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As Congress struggles to determine the appropriate role for government in the mortgage market, affordable housing may prove a politically charged hurdle on the path to reform.
August 7
WASHINGTON The battle over how to craft affordable housing requirements as part of mortgage finance reform took center stage on Thursday as witnesses at a Senate Banking Committee hearing sparred over the issue, including whether dedicated funds should be subject to Congressional appropriations.
In a bill introduced this summer, Sens. Bob-Corker, R-Tenn., and Mark Warner, D-Va., proposed dedicating money to a trust fund that would aid poor families in finding rentals and buying homes, provided by a 5 to 10 basis point fee on mortgage-backed securities. The fund itself was actually already created by the 2008 Housing and Economic Recovery Act but never provided money because of the collapse and seize of Fannie Mae and Freddie Mac later that year.
During the hearing, economists and consumer groups squared off over how the funds should be financed, including whether Congress should have a say in their size. The issue of affordable housing, including ongoing use of trust funds, is one that continues to divide Democrats and Republicans and could ultimately prove a stumbling block in larger negotiations over reform of the government-sponsored enterprises.
"These are important policy goals, that's not in dispute, but they should be reviewed on a regular basis to make sure they are meeting their policy objectives," said Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office. "The funding for them should be traded off against funding objectives within the [Department of Housing and Urban Development] budget, and the reality is many of the programs that are on the budget now could be improved or eliminated and those funds would be freed up for these objectives."
He said it would be a mistake for Congress to keep creating housing trust funds that are outside the appropriations process.
"If the response of the Congress in every instance is to create a special, outside-the-budget funding mechanism than the admittedly broken appropriation and budget process will only be worse," he said. "It will be a Balkanized, unbalanced set of efforts."
But Sheila Crowley, president and chief executive of the National Low Income Housing Coalition, pushed back, arguing that while accountability is critical, the trust funds serve important needs that require a dedicated funding stream not privy to the broken Congressional appropriations process.
"If we thought the appropriations worked, which we don't think it does, and if we thought we could get appropriate funds... to solve this problem, then we wouldn't need to be having this conversation. But it hasn't proven to be the case," she said. "Having the housing finance market, which is making a lot of money, pay some fee to support some things that the market will not do is something we think is highly appropriate and we would urge you to seize this opportunity."
She also pointed to the fact that the housing trust funds were already included in the 2008 housing law, suggesting that the debate over how they should be structured has already been fought.
"We've been down this road, we've thought about this a lot. So it doesn't seem to me that there's a lot of questions about accountability at this point," said Crowley.
Warner defended his bill, arguing that going through the appropriations process could lead to widely varying pools of money year over year that were available to the trust funds.
"Don't we actually create a countercyclical balance by having this funding source that's not subject to the budgetary constraints, so that in these downturns this fund is still going to be stable, which could actually help us achieve our goals?" asked Warner.
Holtz-Eakin acknowledged that if the Senate is set on passing legislation with the housing trust funds not part of the appropriations process, there are other steps lawmakers could take to ensure that the funds are being monitored carefully.
"Do not delegate too much authority to an independent regulator to set such a fee and fund such a trust fund," he said.
Lawmakers and witnesses also discussed the extent to which the housing trust funds are sufficient for ensuring low- and moderate-income families have access to the housing market.
Sen. Elizabeth Warren, D-Mass., raised concerns about the notion of removing the affordable housing goals that were originally set forth under the GSEs, warning that the housing trust funds do not replace those policy provisions.
"One is not a substitute for the other, and we have got to look at both of these independently," she said.
Crowley outlined how the various policies intersect, highlighting the need for a process to provide broad access to the housing market beyond the dedicated funds.
"The affordable housing goals, which are very important, they did not reach poor people," she said. "So the housing trust fund, the reason that we established that, is so that we did in fact have a way to come up with a dedicated revenue to get the rental housing groups to move poor people."
Crowley noted that affordable housing goals are "not going to do the kinds of things we need to do to create access to home ownership for low-income families."
