Congress Wants You to Believe Dodd-Frank is the Problem. Don’t Fall For It.

By Nancy Wilberg Ricks, Senior Policy Strategist, NCLR

At a the National Journal event this week,  experts discussed the state of sustainable homeownership, housing finance reform, and potential solutions to systemic problems in housing. Reforming Fannie and Freddie is of critical importance to the Latino community, who will comprise half of the housing market by 2020—but we wonder why the National Journal is leading the discussion and Congress isn’t. These topics should be the central focus in Washington when it comes to improving the housing market. Instead, Congress is trumpeting this misinformed notion that Dodd-Frank is the cause of all our problems.

Dodd-Frank was the comprehensive legislation that was passed to prevent total economic collapse seven years ago. It stopped the bleeding and helped lay the foundation for a better economic system for consumers and honest dealers. To build on its successes, we must now direct our attention to how the secondary housing market is managed. That is, how do Fannie Mae and Freddie Mac, and thus taxpayers, avoid being left with all the liability and none of the benefits should another crisis rear its head?

Congress has attempted to take on housing finance reform in several iterations only to be stymied by gridlock. We know there is a way. In its joint report with the Center for American Progress, Making the Mortgage Market Safe for America’s Families, NCLR outlined a research-based roadmap to a broad, accessible, and affordable housing market. For example, there is a dire need for a fully funded Market Access Fund (MAF) to promote broader access to mortgage credit and to foster new and safe mortgage products as a way of increasing access. The MAF would also fully fund the National Housing Trust Fund (NHTF)—a state block grant program administered by the Department of Housing and Urban Development, designed to increase and preserve the supply of rental housing for very and extremely low-income families. We finally saw advances in this department late last year when the FHFA announced plans to fund both the NHTF and the Capital Magnet Fund. This is just the beginning, though.

Along with adequate funding, a new housing finance system needs a robust regulatory mechanism to monitor for safety and soundness, consumer protection, and access and affordability. While national experts grasp the importance of an improved housing finance reform system, Congress continues to use Dodd-Frank as a scapegoat. They are wasting time and taxpayer dollars, while never getting to the real issue at hand.

Relief for Latino Families, FHFA to Fund Essential Affordable Housing Programs

Family in front of homeThis week, the Federal Housing Finance Agency (FHFA) announced plans to fund two essential affordable housing programs—the National Housing Trust Fund (NHTF) and the Capital Magnet Fund.

At NCLR, we’ve long urged the FHFA to fund these programs, which would begin to correct the dire shortage of affordable housing in this country.

Nearly a year of inaction after his swearing in, we’re pleased to see FHFA Director Mel Watt take a stand for struggling families by directing FHFA to fund the much-needed affordable housing programs. To be funded from less than one-twentieth of a percentage point of Fannie Mae and Freddie Mac’s business purchases, the funds are expected to total between $400 and $500 million annually, amounting to a boon for low-income Latino families.

Created during the height of the housing crisis in 2008 and designed to increase the affordable housing supply at a time when families were rapidly losing their homes, the critical programs remained unfunded after Fannie Mae and Freddie Mac were placed under conservatorship in 2008.

Photo: Jeffrey Turner

Photo: Jeffrey Turner

Since the programs’ creation more than five years ago, America’s affordable housing stock for extremely low-income households has sharply declined.

With the freeing up of funds for the NHTF and the Capital Magnet Fund, this trend could soon be reversed as the programs’ provisions take effect in every U.S. state and the District of Columbia.

With full funding, the overwhelming majority of NHTF money will go toward the construction of affordable rental housing stock for extremely low-income individuals. This will greatly benefit Latino families who are struggling to get by, making 30 percent or less of the federal poverty income level.

Sold Home For Sale Sign in Front of New HouseA fully capitalized Capital Magnet Fund would also direct its funds toward the affordable housing work of registered community development financial institutions (CDFI) across America. These qualifying nonprofit organizations would be able to compete for grants to fund low-income housing developments and other projects designed to stabilize low-income communities, including workforce development, day care, and health care centers.

In deciding to direct funds toward the National Housing Trust Fund and the Capital Magnet Fund, Director Mel Watt and the FHFA have taken a powerful step toward mitigating the shortage of affordable housing in America. This is essential for the estimated 1.3 million Latinos having lost their homes between 2009 and 2012.

This holiday season, the FHFA announcement will help prevent homelessness and give Latino families the gift of basic housing security.

In Fannie Mae and Freddie Mac Overhaul, Don’t Leave Out Latino Families

(This was originally posted to the Home for Good blog.)

HFG_LOGO-FullColor-horiz 6 4 12Last week, the Senate Banking Committee announced a new bipartisan agreement to overhaul our nation’s housing finance system by restructuring government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. The draft discussion bill, authored by Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) (Johnson-Crapo), preserves the 30-year fixed mortgage and takes concrete steps to prevent a future housing crisis.

While we welcome these meaningful steps toward sustainable housing finance reform, the Johnson-Crapo draft contains shortcomings that reduce affordable access to credit for Latino families and underserved communities.

