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Hearing Held on GSE Regulatory Reform Bill with Affordable Housing Fund

Capitol Hill
Memo to Members: Vol 12, No. 11, March 16, 2007

On March 15, the House Financial Services Committee held a hearing on H.R. 1427, the Federal Housing Finance Reform Act of 2007. The bill includes an Affordable Housing Fund. The bill was introduced on March 9 with bipartisan support from Committee Chair Barney Frank (D-MA) and cosponsors Representatives Mel Watt (D-NC), Richard Baker (R-LA) and Gary Miller (R-CA).

The Affordable Housing Fund included in H.R. 1427 is similar to the one included in H.R. 1461 in the last Congress (see Memo, 5/27 and 10/28/05), with two important differences. One is how the funds would be distributed. The previous measure would have allowed the government sponsored enterprises (GSEs) to administer the program. The new bill calls for HUD to allocate the funds to states based on a number of factors including population, housing affordability, percentage of very and extremely low income families, cost of rehabilitation, and extent of substandard and aging housing. Also, H.R. 1427 would derive the funds through contributions from Fannie Mae and Freddie Mac in amounts equal to 1.2 basis points on each GSE's total outstanding mortgages each year from 2007-2011, rather than a percentage of the profits as in last year's bill.

In the first year, 75 % of the available housing funds would go to Louisiana and 25% would go to Mississippi for affordable housing needs as a result of Hurricanes Katrina and Rita. Thereafter, funds would be allocated by formula to the states including the District of Columbia, federal territories and federally-recognized tribes. All of the funds would have to be used for the benefit of extremely low income and very low families, with a preference for ELI households. The funds can be used for rental housing and home ownership. At least 10% must be used for homeownership and no more than 12.5% in any state can be used for public infrastructure activates in conjunction with housing.

The bill includes a number of provisions that would ensure that the funds are used strictly for housing.

NLIHC President Sheila Crowley testified. Other witnesses were Richard Syron, chairman and CEO of Freddie Mac, Daniel Mudd, president and CEO of Fannie Mae, James Lockhart, director of the Office of Federal Housing Enterprise Oversight, Robert Steel, Under Secretary of the Treasury for Domestic Finance and Carter Carnick, General Deputy Assistant Secretary of HUD.

Ms. Crowley said there is an acute shortage of homes affordable to extremely low income households, and the Affordable Housing Fund is a creative answer toward addressing that need. Other witnesses did not oppose the Affordable Housing Fund. Mr. Steel, representing the Administration, said the fund should be controlled by the federal government rather than by Fannie Mae and Freddie Mac; other witnesses agreed. Representative Judy Biggert (R-IL) raised her concern about the states having the ability to adequately distribute the funds. Mr. Carnick said that HUD could responsibility and effectively run the fund and would not be shy about an expanded role.

Both Fannie Mae and Freddie Mac indicated support for the fund although Mr. Mudd argued for permitting the GSEs to manage it. But Mr. Frank said that allowing the GSEs to manage the fund would be problematic, as many believe it would become a political tool.

Several Republican Members of the Committee argued against the Affordable Housing Fund in the regulatory reform bill, including Ranking Member Spencer Bachus (R-AL). However, when questioning Ms. Crowley after her oral statement, Mr. Bachus said he recognizes that there is a need for more rental housing for the very poor, including people who are elderly and disabled. He suggested the program could be run through the very effective Affordable Housing Program (AHP) that is run by the Federal Home Loan Banks. Ms. Crowley agreed that using the AHP program is certainly a possibility and said she was pleased that the discussion had passed the point of talking about the merits of the program and on to how to distribute the money efficiently. Mr. Frank said that the issue of how the funds are to be disturbed does not have to be resolved immediately, because for the first year, they would go to Louisiana and Mississippi to help victims of Hurricane Katrina. Ms. Crowley suggested that a portion of the funds should also go to Texas and Alabama.

Ms. Crowley also suggested a cap on the amount to be spent on homeowner activities to ensure that a majority of the funds will be spent on the construction or rehabilitation of rental housing units. The bill currently would require at least 10% must be used for homeownership. Ms. Crowley's testimony can be found at: www.nlihc.org/doc/031507test.pdf.

Mr. Frank said that the Financial Services Committee will mark-up H.R. 1427 on March 28 with the hopes of having it considered in the House in April.