Updates in Housing Finance Reform and HUD
Here is a roundup of recent news in the housing finance industry. The Trump administration released its 2018 federal budget proposal for the U.S. Department of Housing and Urban Development (HUD), Federal Housing Finance Agency (FHFA) Director Mel Watt and Treasury Secretary Steven Mnuchin testified before the U.S. Senate on potential GSE reform, USMI and numerous other housing industry groups voiced their support for the nomination of Pam Patenaude to serve as Deputy Secretary of HUD, and several third party groups released white papers on access to affordable mortgage credit and housing finance reform.
- Trump Administration Releases 2018 Federal Budget Proposal for HUD. The Trump administration released its 2018 federal budget proposal for HUD, which includes $6.2 billion – or 13.2 percent – in cuts to the agency. The cuts would be implemented through rental assistance reforms, the elimination of funding for certain programs, and through the streamlining of internal operations. The budget includes $160 million for the Federal Housing Administration (FHA) to improve risk management and program support processes, and would also provide $30 million towards modernizing the FHA’s system and updating its programming language.
- FHFA Director Watt Calls for GSE Reform. In testimony before the Senate Committee on Banking, Housing and Urban Affairs, FHFA Director Mel Watt called for Fannie Mae and Freddie Mac (the “GSEs”) to be taken out of government conservatorship as soon as possible. Watt warned of future potential GSE draws on the line of credit at Treasury as the GSEs currently have a very limited capital buffer and are scheduled to go to zero capital in 2018. Watt expressly noted that Congress should be responsible for achieving housing finance reform, not the FHFA.
- Treasury Secretary Mnuchin Testifies in Senate. Treasury Secretary Steven Mnuchin testified before the Senate Committee on Banking, Housing and Urban Affairs where he too was questioned on the topic of housing finance reform. Mnuchin said that GSE reform would be a priority in the second half of the year for the Trump administration and noted that he and the administration would work with Congress on reform efforts. Notably, Mnuchin stated that he expects the GSEs to continue to pay dividends to the Treasury Department despite statements made the previous week by FHFA Director Watt, who said he might allow the GSEs to retain profits in order to build capital buffers against potential future losses.
- Housing Industry Groups Support Pam Patenaude’s Nomination to HUD. Numerous housing industry associations expressed their support for the Trump administration’s nomination of Pam Patenaude as Deputy Secretary of HUD, including Mortgage Bankers Association (MBA), National Association of Realtors (NAR), National Association of Home Builders (NAHB), and National Fair Housing Alliance (NFHA), among others. In a letter provided to Senate Banking Committee members last week, USMI similarly voiced its support for Patenaude’s nomination. USMI’s Chairman Patrick Sinks, President and CEO of MGIC, said of the nomination:“USMI encourages members of the Senate Banking Committee to approve Mrs. Patenaude’s nomination and to move it expeditiously to the Senate floor… Mrs. Patenaude understands the housing finance system and the need for a coordinated, consistent and transparent approach to federal housing policy across government channels. Her leadership on these important issues will ensure that Americans have greater access to mortgage finance credit for borrowers, while at the same time, increasing private capital in mortgage finance and reducing taxpayer risk exposure.”
- New GSE Reform Proposals Released by Third Party Groups. In the last week, several organizations interested in GSE matters released white papers on housing finance reform for policymakers and industry stakeholders to consider. These groups include the Bipartisan Policy Center, the Milken Institute, and Moelis & Co. LLC.