November 10, 2017
Time to clean up VA financing — As we honor the nation’s veterans today, a growing number of legislators and financial experts are calling on the Veterans Administration to implement new rules that protect mortgage borrowers and prevent ruinous refinancing. A thoroughly reported article in today’s Politico notes that the VA has had a solution ready since last year, but has failed to enact it. The VA currently does not require that refinancings show a “net tangible benefit” to borrowers, as required by the FHA. In the absence of action, Ginnie Mae is reporting suspect loans to the Consumer Financial Protection Bureau, and Ginnie Mae’s acting president told Politico he plans more substantive action before the end of the year. Veterans deserve better.
House Financial Services schedules massive markup for Tuesday — With 16 legislative days left in 2017, the House Financial Services Committee plans to vote on two dozen bills in a marathon markup next week. Among the bills to be considered are H.R. 3299, the “Protecting Consumers’ Access to Credit Act of 2017;” H.R. 4248, which would repeal certain disclosure requirements related to conflict minerals; H.R. 4263, the “Regulation A+ Improvement Act of 2017;” and H.R. 4267, the “Small Business Credit Availability Act,” which would update rules for business development companies.
House Ways and Means approves tax bill — The House Committee on Ways and Means concluded its four-day markup of H.R. 1, the Tax Cuts and Jobs Act, yesterday by a vote of 24-16. Among many sweeping changes, the bill would preserve the home mortgage deduction for existing mortgages, but lower the deduction for newly purchased homes to $500,000. It would lower the deduction for state and local property taxes to $10,000. It would double the exemption for the “death tax” immediately, and repeal it entirely after six years. It would lower the corporate tax rate to 20% and reduce the tax rate on business income to no more than 25%, and would raise the standard exemptions for individuals and families. The Rules Committee will take up the bill on Wednesday at noon, with floor action possible on Thursday.
Senate Commerce discusses need for updated data security requirements — The acting and past CEOs of Equifax were back on Capitol Hill this week, testifying before the Senate Committee on Commerce, Science and Transportation along with Marissa Mayer, former CEO of Yahoo!; Karen Zacharia, chief privacy officer of Verizon; and Todd Wilkinson, President and CEO of Entrust Datacard Corp. Committee Chairman John Thune (R-SD) called for the enactment of a uniform federal breach notification standard, replacing the current state-by-state requirements, and uniform “reasonable security requirements” to protect consumer data, scaled according to a company’s size and scope and the nature of the information. Witnesses agreed that static identifiers are no longer secure, and called for a national framework that offers one standard for compliance.
Further guidance coming on beneficial ownership, says Mandelker — Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker made her first official appearance at a Congressional hearing this week, testifying before the House Financial Services Subcommittee on Terrorism and Illicit Finance. Her testimony emphasized the work her office has done in identifying and disrupting North Korea’s movement of illicit funding, but in response to questions, Mandelker said that Treasury is preparing additional guidance for financial institutions about how to identify the beneficial ownership of accounts held by high-risk clients. She promised to work with Rep. Carolyn Maloney (D-NY) on a model for increasing transparency, but would not comment on Maloney’s proposal to require FinCEN to build a beneficial ownership database for use by law enforcement organizations and financial institutions.
Blanco named Director of FinCEN — The Treasury announced Wednesday that veteran federal prosecutor Kenneth A. Blanco will be the new Director of the Financial Crimes Enforcement Network (FinCEN). Blanco has most recently served as Acting Assistant Attorney General of the Criminal Division of the Department of Justice. He was appointed Deputy Assistant Attorney General of the Criminal Division in 2008. In that role, he supervised the Criminal Division’s investigations into money laundering, Bank Secrecy Act violations, illicit finance and sanctions violations, among other crimes. He joined DOJ almost 20 years ago as an Assistant US Attorney in the Southern District of Florida, and had previously worked for the Miami-Dade State’s Attorney’s Office.
Cornyn, Feinstein, Burr introduce bill to strengthen CFIUS — The Senate Majority Whip, the ranking Democrat on the Senate Judiciary Committee, and the Chairman of the Senate Select Committee on Intelligence jointly introduced the Foreign Investment Risk Review Modernization Act (FIRRMA) on Wednesday. Senator John Cornyn (R-TX) said that China and other “potential adversaries” had been exploiting gaps in the CFIUS review process, undermining national security. Senator Dianne Feinstein (D-CA) said that she and Senator Cornyn had been working on the bill for eight months, and that it would give the Committee on Foreign Investment in the United States updated tools to address current and future security needs. Senator Richard Burr (R-NC) called the bill “much needed.” Rep. Robert Pittenger (R-NC) has introduced a companion bill in the House.
