Sweeping Government Overhaul Touches on Housing and Mortgage Market
By Elizabeth Stewart @ Real Estate Daily
June 29, 2018

The Trump Administration recently put forward a plan that would vastly reorganize the federal government. The 132-page document touches almost every part of the executive branch and includes multiple changes that would impact the housing and mortgage market.

Media attention has been primarily focused on the proposed plans to combine the Department of Education and Department of Labor, as well as privatize the U.S. Postal Service. This sweeping overhaul would affect the housing market as well, although mainly through changes to the mortgage financing system.

Key Takeaways

  • The proposal would combine the Department of Labor and Department of Education
  • The USDA’s rural housing loan guarantee and rental assistance programs would move to HUD
  • Fannie Mae and Freddie Mac would exit conservatorship and become full private entities

Excerpt

The Trump Administration formally rolled out a plan on Tuesday to massively reorganize the federal government. The 132-page document touches nearly every part of the executive branch.

The release of the plan highlights several changes which will affect housing and housing finance. First, and high on the list which does seem to be in an order of priority, is to move the Department of Agriculture’s (USDA’s) rural housing loan guarantee and rental assistance programs to the Department of Housing and Urban Development (HUD). The government’s justifications for this proposal include that the agencies operate similar programs to support rental housing rehab and development, to insure mortgages for home purchase and refinance, and subsidize rents for low-income tenants. The two sets of programs however, are not identical. There are differences in eligibility, assistance levels, delivery and oversight and other features. With the programs housed in separate agencies with different missions, establishing a unified housing policy has been difficult.

The USDA programs are also called outdated. “In fact, due in large part to the sheer size of its programs, HUD serves more households in USDA-eligible areas than USDA does.” The plan states that moving USDA’s single-family and multifamily loan guarantees and rental assistance programs to HUD will mitigate these issues.

The plan also takes up the fate of Fannie Mae and Freddie Mac (the GSEs) in a discussion of reforming the federal role in mortgage finance. The government’s support of the housing market is called a complex system of federal subsidies and programs intended to make mortgage financing accessible to a wide range of homebuyers but also a system that is challenged by the operation of the GSEs which have been in government conservatorship since 2008.

It proposes to transition the GSEs into fully private entities and ensure that there will be competition to the roles they play in order to decrease moral hazard and risk to the taxpayer. The GSEs and any other competitive entities would have access to an explicit federal guarantee for mortgage-backed securities that they issue, a guarantee that is only exposed in “limited and exigent circumstances.” The guarantee would be on-budget and fully paid-for. The proposal says this would increase the government’s transparency and accountability and minimize the risk of taxpayer-funded bailouts but still provide support for homeowners.

View the original article at Mortgage News Daily