The Other Fannie and Freddie Lawsuit

On Tuesday, a federal judge dismissed a lawsuit from a group of Wall Street investors claiming that the government's decision to "sweep" the profits of Fannie Mae and Freddie Mac violated the rights of the companies' shareholders. As a result, all quarterly profits at Fannie and Freddie will continue to flow directly to the U.S. Treasury for the foreseeable future, pending further legal action.

That's good news for taxpayers, who have invested $187.5 billion in the mortgage companies since they were placed under government conservatorship in 2008. Not so much for the speculators who bought up Fannie and Freddie stock after the crash: shares in the companies lost more than a third of their value on Wednesday after the decision was announced.

The lawsuit will surely leave its mark on Wall Street and influence the future of Fannie and Freddie. However, when it comes to pain felt on Main Street, another far-less-publicized lawsuit will likely have a bigger impact.

Last year, a group led by the National Low-Income Housing Coalition sued Fannie's and Freddie's regulator, the Federal Housing Finance Agency, to lift the agency's suspension of mandatory funding to affordable housing programs. In a separate decision this week, a federal judge dismissed the lawsuit, citing standing and jurisdictional concerns.

At the center of the lawsuit was the National Housing Trust Fund, which was created by Congress in 2008 to support state and local efforts to build affordable rental housing and provide homeownership opportunities for low-income families. As originally envisioned, the Housing Trust Fund and another important community development program, the Capital Magnet Fund, would receive funding through a modest assessment on Fannie's and Freddie's ongoing business. FHFA suspended those obligations when Fannie and Freddie were put into conservatorship a month later, and the Housing Trust Fund has sat empty since its inception.

For the past year, the FHFA has cited the ongoing lawsuit to defend its near radio-silence on the issue. When FHFA Director Mel Watt was asked about the Housing Trust Fund at a recent event in North Carolina, he evaded the question. Notably, Mr. Watt did not mention the issue in his first major policy address earlier this year, and neither the Housing Trust Fund nor the Capital Magnet Fund was referenced in the agency's five-year strategic plan released in August. The agency did, however, include a strategic priority of supporting America's renters with "a focus on the affordable and underserved segments of the market."

As the FHFA stalls on the issue, America's renters face a growing housing insecurity crisis. According to the Harvard Joint Center for Housing Studies, more than one in four renter households pay at least half of their monthly income on housing — an unprecedented number. Many of these families are forced to make toxic choices — between paying rent or buying groceries, between keeping the lights on or buying medicine — often with severe health and other consequences. Meanwhile, due to recent budget cuts, federal funding for rental assistance programs covers only a small fraction of the families who need it.

We cannot address this crisis without additional resources. Both Fannie and Freddie have been profitable since 2012 and have returned more money to taxpayers than they initially received in the bailout. According to the National Low-Income Housing Coalition, if Fannie and Freddie had been required to fund the programs in 2012 and 2013, a total of $760 million would have gone to communities to support more affordable housing.

The FHFA can take a meaningful step toward ending housing insecurity by lifting their suspension on funding the Housing Trust Fund and the Capital Magnet Fund. Now that the lawsuit has been dismissed — and since we now know that the government's relationship with Fannie and Freddie will not be changing anytime soon — it's time for the FHFA to make good on Fannie's and Freddie's legal obligations.

John Griffith is a senior analyst and project manager at Enterprise Community Partners, a national affordable housing organization. Andrew Jakabovics is the senior director for Policy Development and Research at Enterprise Community Partners.