The National Housing Trust Fund (NHTF) was a frequent topic of debate during a hearing held by the House Committee on Financial Services on January 27. Federal Housing Finance Agency (FHFA) Director Mel Watt, the sole witness, addressed repeated challenges from Republican members to his decision to direct Fannie Mae and Freddie Mac to begin setting aside .042% of their new mortgage purchases for the NHTF and the Capital Magnet Fund (CMF), as required by law.
In his opening statement, Committee Chair Jeb Hensarling (R-TX) said that FHFA was "siphoning off taxpayer funds from Fannie and Freddie in order to begin filling a government housing slush fund." Opposition to the NHTF quickly moved away from this line of attack, instead focusing on the legality of Director Watt's decision to lift the suspension of the set aside for the NHTF and CMF.
Director Watt responded saying he simply followed the statute when he decided to lift the suspension. However, several lawmakers, including Representatives Sean Duffy (R-WI) and Mick Mulvaney (R-SC), argued that Director Watt had not acted lawfully, given their belief that Fannie Mae and Freddie Mac are undercapitalized.
The NHTF statute, part of the Housing and Economic Recovery Act of 2008, provides that the FHFA director, “shall temporarily suspend allocations…upon a finding by the Director that such allocations:
- are contributing, or would contribute, to the financial instability of the enterprise;
- are causing, or would cause, the enterprise to be classified as undercapitalized; or
- are preventing, or would prevent, the enterprise from successfully completing a capital restoration plan under section 1369(c).”
Director Watt explained that FHFA, as conservator of Fannie Mae and Freddie Mac, formally suspended Fannie Mae’s and Freddie Mac’s capital classifications while in conservatorship. Thus, it is impossible to meet a classification of being “undercapitalized” and therefore those criteria are mooted.
Instead, Director Watt focused on whether requiring Fannie Mae and Freddie Mac to allocate money to the NHTF would contribute to their financial instability. Director Watt did not think allocations to the NHTF would cause financial instability because Fannie Mae and Freddie Mac have been and are currently profitable. Director Watt cautioned that if circumstances change before the end of 2015 he would again suspend the set-aside.
Director Watt also received much praise for his decision from Democrats, several of whom spoke about the need for the NHTF. In addition, a letter spearheaded by Representative Keith Ellison (D-MN) and signed by 61 lawmakers thanking Director Watt was submitted for the hearing record.
In her opening remarks, Ranking Member Maxine Waters (D-CA), citing NLIHC data, said “[Lifting the suspension] will help improve – especially in my district – the availability and affordability of rental housing. There are 7.1 million American households for whom safe and decent housing is neither affordable nor available – a situation made worse due to Republican attacks on public housing and voucher programs. But by complying with…statutory obligation to allocate a tiny percentage of Fannie Mae and Freddie Mac’s profits to these Funds, we have a chance to improve the lives of millions of American children, families, people with disabilities and the elderly.”
A video of the hearing is at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=398622
The Thank You letter to Director Watt is at http://1.usa.gov/1K3m0jv