The Trump Administration released its plan to end the federal conservatorship of the government-sponsored enterprises (GSE), offering a mix of reforms that could be enacted by both the legislative and executive branches of government.
“The housing finance system is in serious need of reform,” the proposal stated. “The GSEs remain in conservatorship more than 10 years after the financial crisis, and they continue to be the dominant participants in the housing finance system. Although they remain critical to the functioning of that system, they are not yet subject to capital and other regulatory requirements tailored to the risks they pose to financial stability. This lack of reform has left taxpayers exposed to future bailouts.”
“The Trump Administration is committed to promoting much needed reforms to the housing finance system that will protect taxpayers and help Americans who want to buy a home,” said Treasury Secretary Steven Mnuchin. “An effective and efficient federal housing finance system will also meaningfully contribute to the continued economic growth under this Administration.”
HUD Secretary Ben Carson noted the proposal would achieve four key goals sought by his Department: A refocusing of the Federal Housing Administration (FHA) back to its core mission, the protection of taxpayers from being forced to finance bailouts of major lenders, the ability for the FHA and Ginnie Mae to better manage risk and a reliable liquidity source for the housing finance system.
“As a direct result of the Trump Administration’s pro-growth policies, unemployment is at 50-year low and American families are earning higher incomes and enjoying more opportunities than seemed possible just a few years ago,” said Secretary Ben Carson. “There is still one piece of unfinished business from the financial crisis: housing finance reform. These changes to our housing finance system will help more American families achieve their dream of owning a home.”
“Although Treasury does not believe a government guarantee is required, Treasury would support legislation that authorizes an explicit, paid-for guarantee backed by the full faith and credit of the federal government,” the plan stated.
However, the chances for bipartisan support for the proposal were quickly put in doubt by Sen. Sherrod Brown (D-OH), ranking member of the Senate Banking Committee, who issued a statement claiming the plan “will make mortgages more expensive and harder to get.”
“MBA looks forward to working with the Administration, Congress, and regulators as they address the large number of issues identified in the reports, including the appropriate role the GSEs play in the single-family and multifamily markets,” Broeksmit said. Housing is a critical piece of the American economy, and reform efforts must ensure the uninterrupted flow of affordable mortgage credit for qualified borrowers through all economic cycles and in all parts of the country.”
“The ramifications of these plans, their agendas, and execution—and the pivotal question of how Congress responds—will dramatically impact how we finance homeownership for the next generation,” he said. “The significance cannot be overstated. We are poring through the plans and will spend the coming weeks and months collaborating with industry and government stakeholders on the details and rollout. This is no longer an academic or speculative exercise—the final push for comprehensive housing finance reform is now here.”
“The Treasury proposals to level the playing field between the GSEs and private-label securitization (PLS) would likely create a larger, more diverse PLS market,” Forster said. “Existing and new PLS sponsors would step in to finance at least a portion of mortgages that the GSEs no longer compete as strongly for or stop targeting, such as cash-out refinancings or investor loans. The influx would likely introduce riskier pools or shelves into the issuance mix.”