Posted by:
Steve Dubb
Foreclosure bill to create national housing trust fund, boost CDFIs
In the strange, but common, way that Washington politics work, some of the most important community wealth building legislation since at least the passage of the New Markets Tax Credit program in 2000 is expected to become law as part of a much broader foreclosure prevention bill, which President Bush has now said he will sign, as the New York Times and others have reported. Understandably, most of the media coverage has focused on the “big ticket items” regarding the bailout of the two government-sponsored enterprises, Fannie Mae and Freddie Mac. However, two developments that have gotten less coverage are the creation of a new National Housing Trust Fund, which will help finance rental housing for low-income Americans (75 percent must go to support housing for residents earning 30 percent of the area median income while the remaining 25 percent may support housing for residents earning up to 50 percent of area median income), and a Capital Magnet Fund, which will support community development financial institutions (CDFIs).
Both funds will be financed by a fee of 4.2 basis points for each dollar of unpaid principal balance of new business purchases by Fannie Mae and Freddie Mac, which is expected to generate $500-700 million a year, with 65 percent of the money going to the housing trust fund, while the remaining 35 percent will be dedicated to the capital magnet fund that will finance CDFIs. Effectively this will eventually generate an additional $200 million plus a year in funding for CDFIs and over $400 million a year for the new national low income housing trust fund. Another important element for community wealth builders is the creation of a one-time, $3.9 billion fund patterned after the Community Development Block Grant program, but with a separate formula to allow the most heavily affected localities to purchase foreclosed property and redevelop it to provide affordable housing, such as by establishing community land trusts. For details, see the Save America’s Neighborhoods campaign website, hosted by Enterprise Community Partners, a national community development intermediary. The coalition played a key role to keep the provision, which President Bush had originally said would cause him to veto the bill, in the legislation.
Funding for the “affordable housing fund” and the “capital magnet fund” will be phased in over time, since the immediate priority is to mitigate the impact of the foreclosure crisis. As CFED (Corporation for Enterprise Development) reports, “ In the first year, all of the Housing Trust Fund monies would be used for the HOPE for Homeowners Program, a new program designed to assist homeowners facing foreclosure. It insures loans worth more than a home’s value. In the second year, half of the funds are for HOPE and half for the Housing Trust Fund and Capital Magnet Fund. In the third year, a quarter of the funds would be diverted to HOPE. After that, all resources would be allocated to the Trust Fund and Capital Magnet Fund.”
The name of the entire legislative package is the Foreclosure Prevention Act of 2008. The central item in the bill is an expanded guarantee for the government sponsored enterprises Fannie Mae and Freddie Mac, which, as the Times article points out, “together own or guarantee about $5.2 trillion of the nation’s $12 trillion in mortgages [and currently] guarantee financing for about 80 percent of new mortgages.” Potentially, the price to taxpayers could exceed $100 billion (The Congressional Budget Office has made a shot-in-the-dark guess of $50 billion over two years).
As William Greider noted in a Bill Moyers interview, rather than socialize the losses with taxpayers while all the profits go to private shareholders, “The way to deal with Fannie Mae and Freddie Mac and some others like it is to nationalize them. Make them agencies of the federal government. That’s what they were originally.” (To be precise: Fannie Mae was a government agency from the time of the New Deal until 1968; Freddie Mac was created after Fannie was privatized).
While the bailout provisions are far from ideal, this should not obscure the important community wealth building achievements contained within the legislation. The CDFI Fund allocation for this fiscal-year, for instance, is $94 million, so the additional $200 million-plus provided by the “capital magnet” fund will over time triple the Fund’s size. And the establishment of a national low income housing trust fund represents the successful culmination of a national eight-year campaign.