WASHINGTON — Bankers are fighting back against a plan that would allow Fannie Mae and Freddie Mac to invest in low-income housing tax credits, arguing they are critical for meeting Community Reinvestment Act requirements.
The government-sponsored enterprises dominated much of that market until 2008, when they were seized and put into conservatorship. But the Federal Housing Finance Agency issued a proposal in December that would push Fannie and Freddie back into the market as part of its "duty to serve" plan to encourage the GSEs to help low- and middle-income borrowers.
But banks argue the agency's move is unnecessary, saying the low-income housing tax credit market is robust even after the GSEs' absence.
"Given the competition in the marketplace for LIHTC investments, there is no justifiable public policy argument for allowing the Enterprises to re-enter as investors," Joseph Pigg, a senior vice president at the American Bankers Association, said in a comment letter to the FHFA.
John Dalton, the president of the Financial Services Roundtable's Housing Policy Council, agreed, noting that banks invest in the tax credits to meet their CRA obligations.
"Given the robust competition for LIHTC investments, the importance of this tool for banks in meeting CRA needs, we urge the FHFA to not allow the Enterprises to make LIHTC investments," Dalton said in a March 17 letter.
The proposal would require the GSEs to provide support for three underserved markets: manufactured housing, affordable housing preservation and rural markets. Fannie and Freddie would receive credit for certain activities that facilitate a secondary market for those three areas — including investing in low-income housing tax credits that help finance the construction and preservation of affordable housing in underserved markets.
Some consumer and housing groups see the tax credits as a key part of the plan, arguing it would help fund more construction.
"GSE support for Housing Bonds will inject liquidity in the still recovering Housing Bond market, aiding single-family and multifamily lending activity, without exposing the GSEs to excessive risk," wrote Garth Rieman, director of the National Conference of State Housing Agencies.
But the state agencies are "troubled" that the FHFA's proposal limits duty to serve credit to GSE purchases of multifamily Housing Bonds that are devoted to tenants earning less than 80% of area median or less.
"We urge FHFA not to impose limits on the GSEs' ability to earn credit for Housing Bond investments," Rieman added.
The National Association of Home Builders also wants the GSEs to return to the low-income housing tax credit market without restrictions.
"NAHB believes the Enterprises should be allowed to rebuild their infrastructure and participate as LIHTC investors to the degree they choose to do so and the marketplace calls for their involvement," wrote David Ledford, the executive vice president of the group. "The Enterprises should make their investment decisions based on their knowledge of markets and expertise in risk management."
Some groups called for a middle ground. The Mortgage Bankers Association recommended that the investments be permitted in targeted markets only, such as rural areas that are demonstrably underserved.
The National Multifamily Housing Council and National Apartment Association agreed the GSEs should dip their toes back in, but said in a joint letter that they should "not displace private market participants."
Douglas Bibby, president of the multifamily group, and Douglas Culkin, chief executive of the apartment group, wrote that the FHFA should limit the GSEs' role to underserved markets, such as providing capital for the small-balance apartment market serving low-income residents.
"Smaller, older and affordable properties face challenges in accessing capital, retrofitting their properties and balancing the cost to improve energy efficiency against the return on investment needed," the joint letter says.
The comment letters also showed that a provision for the GSEs to support manufactured housing was also contentious, particularly for so-called chattel loans.
Under the proposal, Fannie and Freddie can purchase manufactured housing loans that are titled as real estate and secured by land. But they are currently prohibited by the FHFA from purchasing chattel loans titled as personal loans.
Ron Haynie, senior vice president of the Independent Community Bankers of America, agreed that Fannie and Freddie should support "the continued development of a robust secondary market for mortgage loans on manufactured homes which are titled as real property."
But he said chattel loans should not be included, arguing they are too risky.
The Manufactured Housing Institute, meanwhile, contends that such homes are an important source of affordable housing and should not be ignored.
"There is a way for Fannie and Freddie to be involved in the chattel lending space. We believe they need to be creative," Lesli Gooch, senior vice president for legislative affairs for the group, said in an interview Thursday.
The MHI argues that manufactured homes sited on a borrower's land but titled as chattel loan perform well. "Experience and common sense indicate that chattel loans secured by homes on borrower-owned land can be done safely," a comment letter from the institute said.
"Since chattel loans constitute 70% of the manufactured housing market and are the most underserved of the segment of that market, MHI believes the final Duty to Serve rule cannot fulfil its statutory responsibilities without a significant requirement to purchase chattel loans," the institute said in its March 17 letter.
Sen. Joe Donnelly, D-Ind., and Rep. Stephen Fincher, R-Tenn., also urged the FHFA to provide a secondary market for chattel loans. In a joint letter, they point out that the cost of financing a chattel loan is currently 50 to 500 basis points higher than a real estate secured loan.
"Until the FHFA compels the GSEs to support chattel lending, those families who finance their homes as chattel will continue to face affordability issues at no fault of their own," the lawmakers wrote.