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Washington Update

GSEs may get bigger affordable role

By Barry G. Jacobs

(Affordable Housing Finance, July 2005) — Fannie Mae and Freddie Mac would get enhanced affordable housing responsibilities under government-sponsored enterprise (GSE) regulatory reform legislation (H.R. 1461) approved by the House Financial Services Committee.

The bill would establish a new Federal Housing Finance Agency (FHFA) as the regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, replacing the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board.

While the legislation would give the FHFA authority to establish limits on the mortgage portfolios held by Fannie Mae and Freddie Mac, it wouldn’t require such restrictions, as the Bush administration favors.

Reacting to the committee action, Treasury Secretary John Snow said the administration will continue to press for mandatory portfolio limits, which he called a “critical element” of GSE reform.

The key provision in the bill relating to affordable housing would require Fannie Mae and Freddie Mac to each establish an affordable housing fund, to be supported by a portion of their earnings. The proposal is similar in concept to the Federal Home Loan Bank system’s Affordable Housing Program.

For calendar 2006, each entity would have to contribute 3.5% of its after-tax 2005 earnings to the fund. In subsequent years, the required contribution would be 5%.

The affordable housing funds would be used to increase homeownership for very low and extremely low income people, increase investment in housing in low-income and economically distressed areas, increase and preserve the supply of very low and extremely low income rental and ownership housing, and increase investment in economically under-served areas.

Specific eligible activities would be the production, preservation and rehabilitation of very low and extremely low income rental housing; production, preservation and rehabilitation of ownership housing for first-time, very low and extremely low income homebuyers; and leveraged grants to sponsors of housing and development activities, such as housing finance agencies (HFAs), nonprofit housing developers, Community Development Financial Institutions, and community development corporations.

Leveraged grants could be used to provide loan-loss reserves; capitalize a revolving loan fund, affordable housing fund, or community or economic development fund; and for risk-sharing loans.

The bill would also revise the Fannie-Freddie goals for the purchase of mortgages to finance affordable housing. Each GSE would have to meet single-family and multifamily special affordable housing goals set by the FHFA director.

The single-family goal would include targets for owner-occupied, purchase-money mortgages for low-income families, families residing in low-income areas, and very low income families.

The basic targets would be the average percentage for the previous three years of the number of all loans serving the specified categories, but the director could increase the goals on the basis of national housing needs; economic, housing and demographic conditions; the performance of the GSEs in achieving prior-year goals; the size of the conventional mortgage market for the target populations; and the need to maintain the financial soundness of the GSEs.

For multifamily housing, the director would be required to set goals for the financing of housing for very low income families and for the financing of low-income housing tax credit projects. The director would also have to establish requirements for the purchase of loans for smaller multifamily projects.

In setting the multifamily mortgage goals, the director would have to take into account national credit needs, GSE performance in multifamily financing in previous years, the size of the multifamily market, the GSE’s ability to lead the market in making credit available in under-served markets, and safety and soundness.

Fannie Mae and Freddie Mac would get credit toward their multifamily goals if they guaranteed tax-exempt or taxable HFA multifamily housing bonds or if they purchased such bonds that weren’t investment grade.

Fannie Mae and Freddie Mac would also have a duty to serve under-served markets, which the bill defines to include manufactured housing, affordable housing preservation, and rural areas.

The bill would also raise the one-to-four-family mortgage purchase limits for Fannie Mae and Freddie Mac in high-cost areas. In areas where the median price for a dwelling of a particular size exceeds the basic loan limit (currently $359,650 to $691,900), the limit would be increased to the lesser of the median price or 150% of the basic limit.

The one-to-four-family limits would continue to be adjusted annually for changes in housing prices.

House committee provides $100 million for Sec. 515

The House Appropriations Committee brushed off the Bush administration’s proposal to slash funding for the Sec. 515 rural rental housing loan program, approving a fiscal year 2006 appropriations bill that would continue the program at $100 million.

The administration budget provided only $27 million for Sec. 515.

The committee bill also provides $100 million for Sec. 538 guaranteed multifamily loans and $650 million for rural rental assistance, but no money for rural housing vouchers.

The administration requested $214 million for vouchers, but has not yet submitted legislation for the program.

In its report, the committee expressed opposition to establishing programs through appropriations legislation, but said it would consider funding for a voucher program if it is authorized.

The appropriations bill also provides $1.141 billion for Sec. 502 direct single-family loans, $3.681 billion for Sec. 502 guaranteed loans, and $36 million for Sec. 504 housing-repair loans.

For farmworker housing, the bill provides for $42 million in Sec. 514 loans and $14 million in Sec. 516 grants.

Other funding includes $34 million for mutual housing and self-housing grants and $41 million for rural housing assistance grants.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.

Tax reform picks up steam

By Andre Shashaty

The debate on tax code changes will get rolling July 31 when the Advisory Panel on Federal Tax Reform appointed by President George W. Bush issues its report.

Meanwhile, in Congress the chairmen of the tax-writing committees were moving quickly to set the overall direction of the tax debate. At press time, House Ways and Means Committee Chairman Bill Thomas (R-Calif.) was preparing to hold the first of a series of hearings on tax reform. Senate Finance Committee Chairman Charles Grassley (R-Iowa) is expected to follow Thomas’ lead and begin consideration of tax law changes before the Bush administration submits a plan.

For the low-income housing tax credit (LIHTC) industry, the big concern is that major tax law changes could reduce the credit’s appeal to investors, or even eliminate the program.

Washington insiders don’t think Bush has much chance of pushing through a major tax code overhaul, such as implementing a flat tax, but the housing industry is working to educate Congress to make sure the credit remains safe.

On the downside, a renewed effort to eliminate taxes on corporate dividends is viewed as very likely. Bush was forced to back off from a similar proposal two years ago, but a new effort could deter tax credit investors.

On the upside, there’s broad political support for repealing or indexing the alternative minimum tax, which would actually help make tax credits more valuable to some investors.

Given the early start on reform plans in the House, and the already pending Bush proposal to extend current tax breaks, it’s possible a tax bill could be considered in September, but major changes would be unlikely until 2006.

For more information, go to http://taxreformpanel.gov.

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If you want to help defend the LIHTC, send your comments to the reform panel. For advice on what to say, contact Francine Friedman of Hunton & Williams, where she is legislative counsel to the Affordable Housing Tax Credit Coalition.

Also write to your congressional representatives and tell them about the value of the tax credit projects you help produce in their district or state.

“Your readers cannot possibly overestimate how important it is for them to contact people in Washington,” said David Gasson, executive director of the Housing Advisory Group, which advises and educates members of Congress and the administration on housing policy, and specifically on low-income housing tax credits.

For more information, call Gasson at (617) 624-8900.