Under the proposed system, Fannie Mae and Freddie Mac would be dissolved and replaced with private capital overseen by a new government-backed mortgage-bond insurer and regulatory agency called the Federal Mortgage Insurance Corporation (FMIC).

Modeled after the FDIC, which insures bank deposits, the FMIC would provide a government guarantee for mortgages while private firms would be required to accept losses of up to 10 percent of capital. In exchange for the guarantee, firms would pay a small 0.1 percent fee on all mortgage securities to fund affordable housing and community development. This small fee would finally fund the National Housing Trust Fund and the Capital Magnet Fund, two essential affordable housing programs that NCLR has long advocated for. These funds have the potential to make significant, much-needed investments in affordable housing, yet they have never been funded since their inception more than five years ago.

Family in front of homeThough the bill contains numerous bright spots for the Latino community, Johnson-Crapo also removes beneficial features that exist in the current housing finance system under Fannie Mae and Freddie Mac. These features should be reworked in the Johnson-Crapo proposal to make affordable housing a real priority for housing finance reform.

One example is that Fannie Mae and Freddie Mac maintain a “duty to serve” the entire housing market, and as part of their public mission, they are required to provide financing for affordable housing. In contrast, the Johnson-Crapo system replaces this duty to serve and its affordability goals with an incentive-based fee structure to fund affordable housing programs. This mechanism, while creative, may not sufficiently address our current and future affordable housing needs. The fee can be raised or lowered based on how well entities perform in lending to underserved borrowers, but the criteria for who is considered high-performing is unclear. This could lead to the housing market not adequately serving the Latino community.

Photo: Jeffrey Turner

Photo: Jeffrey Turner

With regard to fair housing and fair lending, Johnson-Crapo does not explicitly prohibit involved entities from discrimination based on race, gender, national origin, familial status, and other characteristics. Failing to include such statements, combined with a lack of a strong regulatory body and transparency requirements, could create a recipe for failure to achieve fair lending that is free of discrimination.

Finally, the proposal does not incorporate the proven benefits of housing counseling in a post-GSE landscape. Research shows that homeowners who work with qualified housing counselors are less likely to be delinquent on their mortgages. When faced with foreclosure, they’re more likely to receive modifications. If the FMIC replaces the GSEs, the new agency should integrate housing counseling into its programs.

As debate begins on the merits of the Johnson-Crapo bill, Congress should not forget that a strong and sustainable commitment to fair lending and affordable housing is crucial to the well-being of not just the Latino community and other underserved groups, but the entire economy. Communities of color were affected most severely during the housing crisis, and they deserve a chance to rebuild what was lost. More importantly, these communities are the future of the housing market. If it is going to succeed, the new housing system cannot shut them out.

Mel Watt’s FHFA Must Restore Funding for Rental Housing Programs for Vulnerable Latino Renters

(Guest blog post from

HFG_LOGO-FullColor-horiz 6 4 12At the height of the foreclosure crisis, which claimed the homes of over one million Latino families, Congress authorized the creation of affordable rental housing funding streams via the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF) as part of the Housing and Economic Recovery Act of 2008.

Under Ed DeMarco, Acting Director of the Federal Housing and Finance Agency (FHFA), these crucial rental housing funding sources remained unfunded for more than five years!  However, the FHFA’s newly confirmed director, Mel Watt, has the authority to restore funding to these programs and provide essential affordable housing for the disproportionately vulnerable Latino community.

Since the programs’ creation in 2008, the availability of affordable homes for extremely-low-income households—those struggling at or below 30 percent of the federal poverty level—has plummeted by more than one million units.  For these most vulnerable families, a massive shortage of nearly five million affordable housing units exists today.

With full funding restored by the FHFA, the National Housing Trust Fund would immediately begin to remedy this shortage.  Nearly 90 percent of NHTF funding would go directly toward the construction or renovation of rental housing for extremely-low-income households.  Fanning out across the country as block grants to every state and Washington, DC, the funds would bring tangible relief to the Latino community and America’s hardest-hit populations. Continue reading

Senators Introduce Bipartisan Bill to Reform Housing Finance System

Sold Home For Sale Sign in Front of New HouseThe housing market is heating up, and so are regulatory efforts by Congress to address the fate of Fannie Mae and Freddie Mac—the two government-sponsored enterprises (GSEs) that Congress essentially nationalized during the financial crisis.  This week, Senators Bob Corker (R–Tenn.) and Mark Warner (D–Va.) introduced bipartisan legislation that would reform the nation’s housing finance system by replacing the GSEs with a new government agency that would shift more of the risks of mortgage lending to the private sector.  A new housing finance system has the potential to help sustain a robust housing market, open up housing opportunities for millions of families, and bolster economic growth for the nation.

Senators Corker and Warner should be commended for their efforts to address this critical issue.  However, the proposed bill is inadequate because it focuses on the needs of lenders and investors rather than the needs of families.  The goal of a new housing finance system should be to restore balance to the housing market and provide accessible lines of credit to broad and diverse homebuyers.  Unfortunately, the Corker-Warner system would offer limited credit and housing options that would be too expensive, especially for minorities, low- and moderate-income households, and rural households.

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