Affordable housing cuts, CFPB funding: Takeaways from Trump budget

Echoing the 2020 budget proposal, the Trump administration again called for eliminating Fannie Mae and Freddie Mac’s contributions to the Housing Trust Fund and the Capital Magnet Fund.

Fannie and Freddie are currently required to set aside an amount equal to 4.2 basis points of each dollar of unpaid principal balance to submit to both funds annually.

But the White House believes that state and local governments “are better positioned” to address housing affordability, the administration said in this year’s budget.

“Housing for low-income families is currently funded by multiple funding sources, including federal, state and local governments, as well as the private and nonprofit sectors,” the budget said. “The result is a fragmented system with varying rules and regulations that create overlap and inefficiencies, as well as challenges to measuring collective performance.”

In its 10-year projection for the federal budget, the administration estimated that the Treasury Department’s preferred stock in the government-sponsored enterprises will stay at $112 billion over the coming decade, despite ongoing efforts at the Federal Housing Finance Agency to revise the preferred stock purchase agreements and free Fannie and Freddie from government conservatorship.

However, “any reform of the housing system likely will impact 2021 Budget projections in ways that cannot be estimated at this time,” the White House said in the budget.

“We believe that Trump's budget team has decided that it will not adjust its budget expectations for Fannie Mae and Freddie Mac until there is an actual change in their status,” said Jaret Seiberg, an analyst with Cowen Washington Research Group, in a note. “As FHFA and Treasury have not unveiled such a change, the budgeting stays the same.”

Similar to previous proposals, the administration’s budget would establish a congressional appropriations process for the Consumer Financial Protection Bureau, Financial Stability Oversight Council and Office of Financial Research.

Currently, the CFPB derives its funding largely from the Federal Reserve. But under the budget proposal, Fed transfers to the CFPB would go down by $110 million starting next year, and congressional appropriations for the agency would begin in 2022.

The funding of the bureau has been a target for Republican lawmakers for years, yet any legislative effort to add the agency to the congressional appropriations process would undoubtedly get blocked by the Democratic-controlled House. Meanwhile, the budget also envisions a reduction of about 200 full-time equivalent positions on the CFPB workforce — a cut of 11.6%.

Meanwhile, the FSOC and OFR now set their own budgets and are able to assess fees on certain financial companies. Under the Trump budget proposal, those assessment fees could be used to offset other spending.

“To improve their effectiveness and ensure greater accountability, the Budget proposes to subject the activities of FSOC and OFR to the appropriations process,” the budget said. “In so doing, currently authorized assessments would, beginning in 2022, be reclassified as discretionary offsetting collections and set at a level determined by the Congress.”

Similar to past spending proposals, the president’s budget recommended eliminating the community development block grant program, which supports affordable housing for low- and moderate-income families.

The 2021 budget referred to the CDBG program as “wasteful” and said state and local governments were better suited to address affordability issues.

“The Budget eliminates CDBG, a program that has expended more than $150 billion since its inception in 1974, but has not demonstrated sufficient impact,” the budget says.

“Studies have shown that the allocation formula, which has not been updated since 1978, is ineffective at targeting funds to the areas of greatest need, and many aspects of the program have become outdated.”

HUD has previously proposed replacing community development block grants with the opportunity zone program, which Congress passed in 2017 as part of the tax reform bill.

The White House also recommended cutting funding for community financial development institutions.

The budget proposed ending funding for the CDFI Fund discretionary grant and direct loan programs, which would save $248 million in spending, the Trump administration said.

“More than two decades ago, the CDFI Fund was created to jumpstart an industry at a time when CDFIs had limited access to private capital,” the budget said. “The CDFI industry now has ready access to the capital needed to extend credit and offer financial services to underserved communities, eliminating the need for federal grants.