filled in with any back-and-forth between Rep. McHenry and the two CFPB witnesses.

My first indication I was slightly presumptuous was opening statements. Everyone seemed to have a problem with the QM rule and most were not being particularly polite. Questions were even more intriguing. Responses from the two CFPB witnesses baffling. For the first time, the CFPB was taking direct fire from both Republicans and Democrats.

I emailed a banking lobbyist to congratulate him on a job evidently well done. Even they were surprised by what was unfolding.

The besieged CFPB witnesses seemed unprepared for bipartisan criticism of their agency’s signature achievement. Rather than going on offense, the witnesses went into a defensive crouch frustrating even the friendliest of questioners by speaking in voices so low and soft that members couldn’t hear their long, winding answers to simple questions.

I turned to a friend and said “They must not speak in loud voices at the CFPB.” The response was, “Or prep their witnesses. Did you see how frustrated Capuano was?”

Yes I did. I saw how Rep. Capuano probably went farther in expressing concerns about the QM rule just so the CFPB witnesses would get his point, which roughly translated was, “Your performance today doesn’t inspire confidence.”

Now to the June 18^th hearing that ended up more interesting than the first.

Prepared to hear bipartisan criticism of the QM rule this time, what was interesting was how members chose to talk at or around the rule, which drew important contrasts. Suffice it to say that Ranking Member Waters doesn’t have party discipline on QM just yet.

Witness testimony could be summarized as complimentary of the CFPB, Director Cordray, and the QM rule followed by a litany of reasons why each witness’ sector of the mortgage industry should be exempted from the QM rule. When witnesses weren’t pleading for their exemption, they offered helpful suggestions on how the rule must be changed and implementation delayed.

Members were listening and agreeing. Not on everything, but on enough.

The Center for Responsible Lending’s Michael Calhoun, the only witness to defend the QM rule, grew more exasperated as bipartisan softballs were lobbed to industry witnesses. When he could get a word in, Mr. Calhoun argued against the industry’s preferred solution, H.R. 1077, the Consumer Mortgage Choice Act, saying the legislation would harm borrowers and allow mortgage fees to double. He went on the offensive against the title insurance industry, particularly lender-affiliated title companies. Mr. Calhoun spoke passionately about the need to ensure low points and fees.

For the most part, it seemed as if no one was listening to Mr. Calhoun. Except, as it turned out, for Rep. David Scott (D-GA), who said—

"Mr. Calhoun earlier made a statement that I totally disagree with and that is on his issue of the need for H.R. 1077. Let me assure you, Mr. Calhoun, we desperately need H.R. 1077."

Rep. Scott, a lead cosponsor of H.R. 1077, had no interest in hearing Mr. Calhoun respond, turning over the remainder of his time to the NAR and MBA witnesses to extol the virtues of his legislation. Mr. Calhoun must have doubled checked his calendar to make sure it wasn’t 2004 again.

Rep. Scott, along with a lot of his colleagues, is dedicating himself to what is to come, not what has gone before.   

 * * *

The members who passed the Dodd Frank Act don't want to go back to the Wild West of originate to distribute, but they like originate to hold in portfolio or originate to distribute with risk retention. Some may have a penchant for the occasional covered bond. You don't get much of these without originations.

This is the CFPB's challenge. Understand a shift has occurred. Understand that Americans are looking to a what's next that's pretty reasonable.  

Knocked Out, Dazzled, and Slightly Intimidated

I think I have this thing where everybody has to think I'm the greatest, the quote unquote "Fantastic Mr. Fox." And if they aren't completely knocked out and dazzled and slightly intimidated by me, I don't feel good about myself. — Mr. Fox, from Wes Anderson’s Fantastic Mr. Fox

Thanks to Iowa we are finally in the actual contest. There will be winners. There will be losers. And there will be losers who’ll tell us they won. The end can’t come quickly enough.

In looking the field over, most everyone has a problem with everyone. Contrary to what we would like to believe, no one is perfect. No one has been right on every issue. No one will make only the right decisions in the future. We know this about the candidates because we know it about ourselves. Yet Republican primary voters seem lost as they look for someone better than they are. An inspiration who is larger than life, a little intimidating, and who is always, definitively, right.

Republicans want their own Fantastic Mr. Fox.

Is that really what America needs? Another Mr. Fox? Do we need a Republican nominee who packs stadiums and outdoor parks; who tells us to our faces that Americans are a good and decent people but behind closed doors calls us bitter; who lectures rather than listens?

* * *

I know a small business owner who started a clothing boutique right in the middle of the recession. An exceptionally accomplished person both academically and professionally, she wanted to do something different. To follow a dream with no guarantee of success. After a more than a year of careful planning, navigating local, state, and federal regulations, and laying out her own capital, she opened her store. That is inspirational.

I know an architect in the Pacific Northwest who helped his firm survive the devastating downturn in construction. Firms larger and smaller than his failed. He and other principals in the firm cut their pay to avoid the most severe layoffs. A relentless pursuit of work—privately and publicly funded—saved the firm, which is now well positioned for the recovery. That is inspirational.

I know of a small clothing designer in New Orleans whose main overseas supplier increased costs to the point she no longer could afford to have her product manufactured. Rather than close her doors, the designer took her appeal public, securing sufficient funds to purchase her own looms and manufacture her product in New Orleans. That is inspirational.

Republicans don’t need a nominee who will inspire us. We need a nominee who is inspired by us.

* * *

You have similar stories about people who have inspired you. These experiences make the case for a nominee who actually knows what it’s like on the job creation side of the economic ledger and is inspired by risk takers.

We also have examples of families and businesses that didn’t survive these past three years. These stories make the case for a nominee who has the proven ability to promote economic growth. Few things inspire confidence and stability like a paycheck.

Mr. Romney was recently named “Mr. Good Enough” on the editorial pages of The Wall Street Journal. The line that grabbed my attention was “Mark this down as the triumph of strategy over inspiration.” What is wrong with that?

Do shareholders prefer inspiration over profits? Do voters prefer fire in the belly of their candidate over food in their own? Do we simply want a sideshow; an emotional appeal that can be summed up as “USA is A-OK?” Not even Rome was saved by bread and circuses.

If you need inspiration, take a good look around you. And if you’re tired of Mr. Fox, take a look at Mr. Romney.