The Trump administration has released wide-ranging plans for housing finance reform that call for replacing the statutory housing goals of Fannie Mae and Freddie Mac with a new system and giving the Federal Housing Administration (FHA) more autonomy.
Affordable housing leaders are keeping a close eye on these proposals and others outlined in two separate plans released by the Treasury Department and the Department of Housing and Urban Development (HUD).
“It’s really a road map to government-sponsored enterprise (GSE) reform rather than a blueprint,” says David Dworkin, president and CEO of the National Housing Conference. “It includes a mix of ideological red meat for conservatives and practical suggestions and concessions to moderates and liberals. There are different paths you can take. I expect the strategy is to move forward incrementally with Congress as opposed to acting unilaterally, which the administration has enormous power to do.”
However, some moves require congressional approval, including changing the affordable housing goals of the GSEs with a more accountable mechanism.
The Treasury plan says the goals contributed to the housing crisis, which Dworkin calls a “specious claim” that has been proven false by every credible study. In addition, the housing goals were reformed in 2008 with bipartisan support and were only in operation a short time before the GSEs were placed in conservatorship and have stood up well over the years, he says.
“The housing goals language in the report is a nonstarter that undercuts the value of everything else in the paper," Dworkin says. "And let’s be clear, there’s no getting around Congress on the housing goals. They are written into the law, and the civil rights community and a broader group of housing experts, including the National Housing Conference and most of our members, have made clear we won’t accept any back-tracking on this critical element of the system.”
In another move, the administration proposes what is essentially a tax on homeowners to raise funding for HUD. “This money would be an incentive to gradually reduce HUD funding as it’s replaced, not enhanced, by this fee,” Dworkin says. “What you end up with is a net-zero increase in HUD funding over time in return for a mortgage finance system that only serves Americans who need it the least.”
The Treasury plan says a driver in rising housing costs is the lack of housing supply caused in part by regulatory barriers, including overly restrictive zoning and rent controls. It notes that some states and jurisdictions have explored expanding their rent control laws. “These laws interfere with the functioning of local housing markets, tending to decrease the supply and quality of the available housing,” says the plan. “Scarce government subsidies should not be used to offset the adverse effects of these laws.”
In response, Treasury officials say the Federal Housing Finance Agency should examine the “GSEs’ underwriting criteria for acquisitions of multifamily loans secured by properties in rent-controlled jurisdictions, perhaps prescribing lower loan-to-value ratio limits or other underwriting restrictions on these acquisitions.”
Dworkin worries that this proposal could penalize entire cities or communities that have rent controls.
On the positive side, the plan maintains support for the 30-year fixed-rate mortgage, a keystone of the mortgage market, and it also ensures there will be private capital in place to protect taxpayers, he says.
The administration also says the government should begin moving toward ending the 11-year conservatorship of Fannie Mae and Freddie Mac and develop a recapitalization plan for each. The potential privatization of the GSEs is an area that civil rights leaders will be watching.
“These two GSEs guarantee approximately one-half of all mortgages in the United States,” said Kristen Clarke, president and executive director of the Lawyers Committee for Civil Rights Under Law, in a statement. “The privatization of Fannie and Freddie has the potential to increase mortgage rates and reduce credit available to low- and moderate-income borrowers and thus widen the racial homeownership gap.”
Other housing advocates also criticize key components of the plan.
“Achieving comprehensive housing finance reform requires moving the conversation forward, not back—but the administration recycles old, tired proposals that have been refuted and rebuked. Among other unacceptable proposals, the administration would eliminate Fannie Mae and Freddie Mac’s affordable housing goals, reduce access to credit for historically underserved borrowers, and neglect to increase funding for the national Housing Trust Fund (HTF)," says Diane Yentel, president and CEO of the National Low Income Housing Coalition (NLIHC). "These efforts will be met with strong opposition from the housing and civil rights community, including NLIHC, and by bipartisan congressional leaders who understand that housing finance reform must include both enforceable and measurable mechanisms to ensure that access to credit is enjoyed by all segments of the housing market and a significant increase in funding to address the affordable housing needs of the lowest-income renters.
Yentel points out that there is a national shortage of 7 million affordable homes for the lowest-income people. Nearly 8 million of the lowest-income households are severely rent-burdened, paying more than half of their incomes on their housing, and another 500,000 people have no homes at all.
"The national Housing Trust Fund, funded through a small assessment on Fannie’s and Freddie’s books of business, was created precisely to meet this need, to fill the gap of affordable homes for the lowest-income people," she says. "Any housing finance reform effort should increase funding for the HTF to at least $3.5 billion and maintain a broad, measurable, and enforceable commitment to access and affordability throughout the housing market.”
Adrianne Todman, CEO of the National Association of Housing and Redevelopment Officials, worries the proposal could stall the American Dream for many families.
"Families should have fair access to homeownership, no matter where they live," she says. "Our housing finance system should have tools that help low- and moderate-income families and communities of color achieve homeownership and build wealth. This proposal appears to head in the opposite direction and will likely interrupt our members’ ability to help families achieve homeownership."
She adds that she's intrigued by the proposal to streamline oversight of the federal rental assistance programs and looks forward to hearing more from HUD on how this will reduce current administrative burdens on local housing providers. "We also welcome further conversation on how modifying some rules will spur the creation of more affordable units," she says.
Changes proposed at HUD
In the HUD plan, officials call for the FHA to become an autonomous corporation within HUD. “FHA needs autonomy within HUD to ensure it is able to keep pace with evolving portfolios and a dynamic, ever-changing marketplace,” say officials. “More independence would provide FHA greater control over staffing and procurement, including technology.”
The proposal also seeks to consolidate HUD’s project-based rental assistance, public housing, and Housing Choice Voucher, Rental Assistance Demonstration (RAD), and Real Estate Assessment Center functions into a new Office of Rental Subsidy and Asset Oversight. In addition, it seeks to separate the roles of the federal housing commissioner and assistant secretary of housing.
In another move, the plan calls for Congress to lift the 455,000-unit cap in the RAD program.
The HUD plan has a total of 67 recommendations, and the Treasury plan has 49. The most important thing that the reports accomplish is to reinvigorate the debate on housing finance form, says Dworkin.
“There is the ingredients for bipartisan reform here, but there are plenty of poison pills mixed in, and we need to pull those out and find out how we can agree on a sensible plan,” he says.
