WASHINGTON — During his tenure, House Financial Services Committee Chairman Jeb Hensarling has attempted to undo the Dodd-Frank Act, eliminate the mortgage giants Fannie Mae and Freddie Mac, severely weaken the Consumer Financial Protection Bureau's authority and overhaul the National Flood Insurance Program.
While some say Hensarling deserves credit for sticking to his guns and pursuing such ambitious goals, none of those proposals came to pass. In a polarized Washington his efforts have been overshadowed by more modest bipartisan bills championed by other lawmakers.
Hensarling says even if his uncompromising proposals weren't likely to become law, they were still worth pursuing. But as he prepares to leave Congress, he has shown more willingness to accept compromise lately, giving ground on regulatory relief and housing finance. And he has not given up on working with Democrats on one last legislative package before he leaves.
"It is important that, No. 1, conservatives and Republicans set forth paradigm pieces of legislation that are comprehensive that encompass our vision of capital markets, of banking, of securities markets, of housing,” the Texas Republican said in an interview with American Banker. “So we want to know what the ultimate goal is. But having said that, once you put that out there and you know what the goal is, you know that in order to actually pass law, to make law, not just make speeches, you’re going to have to engage in the legislative process.
"If we end up with 20% of what we set out to do, that’s probably a pretty good day.”
'Stubbornness in the fight for policy'
Still, those close to the lawmaker say he has always been more focused on swinging for the fences, even if that approach has frustrated stakeholders trying to achieve broad agreement.
“Jeb as a person is deeply committed to conservative governance and conservative philosophy and he was and is extremely principled, and he would much rather do nothing than violate his principles to do something in the name of compromise,” said Travis Norton, a former Hensarling staffer on the House Financial Services Committee who is counsel at Brownstein Hyatt Farber Schreck.
“To purists, that approach makes a lot of sense, but to people who live in the Beltway, of course, the Senate is not going to take up something that is a party-line vote in the House with limited time on the Senate floor.”
A member of Congress since 2003, Hensarling has been seen by free-market advocates as a champion.
“My one concern is that he only had six years with the gavel," said J.W. Verret of George Mason University’s Mercatus Center, another former Hensarling staffer. "Stubbornness in the fight for policy is no vice in my book.”
But proponents of the post-crisis regulatory structure say that, despite trying to cast himself as critical of large banks, Hensarling has fought only for policies that favor the industry.
“He’s a guy who over the years has sometimes talked like he wanted to challenge Wall Street, but in his leadership of the committee he was pretty much totally compliant with what Wall Street wanted,” said Marcus Stanley, policy director at Americans for Financial Reform.
Going to extremes, but then compromising on reg relief
Perhaps the signature achievement of Hensarling's chairmanship, which began in 2013, was the House passage last year of the Financial Choice Act.
Yet the bill, which sought to undo much of the regulatory framework established by Dodd-Frank, received no Democratic votes and was a non-starter in the Senate. Among its provisions were new authority for the president to fire directors of regulatory agencies, including the CFPB, and a repeal of a Dodd-Frank facility for unwinding failed financial behemoths.
The Senate was more focused on a bipartisan plan worked out by moderate Democrats on the Senate Banking Committee and Sen. Mike Crapo, R-Idaho, the panel's chairman. That limited bill, which raised the asset threshold for "systemically important financial institutions" and enacted other reforms for community banks, passed the Senate in March.
Hensarling initially signaled resistance to a targeted bill, declaring he would not be "rubber-stamping" the Senate legislation. But that sparked pushback from many in the banking industry, worried that Hensarling could slow momentum in enacting the first reg relief bill since Dodd-Frank.
"We agree with Chairman Hensarling that not every single good proposal is in the bill," Camden Fine, the then-head of the Independent Community Bankers of America, said in a statement following Hensarling's comments. "However, we will not participate in killing a solid bipartisan bill just because it does not have everything we could want in it."
Ultimately, Hensarling backed down, agreeing not to stand in the way of the Crapo bill, as long as lawmakers considered adding certain provisions after its enactment.
“The House had its own bill that we thought was a good measure. ... It was sent to the Senate and with the 60-vote threshold they have a completely different way of trying to do business over there,” said Rep. Blaine Luetkemeyer, R-Mo., who chairs a House Financial Services subcommittee and is mentioned as a possible successor to Hensarling if the GOP holds the House. “The dynamics of each body are a little different and it kind of causes some consternation sometimes. We have a job to do to try and get the best bill in the House.”
'Imitation is the greatest form of flattery'
Yet Hensarling points out that certain provisions in the Crapo bill, which became law, were in the Financial Choice Act first. After his bill failed to gain traction, his committee started passing new, piecemeal versions of some of its provisions that had bipartisan backing. Of the 142 bills the committee reported to the House floor in the current Congress, 32 were included in the Crapo bill.
“Imitation is the greatest form of flattery,” said Hensarling. “Probably by any discernible measure, two-thirds to three-quarters of the pro-growth measures in that [Senate] bill started in the House. So we take great pride in that.”
Others agree that the Senate bill — known as S 2155 — took the modest reforms with bipartisan backing that had been in the FCA, and simply left out the provisions that were too extreme to get enough support.
