Editor: David Reiss
Brooklyn Law School

August 9, 2013

Fannie, Freddie & Affordable Housing

By David Reiss

I was quoted in a story, Affordable Housing May Trip Up Fannie, Freddie Fixes (behind a paywall).  It reads in part,

While the debate over housing finance reform in Washington has focused on the government’s role as market backstop, analysts say questions about federal funding for affordable housing add another potential pitfall for lawmakers looking to dismantle and replace Fannie Mae and Freddie Mac.

Fannie and Freddie long have been part of a broader government program to add to the country’s affordable housing stock. Republicans have been critical of that mission and targeted it as something that should be abolished along with the two mortgage giants, while Democrats want to keep programs promoting affordable housing in any reform of the housing finance system.

As the U.S. House of Representatives and Senate move forward with their own visions of a new system for financing home purchases, it is likely that those two perspectives on affordable housing promotion will clash, said Rick Lazio, a former four-term Republican member of Congress from New York.

“That will be a significant obstacle to getting an agreement,” said Lazio, now the chairman of Jones Walker LLP’s housing and housing finance industry team.

One of the main issues lawmakers will have to confront will be what to do with the National Housing Trust Fund, a program created by the 2008 Housing and Economic Recovery Act.

HERA required Fannie Mae and Freddie Mac to transfer a small percentage of the money from new business to the fund, which would then be used to subsidize the construction of rental housing for low-income families.

The fund’s inclusion in HERA was seen as a major victory for affordable housing advocates, but the benefits never materialized.

Soon after HERA passed, Fannie and Freddie were placed into conservatorship after mounting losses from exposure to subprime mortgages, and the two companies took a combined $187 billion bailout. The Federal Housing Finance Agency canceled all contributions to the fund.

Several housing advocacy groups have sued the FHFA to force the agency to allow Fannie Mae and Freddie Mac to resume their contributions now that the entities are generating profits and repaying the bailout money.

What seems more likely than getting the money the two companies were supposed to pay out is that the funds allocated to affordable housing will be shrunk under a new system, as envisioned by a Senate bill, or eliminated altogether, as proposed by a bill introduced by House Republicans.

“If it’s included at all, it will be smaller,” Brooklyn Law School professor David Reiss said of affordable housing money.

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