Senator Reed Introduces GSE Mission Improvement Bill; Trust Fund Provision Included
National Housing Trust Fund
Memo to Members: Vol 12, No. 45, November 16, 2007
On Friday, November 16, Senator Jack Reed (D-RI) introduced the Government Sponsored Enterprise Mission Improvement Act. The bill would amend the Housing and Community Development Act of 1992 to strengthen the affordable housing mission of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. Upon introduction of the bill, Senator Reed said, “I believe that deepening Fannie and Freddie’s responsibilities towards affordable housing must be a part of any type of GSE reform that we undertake in the Senate.”
It is expected that the provisions in Senator Reed’s bill will become the affordable housing provisions in eventual comprehensive GSE reform legislation, which the Senate has not yet taken up. H.R. 1427, the House’s comprehensive GSE bill, already includes affordable housing requirements.
The bill would require Fannie Mae and Freddie Mac to set aside 4.2 basis points on each dollar of unpaid principle balance of total new business purchases for an Affordable Housing Program (AHP). Sixty-five percent of the AHP would go toward an Affordable Housing Block Grant Program (AHBGP), the purpose of which would be to increase and preserve the supply of rental housing and increase homeownership for extremely low and very low income households. The HUD Secretary would administer the AHBGP. The remaining 35% of the AHP would go towards a Capital Magnet Fund (CMF), administered by the Secretary of the Treasury.
Like the House bill, this bill directs the funds in the first year to a specific current housing problem. The House bill gives the funds to Louisiana and Mississippi for rebuilding affordable rental housing. The Senate bill addresses the foreclosure crisis.
In FY08, 100% of the AHBGP would be allocated to states by formula grant to address the current subprime mortgage crisis. The HUD Secretary would establish a formula to distribute these funds, taking into account population, the 90-day delinquency rate and the ratio of foreclosures to owner-occupied households within the state.
These grants would be used to facilitate loan modification and refinance options for low and moderate income borrowers facing foreclosure. Specifically, for eligible homeowners the funds could be used to support the refinancing of loans, reduce outstanding loan balances and pay off outstanding amounts owed for taxes and insurance.
Up to 20% of these funds would be available as grants to nonprofit developers for the rehabilitation and sale of foreclosed properties to low and moderate income homebuyers. These funds would be available for down payment and closing cost assistance, repairs of a home and for financing the difference between the sales price of a home and the mortgage for which the homebuyer qualifies.
In 2009 and in subsequent years, the funding would be distributed by formula grants to states for the development, construction and preservation of housing for very low and extremely low income families.
Distribution to states would be through a needs-based formula. The formula would include consideration of: a state’s shortage of standard rental units both affordable and available to extremely low income and very low income renter households, with a priority for states showing the greatest need of units for extremely low income rental units; the number of households in a state living with incomplete kitchen or plumbing facilities, more than one person per room or paying more than 50% of their income towards their rent; and the ratio of households paying more than half of their income towards their rent, compared to other states. Added to these considerations would be the relative cost of construction in the state. No state would receive less than $3 million.
Eligible uses for the AHBGP would include the production, preservation and rehabilitation of rental housing for very low and extremely low income households. Operating costs for this housing would also be a permissible use of the funds. Additionally, not more than 10% of the funds would be available for the production, preservation and rehabilitation of housing for homeownership by extremely low and very low income first time homebuyers. Downpayment assistance, closing cost assistance and assistance for interest rate buy-downs would be eligible uses of the funds within this category.
None of the funds could be used for political activities, advocacy, lobbying, counseling services, travel expenses or preparing or providing advice on tax returns.
Should a National Affordable Housing Trust Fund be enacted at any point in the future, the HUD Secretary would be required to transfer funds from the AHBGP to the trust fund.
The remaining 35% of the AHP would establish a Capital Magnet Fund (CMF), a special account within the Community Development Financial Institutions (CDFIs). The Treasury Secretary would carry out a competitive grant program to increase investment in: the development, preservation, rehabilitation and purchase of affordable housing for “primarily” extremely low, very low and low income families; and economic development activities or community service facilities, such as day care centers, workforce development centers and health care facilities. These facilities should, “in conjunction with affordable housing activities, implement a concerted strategy to stabilize or revitalize a low income area or underserved rural area.”
Eligible uses of the CMF would include providing loan loss reserves, capitalizing a revolving loan fund, capitalizing an affordable housing fund, capitalizing funds for economic development activities and for risk-sharing loans. The Treasury Secretary would seek to fund activities in geographically diverse areas of economic distress in every state.
Like the AHFBG, if a national housing trust fund is established in the future, the funds for the Capital Magnet program would be directed to the trust fund.
The Reed bill also includes affordable housing goals provisions that are similar to those in H.R. 1427. The bill would require the establishment of three goals: (1) a single-family housing goal targeted to low income families, families living in low income areas and very low income families; (2) a single-family refinance goal targeted to the same groups; and (3) a multifamily special affordable housing goal targeted to very low income families and projects assisted by low income housing tax credits.
The bill would also create a duty to serve underserved markets and a duty on the part of Freddie Mac and Fannie Mae to facilitate the secondary market for manufactured housing, the preservation of affordable housing, subprime borrowers, community development financial institutions and rural areas.
The GSE Mission Improvement Act has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.
