Senate Committee on Banking, Housing, and Urban Affairs Chair Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released the text of their bipartisan housing finance reform bill on Sunday, March 16. The bill provides for potentially at least $3.5 billion a year for the National Housing Trust Fund (NHTF). The Johnson-Crapo bill is built on the framework of S. 1217, the Corker-Warner bill (see Memo, 6/28), but is more favorable to the NHTF than the earlier bill.
The bill has been released as a “discussion draft.” Committee leaders hope to mark-up the bill before the April congressional recess, possibly as soon as the first week of April.
Like Corker-Warner, the Johnson-Crapo bill would wind down Fannie Mae and Freddie Mac and create a new Federal Mortgage Insurance Corporation (FMIC) to regulate the secondary mortgage market, similar to the way the FDIC regulates banks.
The bill would require an assessment of 10 basis points on all outstanding FMIC covered securities. These funds would be directed to affordable housing activities with 75% going to the NHTF, 15% to the Capital Magnet Fund (CMF), and 10% to a new Market Access Fund (MAF). Johnson-Crapo improves on Corker-Warner in regard to the NHTF in at least three ways (see Memo, 6/28). First, Corker-Warner had a range of 5 to 10 basis points. Second, Corker-Warner only directed 28% of the funds raised to the NHTF as it is currently in law. Third, Corker-Warner inserted the MAF as eligible activities for the NHTF. Johnson-Crapo makes the MAF a stand-alone program housed at FMIC.
Like Corker-Warner, Johnson-Crapo would only require the assessment on FMIC covered securities. NLIHC and others have advocated for a broader base to include all other securities, including Ginnie Mae. The estimated annual amount from the 10 basis points on FMIC covered securities is $5 billion.
The bill does add a new activity to the NHTF that NLIHC wholeheartedly endorses. Johnson-Crapo creates a new tribal set-aside within the NHTF, allowing NHTF funds to be awarded to federally recognized tribes or tribally designated housing entities as competitive grants. Amounts going to the tribal set-aside are to be the greater of $20,000,000 or 2% of the NHTF allocation. Funds within the tribal set-aside could only be used for activities identified as eligible affordable housing activities under section 202 of the Native American Housing Assistance and Self-Determination Act of 1996. Applications would be ranked on factors related to housing need, housing quality, unemployment levels, the poverty rate, and applicant capacity. The bill clarifies that tribes would also be eligible for CMF dollars.
Johnson-Crapo would also increase the small state minimum for the distribution of NHTF funds. It would be the greater of $10,000,000 or 1% of the NHTF allocation. The exception is if the initial capitalization to the NHTF is less than $1 billion, in which case the small state minimum would be the greater of $5,000,000 or 1% of the NHTF allocation. This is an increase from the current small state minimum of $3,000,000.
Like Corker-Warner, the draft bill would repeal the affordable housing goals that apply to Fannie Mae and Freddie Mac. But unlike Corker-Warner, Johnson-Crapo creates a new “market incentive” to compel mortgage guarantors and aggregators using the FMIC to reach credit-worthy borrowers in underserved markets. High performing entities, i.e., those that do the most business in these markets, would be assessed a basis point fee less than the 10 basis point average, while guarantors and aggregators doing less business in these areas would have to pay more. The fees would average to a 10 basis point fee, but if the amount fell short, up to 50% of the funds from the MAF could be used to be used to meet this target. The NHTF and CMF Fund would be held harmless under this provision. Entities could opt-out of the market incentive and ranking process if they agreed to pay a required fee up front. It remains to be seen if this proposed mechanism will satisfy advocates who support the existing goals.
The Johnson-Crapo bill also provides for a secondary market for multifamily housing. At least 60% of the units securitized must be affordable for low income households (80% AMI or less). The bill would also create a pilot program to promote small (50 or fewer units) multifamily development.
NLIHC issued a press release on Sunday, March 16, applauding Senators Johnson and Crapo for their bipartisan support of the NHTF.
Read NLIHC’s press statement at: http://nlihc.org/press/releases/4123
View the text of the Johnson-Crapo discussion draft at: http://1.usa.gov/1p0Ud6W
View a section-by-section summary of the bill at: http://1.usa.gov/1dfHDvw
View the Banking Committee press release at: http://1.usa.gov/1id3hog