WASHINGTON, DC-As expected the Republicans swept into poweryesterday, claiming the necessary 39 seats for a majority shortlyafter midnight eastern standard time. Indeed, when all is said anddone the Republicans are expected to have gained 50 seats in thiselection. The Senate stayed under Democratic control, with itsnumbers eroded.

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The widespread assumption is that these results will translateinto political gridlock. However, the Republicans’ majority in theHouse will give them an edge in certain areas that have a directimpact on the commercial real estate space, starting withrule-making for the financial overhaul as well as the futuredirection of Fannie Mae and Freddie Mac.

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Barney Frank, who at one point appeared in for a tough slog forhis seat, won re-election. It was a hollow victory, of course, ashe is losing his post as head of the House Financial ServicesCommittee. Set to take his chairmanship most likely isRepresentative Spencer Bachus of Alabama. Bachus will be leadingmuch of the oversight with the rule-making for Dodd-Frank. He willalso be a key voice in the discussions for the overhaul of FannieMae and Freddie Mac.

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Although the Obama Administration has fully backed the GSEs inconservatorship, support in Congress for these institutions intheir current incarnation has been steadily eroding. With theRepublicans at the helm, the industry can expect more discussionabout taking them out of conservatorship and charting a new coursefor them, one likely in the private sector. If nothing else, theissue of the government’s guarantee--implicit or explicit--willbecome a focus again.

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Another shift in leadership will come at the Subcommittee onCapital Markets, Insurance and Government-Sponsored Enterprises forthe House Financial Services Committee, where Scott Garrett, NewJersey Republican, is expected to take over. In fact, from acapital markets perspective, this is one
 of the mostinfluential Congressional committees. With Garrett at the helm,some industry insiders are expecting to see a renewed push forcovered bond legislation. Garrett was the sponsor for earlierlegislation to create a US covered bond market, one industryexecutive, who wished to remain anonymous, observes, “so we areexpecting him to continue to move toward that goal.”

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There has been some pushback from government agencies on thisissue--namely from the Federal Deposit Insurance Corp., whosechairperson Sheila Bair has said she does not want to seedistressed assets move to these vehicles 
if it means theFDIC is left with the worst assets to salvage for taxpayers.

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However, this executive tells GlobeSt.com that much of thesquabble comes down to a turf war. “With the House in Republicancontrol I do believe we will see more support for covered bondlegislation,” the source says. “Now, it will never become asubstitute for securitization but it could be a good additive,quasi-balance sheet lending tool for some.”

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Changes in lower level posts also will have a significant impacton the legislative and regulatory forces that will shape the realestate industry over the next two years. Ohio Attorney GeneralRichard Cordray, a Democrat, was also on the ballot--a seat that helost to Republican challenger Mike Dewine. Cordray has been amongthe most aggressive of the attorneys general in investigating thelatest twist of the mortgage crisis--the false affidavits submittedby the so-called robo-signers.

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Cordray has also become the defacto leader of the 50 attorneysgeneral investigating
 he banks, according to newsaccounts, with him reportedly leaning toward forcing the banks tomodify homeowner mortgages as part of any settlement. What hisdefeat will mean for this strategy is unclear.

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The election results will boost the confidence of independentregulatory agencies to take different paths than those suggested bythe Treasury Department. Indeed, there have been signs of thisalready--without the umbrella of protection afforded majority rule,it is certain to intensify. For instance, when the negotiations forthe financial overhaul were underway, there were several cases inwhich Treasury tried to sway agencies to their viewpoint.

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One notable example was when the department tried unsuccessfullyto persuade the FDIC to wait for the joint rules under Dodd-Frankbefore issuing its version of the safe harbor rule. With theenhanced Republican numbers on the Hill, the industry can expectsuch departures from the Administration’s policies tocontinue.

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