December 23, 2024

By Miriam Axel-Lute, Shelterforce

How Fast Could Financial Regulations, Treasury Programs Change Once Trump Takes Office?

Affordable housing and neighborhood investment programs are closely tied to banking and the Treasury Department. What is the incoming administration’s attitude toward some key financial regulations, and how easy would it be for them to enact changes?

By Miriam Axel-Lute, ShelterForce, December 23, 2024

Editor’s Note
Affordable housing and neighborhood investment are not just affected by what happens at HUD—they’re also intimately tied in with financial regulation, and with programs that operate out of the Department of Treasury, or independent agencies related to banking.
The track record of the previous Trump administration, as well as more recent statements from Republicans and incoming administration, and their policy playbooks, points to a varied landscape for the programs, regulations, and agencies that are of particular interest to the housing and community development fields.

CDFI Fund
This fund, located in Treasury and in place since the mid 1990s, distributes both operating grants and lending capital to certified Community Development Financial Institutions, or CDFIs, across the country. It recently tightened up the criteria for qualifying as a CDFI.

Support for CDFIs has long been bipartisan—CDFIs make a lot of loans to small businesses, and the idea of supporting small loans is more palatable to many conservatives than programs that give grants. However, the fund is subject to annual appropriations, and as with many other programs, it may be in danger from a general move to cut spending. In the first Trump administration, the CDFI Fund was all but zeroed out in successive proposed presidential budgets, though Congress reversed those cuts, in fact awarding the fund record appropriations.

The Opportunity Finance Network (OFN), a trade association of CDFIs, said in a November blog post: “We expect discretionary funding to be cut, likely impacting the CDFI Fund budget. OFN will continue to make the case for CDFI funding, but we anticipate operating in a stricter funding environment.”

Seema Agnani, executive director of the National Coalition for Asian Pacific American Community Development (National CAPACD), says that it’s not only funding that could be affected, but also who can get certified as CDFIs. The organization expects the appetite for certifying new CDFIs, especially ones focused on fixing the disparities in access to credit in communities of color, will likely be much reduced.

National CAPACD had been planning to launch a CDFI next year, but now is expecting that it will operate as a non-certified loan fund. “We’re still going to do the work,” says Agnani, “but it slows the pace of our infrastructure building.”

OFN did note a couple of causes for optimism. Sen. John Thune (R-S.D.), who has been elected the new Majority Leader, has a history of supporting CDFIs—especially Native CDFIs—in his state. And the Senate Community Development Finance Caucus, of which about one quarter of all senators are members, has 50-50 membership from both parties.

Several consortiums of CDFIs are currently gearing up to distribute funding allocated to the Greenhouse Gas Reduction Fund under the Inflation Reduction Act. These funds are already under contract and cannot be retracted. They should not be affected by CDFI Fund appropriations, or other redirecting of IRA funds.

Low Income Housing Tax Credits
The Low-Income Housing Tax Credit, the largest funding mechanism for new affordable rental construction in the United States, is a permanent tax credit. That means it doesn’t need to fight for appropriations every year. It also has a history of bipartisan and corporate support—tax credits are often viewed more favorably than direct spending, though the effect on the budget is the same. LIHTC isn’t addressed in Project 2025, the radical right-wing playbook that recommends drastic changes in how the federal government currently functions, and it hasn’t been specifically discussed by the incoming administration. Project 2025 does, however, reference removing “special-interest tax credits.” That would likely be a heavy lift, requiring significant congressional support for legislation.

The more Immediate question about housing tax credits under the new administration is the chance of passing the package of reforms known as the Affordable Housing Credit Improvement Act, or AHCIA. The reforms would expand the number of credits available and makes various rule changes that should, for example, improve access to the smaller 4 percent credits and make it easier to use the credits in rural areas. Although it might seem counterintuitive to expect it to pass in 2025 after several failed attempts to get it through Congress under the Biden administration, Sarah Brundage, president and CEO of the National Association of Affordable Housing Lenders is optimistic—she says AHCIA has wide support and it’s primarily a matter of having a tax bill to attach it to, which she does see as a priority of the incoming administration.

Consumer Finance Protection Bureau
The incoming administration has been especially hostile to the Consumer Finance Protection Bureau (CFPB).

The existence of the agency and its funding is not in much immediate danger—both would take direct legislation to change, and the agency has done things to protect consumers that have wide popular support. And as Sen. Elizabeth Warren has noted, president-elect Trump has actually pledged to take actions that fall squarely within the CFPB’s mandate, such as capping credit card interest rates.

Such legislation may still be proposed, however—Project 2025 does call for the agency’s dissolution, and the return of consumer banking regulation to the Federal Trade Commission.

In the meantime, in May 2024, the Supreme Court upheld the funding mechanism for CFPB, which comes directly from the Federal Reserve rather than through annual appropriations, so the agency cannot be easily gutted through the budget process.

However, in 2020 the Supreme Court did rule that the president could remove the head of the agency at any time, overturning the previous rule that had said that, once appointed, the head could finish their five-year term except in cases of inefficiency, malfeasance, or neglect. It is universally expected that current CFPB Director Rohit Chopra will be fired and replaced by someone more friendly to financial institutions.

