Earlier this week, in a wide-ranging interview, Treasury Secretary-Designate Steven Mnuchin discussed two issues very important to our industry: Government-sponsored enterprise (GSE) reform and the mortgage interest deduction (MID). While Secretary-Designate Mnuchin expressed only his general view and didn’t outline any specific policy proposals, it is positive news that the new administration recognizes the significance of the housing and real estate markets, and key issues facing homeowners and renters.
As the new administration takes shape, there will likely be a variety of comments made by any number of potential nominees. Keep in mind, though, policy priorities will be established by the new president and laws need to pass both the House and Senate—so it is important not to overreact to every 8-second soundbite.
In that vein, Mr. Mnuchin’s comments about MID should be looked at in the proper context. Changes to the tax code, including the MID and other real estate–focused provisions, must be initiated by Congress and, absent comprehensive tax reform efforts, any isolated attempt to reduce the MID will be met with fierce resistance.
MBA supports the deduction as a critical benefit for current and aspiring middle-class homeowners. If Congress or the administration wants to undertake comprehensive tax reform, and the president-elect and congressional leadership have clearly indicated that tax reform is a priority, a wide range of issues will be raised—including the MID and other real estate provisions. But it would be a mistake to do anything that has the potential to hurt homeowners and the housing market that contributes so much to the national economy.
In addition to discussing the MID, Secretary-Designate Mnuchin said that getting the GSEs released from government ownership is a priority for the incoming Trump administration. We are pleased that the administration is making secondary market reform a priority. MBA’s position has long been that the GSE business model requires real reform. Moreover, the post-crisis status quo of the GSEs is unsustainable and must be addressed to ensure the long-term stability of the real estate finance sector.
Such fundamental reforms of the real estate finance industry will have obvious ramifications for the mortgage market and the economy at large. But we should give the new administration the benefit of the doubt and a chance to get reform right.
Some are concerned about what privatizing the GSEs would look like in practice. It is important to remember that this was a brief snippet of a longer interview and “privatize” could mean several things, so I think we shouldn’t jump to conclusions. MBA and its members believe that in order to attract international investors under all market conditions, any secondary mortgage market reform must include a government guarantee, though that guarantee should just extend to the mortgage-backed securities, and not the entities issuing them. Importantly, the guarantee should be paid for by the private sector, and private capital should also absorb any losses before the government does.
To get GSE reform right and prevent a repeat of past mistakes, MBA has laid out several principles we believe will reduce taxpayer risk, increase market competition, and bolster consumer access to affordable housing and housing finance.
- The system must ensure equitable, transparent and direct access to secondary market programs for lenders of all sizes and business models.
- It should provide for a consistent offering of core products, including the 30-year, fixed-rate, prepayable single-family mortgage.
- It should ensure a robust supply of affordable rental housing by maintaining the GSEs’ multifamily programs.
- Any changes need to preserve key GSE assets by transferring them to any new entities created by GSE reform.
- The new structure should reduce the risk to the taxpayer by having the explicit government guarantee back only the mortgage-backed securities—the guarantee would not back any new entities created by GSE reform.
- Policymakers, the industry and consumer advocates should work to develop clear policies to ensure that the new secondary market entities help meet affordable-housing needs, both owned and rented, in a more efficient and effective manner. MBA formed a task force of its members to develop a framework to address affordable-housing issues and outline potential solutions.
Changes cannot and will not happen overnight, and our industry will need to stay engaged and bring our experience and expertise to the table. We should take heart that the new administration views reform as the urgent priority that it is.