President Trump’s quest to revamp the federal housing finance system faces long odds, with Congress tied up with a slew of must-pass bills ahead of 2020 and the two parties sharply divided over how to address the issue.
The administration’s first test comes Tuesday, when top officials will appear before the Senate to explain and defend their plan to end the federal government’s control over two pillars of the U.S. housing finance system.
{mosads}Lawmakers have struggled for more than a decade to release the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, better known as Fannie Mae and Freddie Mac, from Washington’s control.
The two government-sponsored enterprises purchase mortgages from banks, package them into bonds and sell those bonds to help fund home loans for buyers in areas underserved by private firms.
Industry critics of the system say it distorts lending markets and encourages risky mortgage loans with U.S. taxpayers as the backstop. Trump-appointed regulators have laid out a path to privatize Fannie and Freddie and have promised to act even if Congress doesn’t.
Even so, much of the administration’s plan depends on lawmakers reaching agreements on some of the stickiest points of reforming a housing finance system forged during the financial crisis and frozen in amber since.
While there is wide bipartisan agreement that federal housing policy is in dire need of reform, Congress lacks consensus with the 2020 presidential election approaching.
“It is wildly optimistic to think that this Congress will act on any of the suggestions directed toward it,” wrote Thomas Wade, director of financial services policy at the American Action Forum, a right-leaning think tank.
“These detailed and numerous recommendations represent a tall order for a divided Congress, particularly in the run-up to an election,” Wade added.
The Trump administration’s push to complete what is often called the unfinished business of the 2007 to 2008 financial crisis comes amid a frantic time for Washington and the nation’s politics at large.
Lawmakers already face looming deadlines to strike a government funding deal and reauthorize several crucial programs.
Congress has less than a month to reach a government funding deal, which will require intense negotiations over immigration, border funding and other hot-button issues. Failure to do so could plunge the government into another federal shutdown this year, and just months before the first votes are cast in the Democratic presidential primary.
Yet the Trump administration is still pushing for action on an ambitious, if open-ended, plan for housing finance reform.
Treasury Secretary Steven Mnuchin, Housing and Urban Development Secretary Ben Carson and Federal Housing Finance Agency (FHFA) Director Mark Calabria will kick off that campaign Tuesday before the Senate Banking Committee.
All of the administration’s legislative proposals would run through the banking panel, which has been the incubator and battleground for several failed attempts to free Fannie and Freddie from federal control.
The committee’s most recent failed effort was a 2014 bill from the panel’s former chairman, retired Sen. Tim Johnson (D-S.D.), and Sen. Mike Crapo (R-Idaho), who took the committee gavel in 2015.
The Johnson-Crapo bill was approved by the banking panel by a slim bipartisan margin, but it died in the full Senate under fire from both progressives and conservatives. Sen. Elizabeth Warren (D-Mass.), then an emerging progressive force and now a 2020 presidential candidate, helped rally Senate liberals against the bill, effectively dooming it in the then-Democratic-controlled Senate.
Since then, the issue has only become more politically charged thanks to soaring U.S. rents and housing prices. Housing policy has been a central focus of several 2020 Democratic presidential campaigns, including Warren’s, who torched the Trump administration proposal in a Friday statement.
Warren and other liberal critics have seized on the administration’s proposal to replace mandates to support affordable housing with a fee paid by Fannie and Freddie that would subsidize a taxpayer-funded backstop on certain home loans.
“In the middle of a housing affordability crisis, when the gap between the Black and white homeownership rates is as big as it was when housing discrimination was legal, the Trump Administration wants to make it harder for creditworthy working families — especially families of color — to buy a home and build wealth,” said Warren. “That’s shameful.”
While Warren may wield a louder megaphone thanks to the 2020 race, the opposition of Rep. Maxine Waters (D-Calif.) poses an even greater challenge for the administration’s plan.
{mossecondads}Waters, chairwoman of the House Financial Services Committee, has prioritized access to affordable housing and has condemned the Trump proposal as an “egregious” threat to low-income families.
Without buy-in from Waters, a Senate-passed measure would see no action in the Democratic-controlled House. Democrats are already loath to give Trump a legislative victory before the 2020 election, and Waters is likely to prioritize her own proposals to fight homelessness over the White House wish list.
Industry reform advocates are candid about the slim chances of passing a bill through a divided Congress ahead of an election, but they tout common ground on certain aspects of housing finance policy, like conservatorship and preserving the 30-year fixed rate mortgage.
“It’s just not healthy or safe for the long-term interest of our economy to have this,” said former Obama FHFA Director Ed DeMarco, about government control of Fannie and Freddie. DeMarco now serves as president of the Housing Policy Council, a trade group representing mortgage lenders and servicers in Washington, D.C.
Advocates, though, are keeping up pressure for action.
“There’s a lot of common ground to start with in the foundation,” DeMarco continued.
“What matters is if the leadership in both the committee and in the administration are ready to say, ‘OK, it’s time to actually drive to a better decision.’ ”
Updated 11:17 a.m.