GSE Reform

Fannie, Freddie Regulator to Propose New Affordable Housing Rules, Takes Steps Away from LIBOR and Toward Privatization of GSEs


The federal regulator of Fannie Mae and Freddie Mac – the Government Sponsored Enterprises (GSEs) who own or guarantee $5.6 trillion in single and multifamily mortgages – will propose new affordable housing requirements and duty-to-serve plans this year. 

  • Federal Housing Finance Agency Director Mark Calabria, above, told Politico this week that the regulator’s Division of Research and Statistics will first study how effective the current rules have been, which expire at the end of 2020.   “I don't know whether they've (the requirements) made a difference in getting anybody into a home who wouldn't have been otherwise; I mean unless you have a strong evaluative function, how do you know whether what you're doing makes a difference?” Calabria said.    (PoliticoPro, Feb. 10)

  • Calabria also discussed the timeline for when Fannie and Freddie will stop acquiring adjustable rate mortgages tied to the London Interbank Offered Rate (LIBOR) as loans will begin to be tied to the Secured Overnight Financing Rate (SOFR) as the global benchmark for interest rates.  FHFA’s steps away from LIBOR will include:

*  New language will be required for single-family Uniform Adjustable Rate Mortgage (ARM) instruments closed on or after June 1, 2020;  

*  All LIBOR-based single-family and multifamily ARMs must have loan application dates on or before September 30, 2020 to be eligible for acquisition; and,

*  Acquisitions of single-family and multifamily LIBOR ARMs will cease on or before December 31, 2020.

  • “These steps represent important milestones in the Enterprises' transition away from LIBOR to a more robust reference rate.  We will continue to monitor exposure to LIBOR and ensure the Enterprises manage the risks associated with the transition in a safe and sound manner," said Calabria.  (FHFA news release, Feb. 5)

  • FHFA also continues to take steps toward recapitalizing Fannie and Freddie before returning the GSEs to private ownership after their $190 billion government bailout in 2008.  Calabria announced on Feb. 3 that FHFA has selected Houlihan Lokey Capital, Inc. as a financial advisor to assist in the development and implementation of a roadmap to responsibly end the GSEs conservatorships. 

  • Houlihan Lokey will consider business and capital structures, market impacts and timing, and available capital raising alternatives, among other items as outlined in a previously published Statement of Work.

  • “Hiring a financial advisor is a significant milestone toward ending the conservatorships of the Enterprises," Calabria said. “The next major milestone for FHFA is the re-proposal of the capital rule, which will happen in the near future."  (FHFA news release, Feb. 3)

  • Director Calabria spoke during The Real Estate Roundtable’s Jan. 28, 2020 State of the Industry Meeting in Washington.  He addressed his agency’s need to responsibly privatize Fannie and Freddie while ensuring sufficient private capital is in place to protect taxpayers, along with access to affordable rental housing.

The Roundtable wrote to the leadership of the Senate Committee on Banking, Housing and Urban Affairs in September 2019 regarding reform of the nation’s house finance system.  The letter notes the Treasury Department’s constructive proposal for both legislative and administrative reforms to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and urges both Treasury and the FHFA to work with Congress to end conservatorship through comprehensive, bipartisan, legislative reforms.  (Roundtable GSEs comment letter, Sept. 9, 2019)

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Energy Policy

House Hearing Considers Roundtable-Supported Energy Efficiency Legislation


In the lead-up to the November elections, Democrats continued to draw attention this week on Capitol Hill to energy and climate issues, as the House Energy Subcommittee heard testimony on a number of bills to advance efficiency in buildings and modernize the nation’s electric grid.  (Subcommittee hearing and memorandum, Feb 12.)

  • The Subcommittee’s review included the Energy Savings and Industrial Competitiveness (ESIC) Act (H.R. 3962), long supported by The Real Estate Roundtable.  The bipartisan bill is sponsored by Representatives Peter Welch (D-VT) and David McKinley (R- WV), and is the companion to a Senate version (S. 2137) championed by Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH).  The Senate measure passed its committee in Sept. [Roundtable Weekly, Sept. 27]

  • In The Roundtable’s Feb. 11 ESIC Act support letter to House leaders, President and CEO Jeffrey DeBoer noted that,  “[t]he U.S. real estate sector has made significant strides to improve the energy efficiency and reduce the carbon footprint of America’s building infrastructure over the last decade.”  He further described how H.R. 3962 would advance the industry’s energy efficiency efforts.  (Roundtable House ESIC Act letter, Feb. 11)

  • The ESIC Act would improve the current process to develop “model” building energy codes with new “open government” provisions. Real estate and other stakeholders would be provided a platform to comment on the federal government’s influential role in the codes process, compelling the U.S. Department of Energy (DOE) to consider cost effectiveness when the agency develops efficiency recommendations for new construction and major retrofits.  DOE would also be required to assess the small business impacts of its energy code recommendations.

  • The ESIC Act would further direct the U.S. Energy Information Administration (EIA) to coordinate with the Environmental Protection Agency’s ENERGY STAR program, when EIA periodically gathers significant nationwide data related to energy consumption in U.S. buildings.

  • In addition, the ESIC Act includes innovative provisions – known as the SAVE Act – to assist home buyers with financing energy efficiency improvements as part of the residential mortgage underwriting process.

