Congress Eyes New Sources of Affordable Housing Funds

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WASHINGTON - One of the first acts of the House Financial Services Committee in the new Congress will be a renewed effort to set a new regulatory scheme for the secondary mortgage market, which will include a provision requiring Fannie Mae and Freddie Mac to set aside as much as $750 million a year in affordable housing funding.

Massachusetts Congressman Barney Frank, who took the helm at the financial services panel last week, said his top priority will be to increase the stock of affordable housing, which has dwindled during the Republican control of Congress. "The Republicans made a grave mistake by cutting off virtually all funding for affordable housing," he said.

One way of restoring some of the funding, said Frank during remarks last week at the National Press Club, will be to pass the bill over government sponsored enterprises-stalled in the last two Congresses-requiring the two secondary mortgage market giants to set aside 5% of their after-tax profits for affordable housing projects.

Funds collected from the two companies in the first year would be dedicated to helping victims of Hurricane Katrina, according to Frank.

The projected fund would dwarf the $200 million or so provided by the 12 Federal Home Loan Banks, which are required to set aside 10% of their net income for affordable housing. But more importantly, from credit unions' perspective, more of the funds set aside from Fannie and Freddie would be expected to accrue to credit unions, who have been shortchanged by the FHLBs, which are controlled by the thrift industry, still bitter enemies of credit unions.

Just as important, credit union projects, such as the CUNA-initiated HLPR subsidized mortgages, and home owner education classes, will go a long way to impressing Frank and other like-minded lawmakers.

Frank expressed optimism the Democrats, who initially opposed a GSE bill, will be able to pass a measure that sets a new regulator over both Fannie and Freddie, as well as the FHLBs, without requiring Fannie and Freddie to sell off large portions of their mortgage portfolios, as the Republicans wanted to do. Frank attributed that proposal to some free-market thinkers in the Bush administration who oppose government intervention, by way of a GSE, in the housing markets.

But Frank spoke of the importance of Fannie and Freddie to the housing market. For example, he said in times of dire need or when mortgage foreclosures are rising, like recent months, the two could convince lenders to forebear on foreclosures. In a secondary market without two major players, that would not be possible, he suggested.

"We will pass a bill that will substantially increase the ability of the regulator to oversee Fannie Mae and Freddie Mac," declared Frank.

The new Financial Services Chairman also said he plans to introduce legislation that will take the cap off of Federal Housing Administration loans, allowing FHA lending in such high-priced markets as Boston, California and New York, and use the funds created to subsidize the higher losses for low income FHA borrowers.

In a wide-ranging talk, Frank spoke of his desire to address the growing financial inequality in America.

While his committee is limited to debating legislation on financial issues, it will hold oversight hearings on the issue. He said government can play an important role in addressing the issue of inequality on matters like healthcare, wages, union rights, foreign investment and trade.

"What we're going to talk about is why this is happening; to what degree it is happening; and what can we do about it," said Frank.

The Massachusetts Democrat, the only openly gay member of Congress, made no bones of his liberal background, but insisted his is pro-capitalism and wants to find common ground with business and other conservative interests.

Ed Roberts can be reached at robertscuj (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.

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