The election is finally over, so now the question emerges: How will a Bush administration impact real estate?

After eight years of control by the Democratic party, federal departments and agencies will now have new leaders and policies. The result will be subtle yet significant changes in federal practices, changes that will widely impact the purchase, sale, and financing of real estate.

It was speculated that had Al Gore been elected president then current HUD Secretary and Gore pal Andrew Cuomo would emerge as the White House chief of staff. Now, with a Bush administration, Cuomo is out and so are many of his policies and administrators.

One program which will likely be among the first to go is the grandly misnamed "Homeowner Protection Plan." Under this program, FHA appraisers are essentially required to provide home inspections, a bit of a problem since appraisers are not trained or qualified for such work.

HUD's crusade to have appraisers review and certify the physical condition of a home and its mechanical and structural systems has not been adopted by conventional lenders or the VA. It has resulted in higher appraisal costs for FHA borrowers, needless certification requirements for appraisers, and piles of additional regulations. A new HUD secretary can end this program without any political liability whatsoever.

As of January 1st, 2001, FHA up-front insurance premiums will be reduced from 2.25 percent of the loan amount to 1.5 percent. As well, HUD announced that insurance coverage for all FHA loans made after January 1st will be terminated once borrowers have reduced initial loan amounts by 22 percent.

The new FHA cancellation policy sounds great, until you realize that borrowers who use private mortgage insurance (PMI) have had the same right since July 29, 1999 and that many private lenders will cancel PMI once loan balances have been cut by 20 percent. In effect, the January 1st start date means that roughly 2 million FHA borrowers will not have the same cancellation rights as borrowers who financed with PMI.

Look for the new Administration to make the FHA cancellation policy retroactive back to at least July 29, 1999, or to go further and follow the lead of Fannie Mae and Freddie Mac, both of which automatically cancel PMI once borrowers with good payment records have reduced initial loan balances by 20 percent.

HUD under Cuomo has clearly seen FHA premiums as a source of public funding -- what most of us would call a tax. Instead of refunding excess insurance premiums to borrowers, HUD took FHA insurance money worth $1.5 billion and gave it to the Treasury last year.

HUD under Cuomo also announced, that it would increase the size of the FHA insurance reserve fund from $16 billion to $34 billion. Again, this sounds great until you realize that the additional billions are being collected by overcharging FHA borrowers and not returning excess insurance premiums.

The extra money comes from the fact that the FHA insurance reserve has a capital adequacy ratio of 3.66 percent. Given that Congress only requires a 2 percent reserve, that extra 1.66 percent is equal to additional FHA insurance payments worth billions of dollars.

HUD's idea is to take money it shouldn't have -- those extra insurance dollars unfairly taken from borrowers -- and use it to create new programs, such as offering $1 homes to teachers and police officers. Again, this sounds good. But think about this carefully and then ask why nurses, enlisted military personal, and countless others who contribute to our welfare should not have access to the same program? Or why FHA borrowers and not taxpayers in general should pay for such programming?

In the end, look for the incoming HUD secretary to do the right thing, keep government small, and refund billions of FHA insurance dollars.

Fannie Mae and Freddie Mac are known as government sponsored enterprises or GSEs. They buy mortgages from local lenders, thus assuring that cash from investors is available to homebuyers nationwide. Unlike typical corporations, however, Fannie and Freddie have a $2.25 billion line of credit with the U.S. Treasury, they do not pay state and local taxes, and they need not register stock with the SEC, thus saving the companies perhaps as much $500 million a year.

The question is: Do Fannie and Freddie have an unfair advantage in the marketplace? Should they have access to U.S. government backing, something which lowers both their risk and the interest rates they pay?

• "It is time for GSEs to give up ties to the federal government that have made them poster children for corporate welfare. Most of all, Congress needs to look more to the protection of the taxpayers, and less to the hyperbole of the of the GSE lobbyists that form a standing army on Capitol Hill," says Ralph Nader. "The housing-finance GSEs were born as creatures of the federal government and have evolved as hybrid enterprises where much of the risk remains with the government and the taxpayers while the profits flow to private shareholders."

• An August survey by the National Association for Business Economics found that, "some 60 percent of NABE panelists worried that the subsidies were a risk. Distortions to credit markets were noted as the greatest threat that the subsidies posed."

• Testifying before Congress, Peter J. Sepp with the National Taxpayers Union said that "Freddie and Fannieş s 1999 federal subsidy was $10 billion, $3.5 billion of which benefited their stockholders and managers.

  "But in order to keep earnings growing by 15% per year, the two quasi-private firms must resort to increasingly risky practices, such as fishing into the consumer credit and jumbo mortgage pool, holding derivatives, and conducting interest-rate swaps.

  "GSE debts and liabilities," Sepp continued, "which most capital markets assume to be backed by the federal government, is estimated to be at least $1.4 trillion and as much as $2.6 trillion. This level would be 12-20 times the amount of on-balance-sheet debt carried by the ill-fated private firm Long Term Capital Management when it crashed."

Fannie and Freddie are among the most astute players in Washington and it's unclear just how they might fare under a Bush administration. What is clear, however, is that the matter of "what to do" with the big GSEs is plainly on the table.

It will take Bush attorneys months if not years to revise, undo, and re-issue a huge assortment of rules and regulations with which they pathologically disagree.

In addition to the thousands of regulations now on the books, it just happens that right after the election even more rules were announced. The Labor Department introduced a series of workplace ergonomic standards, fishing curbs in Alaska were revealed, and a requirement that health insurance plans must pay for contraceptives was published. The Washington Post says that in the final 90 days of the current administration 29,000 pages of new regulations will be announced. (See: "Clinton's Last Regulatory Rush," Dec. 6, 2000)

Was there a regulation shortage until several months ago? How many trees could be saved by not publishing 29,000 pages of new rules? As a start, look for the new Administration to review the cost/benefit equations for current regulations and to use cost/benefit reviews before enacting future rules.

All Administrations and lame-duck Congresses launch a host of post-election rules and regulations precisely because such efforts would be politically unpalatable before voting day. It's now the job of the new Administration and the new Congress to sort through the latest regulatory blizzard and likely reject much of what has been announced in the past few weeks.

One change the occurs with a switch in political power is that new office-holders come to Washington and the old ones generally stay. The result is increased demand for housing in the capital metro area, rising home prices, and several thousand additional transactions courtesy of the electoral process. For the local real estate industry, at least, political change is good and more change is better.

Published: December 19, 2000

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Editor's Note: This article reflects the opinions of Peter G. Miller only and not necessarily the views of this or any other publication, organization or Website owner.