Housing finance reform next on to-do list for Trump and Congress

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WASHINGTON — The White House and congressional GOP leaders are eyeing a tight window between tax reform passage and the 2018 midterms to pass housing finance reform.

And with key policymakers readying their exit, the effort could be the most concerted push yet.

Whether a deal on the government-sponsored enterprises can be reached — a prospect that, unlike tax reform, requires Democratic help — is unclear. There have been several efforts in the more than nine years since Fannie and Freddie were taken into conservatorship, and the last serious one collapsed in 2014.

From left: Sens. Mike Crapo, Jeb Hensarling and Bob Corker.

But some industry observers are more optimistic that a deal can be made next year. They point to a number of factors, including that several prominent players are soon moving on — and may want a deal before they go. That includes House Financial Services Committee Chairman Jeb Hensarling, R-Tex., and Sen. Bob Corker, R-Tenn., both of whom retire at the end of next year.

“It does line up a lot of important folks who may well want to finish strong on something they care a good bit about,” said Jim Parrott, owner of Falling Creek Advisors and a former housing adviser to President Barack Obama. “Add to that the increasing realization among progressives that the status quo is going to give way dramatically in 2019 with the departure of [Federal Housing Finance Agency Director] Mel Watt, and you would appear to have the stars aligning for the strongest run at reform we’ve seen to date.”

Policymakers also face a deadline of sorts. Fannie and Freddie are set to run out of capital next year and would have to draw on Treasury if they suffered quarterly losses, a move that could spook the mortgage market. Lawmakers are hoping to cut a deal before that happens.

Though the Senate Banking Committee right now is trying to push through a regulatory relief bill, Chairman Mike Crapo is optimistic that a deal on housing finance reform could be in the offing.

“My hope is that we will have the legislative language long before the end of the year,” Crapo said in an interview last week.

He said the tax reform push is not slowing down a deal as he negotiates with Sen. Sherrod Brown, D-Ohio, on the issue. But finding time to debate it in the full chamber could be difficult.

“At the committee level, we don’t have to delay working on any of the banking issues while we do tax reform, but in terms of floor time it is going to be difficult between now and the end of the year,” Crapo added.

Crapo successfully cut a deal with nine Democrats and nine Republicans on the regulatory relief legislation, which was unveiled earlier this week — and that agreement could provide a road map for housing finance reform.

Several senators involved in the reg relief deal were key players in the last attempt at reforming the GSEs, including Sen. Mark Warner, D-Va.

“There remain several members and staff in both chambers and both parties who are committed to housing finance reform, so we expect that such reform will remain a priority for both Congress and the administration,” said Eric Kaplan, director of the housing finance program at the Milken Institute.

While Crapo hopes to have a deal this year, the administration has said the issue can’t be realistically tackled until next year, when it hopes to have tax reform finished.

“Given where we are on taxes, I think realistically this is now a 2018 issue,” Treasury Secretary Steven Mnuchin said earlier this year. He added, however, that reforming Fannie and Freddie “is something that since the day I got in office I said I was determined to do.”

The hope for some stakeholders is that housing finance reform debate could be less politically charged than other policy issues such as health care and taxes, but the upcoming mid-term elections could present an unofficial deadline.

“You likely have an abbreviated legislative window next year,” said Michael Calhoun, president of the Center for Responsible Lending. “There is a narrow window for legislative action next year given the abbreviated session and just given the complexity and number of stakeholders” involved.

One of the hangups in 2014 was that many Democrats weren’t satisfied with the affordable housing component of the Johnson-Crapo plan, which passed out of committee but languished as then-Senate Majority Leader Harry Reid, D-Nev., never brought the bill up for a vote.

This time around, discussions are unfolding differently, which could be crucial to bringing along needed Democrats, Calhoun said.

“What you are seeing now is the discussions are starting with ‘Well, let’s make sure that the structure of this plan furthers sustainable and affordable access and that needs to be a key component and not an add-on feature,’ ” Calhoun said.

It seems likely that Crapo will pursue a revamped version of the last plan, which would have eliminated Fannie and Freddie and replaced them with private entities backed by a government guarantee against catastrophic loss. That idea was pushed in 2013 by Corker and Warner, both of whom are still on the committee.

And the Trump administration, at least so far, has sounded philosophically aligned with such an approach. Craig Phillips, a top adviser to Mnuchin, told credit union executives in September that “we think the right approach is to consider an explicit, paid-for, full-faith and -credit guarantee for federally sponsored mortgage-backed securities with added protections on the front of that guarantee to make it really usable when you are in very exigent circumstances.”

Phillips called the 30-year fixed-rate mortgage “very important.”

Less clear is how Hensarling fits in. He has pushed a free-market approach with far less government support. The plan put forward by the Texas Republican in 2013 would have reduced the Federal Housing Administration’s share of the housing market and dissolved Fannie and Freddie, with private lenders filling the void. There was no explicit government guarantee beyond that of FHA.

With Hensarling’s exit approaching, some said he might be open to compromise.

Yet others aren’t convinced. Glen Corso, president and chief executive of the Community Mortgage Lenders of America, said it’s all speculative until there is some kind of deal on paper.

“We have yet to see that the House and Senate are on the same page with respect to a list of issues with respect to GSE reform. Unless there is that sort of broad agreement, it’s hard to see [housing finance] reform getting done,” Corso said.

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Housing finance reform GSEs GSE reform Mike Crapo Jeb Hensarling Fannie Mae Freddie Mac
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