  • Among the witnesses at the Wednesday House hearing was Lowell Ungar, senior policy advisor for the American Council for an Energy-Efficient Economy (ACEE), who  testified in support of H.R. 3962.  Mr. Ungar also spoke at the recent Sustainability Policy Advisory Committee (SPAC) meeting on January 29, regarding the estimated economic and environmental benefits of an accelerated depreciation tax strategy known as “E-QUIP” to motivate “retrofit” project installations of high performance HVAC, windows, lights, and other building equipment.  The Roundtable and coalition partners continue to work toward introduction of an E-QUIP bill in the coming months.  (E-QUIP Coalition Letter, May 8, 2019).

  • The ESIC Act’s building codes provisions – allowing for consideration of financial impacts on businesses and homeowners – contrasts to a recent climate framework released by Democratic leaders.

While the parties’ respective visions on energy and climate policy are coming into sharper focus in advance of next November’s elections, prospects for passing omnibus legislation that clears both the House and Senate this year are low.

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Tax Policy

White House Releases FY 2021 Budget; Congressional Hearings Focus on Administration Policy Priorities, Including FIRPTA Repeal

FY2021 Budget Cover x475

The Trump Administration on Monday released a $4.8 trillion budget for FY 2021 signaling policy priorities for a potential second term, followed by Senate and House committee hearings this week that focused on the proposal and tax-related issues – including FIRPTA repeal; correcting a drafting error affecting qualified improvement property (QIP); and expansion of the low-income housing tax credit.  (Administration’s 2021 budget proposal and supporting budget materials)

  • Initial budget proposals from the White House are useful only as a starting point for funding negotiations with Congress, which can produce a significantly different budget reflecting vastly different policy positions. 

  • The Administration’s FY 2021 budget proposal would also reverse a two-year deal negotiated with Congress last summer.  While the August deal raised spending limits for both defense and domestic programs, this week’s proposed budget would cut domestic spending by six percent. (The Hill, Feb. 9)

  • The proposed budget also includes the elimination of several energy tax incentives of importance to real estate, including:

* Repeal credit for residential energy efficient property placed in service after December 31, 2020.

* Repeal accelerated depreciation for renewable energy property —including solar energy, wind energy, biomass, geothermal, combined heat and power, and geothermal heat pump property; fuel cells; and micro-turbines—would range from five to 20 years. Qualifying properties would still be eligible for the bonus depreciation allowance included in the 2017 tax overhaul.

* Repeal energy investment credit for property where construction begins after December 31, 2020.

  • The White House budget, which would also devote billions to construct a border wall with Mexico and lead to a $966 billion deficit, was immediately rejected by House Speaker Nancy Pelosi (D-CA) and criticized by House Budget Committee Chairman John Yarmuth (D-KY). (Associated Press, Feb. 9)

  • Republican Senate Budget Chairman Mike Enzi (WY) also weighed in with a Feb. 10 statement.  “Presidents’ budgets are a reflection of Administration priorities, but in the end, they are just a list of suggestions, as the power of the purse rests with Congress. Bipartisan consensus will be necessary to bring our debt and deficits under control. I hope to work with my colleagues on both sides of the aisle to put our country on a more sustainable fiscal course.”

Congressional Hearings

Administration officials appeared before congressional committees this week to testify about the budget proposal and face Q&A on other policy issues.

  • Secretary of the Treasury Steven Mnuchin testified on Feb. 12 before the Senate Finance Committee, urging Congress to make the temporary provisions of the 2017 tax law permanent.

  • During Q&A, Mnuchin also expressed interest in working with Sen. Maria Cantwell (D-WA) and Senate Banking, Housing and Urban Affairs Ranking Member Sherrod Brown (D-OH) on expanding the Low Income Housing Tax Credit (LIHTC).

  • The Treasury Secretary reiterated his support for Sen. Pat Toomey's (R-PA) bill to correct a drafting error in the 2017 tax law that unintentionally requires retailers to depreciate certain property improvements over 39 years – rather than the intended option of immediate expensing.  Correcting this qualified improvement provision (QIP) is, Mnuchin testified, “our number one request to get a congressional fix for.”  (Senate Finance Committee hearings, with video)

  • In the House, the Ways and Means Committee on Feb. 11 held a hearing on “The Disappearing Corporate Income Tax, which was preceeded by a Joint Committee on Taxation report on corporate income tax policy.

  • During Q&A, Committeee Member Kenny Marchant (R-TX), sponsor of the Invest in America Act (H.R. 2210, engaged witnesses on the importance of repealing the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

  • Jason Furman – an economics professor at the Harvard Kennedy School of Government and former chair of the White House Council of Economic Advisers – responded to Rep. Marchant, “I think it is certainly worth taking a serious look at repealing it … In the Obama Administration we did take a look at this and it did seem like there was some infrastructure investment that wasn’t coming in to the country as a result of it.”

  • Douglas Holtz-Eakin – a former director of the Congressional Budget Office and the sole Republican witness – told the committee, “This is a law whose time has passed.  It should be repealed.”  ( Watch video of Rep. Marchant’s FIRPTA exchange)

More congressional hearings on the budget and appropriations are scheduled after lawmakers return from next week's congressional recess.

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