February 16, 2018

February 16, 2018

Eris welcomes Bradford Cheney, who comes to us after more than eight years with the Mortgage Bankers Association. He was a key part of MBA’s strategy in addressing Dodd-Frank, Johnson-Crapo, and the alignment of the legislative definition of qualified residential mortgage (qrm) with the qualified mortgage (qm) rule. Brad spent time on both sides of Capitol Hill, as assistant to the Chief of Staff in the office of Senator Hillary Clinton (D-NY) and as Chief of Staff in the office of Representative Brad Sherman (D-CA).

House passes bill to fix Madden — The House of Representatives voted 245-171 on Wednesday to approve H.R. 3299, the “Protecting Consumers’ Access to Credit Act of 2017,” which clarifies that bank loans made at a valid interest rate within a given state remain valid at that rate after being sold to third parties, even if the third party is based in a state with more stringent usury limits. The bill would counter the Second Circuit’s 2015 ruling in Madden v. Midland Funding LLC that nonbank debt buyers with relationships with national banks do not share national banks’ exemption from state usury laws. The Senate companion, S. 1642, is still awaiting action in the Senate Banking Committee.

House approves TRID Improvement Act — Also on Wednesday, the House approved H.R. 3978, which would amend the Real Estate Settlement Procedures Act (RESPA) to require that the disclosed charges for any title insurance premium be equal to the amount charged for each individual title insurance policy, subject to any discounts. H.R. 3978 incorporated language from H.R. 3948, which would require the SEC to issue a subpoena in order to obtain source code from high-frequency traders, and H.R. 4546, which would exempt from state blue-sky laws any stocks qualified for trading on a national exchange. The Rules Committee stripped out a section of the bill that would have given nonbanks designated as systemically important financial institutions (SIFIs) additional opportunities to protest the designation.

Is this the year Congress passes a budget? Even Administration officials seem unsure. The White House website says, “now is the time to reverse the trend of climbing government spending,” but the FY 2019 budget OMB Director Mick Mulvaney unveiled on Monday proposes $4.4 trillion in spending, an increase over 2018’s proposed total expenditure of $4.1 trillion. Increased spending on defense, the border wall, and infrastructure would be offset by huge cuts to housing programs, science and arts programs, the Small Business Administration, the Environmental Protection Agency, the State Department, and the Department of Transportation. Appearing before the Senate Budget Committee on Tuesday, Mulvaney admitted that under current projections, he would not be able to balance the budget within the promised 10-year window.

Budget fine print: appropriations for FSOC, user fees for CFTC, higher fees for GSE guarantees— Among other provisions, the President’s proposed budget would subject the Financial Stability Oversight Council (FSOC) and its Office of Financial Research (OFR) to the Congressional appropriations process, rather than being funded directly by the companies it supervises. The budget would also reduce funding for the OFR, to $75 million in FY 2019 from $89 million in FY 2019. The reduction would come from a reduction in OFR staff, to 140 employees from 219 in 2017. The Office of the Comptroller of the Currency’s budget would also decrease in 2019, to $1.26 billion (a number that still exceeds the agency’s budget for FY 2017). The budget asks Congress to authorize the Commodity Futures Trading Commission (CFTC) to levy $31.5 million in user fees, a proposal originally advanced by the Obama administration. It also proposes a 0.1% increase in the guarantee fees charged by Fannie and Freddie, on top of the existing 0.1% surcharge, to be extended to 2023; and it would eliminate Fannie and Freddie’s contributions to the Housing Trust Fund.

House panel hears dangers of de-risking — Terminating the accounts of money services businesses and other high-risk financial service providers is reducing access to financial services and creating new risks, witnesses told the House Financial Services Subcommittee on Financial Institutions and Consumer Credit yesterday. The FDIC’s Operation Chokepoint made banks reluctant to serve high-risk businesses such as payday lenders, independent ATM servicers, and gaming operators. Bryan Schneider, Secretary of the Illinois Department of Financial & Professional Regulation, said that “indiscriminate de-risking” not only makes it harder to enforce the Bank Secrecy Act, but also raises public safety issues by leaving large amounts of cash unprotected. Subcommittee Chairman Blaine Luetkemeyer (R-MO) has introduced H.R. 2706, which specifies that a federal banking agency may not require an institution to cancel a client’s account without having a material reason to do so, not based on reputation risk.

