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What’s Next for Housing Finance Reform?

TV personality Geraldo Rivera made waves in 1986 when it was announced that he would be opening Al Capone’s secret Chicago vault. Speculation ran rampant as to what could be inside it.

More than 30 million viewers tuned in on April 21, 1986. A forensics examiner was even on hand in the event a body was found.

What was found? Dirt and some empty bottles. Not exactly what the millions of viewers, or Rivera for that matter, wanted to see.

While it may not be mob secrets, the housing industry has been anticipating the release of the U.S. Department of the Treasury's plan to reform housing finance.

Their reaction now that is has been release? Much like those who tuned into Rivera’s special—seeking more.

“It still leaves all the work to be done,” said David Stevens, former Federal Housing Commissioner and former President and CEO of the Mortgage Bankers Association

Stevens noted that the plan did a good job of providing options and applauded the push for legislative changes, as he said that is the only way to create permanent changes.

He added that the plan is aligned with many of the talking points the Trump administration has discussed over the past three years. A model presented by U.S. Senator (R-Idaho) Mike Crapo, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, was leaned on, as it focused on a multi-guarantor model, giving more competition to the GSEs, and provide a level playing field for all lenders.

What the plan is missing, Stevens said, is numbers. He said there are no specific numbers and plans for how to get out of conservatorship, although providing several options. One of the options outline was putting the GSEs in receivership, which would liquidate the shareholders.

“I applaud the administration for putting this together … it is more fulsome than anything that was done by the previous administration, but it still essentially lays out the contours for what has to happen, and with the aggressive lean into legislation, which I frankly think has no possible prospect of happening, at least before the next presidential election,” Stevens said. “I still maintain my expectation is that people will use this paper to debate and discuss but beyond some administration actions Mark Calabria (FHFA Director) might do, I don’t know what else might happen that is significant.”

Thursday’s release from the Treasury states President Donald Trump issued a Presidential Memorandum on March 27, 2019, directing the Secretary of the Treasury to develop a plan to address the “last unfinished business of the financial crisis.”

“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 of Housing and Urban Development Ben Carson in a release. “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.”

Michael Fontaine, COO and CFO of Plaza Home Mortgage, echoes Stevens’ sentiments. He said the plan will keep the GSEs in place in some form to not disrupt the housing market. Fontaine said there is a lot of concept and “high level” ideas, but no details on how to execute them.

 One of the plans that lacked details, according to Fontaine, was the possibility of eliminating the QM patch for GSEs for loans over 43 DTI. However, if there is no alternative, Fontaine said, it could limit access to credit for a lot of consumers, as the GSE handles many loans over 43 DTI.

“There’s no details behind that,” Fontaine said.

Stevens said the one “significant action” that could take place is a 5th amendment to the Preferred Stock Purchase Agreement, which would modify the net earnings, and put in place a new commitment fee as an alternative.

Stevens, though, noted Calabria is an independent regulator and not part of the Trump administration, and will make his own decisions about moving forward.

Treasury Secretary Steve Mnuchin, Carson, and Calabria will be present at Tuesday’s Senate Banking Committee meeting. Both Stevens and Fontaine agreed that they hope to hear details discussed during that meeting.

“Nothing’s easy in government. This is a very complicated project” Stevens said.

Fontaine said, “there is not enough agreement out there,” and noted there is very little that the U.S. Congress and the Trump administration agree on.

Stevens said any proposed legislation has a chance of getting through the Republican-controlled U.S. Senate, but had little hope of anything being approved by the House.

David Dworkin, President and CEO of the National Housing Conference, said in a release that the plan submitted by the Trump administration “has many roads, but there is a viable path forward if Congress is engaged in true bipartisan change.”

“If taken, we can finally move forward with a housing finance system that serves all Americans without putting taxpayers at risk of another bailout,” Dworkin said

Dworkin said the report does include a “major dead end” that makes bipartisan agreement impossible.

“The housing goals language in the report is a non-starter that undercuts the value of everything else in the paper. And let’s be clear, there’s no getting around Congress on the housing goals,” Dworkin said. “They are written into the law and the civil rights community and a broader group of housing experts, including the National Housing Conference and most of our members have made clear, we won’t accept any back-tracking on this critical element of the system.”

Further compounding the issue is the upcoming election, as President Trump is ramping up re-election efforts.

Fontaine noted there could be changes in both Congress and in the White House, which could leave the plan stalled and the industry “starting back over at ground zero.”

Stevens said Washington is approaching what he called the “silly season” as the election cycle nears, with very little movement on legislation happening during that time. And even if there was movement, he said GSE reform isn’t a high priority among voters.

“No voter is saying, ‘hey, we need GSE reform.’ It’s not an issue,” Stevens said. “And the housing market is one of the few bright spots in a weakening economy.”

Stevens gave legislative action little chance to be effective and is “bearish” on this plan ending conservatorship among the GSEs.

“I applaud the administration for taking these steps. I think directionally it says all the right things,” he said. “I just think substantively, to execute against this plan, is going to require more of a herculean effort, and it would require the full weight of the white house to even give it a shot.”

For Fontaine, the answer was simple when asked if he felt this plan could end conservatorship. 

“I don’t know if I'd want to bet on it.”

About Author: Mike Albanese

Mike Albanese is a reporter for DS News and MReport. He is a University of Alabama graduate with a degree in journalism and a minor in communications. He has worked for publications—both print and online—covering numerous beats. A Connecticut native, Albanese currently resides in Lewisville.

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