Mnuchin Outlines Treasury’s Housing Reform Plan  

Speaks before Senate Committee on Banking, Housing, and Urban Affairs

Treasury Secretary Steven T. Mnuchin spoke yesterday before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, discussing the Treasury Department’s Housing Finance Reform Plan that would protect taxpayers and foster competition in the market, and thanking Chairman Crapo and the Committee for the work they have done.

Mnuchin noted that the Treasury’s Housing Reform Plan includes almost 50 recommended actions which would “reduce the role of the Federal Government, enhance taxpayer protections against future bailouts, and increase private sector competition in the housing finance system.”

He added that, although no law prescribes a specific end point for the conservatorships, “no conservatorship is meant to be permanent, and that includes FHFA’s management of the GSEs. This plan provides a roadmap to release them from conservatorship.”

Mnuchin further detailed “Treasury’s reform plan takes great care to preserve what works in the current system.  Each of Treasury’s recommended reforms is incremental, realistic, and balanced. In particular, Treasury’s plan would preserve the longstanding Government support of the 30-year fixed-rate mortgage loan. That support, however, should be explicitly defined, tailored, and paid-for. Treasury recommends that Congress authorize an explicit, paid-for guarantee backed by the full faith and credit of the Federal Government that is limited to the timely payment of principal and interest on qualifying mortgage-backed securities. To foster competition, this guarantee should be available to the GSEs, and also to any other FHFA-approved competitors.”

“Moreover, the regulatory environment should be harmonized so that the GSEs and private sector competitors operate on a level playing field. For example, the GSEs currently have a competitive advantage over other market participants under the so-called “QM patch” to the Consumer Financial Protection Bureau’s (“CFPB”) ability-to-repay rule.” He continued, “In July 2019, the CFPB announced that the QM patch would expire in January 2021 or after a short extension. Treasury supports the CFPB’s planned expiration of the QM patch, and it also supports further revisions to the ability-to-repay rule to ensure that mortgage lenders continue to have a bright-line safe harbor after the QM patch expires.”

Mnuchin concluded his remarks, emphasizing that the Administration’s preference is to work with Congress to enact comprehensive housing finance reform legislation which could achieve lasting structural reform that tailors explicit Government support of the secondary market, and repeals the GSEs’ congressional charters and other statutory privileges that give them a competitive advantage over private sector competition. 

“At the same time,” he concluded, “we believe that reform can and should proceed administratively. Pending legislation, Treasury will continue to support FHFA’s administrative actions to enhance the regulation of the GSEs, promote private sector competition, and satisfy the preconditions set forth in the plan for ending the GSEs’ conservatorships.”