Luetkemeyer circulates proposal for new federal data breach standards after Wednesday hearing — On Wednesday, the House Financial Institutions and Consumer Credit Subcommittee heard testimonyfrom industry representatives and policy experts about how best to address the current patchwork of state laws that govern data security and breach notification standards. Witnesses agreed that a national standard would help both consumers and businesses, and noted that the EU is already moving on a comprehensive approach to privacy protection. Today, Subcommittee Chairman Blaine Luetkemeyer circulated a draft bill that would set these standards, not only for how businesses report these breaches but also for how they defend against them. The bill would not change current requirements for financial companies, but would require other businesses that collect consumer data to notify customers “immediately . . . without unreasonable delay” about any breaches, no matters what the size, and to notify law enforcement about breaches that involved 5,000 accounts or more. Rep. Carolyn Maloney (D-NY), ranking member of the Subcommittee on Capital Markets, is cosponsoring the bill.

House panel discusses proposals to harmonize derivatives regulation — The House Financial Services Subcommittee on Capital Markets, Securities, and Investment held a hearing on Wednesdayafternoon to discuss eleven bills that would clarify and coordinate the roles of the SEC and the Commodity Futures Trading Commission in regulating and supervising the sales of derivatives. Republican and Democratic members of the subcommittee disagreed on the need for changes to the system and standards created by Dodd-Frank, as did the witnesses. Subcommittee Chairman Bill Huizenga (R-MI) said that the agencies need legislative help to clarify their responsibilities and coordinate their regulatory structures. Ken Bentsen, President and CEO of the Securities Industry and Financial Markets Association (SIFMA), said that the Dodd-Frank reforms, though necessary in some areas, had gone too far in others. He called for simplifying, harmonizing, and streamlining Title VII requirements, including reducing conflicts and duplications among international regulators.

CFPB publishes strategic plan, asks for input on supervision — It’s been a busy week for OMB Director and Acting CFPB Director Mick Mulvaney. Not only did he unveil the budget on Monday, but he also released a five-year strategic plan for the Consumer Financial Protection Bureau (CFPB). “We have committed to fulfill the Bureau’s statutory responsibilities, but go no further,” Mulvaney said. The strategic plan refocuses on the enforcement of existing laws; under the plan, the agency “will now focus on equally protecting the legal rights of all, including those regulated by the Bureau;” will “address unwarranted regulatory burdens;” and “will operate more efficiently, effectively, and transparently.” The Bureau continued its quest for feedback on Wednesday, with a Request for Information about its supervisory processes — specifically, “how best to achieve meaningful burden reduction . . . while continuing to meet the Bureau’s statutory and regulatory objectives.” The RFI is open for comment for 90 days.

SEC seeks additional funding for cybersecurity — The Securities and Exchange Commission submitted a budget request of $1.658 billion for FY 2019 this week, representing a 3.5% increase from 2018. The request includes an additional $45 million for information technology enhancements to support the agency’s cybersecurity capabilities, risk and data analysis, enforcement and examinations, and automation.

Fannie, Freddie ask Treasury for money — As expected, both of the housing GSEs submitted requests for funding to the Treasury this week, to cover losses created by last year’s tax reform bill. Freddie Mac’s fourth-quarter loss of $3.3 billion left the agency with a year-end deficit of $312 million, while Fannie Mae $6.5 billion loss left it $3.7 billion in the hole. House Financial Services Committee Chairman Jeb Hensarling (R-TX) slammed the requests, saying it was more evidence of the need for comprehensive housing finance reform: “After footing the bill for the costliest bailout in history, taxpayers are sick and tired of getting ripped off by Fannie and Freddie and then scolded by GSE apologists when they complain.”