Treasury, Commerce issue rules for Cuba sanctions — Yesterday the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security released much-anticipated rules to reinstitute and strengthen sanctions against Cuba, as announced by President Trump in June. The changes took effect immediately upon publication. They include a list of businesses identified by the State Department as being under control of Cuban military, intelligence or security forces; general prohibition on financial transactions with anyone on this list; and restrictions on U.S. travel to Cuba that limit trips to “people-to-people” exchanges and authorized educational trips.
Witnesses challenge 30-year mortgage, GSE dominance at House hearing — The House Financial Services Subcommittee on Housing and Insurance continued its series of hearings on sustainable housing finance on Tuesday with testimony from economists and housing policy experts. Peter Wallison, Senior Fellow with the American Enterprise Institute, said that government, including the government-sponsored enterprises, should step out of the housing markets entirely, as their role increases the price of housing and reduces demand for U.S. Treasury bonds. Other witnesses cited a continuing need for some catastrophic government guarantee, but noted that the U.S. model of 30-year, fixed-rate mortgages is unique in the world. Higher down payments would reduce volatility in the market, but the growing wealth gap already presents a major obstacle to home ownership for low- and middle-income borrowers.
SEC will shorten its regulatory agenda, Clayton says — In a speech to the Practicing Law Institute this week, SEC Chairman Jay Clayton said that the rulemaking agenda required by the Regulatory Flexibility Act would be shorter than his predecessors’. “[O]ver the past 10 years, the Commission has completed, on average, only a third of the rules listed on the near-term agenda,” he noted. The shorter near-term agenda is meant to increase transparency and accountability, he said, and “does not mean that work of the SEC is slowing down.” The agency will submit a new strategic plan in early 2018, which will include a “noticeably smaller” number of strategic initiatives and performance goals than the 2014 plan.
Dudley to retire from NY Fed — Federal Reserve Bank of New York President and CEO William C. Dudley will retire from that position in mid-2018, the bank announced on Monday. Dudley joined the New York Fed in 2007 as executive vice president and head of the Markets Group, and was named president and CEO in 2009. He was reappointed to full term in 2011, and again in 2016. The search for a replacement has begun, assisted by the private firms of Spencer Stuart and Bridge Partners.
Nominations move through Senate — The Senate Banking Committee has said it will hold a confirmation hearing on November 28 for Federal Reserve Board Governor Jerome Powell’s nomination to serve as Fed Chairman.
Next Week in Washington:
November 13 Senate Finance Committee meets in open executive session to consider an original bill entitled the Tax Cuts and Jobs Act. 3:00 p.m., SD-219 Dirksen Senate Office Building. The session will not be webcast.
November 14 Senate Committee on Energy & Natural Resources holds a two-panel hearing on hurricane recovery efforts in Puerto Rico and the U.S. Virgin Islands, with testimony from the governors of both territories and key energy officials. 9:30 a.m., SD-366 Dirksen Senate Office Building.
November 14 House Committee on Financial Services marks up 24 bills. 10:00 a.m., 2128 Rayburn House Office Building; the markup will continue on subsequent days if necessary.
November 14 House Science, Space, and Technology Subcommittee on Oversight holds a hearing on “Bolstering the Government’s Cybersecurity: A Survey of Compliance with the DHS Directive.” 10:00 a.m., 2318 Rayburn House Office Building.
November 15 House Rules Committee meets to consider H.R. 1, the Tax Cuts and Jobs Act. 12:00 noon, H-313 The Capitol.
November 15 House Oversight Subcommittees on Government Operations and Information Technology hold a joint hearing on “The Federal Information Technology Acquisition and Reform Act (FITARA) Scorecard 5.0.” 2:00 p.m., 2154 Rayburn House Office Building.
November 15 House Homeland Security Subcommittee on Cybersecurity and Infrastructure Protection holds a hearing on “Maximizing the Value of Cyber Threat Information Sharing.” 2:00 p.m., HVC-210 U.S. Capitol.
November 16 Financial Stability Oversight Council will meet in both open and executive session to consider procedural changes under FOIA and discuss the Council’s 2017 annual report. 3:45 p.m., U.S. Treasury.
