Housing advocates are still rejoicing after the action taken by Federal Housing Finance Agency Director Mel Watt to direct Fannie Mae and Freddie Mac to begin sending a portion of their profits to the National Housing Trust Fund (NHTF) and Capital Magnet Fund (CMF) to meet the housing and community needs for very low-income families. The announcement was a long-awaited victory for housing advocates across the country who labored for six years to secure NHTF funding after the fund was established. Immediately following Watt’s announcement, however, many legislators, especially Republicans in the House, were adamant in their disapproval of Director Watt’s decision. Several lawmakers vowed to take legislative action to revoke the decision.
On January 27, 2015, Representative Ed Royce (R-CA), Senior House Financial Services Committee member, introduced “Pay Back the Taxpayer Act of 2015.” The legislation would prevent Government Sponsored Enterprises (GSEs) Fannie and Freddie from directing funds to the NHTF and CMF while the GSEs remain under government conservatorship. The legislation also includes a provision that would require any allocations already transferred to or set aside for the funds to be used for deficit reduction instead.
Representative Royce and other congressional Republicans believe that as long as the firms remain in conservatorship, forcing them to divert capital to the NHTF is an unacceptable risk of taxpayer money. Currently, there is no companion bill in the Senate.
Representative Royce has stated on record that the NHTF is a “slush fund” that puts taxpayers at risk by financing housing loans to people in the U.S. who cannot afford to purchase a home. The California Congressman believes that a “larger government presence in housing distorts the market and promotes a boom-and-bust cycle that leaves taxpayers holding the bag.”
Watt defended his action in testimony. He stated that he believes he is following his legal mandate by allowing contributions to the funds, now that Fannie and Freddie have resumed profitability. House Democrats have generally supported Watt’s decision.
Representative Maxine Waters (D-CA) believes Watt has “taken steps to ensure that our housing market remains affordable and works for everyone.”
Fannie and Freddie went into government conservatorship in 2008 after a $190 billion taxpayer bailout. At that time, the GSEs were relieved of their obligation to direct funds to the NHTF and CMF. In December, 2014, Director Watt reversed the FHFA’s 2008 decision to cut funding following the economic collapse. Starting this year, Fannie and Freddie will make set aside payments based on the amount of unpaid principal balance of mortgages they purchase. They are expected to make their first payments in early 2016. If not for the suspension, the GSEs would have paid $500 million into the funds in 2014.
The NHTF’s funds are to be used for the construction, preservation, rehabilitation and administration of rental housing and single-family homeownership activities that support the housing needs of extremely low- and very low-income households. The NHTF is a block grant to states, administered by the Department of Housing and Urban Development (HUD).
CMF awards can finance affordable housing activities, related economic development activities, and community service facilities with the purpose of stabilizing low-income areas or under-served rural areas. The CMF awards competitive grants to community development financial institutions (CDFIs) and qualified nonprofit housing organizations.