White House Proposes Federal Government Reorganization

The Trump Administration last week released a comprehensive plan for reorganizing the executive agencies of the federal government. The plan, titled "Delivering Government Solutions in the 21st Century," calls on Congress to transfer various federal programs to different agencies and merge federal agencies together in an effort to streamline government operations. It includes several provisions impacting federal housing and community development programs.

Specifically, the Administration proposes that the United States Department of Agriculture’s (USDA) single-family loan programs, the Section 502 Single-Family Housing Guaranteed and Direct Loan Programs, and rural multifamily housing programs be consolidated with the Federal Housing Administration’s (FHA) affordable housing lending programs. The Administration argues that it is inefficient for two different agencies to operate separate mortgage lending programs with similar missions. They also point out that, because FHA operates on a much larger scale than USDA’s lending programs, it already assists more borrowers in rural areas than the USDA programs. A similar proposal was contained in a 2011 report from the Government Accountability Office.

The plan also recommends that HUD’s Community Development Block Grant program (CDBG) be transferred to a new Bureau of Economic Growth, which would be housed in the U.S. Department of Commerce. The new bureau would also inherit other federal economic development programs, including the Economic Development Administration’s Economic Development Assistance programs and USDA’s rural business and community facility grant programs. President George W. Bush included a similar proposal in his proposed budget for fiscal year 2006.

In addition, the reorganization plan calls on Congress to reform the federal housing finance system. Specifically, the Administration proposes that Fannie Mae and Freddie Mac be released from conservatorship, their federal charters revoked, and both firms fully privatized. Under the new system, Fannie Mae and Freddie Mac and other private guarantors would apply to a federal regulator for the right to purchase federal insurance for their mortgage-backed securities (MBS). The federal insurance would only pay out to investors in "limited, exigent circumstances" after private investors have realized losses. The regulator would also be responsible for fostering a competitive and sustainable MBS market.

Guarantors would have no affirmative obligation to support affordable housing. They would, however, be charged a fee based on the volume of MBS they issue, and the proceeds transferred to HUD to support affordable housing programs. The plan does not specify which programs the fees would support.

The Administration contends its proposal will protect taxpayers from unnecessary risk while ensuring that federal assistance for homebuyers is better targeted to low- and moderate-income consumers. The plan shares many elements with various reform proposals that have been advanced in the House and Senate and by FHFA, advocacy organizations, and other experts.

A large majority of changes proposed in the reorganization plan, including those described above, require legislation from Congress to go into effect. It appears unlikely that Congress will consider such legislation in the near future.

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