Democratic leadership in both the House and Senate had planned for a perfectly choreographed path to pass President Biden’s legislative agenda, anticipating some obstacles along the way. However, instead of obstacles they have run into many significant roadblocks from both the moderates and progressives within the Democratic Party.
Much of President Biden’s domestic agenda is contained in two bills pending before Congress. The bipartisan infrastructure bill that already passed the Senate and a $3.5 trillion package that utilizes the budget reconciliation process. Slim Democratic majorities allow small groups within the party to keep a bill from passing. Progressive House Democrats want the two bills voted on together while many moderates would like to see the reconciliation package scaled back. The House is slated to vote on the infrastructure bill today, but that vote could be delayed as negotiations on both packages continue.
Government funding and increasing the debt ceiling require imminent legislative action. While a government shutdown is problematic, it has happened before. However, failure to address the debt ceiling in a timely manner will cause the U.S. government to default on its debt obligations for the first time in history. This will likely result in serious and unpredictable long- and short-term impacts to the economy. Congress is expected to come to some resolution before default occurs, but there is increasing concern as no clear path has materialized.
The next few days will bring a flurry of activity with new developments hourly and some completely unexpected twists as government funding runs out today and the debt ceiling will likely be reached by mid-October.
Increased IRS Reporting to Financial Institutions
President Biden‘s American Families Plan included provisions to increase collection of unpaid taxes to pay for new spending. One provision would require financial institutions to report all inflows and outflows of transactions over $600 to the Internal Revenue Service. It has been reported that Democrats plan to increase the threshold to $10,000 but this provision remains very unpopular with consumer and financial groups.
Fannie Mae and Freddie Mac’s Low-Income Housing Tax Credit Investment Cap Increased
With little certainty in the legislative process, President Biden continues to move portions of his agenda through the regulatory process, whenever possible. The administration recently released a list of actions aimed at increasing the affordable housing supply. This included the Federal Housing Finance Agency (FHFA) raising Fannie Mae and Freddie Mac’s Low Income Housing Tax Credit (LIHTC) cap to $1.7 billion up from $1 billion per year. The FHFA also announced an increase to the Duty to Serve rural/targeted investment requirement from 40% to 50% of the capacity.
Fannie Mae to Provide Tool for Lenders to Consider Rental Payment History in Mortgage Underwriting
Fannie Mae launched a new feature in its automated underwriting system to incorporate consumers’ rent payments into the mortgage credit evaluation process. This will enable single-family lenders, with permission from mortgage applicants, to automatically identify recurring rent payments in the applicant’s bank statement data. Only consistent rent payments will be considered while any missed or inconsistent rent payments identified in the bank statement will not negatively affect the applicant’s ability to qualify for a loan sold to Fannie Mae.
Fewer than 5% of renters today have their rent payments reported on their credit bureau report, putting many prospective first-time homebuyers at a disadvantage. Approximately 20% of the U.S. population overall has little established credit history – a group in which Black and Hispanic consumers are disproportionately represented. According to Fannie Mae research, lenders factoring in first-time homebuyers’ rent payments could result in a 17% higher mortgage approval rate for those who would have otherwise been declined.
FHFA and Treasury Suspend Portions of the 2021 Preferred Stock Purchase Agreements
The FHFA and the U.S. Department of the Treasury (Treasury) suspended certain provisions added to the Preferred Stock Purchase Agreements (PSPAs) with Fannie Mae and Freddie Mac on January 14, 2021.
The suspended provisions include limits on Fannie Mae and Freddie Mac’s cash windows (loans acquired for cash consideration), multifamily lending, loans with higher risk characteristics, and second homes and investment properties. During the suspension, the FHFA will review the suspended requirements and consult with Treasury on any recommended revisions. These suspensions do not affect Fannie Mae and Freddie Mac’s ability to build or retain capital.
FHFA and HUD MOU on Fair Housing
The U.S. Department of Housing and Urban Development (HUD) and the FHFA entered into a first-of-its-kind collaborative agreement that will focus on enhancing the Agencies’ enforcement of the Fair Housing Act. The memorandum of understanding (MOU) strengthens the Agencies’ ability to enforce fair housing and fair lending requirements, by promoting information sharing, coordination on investigations, compliance reviews, and the ongoing monitoring of Fannie Mae and Freddie Mac.
FHFA Proposed Housing Goals for Fannie and Freddie
The FHFA proposed housing goals for Fannie Mae and Freddie Mac for 2022 to 2024. The agency proposed two new single-family home purchase subgoals to replace the existing low-income areas subgoal. One new subgoal targets minority communities; the other continues to target low-income neighborhoods.
The new minority census tract subgoal is designed to improve access to fair and sustainable mortgage financing in communities of color. A mortgage qualifies under the new subgoal if:
- the borrower has an income at or below area median income (AMI); and
- the property is in a census tract where the median income is below AMI and minorities make up at least 30% of the population.
The White House recently announced that Saule Omarova, a Cornell University law professor, will be nominated as U.S. Comptroller of the Currency. This is a long-awaited decision, and several individuals were under consideration.
Many in the banking industry have raised concern over Omarova pointing to articles she has written that included structural reforms of the Federal Reserve System that would drastically alter the current financial system.