Hensarling demands answers from Watt about Housing Trust Fund payments — Given Fannie and Freddie’s shortfalls, Chairman Hensarling sent Federal Housing Finance Agency Director Mel Watt a sharp letter today asking why the GSEs were continuing to make payments to the Housing Trust Fund and the Capital Magnet Fund. Watt had directed these payments to continue despite the fourth quarter losses, which he said were the result of one-time charges. Hensarling called this “unjustifiable,” and said that it directly contradicts Watt’s supervisory guidance of 2014 and 2015. “I demand you provide a detailed written explanation by Friday, February 23, 2018,” Hensarling wrote, and asked “how the FHFA intends to limit your ability to exercise your discretion in the future so that it can establish a consistent policy on this subject.”

U.S. Bancorp faces deferred charges, must pay $613 million for money laundering violations — U.S. Bancorp agreed this week to a deferred prosecution agreement with the Office of the US Attorney for the Southern District of New York that charges the bank with two felony violations of the Bank Secrecy Act, and levies fines and forfeitures of $613 million. U.S. Bancorp will pay $528 million in forfeitures and a $75 million fine to the OCC, as well as fines to the Federal Reserve and FinCEN. It also agreed to cooperate with those agencies and the IRS in any investigations related to these violations, and to comply with the OCC consent order issued in 2015. If the bank complies with the agreement, prosecution will be deferred for two years, and charges may ultimately be dismissed. US Attorney Geoffrey Berman said that U.S. Bancorp’s anti-money laundering compliance program had been “highly inadequate,” with insufficient resources and limits on the number of transactions subject to review.

Next Week in Washington:

Both House and Senate are in recess next week, so The Golden Apple will not be published next Friday, February 23. The federal government is closed on Monday, February 19 for Presidents’ Day, and Eris is taking that day off as well. Enjoy the holiday.

The Ellis Insight. Jim Ellis reports on political news:

Senate

California:  The Public Policy Institute of California released the results of their statewide voter poll (1/21-30; 1,705 CA adults; 1,367 CA registered voters; 1,042 CA likely voters) and tested only Sen. Dianne Feinstein (D) and state Senate President Kevin de Leon (D-Los Angeles) in the upcoming US Senate race as part of their extensive questionnaire. According to the ballot test question asked to the self-described likely voters, Sen. Feinstein would lead the Los Angeles state legislative leader, by a commanding 46-17%. Additionally, recent year-end cash-on-hand figures find Sen. Feinstein holding $9.8 million in her campaign account as compared to state Sen. de Leon’s miniscule $359,000.

Montana:  WPA Intelligence just completed a Montana Senate Republican primary survey (2/5-6; 401 MT likely GOP primary voters) and finds state Auditor Matt Rosendale jumping out to a double-digit lead over businessman Troy Downing, retired state judge Russell Fagg, and state Sen. Al Olszewski. According to the WPA data, Mr. Rosendale has a 28-12-11-5% advantage over the other three in the listed order. Other also-ran candidates record less than 4 percent. The winner of the June Republican primary faces two-term Sen. Jon Tester (D) in what is forecast as a difficult challenger campaign.

Tennessee:  Signs are clearly growing that Sen. Bob Corker (R) is considering reversing his retirement decision. Staff is now confirming that the Senator is conducting meeting to assess his re-election chances, and he is even going so far as attempting to repair his broken relationship with President Trump after the two exchanged heated words during the past few months.

Rep. Marsha Blackburn (R-Brentwood) already has amassed a little over $4.6 million and led Mr. Corker substantially in the Senate Conservatives Fund poll (2/12-13; 600 TN likely Republican primary voters) that tested them in a hypothetical one-on-one match-up. According to the results, Ms. Blackburn has a 49-26% advantage over the two-term incumbent. The third Republican candidate, former US Rep. Stephen Fincher (R-Crockett County) posted only 9% support. The candidate filing deadline is April 5, with the Tennessee primary occurring August 2.

West Virginia:  In a Harper Polling survey released on Friday (2/5-6; 500 WV likely Republican primary voters via automated device for the Jenkins campaign), Rep. Evan Jenkins (R-Huntington) leads Attorney General Patrick Morrisey 33-25%, with convicted Massey Energy CEO Don Blankenship still having 12% preference.

So far, Mr. Morrisey has a slight combined edge in fundraising. The two-term Attorney General has raised $1.4 million, while an unconnected Super PAC supporting his candidacy banked an additional $470,000.  The campaign’s cash-on-hand total is $1.1 million. Rep. Jenkins raised $1.1 million and has $1.4 million in the bank counting a transfer from his House campaign account. The primary race will be decided May 8th, and promises to be a highly competitive campaign.  The winner will then challenge Sen. Joe Manchin (D) in the general election.

