Will Trump administration suspend GSE housing trust funds?
WASHINGTON — A nearly monthlong delay in Fannie Mae and Freddie Mac's regular contribution to two affordable housing funds is prompting fears by housing advocates that the Trump administration wants to suspend the funding stream.
Since 2015, the two government-sponsored enterprises transferred funds annually to the National Housing Trust Fund and the Capital Magnet Fund at the beginning of every March. They were instructed to make the contributions yearly in a formal memo from Mel Watt, the former director of the Federal Housing Finance Agency, who stepped down in January.
But with March nearly over, acting FHFA Director Joseph Otting has sent no such memo, leaving Fannie and Freddie's 2019 contribution in limbo even though the two mortgage giants already set aside a total of $376 million for the two funds. Housing advocates see the delay as a sign the agency is considering a longer-term suspension of the contributions.
“Current practice is for these funds to be transferred within 60 days of the end of the fiscal year, and this date has come and gone without any indication from FHFA as to why they have failed to instruct the GSEs to make the transfer,” said Matt Josephs, the senior vice president of policy for the Local Initiatives Support Coalition. “These delays are disruptive and unnecessary.”
Otting, who is also comptroller of the currency, would not be the first acting FHFA chief to hold back the fund transfers. After the creation of the NHTF and CMF in the 2008 Housing and Economic Recovery Act, former acting Director Ed DeMarco triggered a provision in the law and suspended the GSEs' obligation to contribute to the funds. The agency's justification was that the companies were still in bad financial shape from the financial crisis.
But in 2014, Watt lifted the suspension, requiring the mortgage giants to set aside an amount equal to 4.2 basis points of each dollar of unpaid principal balance to submit to both funds by March 1, 2015, and “each fiscal year thereafter.”
According to the most recent 10-K forms from Fannie and Freddie, the two have set aside more than $245 million for the National Housing Trust Fund and more than $131 million for the Capital Magnet Fund this year. In previous years, Watt would send a letter to the CEOs of both companies in February reminding them to give the money to the funds by March 1.
But this year, acting FHFA Director Joseph Otting has not instructed the GSEs to submit the money, and it is unclear if he will do so at all.
“It is under advisement,” an FHFA spokesperson said when asked if the agency would continue to require Fannie and Freddie to fund the housing programs.
The housing trust funds have been hotly debated amid broader efforts to reform the GSEs, with Democrats and consumer groups arguing that the funds are crucial to affordable housing projects. But many Republicans and free-market advocates point to Fannie and Freddie's still-weak capital standing, and urge a smaller role for the government in the housing market. Some GSE reform proposals would eliminate the trust funds.
"Ideally, federal lawmakers would simply dissolve Fannie Mae and Freddie Mac, and in doing so, put an end to the federal redistributive policies embodied in the [housing trust fund] concept," John L. Ligon, former senior policy analyst for the Heritage Foundation, wrote in a 2018 op-ed in the Detroit News.
Whether the FHFA can legally suspend the contributions is also a matter of debate. Some argue HERA set no statutory deadline for annual fund transfers, and granted the FHFA broad discretion whether to require the GSEs to contribute to the trust funds.
But housing advocates say DeMarco was on shaky legal ground when he suspended the funds, and Otting would be as well if he or Mark Calabria — the nominee awaiting confirmation as permanent FHFA director — formally suspended them. Housing groups cheered Calabria when he appeared to commit to funding the NHTF and CMF during his confirmation hearing, but some say Otting's delay gives them pause.
“We’re concerned that the transfer of funding is taking longer than in previous years, and are urging acting Director Otting to make the transfer, as he is required to do by law, with all due haste,” said Diane Yentel, the president and CEO of the National Low Income Housing Coalition.
Others say uncertainty about whether Fannie and Freddie will contribute to the two funds has real consequences for pending affordable housing projects. Not knowing if money will be available for projects previously financed through the two funds can severely hurt efforts to expand housing for those who need it most, said Jesse Van Tol, CEO of the National Community Reinvestment Coalition.
Van Tol said lawsuits would be “likely” if the FHFA decided not to require Fannie and Freddie support the funds.
“You can take a one month delay, and does that really make or break for any particular project?” he said. “But when there's cycles of projects and the funding's been available in the past and now all of a sudden it might not be available, that can pull it to a screeching halt.”
Josephs said an FHFA suspension could exacerbate an affordable housing crisis.
“More troubling still is the thought that the FHFA leadership would consider cutting off entirely this annual flow of approximately $400 million to finance affordable housing, when there is an estimated shortage of 7 million rental homes affordable and available to extremely low-income families,” he said.
Van Tol said Calabria's response on a commitment to funding the NHTF and CMF could be "read a lot of different ways." When asked by senators if he would continue to require funding support for the trust funds, the nominee said, “Within the confines of the statute, absolutely, yes.”
Calabria could follow Watt’s path in directing the GSEs to fund the housing programs, or he could follow DeMarco’s path and argue that Fannie and Freddie's limited capital means they are not financially sound enough to contribute millions to the initiatives.
“I think clearly we see the administration is playing chess here and trying to determine their moves around housing finance reform and around their nominee for FHFA and kind of getting what they want out of those processes,” said Van Tol. “I think the Housing Trust Fund and the Capital Magnet Fund are being used as a pawn in that game.”