This week, the lame-duck session of Congress begun and has more than lived up to its name. Following a tightly contested election, one that has resulted in at least 2 more years of divided government, both Chambers have recessed for Thanksgiving with zero major (even minor) legislative achievements, but with ample pessimism emanating from both Chambers.
While the BDA has been pessimistic about additional stimulus passing in 2020, it seems no progress has been made, and neither side of the aisle seem interested in deal-making and both sides remain trillions of dollars apart.
This week, President-Elect Biden delivered a speech on the American economy pressing Congress to take immediate and robust action, including additional funds to state and local governments, following similar advice of Federal Reserve Chairman Jay Powell. At this time, it appears his message has fallen on deaf ears on Capitol Hill and may serve as a precursor for a dire outlook to begin the Biden Administration next year.
At this time, the BDA believes that a deal will be struck in early 2021 on stimulus, and likely some type of infrastructure/public works package, however, it appears that legislative progress may be slowed due to the ongoing loggerheads on the Hill over the presidential election and stimulus this year.
BDA GSE Reform Advances/Additional GSE Reform not Likely 2021
This week, it was revealed that Freddie Mac CEO David Brickman is resigning from his role in January, a likely sign that no changes to the program should be expected in the near-term.
While there are expected to be swift changes at the helm of Freddie Mac due to the departure, it does not seem to be an early priority for the Biden administration to make changes at the Federal Housing Finance Agency led by Mark Calabria.
This news follows the FHFA announcement of the final Capital Rule that includes BDA’s proposed idea of “capital building“.
Calabria praised the achievement saying:
“After considering all the comments on the proposed rule, and the Financial Stability Oversight Council’s review of the secondary mortgage market, FHFA is confident that the final rule puts Fannie Mae and Freddie Mac on a path toward a sound capital footing,”
However, the House Financial Services Committee Chairwoman Maxine Water (D-CA) has made her intention clear to block all Trump-era progress on GSE reform. At a mid-November hearing with top Trump financial services appointees, Waters claimed, she and the Committee will fight to reverse the easing of financial rules that have taken place under President Donald Trump, calling the election of Joe Biden “the dawn of a new progressive America.”
At this time, it appears likely that working to roll back many provisions enacted by the Trump administration such as “capital building” at Fannie and Freddie will be on the Committee’s agenda in the 117th Congress. However, any legislative changes will run into a likely roadblock in the Republican Senate.
Treasury Extends Some Lending Facilities Drawing Rebuke from Fed
This week, Treasury Secretary Mnuchin wrote Fed Chairman Jay Powell ordering the Municipal Liquidity Facility (MLF) to cease operations on December 31st, 2020, and for the unused funds to be returned to Treasury on that date. Following the date of termination, the MLF will not be able to make new loans, but existing loans will remain on the books of the Fed SPV according to their original terms.
The order also ends the following programs on December 31st, 2020:
- Primary Market Corporate Credit Facility (PMCCF),
- Secondary Market Corporate Credit Facility (SMCCF),
- Main Street Lending Program (MSLP), and
- Term-Asset Backed Securities Loan Facility (TALF).
Earlier this week, Powell hinted that he believes that Treasury and the Fed should extend the use of the lending facilities, including the Municipal Liquidity Facility.
And in a rare rebuke, the Federal Reserve released a statement in opposition of Treasury’s move stating:
“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,”
At this time, it seems Treasury is set on shuttering the MLF, however, if the Fed continues the pressure campaign, it may be hard for the Secretary to remain on this course.