The House committee chairman "can take great credit for what eventually ended up being the final product of 2155 and certainly anyone that would say anything different would be mistaken,” said a source close to the industry who spoke on the condition of anonymity. Hensarling "has been one of the most aggressive chairmen in moving legislation not just through committee but onto the House floor.”
Norton says critics who accuse Hensarling of not reaching across the aisle enough don't fully understand how the House works.
“I say to those people, the House is structurally not designed to compromise until there is the Senate. [Hensarling] fully embraced the vision of the House of Representatives in the Federalist Papers,” Norton said. “Let the House be strong and let it cool in the thoughts for the Senate. And at the end, let’s have a cup of lukewarm tea.”
But Hensarling's tenure has had many instances where he pushed for an unequivocally free-market approach, which either failed to gain traction or where he later settled for a more middle-of-the-road version that had been spearheaded by others before him.
The Financial Choice Act included several reforms to weaken the CFPB's authority, which has been a consistent focus for Hensarling as chairman. The House bill would have subjected the agency to congressional appropriations, eliminated its supervisory and rule-writing authority, and limited its ability to police unfair and abusive acts. Yet the Crapo bill included none of those provisions.
Hensarling has also argued that the federal government has a monopoly over flood insurance. He has tried to overhaul the National Flood Insurance program and pushed to reduce other federal subsidies for homeowners. In July of this year, he voted against simply extending the program without significant reforms. But that extension ultimately passed the House and Senate.
Housing finance reform
But before the reg relief push, Hensarling was most uncompromising on the issue of reforming the housing finance system.
In 2013, as senators discussed bipartisan plans that would wind down Fannie Mae and Freddie Mac but replace them with a new government backstop, Hensarling spearheaded a more extreme approach that would effectively end government support. Yet even though his bill, known as the Path Act, passed the committee, it was never considered on the House floor.
"A government guarantee in the secondary mortgage market is not necessary and it’s very risky,” Hensarling said.
Yet, like with reg relief, Hensarling has more recently seen the writing on the wall and come around to accepting a plan with more bipartisan support, which would retain a government backstop.
“Probably the biggest disappointment I have is that I was not able to get signed into law a comprehensive housing finance reform bill,” Hensarling said.
The latest plan, drafted along with Democrats John Delaney of Maryland and Jim Himes of Connecticut, resembles earlier Senate drafts and would provide a new securitization guarantee through Ginnie Mae.
Hensarling stresses that the plan isn't perfect, and he is adamant that the current state of the housing finance system needs to change, through legislative or administrative action. Indeed, along with unveiling the Ginnie Mae plan, he also reintroduced his more extreme Path Act.
"Having fought [a government guarantee] for a number of years, I sense that it is going to be a longstanding feature of our housing finance system," he said. "I don’t want there to be a government guarantee, but if there is going to be one, we at least need elements of competition, innovation, risk dispersion, and put the taxpayer in a catastrophic loss position only.”
Hensarling recognizes that the legislation won’t pass during the current Congress, but says he is hopeful that it will be taken up in the future.
“I’m under no illusions that this is going to get signed into law in this Congress,” Hensarling said. “It is my intention to take this as far as it can be taken in this Congress. And I’m hopeful that it will serve as a foundation — if people will come to their senses and come to the bargaining table in the next Congress once I’m gone.”
Some have speculated that Hensarling could end up at that bargaining table, even if it is not as a member of Congress. He is mentioned as a possible successor to Federal Housing Finance Agency Director Mel Watt, whose term expires in January. As Fannie and Freddie's regulator, the FHFA is equipped to make several reforms without congressional action.
Hensarling says he would not rule out taking the FHFA job, if it were offered to him, but it is his preference to return to Texas.
“I never say never but it is not my desire to stay in this town. It is not my desire to take another government job,” Hensarling said. “I feel strongly that I want to go home. Otherwise I’m putting off my future. I’ll talk to people once the new Congress is sworn in. ... Come the first week of January, we’ll have that conversation.”
JOBS Act 3.0
He also insists his work in Congress isn't done.
After failing to expand S 2155, Hensarling put together a second package of reforms. On the table now is a bipartisan capital formation plan, which includes some banking provisions, known as the JOBS Act 3.0. It passed the House with more than 400 votes and was supported by Rep. Maxine Waters, D-Calif., the ranking member of the House Financial Services Committee with whom Hensarling frequently spars over policy differences.
Although the Senate’s year-end calendar is tight and the midterm elections loom, Hensarling is confident that the JOBS Act reforms will get a floor vote after, he says, he received a promise from Senate Majority Leader Mitch McConnell, R-Ky.
“I’ve known the leader, probably first met him in 1984, he has always kept his word,” Hensarling said. “I have no doubt this will be voted on. Again, the timing in this Congress is a little up in the air. There wasn’t a firm commitment on timing, there was a firm commitment that we would receive a vote. I am still hopeful, optimistic that a vote will take place prior to the election.
“If Maxine Waters and I can see eye to eye on seeing this through, this ought to be the least controversial bill the Senate takes up."
