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How the Midterm Elections Could Impact Mortgages

The U.S. midterm elections ended with the Republican Party maintaining control of the U.S. Senate, but the Democratic Party gaining control of the House. As a result, a Congress once controlled by one party is now divided.

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What does this mean for mortgages across the country?

More Consumer Protections?

As American Bankerobserved, the split between congressional control means that regulatory relief on U.S. banks in the form of recent changes to the Dodd-Frank Act will remain in place. But the Democrats also may have more ability to tighten consumer protection measures and to call, at least, for more banking regulation.

Perhaps the largest potential change for lending institutions is that Rep. Maxine Waters (D-CA) will take over leadership of the House Financial Services Committee. As Housingwire.com observes, she has a history of consumerist protection measures, with support for affordable housing, consumer protections, and middle-class homeownership access among them. This means that low-cost mortgage loans, like that from the Federal Housing Administration (FHA), will garner more support, not less.

Housingwire.com believes that additional funding for one component of the FHA, its systems for information technology (IT), is now more likely than previously. This is in addition to a $20 million appropriation for IT upgrades for the Department of Housing and Urban Development next year. Whether IT upgrades will affect mortgages directly still remains to be seen.

The leadership of the Senate finance committee is not likely to lead to any major change

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Interest Rates Likely to Continue Higher

It is likely that the march of U.S. interest rates upward will continue, as the U.S. Federal Reserve has signaled. The midterms generally have no impact on Fed policy. While President Trump has criticized the Fed on occasion, he has made no serious move to change its direction. The economy is strong, and as the Fed’s mandate is to rein in any inflation that could follow in the wake of a robust economy and hiking interest rates is a major tool in its arsenal for doing this, mortgage rates are likely to follow interest rates upward.

Any legislation on government-sponsored entities (GSEs) isn’t likely, given that Congress is divided and consensus needed for any major legislation is likely to be minimal.

Fintech may receive a boost from the midterms. First, the current administration wants regulation favorable to the development and growth of fintech overall. Democrats have little reason to oppose this climate. In fact, they may view it favorably, since Democrats focus on consumerist protections and many fintech firms are able to offer consumers lower mortgage rates than more traditional banks.

Consumer privacy laws may also get a boost.

Regulatory agencies like the Consumer Financial Protection Bureau will likely maintain an even keel, with neither Republicans nor Democrats calling for a change of pace.

Given the robust economy, consumers across the country are likely to be in the housing market. However, housing prices in some areas, like the cities of the East and West Coasts, have continued to climb, impacting affordability in those regions. The midterm elections indicate that both economic conditions and housing prices will continue their robustness, irrespective of the election outcome.