NACCED Proposed Legislative Priorities
for the First Session of the 112th Congress
The 112th Congress is expected to focus almost exclusively on efforts to reduce the federal budget deficit and undertake comprehensive reform of the Internal Revenue Code.
Thus NACCED’s priority advocacy efforts, through NACo, must be focused on preservation of existing funding for affordable housing and neighborhood revitalization programs as well the ability to use tax-exempt single-family and multifamily housing bonds and Low-Income Housing Tax Credits.
Background
Two bipartisan task forces, the President’s National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center’s Debt Reduction Task Force, have each proposed that domestic discretionary spending be significantly reduced to address the federal deficit. In addition, they have proposed that tax expenditures be eliminated as part of the same deficit-reduction effort. Although not specified, this puts tax-exempt single-family and multifamily housing bonds as well as the Low-Income Housing Tax Creditat considerable risk. These proposals, or some variation thereof, could very well be considered by Congress in the FY 2012 congressional budget resolution or by the congressional appropriations and/or tax-writing committees.
Reform of the Government-Sponsored Enterprises, Fannie Mae, Freddie Mac and the Federal Home Loan Banks is also a priority for the Congress. NACCED must be part of the debate and seek to maintain the critical role of the GSE’s in the housing finance system. This includes serving as a secondary market for single-family and multifamily mortgages, and, when profitable their purchase of tax-exempt housing bonds and Low-Income Housing Tax Credits.
Background
Since being placed into receivership by the Federal Housing Finance Agency in September 2008, Fannie Mae and Freddie Mac have operated as wards of the federal government. The congressional leadership in the 111th Congress deferred action on their reform until the 112th Congress. The future of their composition and charters, including relationship to the federal government, are sure to be controversial. Some have suggested that they be wound down and terminated over a period of years. The Obama Administration recently unveil its proposal in a White Paper, “Reforming America’s Housing Finance Market: A Report to Congress, February 2011.” The report was mandated by the Wall Street Reform and Consumer Protection Act of 2011, which directed the Administration “… to present Congress with a plan to reform America’s housing finance market to better serve families and function more safely in a world that has changed dramatically since its original pillars were put in place nearly eighty years ago.”
The plan states that “[t]he Administration will work with Federal Housing Finance Agency (FHFA) to develop a plan to responsibly reduce the role of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) in the mortgage market and ultimately, wind down both institutions. We recommend that FHFA employ a number of policy levers – including increased guarantee fee pricing, increased downpayment requirements, and other measures – to bring private capital back into the mortgage market and reduce taxpayer risk.”
The report also calls for a renewed commitment to rental housing in any reformed system. This could include a greater role for FHA mortgage insurance including risk sharing with private lenders.
The report proposes to reduce the size of single-family loans that Fannie, Freddie and the Federal Housing Administration (FHA) buy from the current $729,750 in high housing cost areas to $625,400 in these areas. The report proposes that loans bought by Fannie and Freddie should have a 10% downpayment requirement, up from the current 5%, and possibly increasing the FHA downpayment requirement from the current 3.5% to 5%.
The report also proposes to increase Fannie and Freddie’s mortgage-backed security “guarantee fees” for loans purchased over the next several years, which would have the effect of raising interest rates on home loans. In addition, the report states that beginning April 18th the FHA will increase is mortgage insurance fee from the current 0.9% to 1.15% for most loans.
The report lays out three options for Congress to consider: one would eliminate Fannie and Freddie and let the private sector perform their role, an approach preferred by many Republicans in Congress; create a program to offer mortgage insurance in times of crisis but have no other federal role; or a federal program to ensure all mortgages.