The nation’s top housing regulator on Thursday directed bailed-out mortgage giants Fannie Mae and Freddie Mac to begin contributing to special affordable-housing trust funds, handing a victory to liberal groups that have long sought the funding.
Federal Housing Finance Agency Director Mel Watt, an Obama appointee, announced that the two government-sponsored enterprises’ finances were secure enough to permit them to put some profits into two trust funds set aside for affordable housing.
The trust funds were authorized by the same 2008 law that created Watt’s office. But then Fannie and Freddie failed in late 2008 and were taken over by the federal government, ultimately resulting in a nearly $200 billion in taxpayer bailout. Watt’s predecessor, the fiscally conservative Ed DeMarco, suspended the contributions to the trust funds before they began.
Now “circumstances have changed and the temporary suspension is no longer justified,” Watt said in a letter to Fannie CEO Timothy Mayopoulos sent Thursday.
The two government-sponsored enterprises have been cash-flow positive in recent years, and have returned more to the Treasury than they received in assistance over the six years they have been in the government’s hands.
“While the profit levels Fannie Mae has experienced since 2012 are not expected to be sustainable, reasonable projections indicate that Fannie Mae will remain profitable for the foreseeable future,” Watt explained in his letter.
With the decision, a small share of the government-sponsored enterprises’ new business will be skimmed off and flow to the Housing Trust Fund and the Capital Magnet Fund, both of which support low-income housing. The contributions could rise into the hundreds of millions of dollars annually.
Capitalizing the trust funds was one of the results that Democrats had hoped for when Watt was installed as Obama’s pick in January. Conservatives, however, feared it, criticizing the trust fund as a giveaway to favored Democratic constituencies.
Republican House Financial Services Committee Chairman Jeb Hensarling decried Watt’s move as a “grave mistake,” saying it was timed to evade scrutiny during Congress’ last-minute deliberations at the end of the year.
The “decision to activate the Fannie and Freddie slush fund may be an early Christmas present for Acorn-like, liberal housing activists, but it’s a lump of coal in the stocking of every American taxpayer,” Hensarling said, promising to hold a hearing on the issue.
The funds are one of the tools the FHFA, as Fannie and Freddie’s government caretaker, has for promoting access to housing for poor families. Watt also announced earlier in the year that the two would modestly increase their goals for backing loans to low- and middle-class families. Fannie and Freddie are meant to add liquidity in the market for home loans by buying mortgages from lenders, packaging them into securities, and selling them to investors with government-backed insurance in case the securities go bad.
