President Donald Trump released his 2019 budget proposal Monday, but one expert explained the budget doesn’t stand a chance.
Trump’s proposal would bring sweeping changes to the housing finance industry including giving a boost to the funding for the U.S. Department of Housing and Urban Development, reducing the deficit by raising Fannie Mae and Freddie Mac’s guarantor-fees, and slashing the funding and reining in the enforcement authority of the Consumer Financial Protection Bureau.
But Keefe, Bruyette & Woods Managing Director Brian Gardner explained the budget proposal is more of a wish list than anything else and is unlikely to become law.
He explained that the budget proposes increasing and extending the credit guarantee-fees on GSE single-family mortgages by at least 0.1 percentage points, however, it is not likely to happen.
“We doubt current FHFA Director Mel Watt, who would implement this change, is supportive, so we do not expect the proposed increase in g-fees to be implemented,” Gardner said. “The budget also states that the administration wants to work with Congress to reform the current housing finance system. However, the budget does not propose a specific solution and punts the issue back to Congress.”
However, he explained some aspects of the budget may have a better chance at getting passed.
“The budget proposes a new fee on Federal Housing Administration lenders in order to upgrade FHA's operations,” Gardner said. “The fee is modest, no more than $25/loan with a four-year sunset date. This proposal can be implemented administratively so its chances of success are better than other proposals.”
Gardner also addressed the suggested changes to the CFPB, saying the administration’s suggestion of eventually reducing the bureau’s budget down to zero could be a precursor to eliminating it. However, because this action would require Congressional approval, it is unlikely to occur.
“On the surface, these proposals look like a positive for consumer lenders but we think there is zero chance any of this happens,” Gardner said. "If such changes to the CFPB had a shot then they would have been included in Senate legislation to amend Dodd-Frank, Crapo bill.”
“The absence of changes to the CFPB in the Crapo bill underscores the lack of any Democratic support for changing the CFPB and such support is critical,” he said.
And another expert agreed that not only is Trump’s budget not likely to become law, but it was not even meant to.
“These sorts of things are never intended to become law, Obama had one that garnered exactly zero votes, but are more to lay out philosophies and priorities,” Brent Nyitray, iServe Residential Lending director of capital markets, said in a note to clients.