Weekly update from the National Housing Conference
June 26, 2018
President's Message I By David M. Dworkin
Dear Friend,

Last week, the Trump administration surprised many in the housing industry by including a plan for housing finance reform, hidden deep within the Office of Management and Budget’s federal reorganization proposal. Unlike the reorganization proposal, which focused on far-right, pie-in-the-sky ideas like merging the departments of Labor and Education, the housing finance proposal was carefully written and measured.
While there were many unanswered questions that raised reasonable concerns among affordable housing advocates, including myself, I found the restraint in leaving these issues off the table for now noteworthy. In many ways, I found the plan even more illuminating for what it did not say as for what it did. Some elements of the proposal I found particularly interesting:

  • The government sponsored enterprises (GSEs) would be released from conservatorship and their federal charters would be eliminated with no exit fee requirement other than capitalizing to the level required by the new regulatory entity.
  • The GSEs, and others if the market creates them, would have access to a full faith and credit guarantee of mortgage-backed securities issued for a fee to cover the first segment of tail risk.
  • The creation of a mortgage fee that would be charged to capitalize an insurance fund to protect taxpayers against the second segment of tail risk, similar to the one developed by the Obama administration and included in the Corker-Warner and Johnson-Crapo bills.
  • The system is intended to “ensure that mortgage credit continues to be available in times of market stress for creditworthy borrowers.”
  • The guarantors (Fannie, Freddie and any new entrants) would “focus on secondary market liquidity for mortgage loans to qualified borrowers, while HUD would assume primary responsibility for affordable housing objectives by providing support to low- and moderate-income families that cannot be fulfilled through traditional underwriting and other housing assistance grants and subsidies.”

Several of the proposals are non-starters with a broad range of affordable housing advocates and industry groups, including NHC, and would not have bipartisan support. These include structuring the current affordable housing fee as an on-budget, appropriated fund, and requiring FHA to have sole responsibility for low- and moderate-income mortgages, which the civil rights community considers the equivalent of “mortgage finance apartheid.” The key to compromise will be the degree of competition any new system allows or encourages between the GSEs and FHA, and the extent to which serious FHA reform – especially in its loss-mitigation functions – is part of that proposal.

The plan does not say that the GSEs shall be eliminated, placed into receivership or disabled through reduced mortgage loan limits. It does not preclude duty to serve or affordable housing regulations. This is why I called the proposal “a constructive beginning to an overdue and important discussion.” I also made clear that “NHC strongly supports the continuation of the Affordable Housing Trust Fund and the Capital Magnet Fund in their current or enhanced form, as well as clearly defined responsibilities to serve the entire market that are quantified and enforced by a strong and independent regulator in keeping with the Enterprises safety and soundness.” Resolving the gridlock over the affordable housing responsibilities of the secondary mortgage market is the primary roadblock to housing finance reform.

At my keynote address to the National Association of REALTORS® GSE roundtable on June 22, I emphasized that “we are committed to working with our members to find a new approach that can break the political gridlock that currently exists. I believe that the framework for affordable housing responsibilities agreed to in HERA was fundamentally sound, though far from perfect. We need to think outside of our long-held policy priorities because they have not worked. Not politically, and quite frankly, not on behalf of the millions of families who need affordable housing. However, any approach that does not provide for an enforceable set of responsibilities to serve the entire market of renters and qualified home buyers is not politically viable, nor should it be.”

In the months ahead, I look forward to working with our diverse membership to find common ground on these issues and help policymakers in Congress and the administration resolve the issue of housing finance reform after 10 years of conservatorship. I hope that as a member, you will join us in this work.

David M. Dworkin
President and CEO
News from Washington I By Kaitlyn Snyder &
Grant Kirkpatrick
OMB releases GSE reform proposal

The Office of Management and Budget (OMB) has unveiled a new proposal to overhaul the federal government, which includes several provisions that would impact affordable housing and community development programs. The proposal includes plans to reform the federal housing finance system, including ending the conservatorship of government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, providing an explicit federal backstop and focusing the GSEs on secondary market liquidity for mortgage loans to qualified borrowers. Several NHC members, including the National Low Income Housing Coalition, Zigas Associates and the Mortgage Bankers Association have commented on the proposal. NHC’s comments are available here. 
New legislation introduced to strengthen Historic Rehabilitation Tax Credit

New legislation has been introduced to “strengthen the Historic Rehabilitation Tax Credit (HTC) and reduce the administrative burden associated with the program.” This legislation eliminates the existing basis-adjustment requirement, which could encourage investment and enhance the effect of the program. According to Sen. Ben Cardin (D-Md.), a co-sponsor of the legislation, the legislation will “create jobs by continuing to preserve the abundant history in Maryland and across America.” Sen. Collins (R-Maine), who joined Sen. Cassidy (R-La.) in co-sponsoring the bill, added that she has, “long supported the Historic Tax Credit, a proven tool for revitalizing communities….” Similar legislation was also introduced onto the House floor by Representatives Darin LaHood (R-Ill.) and Earl Blumenauer (D-Ore.). 
New FHA commissioner to address FHA premiums, other issues

