FHFA Orders Contributions to Housing Trust Fund

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December 23, 2014
Homebuilder Blog

Earlier this month, the Federal Housing Finance Agency (“FHFA”) ordered Fannie Mae and Freddie Mac to begin making contributions to the Housing Trust Fund (“HTF”) and the Capital Magnet Fund (“CMF”). The HTF is a formula block grant provided to states to increase and preserve the supply of rental housing and increase homeownership for extremely low-income families and individuals. The CMF provides grants to non-profit housing organizations and community development financial institutions to promote affordable housing and economic and community development projects. The recent directive has been hailed as “a major achievement” for housing advocates, developers and providers, who expect that the new funding will help secure affordable housing for many families facing homelessness.

As part of the Housing and Economic Recovery Act of 2008 (“HERA”), Fannie Mae and Freddie Mac were ordered to contribute 4.2 basis points of each dollar of the unpaid principal balance of their new business purchases to this pair of federal affordable housing funds (65% to the HTF and 35% to the CMF). However, until now, no such allocations have actually been made or required. On November 13, 2008, the previous director of the FHFA indefinitely suspended the contributions due to the undercapitalization of Fannie and Freddie. The GSEs had just been placed under the conservatorship  of the FHFA and received a $187.5 billion bailout, making mandatory contributions to these affordable housing entities economically unsound.

According to Mel Watt, the director of the FHFA, “circumstances have changed and the temporary suspension is no longer justified.” On December 11th, in letters to Fannie and Freddie , Mr. Watt directed the agencies to begin making the required contributions to the HTF and the CMF. The ‘change of circumstances’ cited in these letters refers to the newfound profitability of Fannie and Freddie, largely attributable to major recent settlements with big banks, settlements that relate to those banks’ misrepresentations regarding failed mortgage-backed securities. Mr. Watt therefore acknowledged that these dramatically increased profit levels are “not expected to be sustainable,” but stated that “reasonable projections indicate that [the GSEs] will remain profitable for the foreseeable future[.]” This suggests that an uptick in affordable housing may likewise be on the horizon “for the foreseeable future.”

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