Government Shutdown Looms
On Friday, House Republicans are expected to release a two-week stop-gap funding measure that would cut $4 billion in spending from the current fiscal year’s budget. While Senate Democrats have indicated they will likely not support the proposed $4 billion in cuts, momentum has shifted towards reaching an agreement to avoid a March 5th shutdown when the current funding measure expires. The new Republican spending measure will come on the heels of the just passed House Republicans’ seven-month appropriation bill that would have slashed $61 billion from the current fiscal year spending. The yet to be released House Republican spending plan is expected to make the cuts in the two-week spending bill proportional to the levels in the measure passed last week.
However, if House Republicans and Senate Democrats are unable to reach an agreement, the federal government shutdown would be guided by the Anti-Deficiency Act, which mandates that the only government activities allowed in the absence of a funding plan are those connected to “the safety of human life or the protection of property.” Programs and agencies that would be likely exempt from the shutdown are Social Security, uniformed military personnel, the Federal Reserve, the U.S. Postal Service, the Federal Aviation Administration, the Transportation Security Administration, and border security. However, among the most likely high profile federal government activities that would be shutdown are applications for passports and visas, accepting visitors at national parks, new patients at the National Institutes of Health, disease surveillance at the Centers for Disease Control, and toxic waste clean-up by the EPA.
Federal Reserve Closes Comment Period on New Debit Card Rules
On Tuesday, the Federal Reserve closed its comment period on its proposed rules to implement new interchange regulations and other debit card provisions of the Dodd-Frank financial-reform law’s Durbin Amendment. The Fed is expected to issue its final rules in April.
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Election Day Implications
With Republicans expected to make large gains in today’s elections, speculation has started to focus on what the election’s impact will be on recently passed major legislation including the healthcare and financial services reform bills. While the most likely outcome will be two years of legislative gridlock, if Republicans are able to take back the majority in the House of Representatives, the House will be expected to pass bills that defund key parts of the healthcare and financial services reform bills. However, the question will be whether such bills will be able to pass the Senate. The possible new Republican House majority will likely increase oversight of the key agencies implementing the bills, thereby frustrating the agencies’ abilities to implement and to enforce the new regulations.
Third Quarter GDP Figures Released
On Friday, the U.S. Department of Commerce released its report for third quarter GDP showing that the domestic economy grew by 2% in the third quarter, which is up from the last quarter but still below expectations. The GDP breakdown showed that spending by Americans, accounting for about 70% of demand in the U.S. economy, rose at a rate of 2.6%. The price index for personal consumption expenditures excluding volatile food and energy items, rose by an annualized 0.8% in the third quarter, slowing down from the second quarter’s 1.0% increase. Friday’s report also showed that federal government spending and investment rose by 8.8%, following a 9.1% increase in the second quarter.
TARP Inspector General Releases Third Quarter Report
Last Tuesday, nearly two years after the TARP bill’s passage, TARP Inspector General Neil Barofsky released his quarterly report to Congress which suggested that the Treasury Department engaged in a politically motivated attempt to hide losses at bankrupt insurance giant AIG with “manipulated” data. The report cited Treasury’s failure to disclose that it had changed its valuation methodology and should have published a side-by-side comparison of its new numbers with what the projected losses would be under the auditor-approved methodology. The report also criticized the Treasury for its claims that the Home Affordable Modification Program (HAMP) has helped 1.3 million homeowners by reducing their monthly payments. Barofsky’s report claims that only 467,000 HAMP modifications have been permanent, and the remaining modifications have been only temporary changes that may ultimately fail to keep families in their homes and may do additional harm by depleting troubled homeowners’ savings, increasing outstanding principle on loans, and further damaging borrowers’ credit scores.
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Senate Financial Regulatory Reform Bill
On Monday, the Senate Banking Committee held its much anticipated markup of Chairman Christopher Dodd’s (D-CT) “Restoring American Financial Stability Act of 2010.” Republicans declined to offer any of their more than 200 prepared amendments to the financial reform bill because Ranking Republican Richard Shelby (R-AL) believes they will have a better chance of incorporating their suggested changes as the pressure builds on Dodd to bring the bill to the floor and get the measure passed – an effort that will require Republican support. Dodd’s bill was passed out of the Committee on a strict party line vote of 13-10. Following the markup, Dodd indicated he will be reaching out to Republicans off the Committee such as Senators Olympia Snowe (R-ME) and George Voinovich (R-OH). President Obama met with Dodd and House Financial Services Committee Chairman Barney Frank (D-MA) on Wednesday to discuss the legislation and to develop a strategy following the expected Senate passage of a bill in the near future. The meeting signals the White House’s decision to turn its focus to the financial legislation following the conclusion of the health care debate.
In a speech at the U.S. Chamber of Commerce on Wednesday, Senate Banking Committee member Republican Bob Corker (R-TN) offered a sharp rebuke to the emerging Republican strategy of trying to keep all 41 GOP senators united against the bill in order to change key aspects of the reforms. In a letter to Secretary Geithner on Thursday, Senator Shelby also stated a desire to work toward a bipartisan bill. However, the letter also expresses concern that Chairman Dodd’s current draft fails to end the problem of “too big to fail” and “taxpayer bailouts.”
On March 4, 2009, the Treasury announced the release of details for Making Home Affordable, which is comprised of two programs: The Home Affordable Refinance Program and the Home Affordable Modification Program. In total, these programs aim to help 7 to 9 million homeowners by making mortgages more affordable and by helping to prevent foreclosures.
The Home Affordable Refinance Program seeks to provide 4 to 5 million homeowners with the opportunity to refinance first mortgages to take advantage of the historically low mortgage interest rates.
The following criteria must be met to be eligible for this Program:
- the home is one to four unit and owner occupied;
- the loan is owned or controlled by Fannie Mae or Freddie Mac;
- the mortgage payments are current;
- the amount owed on the first mortgage is not more than 105% of the current market value of the home; and
- the borrower has a stable income to support the new mortgage payments.
Homeowners looking to take advantage of this Program, should note two things: First, a borrower who is delinquent on first mortgage payments is ineligible. Second, only first mortgages are altered – second (or third) mortgages cannot be altered under this Program, which means a borrower’s eligibility will depend, in part, on any second (or third) mortgage holder agreeing to maintain a junior position even after the first mortgage has been altered.