Reports on developments related to the National Housing Trust Fund (NHTF) are a regular feature in Memo to Members. NLIHC and our partners are pursuing multiple avenues to provide revenue for the NHTF. Several NLIHC members have requested a recap of the current state of play. Here’s a brief summary.
1. Lift the Suspension on Fannie and Freddie’s Obligation to Fund the NHTF.
Fannie Mae and Freddie Mac were taken into conservatorship in 2008 to protect them from bankruptcy. Together they required a “bailout” that amounted to $188 billion. As of the first quarter of 2012, Fannie Mae and Freddie Mac returned to profitability. The conditions that existed in 2008 that were used to justify the suspension of funds to the NHTF and the Capital Magnet Fund no longer apply.
NLIHC and many others have called for the suspension of Fannie Mae’s and Freddie Mac’s obligation to fund the NHTF to be lifted. NLIHC estimates that as of the fourth quarter of 2013, Fannie Mae and Freddie Mac owe $761 million to the NHTF.
The decision to lift the suspension rests with the director of the Federal Housing Finance Agency (FHFA), who is Fannie Mae’s and Freddie Mac’s conservator. To date, FHFA has declined to do so. In July 2013, NLIHC, the Right to the City Alliance, and three individual plaintiffs sued FHFA in federal court, asking the court to lift the suspension. The defendants have filed a “motion to dismiss” the lawsuit, claiming that the plaintiffs do not have standing and that the conservator is immune from lawsuits. The next step is for the judge to rule on the motion to dismiss.
In the meantime, former Congressman Mel Watt (D-NC) was sworn in as the new FHFA director on January 6. NLIHC and numerous others have communicated publicly and privately with Mr. Watt urging him to lift the suspension. NLIHC is confident that he is conducting a thorough analysis and is cautiously optimistic that he will reach the conclusion that the suspension should be lifted. If he does, the first funds for the NHTF could be allocated in 2014.
2. Housing Finance Reform
The future of Fannie Mae and Freddie Mac and U.S. housing finance policy has been the subject of considerable Congressional activity in 2013 and 2014. As Congress and the Administration move towards housing finance reform, NLIHC and other NHTF supporters are working to assure that the NHTF is included in any new housing finance system and that the new system provides robust funding for the NHTF.
Housing finance reform legislation has been introduced in both the Senate and the House. In the Senate, S. 1217, the “Housing Finance Reform and Taxpayer Protection Act of 2013”, was passed out of the Senate Banking Committee on May 15 by a bipartisan vote of 13-9. The bill provides for a 10 basis point fee applied to federally guaranteed securities that would be used to fund the NHTF, the Capital Magnet Fund (CMF), and a new Market Access Fund (MAF). This fee is estimated to eventually generate $5 billion a year. The bill would allocate 75% of the amounts collected through this fee to the NHTF. Unfortunately, objections to the bill’s treatment of access and affordability in mortgage lending to low income and minority home buyers kept six Democratic members of the Banking Committee from supporting he bill. Their support is seen as critical to the bill moving forward. Negotiations continue to attempt to resolve the remaining issues.
In the House, the “Protecting American Taxpayers and Homeowners Act” (H.R. 2767) would privatize Fannie and Freddie and explicitly abolish the NHTF. The bill was approved by the House Financial Services Committee, but is not expected to be considered by the full House of Representatives. House Committee on Financial Services Ranking Member Maxine Waters (D-CA) has released her own draft housing finance reform legislation, the “Housing Opportunities Move the Economy (HOME) Forward Act of 2014.” Like S. 1217, the Waters bill would require a 10 basis point fee assessment on users of the new system and direct 75% of the amounts collected to the NHTF.
It is doubtful that housing finance reform will move through a divided 113th Congress, but reform bills will be introduced in the 114th Congress. The bill with the most bipartisan support this year will serve as the blueprint in 2015.
3. Mortgage Interest Deduction Reform
While dedicated revenue from the current and future housing finance system is the most immediate route to funding for the NHTF, it is essential to secure significantly more revenue if the NHTF is to fully address the national shortage of housing that extremely low income people can afford. The place to find revenue of that magnitude is in the tax code. If tax expenditures that subsidize higher income homeowners were modified to make them fairer and flatter, it is possible to generate the level of revenue needed to end homelessness and assure housing security for very poor people.
The mortgage interest deduction (MID) has long been considered an untouchable portion of the tax code, but changes to the MID are on the table as part of the debate on comprehensive tax reform and deficit reduction. The challenge for housing advocates is assure that any revenue raised by changing the MID stays in housing and is not used for other purposes.
The United for Homes campaign led by NLIHC proposes two modest changes to the MID. We would reduce the size of a mortgage eligible for a tax break from $1 million to $500,000 and convert the deduction to a 15% non-refundable tax credit. We would direct all revenue raised from these changes, estimated to be $230 billion over ten years, to the NHTF.
Representative Keith Ellison (D-MN) introduced H.R. 1213, the “Common Sense Housing Investment Act of 2013,” in the 113th Congress. His bill mirrors the United for Homes campaign proposal to reform the MID and directs most of the revenue raised to the NHTF. The United for Homes campaign supports H.R. 1213.The bill has 13 co-sponsors.
Momentum was building for comprehensive tax reform in 2013, but has waned as the 113th Congress winds down. The United for Homes campaign is focused on building grassroots support for its proposal in advance of renewed work on tax reform in the 114th Congress.