The Ellis Insight. Jim Ellis reports on political news:
Alabama: Sexual misconduct allegations involving a minor, reportedly occurring 38 years ago, are being levied against state Supreme Court Chief Justice Roy Moore (R) as the special US Senate election moves toward the last 30 days before the December 12th vote. Judge Moore denies the accusations and blames the Washington Post for spreading untruths about him for political gain. Alabama Republicans appear to be standing behind Moore. Washington Republicans are calling on him to step down if the allegations are true. Since we are inside of 76 days before the election, and some absentee ballots have already been mailed, there is no legal way to remove Moore’s name though some are suggesting that Sen. Luther Strange (R), who lost the Republican nomination earlier in the year, could run a write-in effort.
The Raycom News Network’s new survey (Strategy Research; 11/8; 2,200 AL likely voters via automated telephonic device) again finds Judge Moore leading ex-US Attorney Doug Jones (D), 51-40%. This is the exact same result Raycom found in their October 19th survey.
Arizona: As predicted, things have already begun to turn against former state Sen. Kelli Ward (R) now that Sen. Jeff Flake (R) won’t seek re-election. The HighGround Public Affairs Consultants tested the Arizona general election field (10/23-26; 500 AZ likely voters) and paired Ms. Ward with Rep. Kyrsten Sinema (D-Phoenix), the leading Democratic candidate. According to the HighGround results, the Congresswoman posted a 34-27% lead over Ward, gaining from the 32-31% slight edge that she held in the group’s August poll. The latter survey was conducted before Sen. Flake made his political intentions clear. We can soon expect other, and likely stronger, Republicans to join this new open seat campaign.
Indiana: Former state Rep. Mike Braun is becoming a legitimate third candidate in the Indiana Senate race. Loaning $850,000 to his campaign and having more than $1 million cash-on-hand, Mr. Braun just spent over $300,000 to finance a media buy featuring an introductory commercial in the state’s key media markets. He faces Reps. Todd Rokita (R-Brownsburg/Lafayette) and Luke Messer (R-Greensburg/Muncie) in the Senate Republican primary. The eventual winner of the May intra-party vote challenges vulnerable Sen. Joe Donnelly (D) in the general election.
Nevada: While others are announcing retirements around him, Nevada Sen. Dean Heller (R) is taking the opposite approach. The first-term Senator just launched his first ad buy of the new cycle, a one-minute commercial featuring him speaking to the audience, articulating his conservative ideology, and claiming that he is demanding the Senate stay in session until all judges are confirmed and tax reform passed. Sen. Heller has drawn primary opposition from perennial candidate Danny Tarkanian (R), and looks to face freshman Rep. Jacky Rosen (D-Henderson) in the general election should he win re-nomination. Both the primary and general election contests today appear as toss-ups.
Pennsylvania: Real estate developer Jeff Bartos (R), who has been actively campaigning in the US Senate race, announced that he will leave the federal campaign in order to enter the Lt. Governor’s race. Mr. Bartos’ exit certainly helps Rep. Lou Barletta (R-Hazelton) cement his favorite’s role at this point in the primary campaign. The eventual GOP nominee faces Sen. Bob Casey Jr. (D) in the general election.
NJ-2: Twelve-term veteran Republican Frank LoBiondo (R-Ventnor City) announced that he will not seek re-election next year, placing a marginally political district into competition for the 2018 election cycle. Democrats had attempted to field strong candidates over the years against Mr. LoBiondo, but never came close to beating him. His 2016 victory of 59% was a typical re-election percentage throughout his long career. New Jersey’s 2nd District occupies the southernmost section of the state, anchored in Atlantic City and stretching from Long Beach Island in the northeast down to the Cape May peninsula, and all the way back across the state to the Delaware River opposite Wilmington.
Pennsylvania: The Pennsylvania Supreme Court announced that it is giving the lower court considering the Democrats’ political gerrymandering lawsuit only until the end of the year to rule. The high court says it will take jurisdiction of the case, meaning the chances of a re-draw before the 2018 elections increase. If the Republican legislature is forced to re-draw and Gov. Tom Wolf (D) vetoes the plan, Democrats will almost surely gain a significant number of seats if the Democratic-majority court assigns a special master to create new congressional districts. The Pennsylvania situation is an issue of great significance and could be a major factor in determining the balance of power in the next House of Representatives.
TN-7: The Nashville Songwriters Association International’s president, Lee Thomas Miller (R), filed an exploratory committee with the Federal Election Commission, which allows him to raise money for a purported congressional campaign. Mr. Miller is a well-known country songwriter and joins the race for the seat being vacated by veteran Rep. Marsha Blackburn’s (R-Brentwood) run for the Senate. The 7th District is safely Republican, occupying the rural and suburban areas west and south of Nashville, encompassing all or parts of 17 counties. So far, only state Sen. Mark Green (R-Clarksville) has officially declared his candidacy.