House

AZ-2:  With Rep. Martha McSally (R-Tucson) leaving this politically marginal district to run for the Senate, Democratic conversion chances are enhanced. Former state Rep. Matt Heinz (D), who lost 57-43% to Rep. McSally in 2016, is running again and brandishes a Public Policy Polling survey that suggests he would fare better in an open general election than former 1st District Rep. Ann Kirkpatrick (D-Flagstaff).

According to Heinz’s data (2/8-10; 841 AZ-2 registered voters), he would lead Tucson Hispanic Chamber of Commerce President Lea Marquez Peterson (R), by a 45-31% margin. In comparison, Ms. Kirkpatrick’ advantage over the lone announced Republican candidate would be 43-34%. But, the former nominee is considerably behind ex-Rep. Kirkpatrick in campaign resources, and he did not release early Democratic primary numbers from the survey. The latest FEC report finds the former Congresswoman holding $463,977 in her campaign account, versus only $193,117 for Mr. Heinz.

FL-9/11:  Irascible former Rep. Alan Grayson (D-Orlando) confirmed yesterday he will again run for the House of Representatives. The ex-Congressman originally won his seat in 2008 when he scored a 52-48% victory over then-Rep. Ric Keller (R-Orlando) in the first Obama year. Two years later, current Rep. Dan Webster (R-Clermont) unseated Rep. Grayson in the Republican wave election. After Florida gained two seats in reapportionment, one of which went to the central part of the state, Mr. Grayson returned in 2012 to the new 9th District. He departed in 2016 to run unsuccessfully for Senate, losing to then-Rep. Patrick Murphy (D-Jupiter) in the Democratic primary.

Several weeks ago, Mr. Grayson filed a new congressional committee for the 11th CD, which would again pit him against Rep. Webster in a Republican district, but the conventional wisdom is suggesting that he will actually challenge freshman Rep. Darren Soto (D-Kissimmee) for the seat he formerly represented.

HI-1:  Former one-term US Rep. Charles Djou (R-Honolulu) was one of the individuals looking to enter the open 1st Congressional District race now that incumbent Rep. Colleen Hanabusa (D-Honolulu) is challenging Gov. David Ige in the Democratic primary. In an announcement earlier this week, Mr. Djou said he will not become a congressional candidate in 2018, preferring to launch another run for Mayor of Honolulu in the 2020 election.

MA-7:  Last month, Boston City Councilor Ayanna Pressley launched her Democratic primary challenge to veteran Rep. Mike Capuano (D-Somerville). The MassInc Polling Group, surveying the 7th District Democratic primary electorate for WBUR Public Radio in Boston (2/9-11; 402 MA-7 registered voters) found Rep. Capuano jumping out to an early 47-35% advantage when counting respondents who support and lean toward each candidate. Both individuals are highly rated. Rep. Capuano has a 60:7% favorability ratio, while Ms. Pressley scores a solid 42:7%. Ms. Pressley is carrying the Boston precincts, while the Congressman is overwhelming her outside of the state’s largest city. But, this race has a long way to go. The primary won’t happen until September 4th.

MN-8:  Minnesota Rep. Rick Nolan (D-Crosby/Duluth) became the 54th US Representative to not seek re-election in the next special or regular election. The impending 2018 campaign was already viewed as a toss-up because the last two contests between Rep. Nolan and businessman Stewart Mills (R) were decided by a percentage point or less. With Mr. Mills not in the 2018 race, Republicans were looking to St. Louis County Commissioner Pete Stauber, a former professional hockey player. Now, however, Mr. Mills may return, and both parties can expect crowded nomination competition for an open seat that either side has a strong chance to win.

PA-18:  Monmouth University released their latest study of the western Pennsylvania electorate with a month remaining in the 18th District special election campaign. According to the poll (2/12-14; 320 PA-18 likely special election voters), state Rep. Rick Saccone (R-Elizabeth) would lead Democrat Conor Lamb across the turnout spectrum. His worst numbers based upon various turnout models was a 49-46% spread. In a separate occurrence, Democratic Congressional Campaign Committee chairman Ben Ray Lujan (D-NM) remained silent as to whether his committee will be supplying Lamb with further financial support. The special election is scheduled for March 13th.

