“It is beyond irresponsible to restart these affordable-housing allocations without first dealing with the underlying problems at Fannie Mae and Freddie Mac,” Sen. Bob Corker (R., Tenn.)
Fannie, Freddie to Begin Payments to Affordable Housing Funds
Fannie and Freddie Will Send 0.042% of Every Dollar in New Mortgage Purchases to the Funds
Federal Housing Finance Agency director Mel Watt, shown last year. Bloomberg News
By Joe Light
The regulator of Fannie Mae and Freddie Mac ordered the mortgage companies to begin giving potentially hundreds of millions of dollars a year to a pair of affordable-housing funds, pleasing low-income-housing advocates but sparking anger among groups that say they are worried about the risk to taxpayers.
The two funds, one administered by the Department of Housing and Urban Development and one by the Treasury Department, enable states and other bodies to get money to build low-income rental housing or to rehabilitate existing housing.
In letters to the chief executives of Fannie and Freddie on Thursday, Federal Housing Finance Agency director Mel Watt lifted a suspension of payments to the funds put into effect in 2008, when Fannie and Freddie teetered on the brink of collapse.
The companies returned to profitability in 2012 and Mr. Watt wrote in the letters that “circumstances have changed [since the suspension was implemented] and the temporary suspension is no longer justified.”
The decision is the latest move to use Fannie and Freddie to bolster housing affordability. On Monday, Fannie and Freddie unveiled details of new programs that will allow some borrowers to get mortgages with down payments of as little as 3%, rather than 5%.
Critics contend that decisions on down payments and on giving money to the funds could make Fannie and Freddie vulnerable in the event of another downturn. Proponents of the moves have said they will provide a much-needed boost to efforts to lower housing costs.
Fannie and Freddie will make a payment to the funds each year of 0.042% of the unpaid principal balance of their new mortgage purchases in the previous year. If not for the suspension, the companies together would have made a payment of about $500 million in 2014, based on 2013’s volume. After Mr. Watt’s decision, the first payment won’t be made until early 2016.
Rep. Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee, said his panel would call Mr. Watt to testify after Congress reconvenes in January. He called the move a “lump of coal in the stocking of every American taxpayer.”
In the meantime, the decision is a victory for low-income-housing advocates, who have sought the funding for years.
The Fannie-Freddie funding mechanisms for the funds are of special value to low-income-housing advocates, since they don’t need consistent appropriations from Congress. The budgets of other sources of low-income-housing money, such as the Department of Housing and Urban Development, have come under pressure in recent years.
“We are thrilled,” said Sheila Crowley, president of the National Low Income Housing Coalition. “This is the first new money for housing production for extremely low income people” in years, said Ms. Crowley, whose organization estimates that there were more than 10 million renter households in 2012 with income generally below 30% of their area’s median.
Fannie and Freddie don’t make loans. They buy them from lenders, wrap them into securities and provide guarantees to make investors whole in case of default. The companies were put into a conservatorship by the government in 2008 and received almost $188 billion in bailout money. Since 2012, they have been required to send nearly all of their profits to the U.S. Treasury, and as of the end of 2014 will have paid more than $225 billion.
The provision for Fannie and Freddie to make payments to the funds was established as part of a broader bill meant to stem the housing crisis in 2008. But the payments were almost immediately suspended by then-FHFA Director James Lockhart as the companies’ losses mounted.
As the companies returned to profitability, the FHFA came under increased pressure to lift the suspension. The National Low Income Housing Coalition and others last year sued the FHFA to force it to reinstate payments. That lawsuit was thrown out in September by a federal district court judge who said that the plaintiffs didn’t have standing to bring the suit.
On the other hand, many Republican lawmakers have repeatedly asked Mr. Watt to leave the suspension in place, citing the taxpayer backing of the companies and continuing legislative efforts to overhaul them.
“It is beyond irresponsible to restart these affordable-housing allocations without first dealing with the underlying problems at Fannie Mae and Freddie Mac,” said Sen. Bob Corker (R., Tenn.) on Thursday. Mr. Corker had been one of the primary proponents of a bill to overhaul the housing-finance system that stalled in May.