President-elect Donald Trump’s recent decision to nominate Dr. Ben Carson as Secretary of the Department of Housing and Urban Development (HUD) carries potential implications for mortgage lenders. In accord with Trump’s stated preference for broad deregulation, there is much for the industry to look forward to. Mortgage lenders can expect to see a reduction in new rulemaking from HUD and perhaps a reversal of regulations promulgated during the Obama administration. At the same time, lenders should watch for any proposals at HUD that could have an impact on mortgage financing.
Reversing Changes to Fair Housing Policies
As a presidential candidate, Carson criticized the Affirmatively Furthering Fair Housing rule promulgated in 2015 that requires each municipality receiving HUD funding to submit assessments of its jurisdiction’s “patterns of integration and segregation, racially and ethnically concentrated areas of poverty, disproportionate housing needs, and disparities in access to opportunity.” In a 2015 opinion piece in The Washington Times, he also disapproved of the use of “disparate impact” analysis in determining whether housing policies are racially discriminatory under the Fair Housing Act. In the same piece, Carson was broadly critical of “government-engineered attempts to legislate racial equality.” Therefore, one of the changes that can be expected from a Carson-led HUD would be a rollback of the agency’s “affirmative furthering” and “effects testing” approaches toward fair housing policy, which would, overall, tend to reduce the reach of anti-discrimination law into the housing market.
Possible Changes to Mortgage Financing
Less is known about Carson’s views on the Federal Housing Administration, which underwrites and issues servicing guidelines on roughly one out of six mortgages issued in the U.S. During Carson’s run for president, one of his campaign documents called for the elimination or reduction of federal programs he viewed as “wasteful, inefficient or unnecessary.” This could suggest a general approach toward reducing the FHA’s involvement in the mortgage market. However, as of yet, there is only speculation as to what specific changes Carson might like to make to FHA programs, such as cutting FHA premiums.
During his presidential campaign, Carson endorsed the re-privatization of Fannie Mae and Freddie Mac. Trump’s nominee for Treasury Secretary, Steven Mnuchin, said in a November 30, 2016, interview that he believed that the two government-sponsored enterprises (GSEs) should be “restructured” so that “they’re absolutely safe,” and then removed from “government control.” House Speaker Paul Ryan and House Financial Services Committee head Jeb Hensarling have both called for the gradual winding-down of Fannie Mae and Freddie Mac. Thus, it appears likely that federal involvement in the GSEs will be changing, but what that change might be is still undetermined.
One policy area where Carson’s selection could indicate risk for lenders is the mortgage interest deduction. As a presidential candidate, Carson supported ending the mortgage interest deduction, which currently plays a substantial role in the housing finance market. No official proposals for changing mortgage interest deductibility have been made by Trump’s announced cabinet nominees or by members of Congress, but Carson’s selection could sway the Trump administration toward lowering that deduction as part of a tax reform package, and/or replacing it with a smaller tax credit. Presumptive Treasury Secretary Steven Mnuchin recently suggested that the mortgage interest deduction cap could be lowered, although not eliminated. Any changes to the deduction would have to be passed into law by Congress, and so mortgage lenders should be sure to follow any political discussions on this issue.
Staffing the Department
Although much media coverage has stated that Carson has limited experience in housing policy, this aspect of his nomination is far from unprecedented. Other recent HUD secretaries had similar levels of prior formal involvement in housing policy, including Henry Cisneros, Jack Kemp, and Julian Castro. However, his limited prior experience does suggest that the advisors and subordinates chosen by Carson will have a perhaps larger-than-usual effect on policies instituted at HUD. Therefore, it would be wise for mortgage lenders to pay especially close attention to the team that the President-elect and Carson choose to fill positions at HUD.