Why are Fan­nie and Fred­die fund­ing ad­vo­cacy?

The Washington Times Daily - - Politics -

Fan­nie Mae and Fred­die Mac have been in fed­eral con­ser­va­tor­ship since 2008. Should th­ese gov­ern­ment-spon­sored hous­ing en­ter­prises — essen­tially broke — still be re­quired to spend tax­payer money to fund ac­tiv­i­ties of hous­ing ad­vo­cacy groups?

Five years ago, Congress left this ques­tion unan­swered, but Ed DeMarco, the act­ing head of the en­ter­prises’ reg­u­la­tor, took the sen­si­ble step of stop­ping the pay­ments.

In a sane world, pre­vent­ing in­sol­vent en­ter­prises from spend­ing money they don’t have on po­lit­i­cal “trust funds” is a no-brainer. Yet, hous­ing ad­vo­cacy groups are cam­paign­ing to have their tax­payer-funded spigot turned on and en­shrined in new leg­is­la­tion.

For years, af­ford­able-hous­ing groups have funded their pro­grams us­ing a com­bi­na­tion of state and lo­cal trust funds, fed­eral block grants, and do­na­tions from the hous­ing en­ter­prises. Many of the fed­eral grants have come through the Depart­ment of Hous­ing and Ur­ban De­vel­op­ment, which al­lo­cates ap­prox­i­mately $2 bil­lion an­nu­ally to states and more than 600 lo­cal­i­ties na­tion­wide.

In con­trast to this di­rect source of fed­eral money, state and lo­cal trust funds draw on a va­ri­ety of ded­i­cated rev­enue sources, such as lo­cal real es­tate taxes, bonds and fees. It has been a long­time goal of hous­ing groups to get a na­tional hous­ing trust fund which guar­an­tees fed­eral tax dol­lars each year.

Th­ese funds have been used to pro­vide a wide range of ser­vices, from ne­go­ti­at­ing with banks to loosen un­der­writ­ing stan­dards, to pro­vid­ing di­rect sub­si­dies to real es­tate de­vel­op­ers. Th­ese ac­tiv­i­ties — as well as most any­thing that pur­ports to as­sist low-in­come ar­eas — are sure to in­crease with a na­tional hous­ing trust fund.

And cur­rent law al­ready pro­vides hous­ing ad­vo­cates with what they want. The 2008 Hous­ing and Eco­nomic Re­cov­ery Act cre­ated the na­tional Hous­ing Trust Fund and the Cap­i­tal Mag­net Fund.

If the funds had been op­er­at­ing in 2010, when the hous­ing en­ter­prises bought $856 bil­lion in new mort­gages, then $360 mil­lion (0.042 per­cent) would have gone into the funds (65 per­cent to the Hous­ing Trust Fund and 35 per­cent to the Cap­i­tal Mag­net Fund).

The re­cov­ery act gave the HUD sec­re­tary some lat­i­tude to de­ter­mine which states would re­ceive money from the trust fund, but the trea­sury sec­re­tary was given the au­thor­ity to dis­trib­ute grants from the mag­net fund di­rectly to spe­cific non­prof­its.

Luck­ily for U.S. tax­pay­ers, the Hous­ing and Eco­nomic Re­cov­ery Act also gave the di­rec­tor of the Fed­eral Hous­ing Fi­nance Agency the au­thor­ity to de­lay con­tri­bu­tions to th­ese funds. When the hous­ing en­ter­prises were deemed in­sol­vent and placed into con­ser­va­tor­ship un­der the FHFA in 2008, the act­ing di­rec­tor, Ed DeMarco, sus­pended the al­lo­ca­tions.

But ad­vo­cacy groups quickly started call­ing for a new di­rec­tor. They’ve even filed suit claim­ing that Mr. DeMarco is in vi­o­la­tion of the law be­cause he has not yet al­lo­cated the funds.

As a hedge, trust fund pro­po­nents have made sure that a new Se­nate pro­posal con­tains lan­guage to ex­pand the two trust funds. S. 1217, spon­sored by Sens. Bob Corker, Ten­nessee Repub­li­can, and Mark R. Warner, Vir­ginia Demo­crat, shifts the al­lo­ca­tion of th­ese funds to a newly cre­ated gov­ern­ment agency that would re­place Fan­nie Mae and Fred­die Mac. The new agency is called the Fed­eral Mort­gage Insurance Corp., and the bill would in­crease the trust fund tax in two ways.

First, it would in­crease the tax rate to be­tween 5 and 10 ba­sis points (up from 4.2 ba­sis points). Sec­ond, it would ap­ply the tax to a larger base of money — the out­stand­ing prin­ci­pal bal­ance of el­i­gi­ble mort­gages used by the Fed­eral Mort­gage Insurance Corp. This de­vice en­sures the trust fund al­lo­ca­tions will au­to­mat­i­cally grow each year un­less the agency stops op­er­at­ing.

The end re­sult will be even more money doled out as block grants for pro­grams that are dif­fi­cult to mon­i­tor and nearly im­pos­si­ble to prop­erly eval­u­ate.

Mr. DeMarco should be praised for keep­ing the spigot to the hous­ing trust funds turned off while the gov­ern­ment-spon­sored hous­ing en­ter­prises are in con­ser­va­tor­ship. Rather than ex­pand th­ese funds by tak­ing even more money from tax­pay­ers, per­haps it is time to ques­tion their ef­fec­tive­ness.

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