Last week, the Trump administration surprised many in the housing industry by including a plan for housing finance reform, hidden deep within the Office of Management and Budget’s federal reorganization proposal. Unlike the reorganization proposal, which focused on far-right, pie-in-the-sky ideas like merging the departments of Labor and Education, the housing finance proposal was carefully written and measured.
While there were many unanswered questions that raised reasonable concerns among affordable housing advocates, including myself, I found the restraint in leaving these issues off the table for now noteworthy. In many ways, I found the plan even more illuminating for what it did not say as for what it did. Some elements of the proposal I found particularly interesting:
- The government sponsored enterprises (GSEs) would be released from conservatorship and their federal charters would be eliminated with no exit fee requirement other than capitalizing to the level required by the new regulatory entity.
- The GSEs, and others if the market creates them, would have access to a full faith and credit guarantee of mortgage-backed securities issued for a fee to cover the first segment of tail risk.
- The creation of a mortgage fee that would be charged to capitalize an insurance fund to protect taxpayers against the second segment of tail risk, similar to the one developed by the Obama administration and included in the Corker-Warner and Johnson-Crapo bills.
- The system is intended to “ensure that mortgage credit continues to be available in times of market stress for creditworthy borrowers.”
- The guarantors (Fannie, Freddie and any new entrants) would “focus on secondary market liquidity for mortgage loans to qualified borrowers, while HUD would assume primary responsibility for affordable housing objectives by providing support to low- and moderate-income families that cannot be fulfilled through traditional underwriting and other housing assistance grants and subsidies.”
Several of the proposals are non-starters with a broad range of affordable housing advocates and industry groups, including NHC, and would not have bipartisan support. These include structuring the current affordable housing fee as an on-budget, appropriated fund, and requiring FHA to have sole responsibility for low- and moderate-income mortgages, which the civil rights community considers the equivalent of “mortgage finance apartheid.” The key to compromise will be the degree of competition any new system allows or encourages between the GSEs and FHA, and the extent to which serious FHA reform – especially in its loss-mitigation functions – is part of that proposal.
The plan does not say that the GSEs shall be eliminated, placed into receivership or disabled through reduced mortgage loan limits. It does not preclude duty to serve or affordable housing regulations. This is why I called the proposal “a constructive beginning to an overdue and important discussion.” I also made clear that “NHC strongly supports the continuation of the Affordable Housing Trust Fund and the Capital Magnet Fund in their current or enhanced form, as well as clearly defined responsibilities to serve the entire market that are quantified and enforced by a strong and independent regulator in keeping with the Enterprises safety and soundness.” Resolving the gridlock over the affordable housing responsibilities of the secondary mortgage market is the primary roadblock to housing finance reform.
At my keynote address to the National Association of REALTORS® GSE roundtable on June 22, I emphasized that “we are committed to working with our members to find a new approach that can break the political gridlock that currently exists. I believe that the framework for affordable housing responsibilities agreed to in HERA was fundamentally sound, though far from perfect. We need to think outside of our long-held policy priorities because they have not worked. Not politically, and quite frankly, not on behalf of the millions of families who need affordable housing. However, any approach that does not provide for an enforceable set of responsibilities to serve the entire market of renters and qualified home buyers is not politically viable, nor should it be.”
In the months ahead, I look forward to working with our diverse membership to find common ground on these issues and help policymakers in Congress and the administration resolve the issue of housing finance reform after 10 years of conservatorship. I hope that as a member, you will join us in this work.