The so-called affordable housing movement achieved a victory with the recent move by the Federal Housing Finance Agency (FHFA) to finance two new funds: the Housing Trust Fund (HTF) and the Capital Magnet Fund (CMF). Securing additional federal financing for their cause has been a longtime wish of the movement.
In the wake of the 2008 financial crisis, Congress took the opportunity to establish a new apparatus of support for affordable housing efforts. When Congress passed the Housing and Economic Recovery Act (HERA) of 2008, it created the HTF and CMF, intended to be financed with funds through a specified share of the “earnings” they generate.
The two funds were predicated on the notion of a “duty to serve”—a broad regulatory structure that envisions use of the housing finance system to support “underserved” groups and geographic areas of the U.S. The byproduct, however, is increased risk within the system.
Fortunately, the new program funding streams were not activated for more than six years under the fair notion that any “earnings” Fannie Mae and Freddie Mac generate while in federal conservatorship should compensate the federal taxpayer for the backing the FHFA has provided the two government-sponsored enterprises (GSEs) since their insolvency seven years ago. Fannie Mae and Freddie Mac still reside in federal conservatorship, and Congress has passed no real reforms to eliminate the taxpayer support of the GSEs.
Nonetheless, the chief regulator at the FHFA, Melvin Watt, recently decided to shift course from his predecessor, Ed DeMarco, and direct Fannie Mae and Freddie Mac to begin financing these two funds.
The likely results are easy to predict: We have been down this path before, and there is plenty of evidence that such “affordable” housing policy initiatives lead to more economic harm than good. Using the U.S. housing finance system to try to achieve political ends of broader and “affordable” housing goals ultimately undermines taxpayer safety and the opportunity to build meaningful equity for homeowners. And spigots of easy finance provide plenty of opportunities for cronyism and corruption.
It is past time for Congress to eliminate federal government support and control in the U.S. housing finance system. A conservative vision for housing finance reform can be found here.
