Hearings in Congress Highlight GSEs as Dedicated Revenue Source for NHTF

Two hearings on March 19 included important discussion about the continuing responsibility of Fannie Mae and Freddie Mac, as well as their potential successor entities, to fund the National Housing Trust Fund. The Housing and Economic Recovery Act (HERA), enacted in July 2008, created the National Housing Trust Fund and designated contributions from Fannie and Freddie as a dedicated source of revenue. No contributions have ever been made. Their regulator, the Federal Housing Finance Agency, suspended the obligation when the Fannie and Freddie were taken into conservatorship in the fall of 2008.The House Committee on Financial Services held a hearing, “Sustainable Housing Finance: An Update from the Federal Housing Finance Agency on the GSE Conservatorships,” on March 19. Federal Housing Finance Agency (FHFA) Acing Director Edward DeMarco was the sole witness.Committee Chair Jeb Hensarling (R-TX) opened the hearing by saying that he hopes that this will be the last time that Mr. DeMarco or his successor testifies before the committee without the committee having approved legislation to abolish the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Committee Ranking Member Maxine Waters (D-CA) said she is concerned about some of Mr. DeMarco’s decisions as Acting Director, particularly his refusal to allow for principal reductions, even when doing so would benefit taxpayers. Ms. Waters added that she does agree with some of Mr. DeMarco’s decisions, but has concerns about the lack of accountability for decisions made at FHFA and said that Congress must enact GSE reform to allow for such accountability. While much of the hearing focused on principal reduction and the future of the GSEs, committee members asked questions about the funding the NHTF now that the GSEs are profitable again.Representative Al Green (D-TX) asked Mr. DeMarco if he thinks the NHTF should exist. Mr. DeMarco responded that “this is outside of the bailiwick of my responsibility as regulator and conservator and is more of a policy decision for the Congress.” Mr. DeMarco added, “I didn’t come here prepared for a discussion of the Trust Fund.”Representative Keith Ellison (D-MN) also inquired about the NHTF, asking, “When do you see the GSEs complying with the law to fund the NHTF?” Mr. DeMarco responded that FHFA has been complying with the law, as the regulator is allowed to suspend contributions. Mr. Ellison then asked, “Do you see that changing in the future given the profitability of the GSEs?” Mr. DeMarco responded, “I want to make sure the profitability is sustainable, and make sure the money owed to Treasury is paid, and that if these funds are not going to the Trust Fund they are going back to the taxpayer. I have not thought about this recently so I’d like to give your question more careful consideration.” Mr. Ellison responded that “proceeds can go in different directions, some to the taxpayer and some to the NHTF.” He thanked Mr. DeMarco for giving his question thought.Some questions were also asked about FHFA’s goal of a 10% reduction of its multifamily business. Ms. Waters asked what the impact of this reduction would be on rental housing prices. Representative Carolyn Maloney (D-NY) also asked about this planned reduction. Ms. Maloney asked if any studies have been conducted to see if the private sector will pick up and help provide affordable rental housing. Mr. DeMarco responded that he did not anticipate that this reduction would have an impact on the affordability of rental housing.Representative Mel Watt (D-NC), whose is being considered as a possible nominee for Director of FHFA, attended the hearing but declined to ask a question in light of the recent news reports.Shortly after Mr. DeMarco began to give his testimony, members of the Right to the City Alliance protested his actions as FHFA Acting Director, and called for FHFA to allow for principal reductions for homeowners with underwater mortgages, for an expansion of affordable housing, and for funding for the National Housing Trust Fund. The protestors were escorted out of the hearing for breaching House decorum and failing to respond to warnings from Mr. Hensarling. They were subsequently arrested and released. As the protestors were escorted out, Mr. DeMarco said, “I do understand the pain this housing crisis has caused so many families across the country.”An archived hearing webcast and witness testimony are available at http://1.usa.gov/Z7nxy7. Also on March 19, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing, “Bipartisan Solutions for Housing Finance Reform?” The hearing focused on the recommendations made in the Bipartisan Policy Center Housing Commission’s report, Housing America’s Future: New Directions for National Policy (see Memo, 3/1). The commission focused both on housing finance reform and rental housing needs in its report and, among other recommendations, said that the National Housing Trust Fund should remain in any future housing finance system. The commission also suggested that the mortgage interest deduction could be reformed to create savings that could subsequently be used to expand the supply of affordable housing. Witnesses were former Senator and HUD Secretary Mel Martinez, who is one of four chairs of the Bipartisan Housing Commission; Janneke Ratcliffe, Senior Fellow, Center for American Progress; and Peter Wallison, the Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise InstituteSenator Jack Reed (D-RI) raised the NHTF, saying, “As author of the National Housing Trust Fund and the Capital Magnet Fund, I was very pleased to see that your housing commission paid attention to these entities in a reformed system. Can you talk about the basis of your recommendation and why we need these two entities?” Senator Martinez said that the commission recognizes that these programs are in their infancy, but are an important way to create affordability and accessibility to housing for those who might not otherwise have it, and said that the consensus of the panel was that the programs should be maintained in their current form.Senator Reed then told Ms. Ratcliffe that he was pleased that affordable rental housing was discussed in her testimony, and asked her to elaborate on her recommendations. Ms. Ratcliffe responded that there has been a drop in the construction of multifamily rental housing, and that long-term effective capital for rental housing results in long-term stable rental rates. Ms. Ratcliffe emphasized the importance of the NHTF and Capital Magnet fund.Senator Mark Warner (D-VA) noted that the economic recovery will likely lead to “enormous profits flowing into Fannie and Freddie” and expressed concerns that this renewed profitability will result in Congress failing to take action on GSE reform. Senator Elizabeth Warren (D-MA) also expressed concerns about the cost of inaction on GSE reform. Mr. Warner then asked about the rental housing portion of the report, to which Mr. Martinez responded that “affordable rental housing is a big issue, but I am not as prepared to talk about this than the finance side of the report.” Mr. Martinez then said that there needs to be a mechanism for affordable housing, and said that the “mortgage interest deduction is a subsidy of sorts, and there was a lot of debate over whether it should be a function that supports not only homeowners but affordable rental housing.”Senator Bob Corker (R-TN) commented that in his view, Federal Housing Finance Agency Acting Director Edward DeMarco “as a technocrat has been pretty good on technical issues” related to the GSEs. Mr. Corker said that the Administration has floated the name of a possible successor to Mr. DeMarco (see article elsewhere in Memo) and reiterated that in his view it would be preferable to have a director with technical expertise over someone with a political background. One of the primary reasons that President Barack Obama has not been able to replace Mr. DeMarco with a permanent director for FHFA is the difficulty any nominee that President Obama would name would have in being confirmed by the Senate.An archived hearing webcast and all witness testimony are available at http://1.usa.gov/ZSklpc.