Affordable housing groups are hoping that new Federal Housing Finance Agency (FHFA) director Mel Watt will reverse course and finally fill two national housing trust funds with money. But, in a preemptive move, Representative Ed Royce (R–CA) has introduced the Pay Back the Taxpayers Act of 2014 (H.R. 3901) that would make permanent the current policy of keeping the spigot to these funds turned off.
The Housing and Economic Recovery Act (HERA) of 2008 created two housing trust funds just before the government-sponsored entities (GSEs) were deemed insolvent. The national Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF)—with balances automatically tied to the housing GSEs Fannie and Freddie—were both to be funded by a tax on the GSE’s total new mortgage purchases. These tax dollars would have been doled out as affordable housing block grants, but the GSEs’ insolvency in 2008 complicated matters.
In particular, acting FHFA director Ed DeMarco decided to run the GSEs as if they would eventually be shut down, a sensible approach which temporarily eliminated the trust funds as a new source of money for the advocacy groups’ favored projects. DeMarco’s reasonable decision to protect taxpayers even spurred a legal effort to have the spigot turned on, so it’s not surprising that the National Low Income Housing Coalition (NLIHC) celebrated Mel Watt’s confirmation as FHFA director. The day after Watt was confirmed, the Coalition proclaimed a “major victory” and announced:
Now that both Fannie Mae and Freddie Mac are reporting record profits, NLIHC contends that the conditions for the suspension no longer apply and revenue to the NHTF [National Housing Trust Fund] should begin immediately.
Advocacy groups clearly see an opportunity to revive the old GSE system and fund their favored programs, but the notion that the GSEs are reporting “record profits” is misguided. The only reason the GSEs are making any money is because of an explicit taxpayer guarantee tied to the new mortgages the GSEs finance while under government conservatorship. Taxpayers propped up the GSEs with nearly $200 billion in 2008, but under current law none of the money coming into the GSEs can be used to pay back that amount.
Thankfully, someone in Congress noticed that there is currently nothing to prevent any FHFA director from filling up the housing trust funds. Representative Royce’s bill would fix this problem by requiring all GSE income to be directed toward paying down the federal deficit.
Congress is right to focus on protecting taxpayers and getting private capital into the housing market, and funding advocacy groups’ favored projects based on new government guarantees only makes that job more difficult. Representative Royce’s bill is a sensible start to minimizing GSE losses financed by the taxpayers.