The CFPB also completed a lot of rulemaking this past year. Many of those rules were finalized within the time window that would make them subject to review and disapproval by the incoming Congress under the Congressional Review Act. Nonetheless, to the surprise of many, CFPB has continued to finalize rules since the election, even though rules struck down under the Review Act cannot be proposed again. Republicans have already been fighting many of the agencies’ rules, and now with more power are likely to try to roll back many of them through the review process.

In addition, John Wells, former deputy enforcement director at the CFPB, told Reuters that changes made by the agency outside the formal rulemaking process, such as through enforcement actions or guidance memos, would also likely be retracted under new leadership. The new administration could also back away from defending lawsuits brought by regulated entities opposing various rules.

Consumer Federation of America has published a brief calling on states to codify various FTC and CFPB rulings that could be under threat, including the “click to cancel” rule, which requires that it be easy for consumers to unsubscribe or cancel recurring payments and a prohibition on including medical debt in credit records.

Community Reinvestment Act
The 50-year-old Community Reinvestment Act (CRA) is enforced by the Office of the Comptroller of the Currency, Federal Reserve, and FDIC. There doesn’t seem to be any move to attack CRA itself, which has the support of most banks it covers now that they are used to working with it.
However, Brundage of the National Association of Affordable Housing Lenders says, “It’s safe to speculate they won’t pursue implementation in current format” of the recently finalized set of regulations to modernize CRA, long in development. Those regulations were passed in 2023, too long ago to be subject to a disapproval ruling under the Congressional Review Act. However, they are facing lawsuits from financial institutions. The new administration could decide not to defend against the lawsuits, or its agency heads could withdraw the new rules or simply not implement them. Brundage expects they will at least not be implemented in their current form. “There may be another day when [CRA] modernization is on the table again,” she says, but for now she notes that at least operating under the familiar old rules will offer a sense of stability for lenders.

Under the last Trump administration, the Office of the Comptroller of the Currency spearheaded its own set of CRA rule changes that would have proven disastrous to the community development field and the purpose of the CRA. Those rules were not supported by the Fed and were reversed in 2021.

Though CRA isn’t mentioned directly in Project 2025, it could be affected by the overall deregulatory and government-shrinking atmosphere. Project 2025 suggests, for example, that the Federal Reserve should “focus on price stability alone,” and not incorporate any environmental, social, and governance factors into its mandate, even full employment, with has long been considered half of its dual mandate, to be balanced with controlling inflation. If this approach takes hold, CRA could become like the affirmatively furthering fair housing provision of the Fair Housing Act was for its first decades—technically the law of the land, but with few enforced rules to make it reality.

Project 2025 also suggests merging the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration, and the Federal Reserve’s non-monetary supervisory and regulatory functions, and Trump has made noises about getting rid of the FDIC since election (though that is unlikely to get enough support to happen). Any of these moves would require an act of Congress, either to effect the merger or to extend reorganization authority to the president, which hasn’t happened in decades.

Fannie Mae and Freddie Mac
Will Fannie Mae and Freddie Mac be taken out of conservatorship during Trump’s second term? It’s quite possible.
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that play a crucial role in the U.S. housing market. They currently guarantee about 70 percent of all mortgages, according to the National Association of Realtors, which helps reduce costs for homebuyers.

Although Fannie Mae and Freddie Mac were created by Congress and have always been different from private companies in several ways, they are companies, not government agencies, and are owned by shareholders. In 2008, after they faced significant financial losses during the foreclosure crisis, the federal government was forced to take control of the companies and pay hundreds of billions to bail them out by buying large quantities of preferred stock in order to stabilize the U.S. housing market. It’s one of the largest bailouts in U.S. history. The Federal Housing Finance Agency, or FHFA, was created to oversee the companies in a legal arrangement known as conservatorship.

It’s been more than 16 years since the government’s bailout, and while Fannie Mae and Freddie Mac have since more than repaid the funds they received from their bailout, they’re still under FHFA’s control. In 2019 they were allowed to start rebuilding their reserves, seen as a first step toward operating independently again.

Over the years there have been numerous attempts at getting agreement on reforms that would allow safely removing Fannie and Freddie from conservatorship, but none have gotten traction. (Project 2025 suggests winding them down entirely, something most agree would lead to the end of the fixed-rate 30-year mortgage, which is unlikely to get support on either side of the aisle.) In 2019, a group convened by the National Housing Conference proposed a set of administrative and statutory reforms based on the existing system that could lead to the end of the conservatorship.

Could some form of GSE reform happen? Yes, absolutely. Technically, FHFA and Treasury have the power to end the conservatorship on their own at any time, but many desired reforms, such as making the implicit guarantee of a federal backstop explicit (but limited), would require Congressional action. It’s a complex process, and not likely to happen overnight, or even in the first couple of years of Trump’s second term. “Those are two giant ships,” Shamus Roller of the National Housing Law Project says of Fannie Mae and Freddie Mac. “They don’t turn on a dime.”

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