Treasury Secretary Steven Mnuchin confirmed Monday what we already knew: Reform of the government-sponsored enterprises isn’t happening this year.
Still, Mnuchin remained bullish about prospects for picking up the debate in 2019.
“We'll come back to this next year and this will be a big focus of mine post the elections,” he told Fox Business in an interview. “I’m determined that we have a fix to the GSEs and don’t leave them in conservatorship for the rest of time.”
This may prove to be wishful thinking.
It’s true that the Trump administration has the opportunity to nominate a new director to the Federal Housing Finance Agency to replace Mel Watt, whose term expires in January. And a new FHFA chief could impose a number of changes on Fannie Mae and Freddie Mac — not the least of which might involve cutting off affordable housing contributions or even more structural changes to the entities.
But doing so will still take time, not to mention the ability to confirm a nominee. Under the Housing and Economic Recovery Act, Watt can remain in his position until a successor is appointed. Given the slow pace in assembling a financial regulatory team up to this point — with vacancies still pending at the Federal Reserve, the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp. — there’s no indication that this will be an immediate priority for the White House or Congress.
More crucially, the Trump administration appears, at least for now, to be pushing for a legislative overhaul of the GSEs.
“What gets done here will need to be done on a bipartisan basis,” Mnuchin said on Monday. Earlier this year, he underscored that he has a “strong preference” to work with Congress to address the housing finance system rather than pursuing administrative changes.
Supporters of this approach have argued that it offers the cleanest, most viable way to transform the system and ensure a stable transition.
The problem is that Congress hasn’t been able to advance a plan to overhaul the GSEs for nearly a decade. The threat of FHFA action could very well put discussions back on the table, but that doesn’t mitigate the fact that lawmakers have yet to reach even a broad consensus about what a future system might look actually like.
The last bipartisan effort occurred in 2014, and though it made it out of the Senate Banking Committee, it lacked support to make it to the full Senate. Lawmakers have been trying again since last year, but it’s notable that they haven’t even made it as far as the previous effort. Negotiations between Banking Committee Chairman Mike Crapo and key Democrats have yet to yield the formal introduction of a bill after a draft was leaked earlier this year.
Even without the possibility of a wave election — Democrats have decent odds at reclaiming the House and at least a slim shot at winning a Senate majority — there’s no reason to believe this political stalemate is going to get worked out anytime soon.
Bankshot is American Banker’s column for real-time analysis of today's news.