Congress passed a massive housing bill in the summer of 2008 which was supposed to create a trust fund and provide a steady source of financing for the construction and preservation of affordable rental housing.
The Housing and Economic Recovery Act, known as HERA, directed Fannie Mae and Freddie Mac to support this National Housing Trust Fund. The lawmakers expected the government-sponsored enterprises would send annual checks to the trust fund equal to 4.2 basis points of their total loan purchases.
Passage of this trust fund provision was the culmination of a multiyear lobbying effort by the National Low Income Housing Coalition and other affordable housing advocates.
But Congress passed HERA in response to the severe downturn in the housing market. And the housing crash soon overwhelmed Fannie and Freddie, which were placed in conservatorship in September 2008.
A few months later, the GSE regulator served notice that Fannie and Freddie’s first allocation to the trust fund would be suspended due to their financial problems. HERA allows the Federal Housing Finance Agency to “suspend contributions on a temporarily basis,” the GSE regulator said.
But after years of losses, the GSEs are finally profitable again. Fannie reported net income of $17.2 billion for 2012 and Freddie posted $11 billion in earnings for the full year.
NLIHC president and chief executive Sheila Crowley has approached the FHFA about funding the NHTF but she has not received a response.
“The time has long past for Fannie Mae and Freddie Mac to be supporting the National Housing Trust Fund as Congress meant for them to do,” Crowley said last week.
Based on the loan purchases, NLIHC estimates that the GSEs owe the dormant housing trust fund $282 million for 2012.
So NLIHC and other affordable housing groups have sued the FHFA and its acting director Edward DeMarco.
“We are hopeful this lawsuit will get the attention of Mr. DeMarco. He does have the power and the authority to make sure Fannie and Freddie are making the contributions to the trust fund,” Crowley said at a press conference.
Florida Legal Services attorney Charles Elsesser filed the lawsuit against the FHFA and DeMarco in the U.S. District Court for the Southern District of Florida.
Elsesser noted the FHFA has not responded to NLIHC’s request to lift the suspension or even acknowledge that a request was made.
Following the filing of the lawsuit, a FHFA spokesperson said agency officials are reviewing the lawsuit. “But it is important to note that in 2008 when the Affordable Housing Trust Fund payments were suspended, in line with governing law, the financial viability and future of Fannie Mae and Freddie Mac was uncertain; that remains the case today,” the FHFA spokesperson said.
Whatever comes of the lawsuit or the GSEs, it appears the idea of a National Housing Trust Fund will continue to live on.
A GSE reform bill sponsored by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., provides funding for the National Housing Trust Fund.
The senators are proposing to wind down Fannie and Freddie over five years and create a new housing finance system. Their bill, which has attracted bipartisan support, provides for a new “Market Access Fund” that will replace Fannie and Freddie in funding the National Housing Trust Fund along with other housing initiatives and research.
The Market Access Fund would be funded through a fee on mortgage-backed securities that are backed by a new federal insurance agency.
A joint GSE reform proposal advanced by Moody’s Analytics, the Urban Institute and Milken Institute estimates a 6 basis point MBS fee would generate at least $5 billion in annual revenue and provide a “stable and consistent” funding source for the Market Access Fund.
The NLIHC president noted that there are 10 million extremely low-income renter households in the U.S. and only 6.5 million homes with rents they can afford.
“It is unconscionable in our country today,” Crowley said, that housing is promoted primarily through the tax code and via Fannie Mae and Freddie Mac. Meanwhile, “we solely neglect the housing needs of poor.”
She also noted that the Department of Housing and Urban Development supports affordable rental housing but its budget continues to be cut year after year.
