More Changes Could Be Coming For Housing

Good, Bad, or Ugly: You Decide

The Trump Administration rolled out its plan to reorganize the federal government. The proposal is partially the work of Office of Management and Budget Director and the acting head of the CFPB Mick Mulvaney, but the Administration does admit the blueprint for the reorganization was actually produced by the Heritage Foundation. 

Prior to its release, the media’s attention was focused on the rumored plans to combine the cabinet level Departments of Labor and Education into a single unit called the Department of Education and the Workforce.  The explanation for this change is the need to meet needs of American students and workers from education and skills development to workplace protection to retirement security.

The release of the plan highlights several changes which will affect housing and housing finance.  High on the list, which does seem to be in some sort of order of priority, is to move the USDA rural housing loan guarantee and rental assistance programs to the Department of Housing and Urban Development (HUD).  The government’s justifications for this proposal include that the agencies operate similar programs to support rental housing rehab and development, to insure mortgages for home purchase and refinance, and subsidize rents for low-income tenants.  The two programs however, are not identical.  There are differences in eligibility, assistance levels, delivery and oversight and other features.  With the programs housed in separate agencies with different missions, establishing a unified housing policy has been difficult. 

According to the New York Times, a proposal to shift VA housing programs to HUD as well was considered and rejected.

Another supposed rumor had $3 billion in the Community Development Block Grant program removed from HUD and transferred to the Department of Commerce.  Mulvaney had zeroed out funding for the program earlier this year but the Senate restored the funds. 

The plan also takes a look at the fates of Fannie Mae and Freddie Mac (the GSEs) in a discussion of reforming the federal role in mortgage finance. The government’s support of the housing market is called a complex system of federal subsidies and programs intended to make mortgage financing accessible to a wide range of homebuyers but also a system that is challenged by the operation of the GSEs which have been in government conservatorship since 2008.

It proposes to transition the GSEs into fully private entities and ensure that there will be competition to the roles they play in order to decrease moral hazard and risk to the taxpayer. This is a bit of a slippery slope, a little government oversight would help ensure a certain level of fair play in the industry. The GSEs and any other competitive entities would have access to an explicit federal guarantee for mortgage-backed securities that they issue, a guarantee that is only exposed in “limited and exigent circumstances.” The guarantee would be on-budget and fully paid-for.  The proposal says this would increase the government’s transparency and accountability and minimize the risk of taxpayer-funded bailouts but still provide support for homeowners.

This proposal is similar to some that have come out of the appropriate committees in both the House and the Senate, so perhaps the administration’s endorsement will move it along.

Other changes are proposed for HUD’s rental assistance programs, but they are longer on rhetoric than specifics.

Washington insiders have declared the plan “dead-on-arrival.” Many in Congress will be reluctant to give up their oversight of departments and agencies that are being downsized or eliminated, and special interest groups, including those that represent federal employees and industries that will be affected by the changes are expected to mount vigorous opposition to many parts of the plan.

*This article does not represent legal interpretation or advice. This is not a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Seattle Mortgage Brokers, LLC  NMLS: LO# 305371 MB# 761615