Two high-level officials in the Treasury Department recently posted Housing Finance Reform: Access and Affordability Going Forward. It highlighted principles that should guide housing finance reform going forward. It opened,
Access to affordable housing serves as a cornerstone of economic security for millions of Americans. The purchase of a home is the largest and most significant financial transaction in the lives of many households. Access to credit and affordable rental housing defines when young adults start their own households and gives growing families options in choosing the quality and location of their homes. Homeownership can be an opportunity to build wealth, placing a college education within reach and helping older Americans attain a secure retirement. Whether they are aware of it or not, some of the most momentous decisions American families make are shaped by how the housing finance system serves them.
Financial reform has sought to reorient financial institutions to their core mission of supporting the real economy. The great unfinished business of financial reform is refocusing the housing finance system toward better meeting the needs of American families. How policymakers address this challenge will be the critical test for any model for housing finance reform. The most fundamental question any future system must answer is this: Are we providing more American households with greater and more sustainable access to affordable homes to rent or own? It is through this lens that we will assess the performance of the current marketplace and evaluate a set of policy considerations for addressing access and affordability in a future system. (1-2)
These principles of access and affordability have guided federal housing finance policy for quite some time, particularly in Democratic administrations. They now appear to fallen by the wayside as Republicans control both the Executive and Legislative branches.
President-Elect Trump has not yet outlined his thinking on housing finance reform. And the Republican Party Platform is somewhat vague on the topic as well. But it does give some guidance as to where we are headed:
We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders, and avoid future taxpayer bailouts. Reforms should provide clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices. Compliance with regulatory standards should constitute a legal safe harbor to guard against opportunistic litigation by trial lawyers.
We call for a comprehensive review of federal regulations, especially those dealing with the environment, that make it harder and more costly for Americans to rent, buy, or sell homes.
For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current Administration and Democrats have prevented any effort to reform them. Their corrupt business model lets shareholders and executives reap huge profits while the taxpayers cover all loses. The utility of both agencies should be reconsidered as a Republican administration clears away the jumble of subsidies and controls that complicate and distort home-buying.
The Federal Housing Administration, which provides taxpayer-backed guarantees in the mortgage market, should no longer support high-income individuals, and the public should not be financially exposed by risks taken by FHA officials. We will end the government mandates that required Fannie Mae, Freddie Mac, and federally-insured banks to satisfy lending quotas to specific groups. Discrimination should have no place in the mortgage industry.
Turning those broad statements into policies, we are likely to see some or all of the following on the agenda for housing finance reform:
- a phasing out of Fannie Mae and Freddie Mac, perhaps via some version of Hensarling’s PATH Act;
- a significant change to Dodd-Frank’s regulation of mortgage origination as well as a full frontal assault on the Consumer Financial Protection Bureau;
- a dramatic reduction in the FHA’s footprint in the mortgage market; and
- a rescinding of Obama’s Affirmatively Furthering Fair Housing Executive Order.
Some are already arguing that Trump and Congress will take a more pragmatic approach to reforming the housing finance system than what is outlined in the Republican platform. I think it is more honest to say that we just don’t know yet what the new normal is going to be.