The prospect of the U.S. Congress acting on housing reform this year remains unlikely. The House Democrats’ determination to formalize the impeachment inquiry into President Trump’s involvement with Ukraine and begin public hearings has further fueled a partisan divide in Congress. It threatens to foreclose any legislative action other than “must pass” items for the remainder of this Congress.
Notwithstanding the chaos around impeachment, there has been some activity around housing reform, including the House Financial Services Committee hearing on October 22, “The End of Affordable Housing? A Review of the Trump Administration’s Plans to Change Housing Finance in America.” Secretary Steven Mnuchin, Secretary Ben Carson, and Director Mark Calabria all testified. The timeline and conditions the GSEs would have to meet to end conservatorship as well as how much capital the GSEs will need were topics of the hearing. In Chairwoman Waters’ opening statement, she said the Trump Administration’s proposal to end the conservatorship of the GSEs without an explicit government guarantee would “create turmoil in the housing market, prevent many Americans from obtaining 30-year fixed rate mortgages, and block families across the country from attaining the American dream.”
The decisions on capital and conditions around exiting conservatorship are at the core of reform, and finding bipartisan solutions will be a challenge going forward. As we noted earlier, the U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) have reached an agreement to modify the Preferred Stock Purchase Agreements allowing Fannie Mae and Freddie Mac to retain $25 billion and $20 billion, respectively, in capital reserves. This is an important first step for GSEs to begin the process of exiting conservatorship. At the hearing, Director Calabria also noted that a decision is imminent on whether FHFA will reissue a capital rule that had been proposed in June 2018 outlining a framework for capital requirements for the GSEs once they have exited conservatorship.
In addition to the House Financial Services Committee hearing, the FHFA released its 2019 Strategic Plan for Fannie Mae and Freddie Mac and a new 2020 Scorecard for Fannie Mae, Freddie Mac and Common Securitization Solutions on October 28, 2019. The strategic plan outlines the steps that FHFA, as conservator of the GSEs, intends to take to strengthen the housing finance system and prepare for bringing conservatorship of the GSEs to an end. Similarly, the scorecard “aligns tactical priorities and execution at the Enterprises to the Strategic Plan and serves as an essential tool in holding the Enterprises accountable for its effective implementation.”
With limited legislative days left in the year, we expect the impeachment inquiry to remain at the forefront of the congressional agenda and for issues such as GSE reform to be pushed to the backburner. We will continue to track and report on updates related to housing reform as they occur.
