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2020 budget: How does it affect the mortgage industry?

President Donald Trump on Monday sent Congress a $4.75 trillion budget for 2020 — the largest in history.

TrumpMany of the headlines will devote attention to the continued push for funds for a southern border wall, increases in defense spending and cuts in social programs. It's important to note, however, that many of the administration’s proposals have direct impacts on the mortgage and real estate industries. And while it’s also noteworthy that the budget will have little traction on current spending levels (which are set by Congress), parsing the proposed budget yields takeaways regarding the administration’s future plans for housing.

Affordable-housing cuts

Domestic safety nets suffer under the Trump administration's proposed budget, and low-income housing isn’t spared the knife. The president aims to slice some $8.7 billion from the Department of Housing and Urban Development (HUD), or 16.4 percent of the department’s budget. That would deal a blow to HUD programs that help low-income households buy and rent homes. Specifically, the budget calls for recipients of HUD-backed assistance to pay for a larger share of rent, and to either work at least 20 hours a week or attend job training.

The supply side also would take a hit through the elimination of the Community Development Block Grant program, which includes annual grants to develop, provide and preserve affordable housing. Such cuts, according to HUD Secretary Ben Carson, are about thinking “beyond investing in bricks and mortar” and providing access to financial programs, education and higher-paying jobs.

Not all HUD programs would get slashed under Trump's proposed budget. Some program would actually see funding increases, including programs for lead-paint reduction and emergency shelters for the homeless.

The budget has been met with harsh criticism from low-income advocates, including the Council of Large Public Housing Authorities (CLPHA), which called the budget “draconian.”

“The administration wants us to think beyond investing in bricks and mortar, and instead think about investing in people. This budget does neither of those things,” said Sunia Zaterman, executive director of the CLPHA. "The disinvestment in housing and supportive services is a disinvestment in our nation’s most vulnerable populations, including the 2.2 million low- and very low-income families, children, elderly and persons with disabilities who are served by public housing."

FHA lender fees

Another area within HUD that would see funds increase is information-technology (IT) systems at the Federal Housing Administration (FHA).

Although the proposed budget provides up to $400 billion in new single-family loan guarantees, up to $20 million of these funds would be invested in upgrades to current IT, which the budget calls “outdated and burdensome.” To offset the allocation of those funds, the budget requests authority to charge lenders a “single-family housing IT fee,” which would be no more than $25 per loan and expire after four years.

The budget also requests up to $30 billion in new-loan guarantees for the FHA’s multifamily, hospital and health care mortgage programs.

Additionally, the budget also includes legislative proposals to “align FHA authorities with the needs of its lender enforcement program” and regulate FHA’s downpayment-assistance practices.

Out with the CDFI — again

As in its last two proposed budgets, the Trump administration again calls for the elimination of funding for grants and loans issued by the Community Development Financial Institutions (CDFI) Fund. The CDFI aims to rejuvenate economically distressed communities by funding institutions that provide credit and financial services to underserved groups. The fund, the administration claims, was created during a time when those institutions had limited access to private capital. In today’s economic landscape, however, the administration sees the CDFI industry as “matured,” with ready access to needed capital.

A frequent Trump target, the CDFI Fund nonetheless has garnered support from trade organizations and Democrats. Rep. Mike Quigley, D-Ill., chair of the financial services and general government appropriations subcommittee of the House of Representatives’ committee on appropriations, predicted that the administration would again propose jettisoning the CDFI Fund.

“Let’s stop this game,” Quigley said. “My colleagues on the other side of the dais know the importance and value of the CDFI Fund.”

Restructuring the CFPB

The budget calls for the Consumer Financial Protection Bureau (CFPB) to fall under the Congressional appropriations process, echoing a recurring call for reform from Republican legislators.

Thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is currently funded through transfers from the Federal Reserve, rather than Congress. The budget proposes to restructure the CFPB to ensure “appropriate Congressional oversight” and bring it into the appropriations process by 2020.

Like the CDFI, the CFPB has perpetually been in President Trump’s crosshairs come budget time. His 2018 and 2019 budgets suggested slashing the bureau’s funds, while the 2019 version — like this year’s — recommended restructuring it altogether. The housing industry, which has chafed at what it sees as regulatory overreach, has of late been among the chorus calling for restructuring, so the inclusion of a CFPB overhaul is welcome news to many.


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