UT-2:  John Sittner, who founded the nationally known Ancestry.com company, has filed a congressional campaign committee with the Federal Election Commission. Though he has not yet announced as an official candidate, he has certainly taken the first step toward becoming one. Mr. Sittner, registered as an Independent, hopes to challenge three-term Rep. Chris Stewart (R-Farmington/Salt Lake City) in the general election. President Trump carried the expansive 2ndDistrict, 46-27% with Independent Evan McMillan receiving a substantial 21.5% of the vote.

Governor

Alabama:  When the Alabama candidate filing closed at the end of last week, local political observers were surprised that state Sen. Slade Blackwell (R-Birmingham) did not file for re-election and instead hopped into the Governor’s primary at the last moment. Then, he apparently had second thoughts. Just four days after entering the Governor’s campaign, Sen. Blackwell announced he is ending his fledgling effort. Therefore, the state legislator will be out of elective politics beginning next year.

Kansas:  Jeff Colyer (R), recently sworn in as Governor after former incumbent Sam Brownback (R) was confirmed to his federal position, this week replaced himself as Lt. Governor. Mr. Colyer named businessman Tracey Mann (R) as the state’s new LG, and further announced that the latter man will join him on the Republican ticket as his running mate for the fall election.

The pair must first clinch the GOP nomination in an August 7th campaign when they will face Secretary of State Kris Kobach, state Insurance Commissioner Ken Selzer, ex-state Sen. Jim Barnett, and oil businessman Wink Hartman among others. Democrats are looking to former Wichita Mayor Carl Brewer, ex-state Agriculture Secretary Josh Svaty, state House Minority Leader Jim Ward (D-Wichita), or state Sen. Laura Kelly (D-Topeka) to become their standard bearer.

Minnesota:  Both former state House Speaker Paul Thissen and ex-St. Paul Mayor Chris Coleman announced that they are dropping their respective bids for the Democratic gubernatorial nomination. The move means five candidates are left in the field, led by US Rep. Tim Walz (D-Mankato), and state Auditor Rebecca Otto. Local Hennepin County Commissioner Jeff Johnson, the 2014 Republican nominee, appears to be the GOP early leader, but that could quickly change if former Gov. Tim Pawlenty decides to enter this race.  As previously reported, Mr. Pawlenty is holding meetings to assess his chances in a new statewide race. The former Governor and short-term presidential candidate served as Minnesota’s chief executive from 2003-2011.

New Hampshire:  In the 2016 open seat gubernatorial campaign, Republican Chris Sununu defeated Democrat Colin Van Ostern, 49-47%. Both men were members of the state’s five-member Executive Council that, among other duties, exercises a check over the Governor’s veto authority. Late this week, Mr. Van Ostern announced that he will not challenge Gov. Sununu in 2018. According to the latest survey from the University of New Hampshire, the first-term Governor was leading his former opponent, 41-31%.

New York:  State Assembly Minority Leader Brian Kolb (R-Geneva) ended his campaign for Governor. This leaves state Senate Deputy Majority Leader John DeFrancisco (R-Syracuse) and Erie County Executive Joel Giambra as the lone contenders for the Republican nomination. Sen. DeFrancisco now becomes the favorite to advance into the general election, but an upset of two-term Gov. Andrew Cuomo (D) appears highly unlikely.

South Dakota:  A budding primary contest between at-large US Rep. Kristi Noem (R-Castlewood) and Attorney General Marty Jackley is underway culminating in a June 5th election, and Moore Information went into the Republican field to test the gubernatorial candidates. The survey (2/8; 300 SD likely Republican primary voters) found Ms. Noem opening with a 40-35% edge over the Attorney General. Two other candidates were tested, but neither could surpass 5% support.

This first public data release suggests what most political observers have been saying: that the primary race will be close and hard fought. The eventual Republican nominee will become a prohibitive favorite to succeed Gov. Dennis Daugaard (R) in the November election. Mr. Daugaard is ineligible to seek a third term.