TX-2: With a December 11th candidate filing deadline for next year’s election looming on the political horizon, members and potential contenders are being forced to make career decisions. This explains the Texas retirement announcements that include Reps. Jeb Hensarling (R-Dallas), Lamar Smith (R-San Antonio), and Houston area Congressman Ted Poe (R-Atascocita/Humble). Mr. Poe, this week, made public his intention that he would not seek re-election to an eighth term. He was originally elected in 2004, and has had little opposition in six re-election bids. The 2nd District is safely Republican. The Poe decision should lead to a crowded Republican primary field.
TX-5: Rep. Jeb Hensarling’s (R-Dallas) surprise retirement announcement has sent the north Texas political establishment scrambling. No Republican has yet declared his or her candidacy, but one key potential contender has said no. Wealthy state Senate candidate Phillip Huffines (R) said he will not alter his political plans in order to switch to the open congressional race. On the other hand, east Texas state Senator Bryan Hughes (R-Wood County) reportedly is moving closer to entering the congressional race. Sen. Hughes was initially elected to a four-year term in 2016 after spending seven terms in the state House, so he would not have to risk his current position to run.
UT-3: While votes in Utah’s 3rd District are still being counted as a result of the all-mail format, Provo Mayor John Curtis (R) has already been declared the winner of Tuesday’s special election to replace resigned Rep. Jason Chaffetz (R-Alpine/Sandy). Though almost 40% of the precincts remained to be counted after the initial posting, more than 108,000 votes have been tabulated and Mr. Curtis has attracted 58% of the vote compared to Democrat Kathryn Allen’s 27%. Four independent and minor party candidates account for the remainder. Mr. Curtis will now serve the balance of the current term and is a virtual certainty to seek a full term next November.
VA-6: Veteran Rep. Bob Goodlatte (R-Roanoke), chairman of the House Judiciary Committee, announced that he will not seek re-election next year. Mr. Goodlatte’s term as the panel’s chairman will also expire at the end of this Congress. He was first elected in 1992 and has had little in the way of challenges over his long career from the safely Republican western Virginia district. In addition to chairing the Judiciary Committee, Mr. Goodlatte previously led the House Agriculture Committee. He becomes the 34th regular cycle member and 24th Republican to retire from the House when the current term ends, with one more (PA-18; former Rep. Tim Murphy [R-Pittsburgh]) in special election mode to be filled on March 13th.
Colorado: First-term Attorney General Cynthia Coffman (R), wife of US Rep. Mike Coffman (R-Aurora), announced that she is joining the open Governor’s campaign. The move is a bit of a surprise. Ms. Coffman is always mentioned as a candidate, but the prevailing political wisdom suggested that she would ultimately seek re-election to her current position. Possibly former US Representative and 2008 presidential candidate Tom Tancredo’s (R-Littleton) entry into the race changes the picture to the degree that Ms. Coffman believes the primary electorate would turn to her as the alternative candidate instead of Arapahoe region District Attorney George Brauchler (R). With Coffman now in the Governor’s race, Mr. Brauchler may switch to the open Attorney General’s campaign. Democrats will likely have a primary battle between US Rep. Jared Polis (D-Boulder) and Lt. Gov. Donna Lynne. The general election is expected to be highly competitive.
New Jersey: As predicted, former US Ambassador to Germany and Wall Street executive Phil Murphy (D) easily defeated Lt. Governor Kim Guadagno (R), 55-43%. Polling for months had forecast such an outcome, and the electorate deviated very little during the entire general election. Democrats held their large majorities in both houses of the state legislature. Mr. Murphy succeeds outgoing Republican Gov. Chris Christie, who leaves office with historically poor approval ratings.
Virginia: Democrats, riding a tidal wave of votes from northern Virginia, swept all three statewide Virginia elections, and may have captured the House of Delegates. Lt. Gov. Ralph Northam easily defeated former Republican National Committee chairman Ed Gillespie, 54-45%, with a turnout of more than 2.61 million voters — an increase of about 16% when compared to the 2013 election. Democrats scored convincing but slightly smaller wins for Lt. Governor and Attorney General. The Northam victory margin was much larger than polling had forecast.
The Party also scored major gains in the House of Delegates, recording a net gain of at least 15 seats with as many as five races potentially headed to re-counts. It will likely take several days and maybe weeks to sort out, but the chamber majority is definitely undecided as Republicans are clinging to a scant 51-49 majority on the back of one district in Newport News where their incumbent appears to have won by only twelve votes.