WASHINGTON — With financial regulatory policy a major issue in an election year, topics like a pending mortgage settlement and the Consumer Financial Protection Bureau could get strong billing in Tuesday's State of Union.
President Obama's address comes as federal officials and state attorneys general move closer to settling with big banks over foreclosure problems. The speech is also scheduled just weeks after Obama made the controversial recess appointment of Richard Cordray to run the consumer bureau, inserting the CFPB as a potential election issue.
Observers not only expect Obama to tout the administration's record on the economy, but speculation is building he may also announce progress or even completion of the settlement deal in his speech on national television.
"I wouldn't be surprised to hear an announcement," said David Min, associate director for financial markets policy at the Center for American Progress, referring to the president's speech. "Whether that is actually announced or alluded to, I expect there will be some language around that."
Meanwhile, as the administration already has done, industry observers are anticipating Obama will mention both the Dodd-Frank Act and the CFPB prominently in an attempt to convey the message that he is protecting the middle class.
"I expect that he'll be unabashedly defending Dodd-Frank," said Cornelius Hurley, director of the Center for Finance, Law & Policy at Boston University. "He will double down on the Consumer Financial Protection Bureau, and he will double down on recess appointments, citing a recalcitrant Congress trying to undermine existing laws."
Some said Cordray, the former Ohio attorney general whom Obama installed without Senate confirmation over GOP objections, could even be in the building Tuesday night.
"I would not be surprised if Richard Cordray is in the gallery - the president's box - during the State of the Union," said Richard Hunt, president of the Consumer Bankers Association.
On housing, even if the president does not go as far as announcing progress in the settlement, there are still other areas where he could make news. For example, federal agencies have already been working on an initiative to convert foreclosed, government-owned houses into rental properties, and the president could roll out that plan.
Another possibility would be an announcement of further loosening of requirements by Fannie Mae and Freddie Mac to help underwater borrowers refinance into cheaper loans.
But attention is mostly focused on signs of daylight in the mortgage settlement. Following the scandal over poor documentation in the foreclosure process, and obstacles to aiding troubled borrowers, talks about a possible deal have continued for over a year without any resolution.
While the administration's other housing initiatives have fallen short, observers said a settlement announcement would hold promise for giving the beleaguered housing sector a jolt. Among the issues that a settlement could resolve is whether servicers commit to forgiving mortgage principal for some borrowers.
"I would say the biggest potential for some big pop is principal reduction, probably related to that state AG settlement," Min said.
Some also pointed out that discussing housing in the address allows Obama to focus on policy initiatives that the administration can pursue independent of Congress. For example, the program to improve refinancing options for Fannie and Freddie-backed loans has been carried out by the Federal Housing Finance Agency, the regulator of the two mortgage giants. Likewise, a completed mortgage settlement would not require any legislation.
"I would say that more likely than not, many of the new policy initiatives, to the extent there are any" in the speech "will come out in the form that the administration can control" without Congress, said Candi Wolff, Citigroup's executive vice president for global government affairs.
Ed Mills, a financial policy analyst at FBR Capital Markets, agreed that the president's speech to Congress will not focus on legislative proposals.
"I fully expect him to lay out his agenda in terms of what he would like to accomplish, but also what he will do if Congress does not," Mills said.
Hunt said he will be listening carefully to the speech in the hopes that Obama moderates his rhetoric toward the industry.
"We need to make sure the American public has trust and confidence in the banking industry," he said. "So we hope the Wall Street bashing, whether it's banks or big business in general, will cease."