Federal Housing Finance Agency Director Mel Watt directed Fannie Mae and Freddie Mac to again set aside and allocate funds to the Housing Trust Fund and the Capital Magnet Fund, under the aegis of the Housing and Economic Recovery Act of 2008.
HERA authorized FHFA to temporarily suspend these allocations, and FHFA informed Fannie Mae and Freddie Mac of a temporary suspension on November 13, 2008.
In letters sent Thursday, Watt informed the government sponsored enterprises of the FHFA’s decision to reverse the temporary suspension.
Separately, FHFA sent to the Federal Register an Interim Final Rule to address the statutory requirement that the allocations may not result in transferring their expense to originators or other Enterprise counterparties.
The Interim Final rule is effective upon publication and has a 30-day comment period.
The Housing Trust Fund is a permanent federal fund that focuses on providing support to states to build, preserve and ultimately increase the supply of affordable housing for extremely low- and very low-income families, including homeless families. The fund also provides rental assistance.
U.S. Rep. Maxine Waters, D-Calif., coauthor of the bill that created the trust fund, was pleased.
“I am thrilled that Federal Housing Finance Agency Director Mel Watt has decided, in keeping with his statutory mandate, that it’s time to fund the Housing Trust Fund and the Capital Magnet Fund. In the richest country in the world, it is unconscionable that there are 7.1 million American households for whom safe and decent housing is neither affordable nor available,” Waters said. “By allocating a tiny percentage of Fannie Mae and Freddie Mac’s profits to these Funds, we have the chance to improve the lives of millions of American children, families, people with disabilities and the elderly."
Under HERA, money will flow to the two programs through a 4.2 basis point assessment on new business purchases at Fannie Mae and Freddie Mac.
FHFA ordered the companies to begin setting aside those funds in January 2015.
Enterprise Community Partners says that this is an important step forward.
“Based on recent purchase volumes at Fannie and Freddie, we expect about $500 million to go to the two funds each year,” according to John Griffith at Enterprise Community Partners. “Sixty-five percent of that funding will go to the HTF, while the remaining 35 percent will go to the CMF."
Others are skeptical of its effectiveness.
“Bear in mind that Fannie Mae and Freddie Mac will pass this “tax” on to potential borrowers, raising the cost of borrowing,” says Anthony Sanders, distinguished professor of housing economics at George Mason University. “Funding schemes like the Housing Trust Fund can be considered more like ‘slush funds’ used to advance political agendas rather than simply affordable housing.”
Republicans, who will take control of the House and Senate in January, were hopping mad.
Financial Services Committee Chairman Jeb Hensarling, R-Texas, said this was a big mistake for Watt.
“In taking this action, Director Watt is making a grave mistake that harms hardworking taxpayers and violates both the letter and spirit of the law. Today’s announcement was clearly timed for the end of the congressional session in a transparent effort to evade scrutiny and frustrate congressional oversight. That will not happen because the Financial Services Committee will call Director Watt to testify as soon as the next session of Congress begins in early January,” Hensarling said. “Fannie Mae and Freddie Mac were at the epicenter of the 2008 financial crisis that threw millions of Americans out of work and destroyed trillions of dollars of household wealth. The nearly $200 billion bailout of Fannie and Freddie is still the biggest, costliest taxpayer-funded bailout in history, and contrary to what some claim, they have yet to ‘repay’ taxpayers one thin dime. Diverting assets to housing trust funds instead of repaying taxpayers or stabilizing Fannie and Freddie’s finances only makes matters worse. Director Watt’s decision to activate the Fannie and Freddie slush fund may be an early Christmas present for Acorn-like, liberal housing activists, but it’s a lump of coal in the stocking of every American taxpayer.”
On the Senate side, U.S. Senator Bob Corker, R-Tenn., a member of the Senate Banking, Housing and Urban Affairs Committee, likewise criticized the move.
“It is beyond irresponsible to restart these affordable housing allocations without first dealing with the underlying problems at Fannie Mae and Freddie Mac,” said Corker. “These two entities would not be generating one penny of revenue without taxpayer backing, and until the American taxpayers are taken off the hook for a future bailout, FHFA should continue to suspend payments to these funds.”
During the 2008 financial crisis, Fannie Mae and Freddie Mac were taken into government conservatorship and given a $188 billion capital injection from taxpayers to stay afloat. As a result, the private market almost completely disappeared, and nearly every loan made in America today comes with a full government guarantee. Despite this unsustainable situation, there still has been no real reform to our housing finance system.
A recent FHFA stress test projected that Fannie Mae and Freddie Mac could require a $190 billion taxpayer bailout to keep them afloat during a future crisis.
Rep. Randy Neugebauer, R-Texas,Chairman of the House Financial Services Subcommittee on Housing and Insurance, released the following statement today after the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to allocate funding for the Housing Trust Fund and the Capital Magnet Fund:
“I am outraged by Director Watt’s decision to fund the Housing Trust Fund at a time when taxpayers remain on the hook for the operations of Fannie and Freddie. To add insult to injury, today’s decision comes at the eleventh hour just before Congress finishes its legislative work for the 113th Congress. The timing could not be more suspect.
“Recent history should serve as a reminder that failed government housing policy can have catastrophic consequences for hardworking American taxpayers and the overall health of our economy. This is déjà vu all over again. Director Watt may have forgotten the path of destruction left by the GSEs, but the American people have not. $16 trillion in wealth destruction which shattered dreams of early retirement for millions, countless boom and bust cycles that have wreaked havoc on the emotions of families across the country, and nearly $200 billion of taxpayer funded bailouts that plunged the nation further into debt. I look forward to working with my colleagues on the House Financial Services Committee to hold the Agency accountable and conduct further oversight.”