Yesterday, Treasury and HUD released housing finance reform plans in direct response to President Trump’s March memorandum instructing both Departments to undertake administrative and legislative housing finance system reforms “to reduce taxpayer risks, expand the private sector’s role, modernize government housing programs, and make sustainable home ownership for American families our benchmark of success.”
Trump Administration recommendations for Fannie Mae and Freddie Mac and Federal Housing Administration (FHA) include the following notable changes that would impact affordable housing:
- Ending conservatorship with GSE recapitalization which would allow private capital to take a first-loss position on the GSEs’ exposure to risk and loss
- Replacement of the GSEs’ statutory affordable housing goals with a mechanism to deliver support to first-time homebuyers, low-and moderate income rural and other historically underserved borrowers
- Reviewing GSEs’ underwriting criteria for multifamily loans in jurisdictions with rent-control laws or other “impediments to housing development” (New York & Oregon’s recent rent law changes are both mentioned)
- Restructuring FHA as an autonomous corporation within HUD
- Separating the mortgage insurance from rental subsidy administration within FHA
- Lifting the 455,000-unit cap in the Rental Assistance Demonstration program
The Treasury Reform Plan includes nearly 50 recommended legislative and administrative reforms to define a limited role for the Federal Government in the housing finance system, enhance taxpayer protections against future bailouts, and promote competition in the housing finance system. The Treasury Plan also addresses barriers to multifamily affordable housing. One barrier it explicitly identifies is recent state legislative actions that the rental income on multifamily properties saying these laws also increase the credit and other risks associated with Government-sponsored enterprises (GSEs) acquired loans that are secured by multifamily properties in rent-controlled jurisdictions. The report states, “These laws interfere with the functioning of local housing markets, tending to decrease the supply and quality of the available housing. Scarce Government subsidies should not be used to offset the adverse effects of these laws.” The Treasury recommends FHFA should revisit the GSEs’ underwriting criteria for acquisitions of multifamily loans secured by properties in jurisdictions that adopt rent-control laws or other “undue impediments to housing development”.
HUD’s Reform Plan includes a broad list of 67 proposed policy changes, some of which require action from Congress. HUD plays an integral role in the nation’s housing finance system, primarily via Federal Housing Administration (FHA). FHA provides credit enhancement and regulatory oversight for a portfolio exceeding $1.4 trillion insuring 8.1 million single family forward mortgages, nearly half a million reverse mortgages and 15,000 multifamily and healthcare properties. In addition, the Government National Mortgage Association (Ginnie Mae) guarantees more than $2 trillion in mortgage-backed securities, with the full faith and credit of the United States of America. The symbiosis between the government-insured mortgage programs at FHA, the USDA, and the VA – with GNMA-guaranteed MBS – contributes to lower-cost mortgage credit and more affordable homeownership opportunities for creditworthy American borrowers.
HousingWire wrote about the release yesterday with experts commenting on the challenges of these reforms being adopted. Maxine Waters, Chair of the House Committee for Financial Services, remarked in a statement that the proposed reforms would “diminish opportunities for homeownership, increase housing costs, or make housing less available”.