FHFA Seeks to Bolster Affordability
December 15, 2014
The Federal Housing Finance Agency has ordered Fannie Mae and Freddie Mac to allocate millions of dollars a year to allow states and other government agencies to build low-income rental housing, or to rehab existing housing, in an effort to increase housing affordability.
FHFA is the regulator of the two mortgage companies, while the two funds are administered by the Department of Housing and Urban Development and the Treasury Department.
FHFA Director Mel Watt is lifting a 2008 suspension of payments toward the funds. The payments were suspended when Fannie and Freddie were facing their own money woes and needing government bailout money to stay afloat. Fannie Mae and Freddie Mac have since stabilized and began posting record profits last year.
“Circumstances have changed [since the suspension was implemented] and the temporary suspension is no longer justified,” Watt wrote in the letters to the government-sponsored enterprises.
“We are thrilled,” says Sheila Crowley, president of the National Low Income Housing Coalition. “This is the first new money for housing production for extremely low income people” in years. The coalition estimates that there were more than 10 million renter households in 2012 with income mostly below 30 percent of the area’s median.
However, critics are concerned that the extra allocations to the affordable funds by Fannie Mae and Freddie Mac could make them vulnerable again if another housing downturn ever occurred. On the other hand, others are applauding the GSEs' move to once again pay into to the affordable funds – as well as its recent move to offer 3 percent down payment mortgages to the public – that they say will help lower housing costs.
Fannie and Freddie won’t make the first payment to the affordable funds until early 2016. Then, every year, the GSEs will make payments to the affordable funds of 0.042 percent of the unpaid principal balance of their new mortgage purchases in the previous year. That means if the suspension hadn’t been in place the GSEs would have paid about $500 million in 2014, based on its 2013 volume.
Source: “Fannie, Freddie to Begin Payments to Affordable Housing Funds,” The Wall Street Journal (Dec. 11, 2014)
Updated: April 18, 2019