Opinion

The Great Debate

Helping America’s renters

We shouldn’t have to sue to get Fannie Mae and Freddie Mac to follow their congressional mandate and put some of the billions they are generating into affordable housing for the millions of families who need it. But that’s what is has come to for housing advocates, who are frustrated that the Federal Housing Finance Agency (FHFA) is still refusing to fund the National Housing Trust Fund.

In 2008, before the housing market collapsed, a bipartisan promise was made to millions of working families, when President George W. Bush signed the National Housing Trust Fund into law. The fund, capitalized from the operating profits of Fannie Mae and Freddie Mac, was to be a downpayment on affordable apartments, which are desperately needed by the millions of Americans who rent.

Yet when Fannie Mae and Freddie Mac crashed along with house prices, and were put into conservatorship, the Federal Housing Finance Agency decided to delay funding the Housing Trust until the mortgage giants got back on their feet. For nearly five years, the promise Congress made to America’s renters has remained unfulfilled.

Today, however, Fannie and Freddie are in the black. They are sending Treasury a combined $66 billion for the past year, applied to deficit reduction, while they are generating record net income on a pace to top $50 billion for 2013 alone.

With this dramatic reversal of fortune, and Fannie and Freddie’s new books of business far stronger than before, housing advocates argue that the Federal Housing Finance Agency is now violating the law by failing to fund the Housing Trust. The National Low Income Housing Coalition, a leading advocate for payment, in April gave FHFA’s director a detailed brief arguing this. When they got no response, the organization filed suit.

Surprise — we might actually begin meaningful housing reform this year

Last week, I spotlighted three ominous trends in consumer banking. The last one spotlighted a brewing war “between the private bank sector and the government over who exactly controls the allocation of consumer credit in this country.”

By far, the most important front in this battle is over the future of housing finance. Today, the government is underwriting or assuming 100 percent of the credit risk on practically every new mortgage that’s originated. With regard to outstanding mortgages, the government is responsible for 100 percent of the default risk on about $6 trillion of the roughly $10 trillion market.

Thankfully, there is some real hope that a somewhat clandestine reform effort is about to commence that would start to shift a portion of this credit risk back to the private sector. The leader of this effort is the much-maligned regulator of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. After Fannie and Freddie were bailed out and then taken over by the government in 2008, Edward DeMarco was named acting head of the Federal Housing Finance Agency (FHFA) and conservator of the GSEs. He was tasked with a nearly impossible balancing act or mission:

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