What the Real Estate Industry Can Expect from Our President and the 117th Congress
January 21, 2021
By Tim Rood
President Joe Biden hit the ground running, signing 15 Executive Orders on his Inauguration Day, with 10 more on deck to be signed January 21. They include an order extending the eviction and foreclosure moratorium until the end of March, which buys Biden and struggling households time for Congress to pass another stimulus bill. It also allows President Biden to place his team in critical housing agencies to hammer out more concrete policies for mitigating a potential foreclosure crisis. Biden also pressed Congress to take up his $1.9T COVID-19 stimulus and relief bill proposal as soon as possible.
Democrats enjoy a majority in both chambers of Congress and the White House for the first time since President Obama’s first term. However, what may appear as a clear path for Democratic lawmakers and their legislative ambitions is anything but certain, given the narrowest majority in two decades. The last time the Senate was evenly split was in 2001. Things were substantially more civil politically – Democratic and Republican congressman lived in the same communities together. They went to the same churches and synagogues, their kids went to school together, they bonded over the horrible 9/11 terror attacks on our country, and they often considered their rival congressmen as friends. Despite their commonalities, it was still brutally hard and ugly to get consensus on how to conduct the business of Congress. So much so that the Senate leaders of both parties hammered out a “power sharing agreement” that would govern how the two parties would work together on matters like participation rules and representation on committees, who and when either leader could call bills to the floor, etc. It was messy and difficult to legislate then and one has to imagine that in the wake of the most polarizing period in our nation’s young history since the Civil War, we are in for a good old-fashioned goat rodeo on Capitol Hill.
Biden and Democratic lawmakers are focused on tackling the coronavirus, passing a 2021 budget with reconciliation instructions, holding impeachment hearings, getting their appointees through the confirmation process, and passing at least two deficit spending bills – COVID relief and infrastructure. For this article, I’ll focus on the path for the prospective spending bills.
The most expedient path for passing President Biden’s proposed $1.9T stimulus would be through a bipartisan approval in both chambers of Congress. However, Senators on both sides of the aisle have voiced their concerns over the amount of the bill and elements of naked stimulus, like additional stimulus checks regardless of lost wages or not. Proposals like the $15/hour minimum-wage mandate are not likely to pass with a 60-vote threshold in the U.S. Senate. Other items such as the $1,400 direct payments and $400/week federal unemployment benefits would likely have to see their top-line numbers come down (e.g. $1,000 or lower direct payments) or require more restrictive means testing to secure support from 10 Republican senators. Spending will likely need to come down to around $750B to $1.5T to have much of a chance of passing the Senate with 60 votes. The other option for Democratic lawmakers is to pursue a reconciliation bill, which only requires a majority of senators to pass, and they could get just about everything they want.
The most directly relevant aspects of Biden’s $1.9T relief plan to the housing and housing finance markets is the extension of the eviction and foreclosure moratoriums. Biden proposes extending the national moratorium on evictions and foreclosures until Sept. 30, while also setting aside funds to provide legal assistance to households facing foreclosure or eviction. He further called for housing agencies to continue allowing applications for forbearance on federally backed mortgages until that date. Keep in mind that this is a starting point that will be negotiated in Congress. I doubt that the rent relief will be negotiated down in this environment, but the moratoriums could be pared back to say the end of June. The topic likely will be heavily debated.
The challenge related to eviction and foreclosure moratoriums is that from a budgetary and legislative scoring perspective, the extensions do not really cost much (really just the modeled impact on the Federal Housing Administration’s Mutual Mortgage Insurance Fund). Therefore, it is not likely to be a major item to be negotiated on the merits of its financial cost, because cutting it from the end of September to the end of June will not likely have much of a financial impact to the federal government. This does not mean that legislators will not negotiate it down as a public policy matter, but it does not impact the overall spend materially – unlike, for example, reducing unemployment payments. The $30B in the proposal for rent relief might be in play but feels like political suicide to go after reducing it. A COVID stimulus bill won’t be moving in a vacuum however. With all the activity planned for the Senate to address already it could influence the ability or willingness of Democrats to wait much beyond February for indications from Republicans that a bipartisan spending bill is feasible.
Biden needs the $1.9T bill to pass with 60 votes (bipartisan support) because he is likely going to need to use the budget reconciliation process to pass his massive infrastructure bill in Q2, probably April. (He hasn’t revealed the price tag, but during the presidential campaign he outlined a $2T proposal.) Reconciliation bills can impact spending, revenue and the federal debt limit; they only require a majority in the Senate to pass and cannot be filibustered. However, only one bill a year can be passed for each of the three categories, i.e. one bill that impacts spending, one bill that impacts revenue, and one that impacts the federal debt limit. As a result, if Congress can’t come to an agreement on a COVID stimulus bill ($1.9T proposed bill) and Democrats decide to use the reconciliation process to pass COVID-related stimulus, then they will not be able to use reconciliation for the infrastructure bill because they both increase the deficit (spending category).
An infrastructure bill is expected to be proposed by Democrats in or around Q2 and this will likely matter more to the housing and mortgage markets than the COVID stimulus. The bill is likely to include relief payments for past due rent and mortgages for select groups – means tested (relief for income levels up to a certain level on a state-by-state basis for example). Again, since it only requires a simple majority of senators to pass the bill, conservative Republicans will not be able to negotiate it down or away via filibuster.
Republicans controlled the Senate for six years and former Senate Majority Leader Mitch McConnell would decide what bills went to the floor for a vote. As a result, Republican senators did not have to go on record as voting for or against something that might reflect negatively on them during future election cycles. With the situation now reversed, Republicans will need to go on record for voting against things like direct stimulus payments, extended unemployment benefits, rent relief, etc. and they may not want to risk looking uncharitable during a pandemic. However, because the thin majority enjoyed by Democrats in the House (five seats, with 4 of them up for special election) and Senate (even split with the vice president casting the final vote), it will be hard to keep lawmakers voting along party lines on very progressive social policies and massive deficit spending. Members of Congress on both sides of the aisle have already voiced serious reservations about increased deficit spending and progressive social agenda items.
In summary, passing legislation to achieve the new administration’s economic and social agenda will be no cakewalk for President Biden or his team. Watch for a scenario in which the eviction and foreclosure moratoriums are extended through June via COVID stimulus in February. We expect targeted mortgage relief from past payments to be means tested, much like rental relief in the infrastructure bill likely to be passed in Q2.
Tim Rood is Head of Industry Relations for SitusAMC.