WASHINGTON — The Trump administration is developing a set of principles on how to reform the housing finance system that it hopes to release within a few months, a senior official said Tuesday.
Mark Calabria, the chief economist for Vice President Mike Pence, warned that there "is essentially no capital today backing Fannie Mae and Freddie Mac," which rely on a line of credit with the Treasury Department if there are unexpected losses.
“A modest decline in the housing market would result in an injection” of capital from the Treasury, Calabria told bankers at an American Bankers Association government relations conference. “The taxpayer today is more exposed to the housing market than any other point in history.”
But Calabria said it is too soon for the Trump administration to take on the issue, saying it wants to develop a plan methodically.
“It is just too early; we just simply are not at a point to have a plan," he said. "But I think in the next few months you will see a set of principles.”
Calabria is a well-known critic of the government-sponsored enterprises. Before joining the administration last month, he was at the Cato Institute, and he is a former senior aide to the Senate Banking Committee for Sen. Richard Shelby, R-Ala. Calabria did not specify a path forward, but he said the administration recognizes the important role that Fannie and Freddie play in facilitating access to credit.
"We are beginning a group on mortgage finance policy and trying to figure out what the best approach should be,” Calabria said.
During his speech at the ABA, Calabria also criticized the Consumer Financial Protection Bureau's qualified mortgage rule, arguing it "triggered even more mortgage lending into institutions directly backed by the taxpayer.”
He also briefly outlined the administration's priorities.
“When it comes to financial regulation, we would put ending bailouts at the top of the agenda,” Calabria said. He said Pence remains a critic of the 2008 Troubled Asset Relief Program, which was enacted by President George W. Bush.
Calabria also said it’s time do a review of the Dodd-Frank Act, but “when it comes to financial regulation, personnel is policy and that is our foremost lever.”
The administration currently has two vacancies on the Federal Reserve Board to fill, with a third due to open up next month when Fed Gov. Daniel Tarullo retires. Comptroller of the Currency Thomas Curry's term also expires in April, though he is not expected to leave until a successor is nominated and confirmed. Federal Deposit Insurance Corp. Chairman Martin Gruenberg's term expires later this year.
Filling the vacancies will offer the Trump administration a chance to dramatically reshape financial regulation absent legislation.
Still, Calabria said he expects the Senate to take up financial reform "this Congress," and called a plan put forward by House Financial Services Committee Chairman Jeb Hensarling, R-Tex., a "great template."
“Hensarling is pretty much far ahead of the rest us in coming up with his own financial plan,” Calabria said.
While Hensarling's bill may be able to clear the House, it faces an uphill battle in the Senate, given remarks by Sen. Sherrod Brown, the top Democrat on the Banking Committee, who also spoke before the ABA.
Brown said that he is forging a positive working relationship with Senate Banking Committee Chairman Mike Crapo, R-Idaho, and that he expects "us to get things done." But he also said Democrats would not support gutting Dodd-Frank.
“What we will not do is a wholesale rollback of Dodd-Frank," Brown said. "That is not going to happen and it would be counterproductive. The law is working."
One major sticking point that could make Dodd-Frank reform talks difficult is a partisan fight over the CFPB.
Sen. Mike Rounds, R-S.D., who also spoke at the conference and has introduced a bill that would defund the CFPB, said he was committed to seeing a restructuring.
“I will predict that there will be major changes to CFPB," he said.