The American Banker featured an analysis of major issues confronting the new Commissioner of the Federal Housing Administration (FHA). New FHA Commissioner Brian Montgomery is facing pressure to revive an Obama administration proposal to cut premiums by 25 basis points. FHA is required by statute to maintain a 2 percent capital ratio. The current capital ratio is 2.06 percent and the latest audit report does not account for losses from last year’s hurricane season. NHC President and CEO David Dworkin told the American Banker, “If the fund isn’t strong enough to lower the premiums now, then [FHA leadership] needs to identify the specific reforms that are needed that will strengthen the fund so that they can be lowered in the future.”
HUD seeking public comment on rule change regarding disparate impact

HUD announced that it will seek public comment on whether the 2013 Disparate Impact Rule conflicts with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project. HUD released an advanced notice of proposed rulemaking (ANPR) which includes six questions for public comment. The ANPR requests comments on “the disparate impact standard set forth in the final rule and supplement, the burden-shifting approach, the relevant definitions, the causation standard, and whether changes to these or other provisions of the rule would be appropriate.” Comment letters are due August 20, 2018. NHC will prepare a detailed comment letter, which will be the subject of our July Policy Committee meeting.  
Ginnie Mae releases new strategic plan

The Government National Mortgage Association (Ginnie Mae) released its strategic plan, “ Ginnie Mae 2020.” The report describes how Ginnie Mae is “investing in improvements and organizing our efforts around three pillars of progress: modernizing the MBS Program and platform, enhancing the management of counterparty risk, and demonstrating the ability to innovate.” Technology modernization is a key element of the proposal. The report notes that its “modernization efforts have focused on streamlining our users’ experience and access to the program and platform, updating data protocols and storage, and facilitating the use of digital collateral.” The report also says that Ginnie Mae is considering new approaches to its traditional servicing model. However, it notes that “statutory or regulatory change might have to occur before new types of entities could own MSRs. And we would need to ensure that capital from nontraditional sources was available on terms that promote stability and discourage large-scale withdrawal of capital in times of stress.” 
Housing activity down in April

Housing activity was down in April, with declining housing starts, new home sales and existing home sales, according to Fannie Mae’s June Economic and Housing Outlook Report. “The for-sale inventory of existing homes has remained below year-ago levels for nearly three years. Inventory shortages are impeding sales, but demand appears to be strong as homes are selling fast, with properties typically staying on the market for only 26 days in April, the shortest duration since the series began in 2011,” Fannie Mae’s Economic and Strategic Research (ESR) Group reports. “Tight inventory continues to boost prices in the presence of strong demand. Main measures of home prices—the S&P CoreLogic Case-Shiller, CoreLogic and FHFA home price indices—showed strong increases in the first quarter, pushing annual gains to between 6.4 percent and 6.9 percent for the nation. While the strength in home prices has restrained home purchase affordability and sales, it helped increase household net worth (assets minus liabilities) during the first quarter to $100 trillion for the first time, as gains in real estate wealth and other components outweighed the first drop in stock market wealth in 10 quarters.” The report noted that while Home builders’ confidence has remained historically high, “builders continue to face headwinds from rising costs. The median size of new homes sold has been declining in recent years, as builders have focused on smaller homes to meet rising demand from entry-level buyers. However, the record-high cost of lumber has pressured profit margins, making it more difficult to produce relatively modest-priced homes.”
Senate rejects White House rescissions package

Last week, the Senate voted down President Trump’s rescissions package. The package, which was authored by OMB, sought to rescind approximately $15 billion in “unspent funds”. The package was narrowly approved by the House, but was unable to find similar support in the Senate, which voted down the package 48-50. Democrats were united in opposition to the package and were joined by two Republicans – Senators Burr and Collins. Failure to approve the package by June 22, means it will now require 60 votes to be considered, effectively killing it. Rescissions are seldom used; the last use was during the Clinton administration. NHC’s  statement on the Senate vote is available on our website.
HUD Sec. Carson to testify at June 27 oversight hearing

The House Financial Services Committee will hold a HUD oversight hearing on June 27 at 10 a.m. ET. HUD Sec. Ben Carson will be the hearing’s sole witness. The hearing will take place in Room 2128 of the Rayburn House Office Building and will be broadcast live at this address. 
The National Housing Conference has been defending the American Home since 1931. Everyone in America should have equal opportunity to live in a quality, affordable home in a thriving community. NHC convenes and collaborates with our diverse membership and the broader housing and community development sectors to advance our policy, research and communications initiatives to effect positive change at the federal, state and local levels. Politically diverse and nonpartisan, NHC is a 501(c)3 nonprofit organization.
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