Remember the National Housing Trust Fund? I wouldn’t blame you if you don’t because it has never helped finance any affordable housing units, though that’s what it’s supposed to do.
Now it looks as if the Trust Fund may fulfill expectations, but probably not until some time around 2020, if then. So we’ll still need more funding for affordable housing programs now — and would even if the Trust Fund were a for-sure, near-term source.
Why the Trust Fund Has No Funds
As I wrote some time ago, Congress established the Trust Fund in 2008 to address what was already an affordable housing shortage.
The Fund was to be a source of grants to states. They were to use 90% of the money for rental housing. And 75% of it had to go to rental housing that was affordable for extremely low-income households, i.e. those with incomes at or below 30% of the median for the area they live in.
But the Fund never had any funds for grants because its revenue stream was to come from Fannie Mae and Freddie Mac. They became essentially bankrupt when the housing bubble burst.
The agency that took over to manage them back to solvency suspended their contributions to the Trust Fund. And the freeze still stands, even though they’re turning profits again.
President Obama has repeatedly included one-time $1 billion financing for the Trust Fund in his proposed budgets. Well, we know what’s come of them. Bills have been introduced in Congress to provide funding in others ways. Nothing has come of them either.
And so, as PoltiFact says, the Trust Fund “is nothing more than a page on HUD’s website.”
A New Revenue Stream
Senator Tim Johnson, who chairs the Senate Banking Committee, and Senator Mike Crapo, its most senior Republican member, have introduced a bill that would provide the Trust Fund with an ongoing revenue stream — potentially more than $5 billion a year,* according to the National Low Income Housing Coalition.
The bill as a whole would replace Fannie and Freddie with a new entity to regulate the secondary mortgage market, i.e., securities backed by bundled mortgages that are sold to pension funds, insurance companies and other investors.
Like Fannie and Freddie, the new entity — the Federal Mortgage Insurance Corporation — would guarantee investors against losses, but only those that exceed 10% of the securities’ value.
Institutions that choose to participate in the new system would be charged a user fee. FMIC could calibrate it to provide incentives for issuing mortgages in underserved areas. But fees would have to average 10 basis points, i.e., 10 hundredths of a percent, on all covered securities.
Seventy-five percent of the fees would go to the Housing Trust Fund. Another 15% would go to the Capital Magnet Fund, providing a further boost for affordable housing.
So one can understand why NLIHC says that the bill “would provide the most significant new investment in rental housing affordable to America’s neediest families in forty years.”
But Will It Pass?
Zillow Real Estate Research, which provides a very useful summary of the very complex bill, cites “substantial” near-term hurdles to Congressional approval — and some that may prove not only near-term.
Some Democrats and advocacy groups, it says, believe the bill doesn’t do enough to promote affordable housing. This, I take it, refers to the fact that it eliminates the affordable housing goals that were supposed to govern Fannie and Freddie’s mortgage purchases.
The bigger hurdle, as you might expect, is right-wing Republicans’ antipathy to most anything the federal government does to regulate private markets — and to compensate for their failures.
Housing Finance Committee Chairman Jeb Hensarling is thus “skeptical of any approach that does not end the permanent government guarantee in the secondary mortgage market” — a function his committee’s bill would largely privatize.
More to the point, the bill would eliminate the Trust Fund and the Magnet Fund — and replace them with … well, nothing. “The best affordable housing program is a job,” Hensarling says.
All the Congress-watchers I’ve read agree that we’ll see no definitive action on housing finance reform any time soon — almost surely not until next year, when the upcoming elections are history.
Meanwhile the Affordable Housing Crisis Worsens
NLIHC reports a shrinking “sliver” of the rental market still affordable and available to ELI households, making for a shortfall of seven million units in 2012. Only a quarter of households eligible for federal and local subsidy programs receive assistance, it adds.
In the last year alone, some 70,000 fewer families have had federally-funded vouchers to help pay their rent, according to Center on Budget and Policy Priorities estimates. And last December’s budget deal won’t free up enough funding to restore even half the vouchers lost.
Even if Congress were to provide funding for all the lost vouchers, we’d still have waiting lists — and at least 4.9 million ELI households paying more than half their income for rent.
* This figure comes from the NLIHC report I recently wrote about. Its earlier press release (linked to further on) put the potential revenue stream at more than $3.5 billion a year.