At the end of July, the House of Representatives’ Financial Services Committee approved H.R. 2895, the National Affordable Housing Trust Fund Act of 2007. The bill is intended to provide funding for the construction, rehabilitation, and preservation of 1.5 million units of affordable housing over the next decade. Supporters say it will initially provide between $800 million and $1 billion per year directly to states and local agencies, without increasing government spending or the federal deficit.
In its current form, the bill identifies funding from two primary sources – the portfolios of Fannie Mae and Freddie Mac and FHA surplus funds. While using funds from Fannie Mae and Freddie Mac for affordable housing has been called appropriate by affordable housing advocates, drawing funds from FHA profits is more controversial. Under the bill, the trust fund would draw from a portion of the profits from FHA mortgage insurance premiums paid by reverse mortgage borrowers.
FHA Commissioner Brian Montgomery said, “There’s no free lunch here. We would essentially be robbing Peter to pay Paul.” While admitting that the FHA funding is “somewhat more controversial” than the GSE component, Henry Cisneros who was the former HUD Secretary, now chairman of affordable housing developer for CityView, says its still an appropriate use of those funds. “It’s not a hit on the federal treasury,” he says. “Given that advocates have been looking for the right vehicle [to fund the trust], here is one that suits it.”
The fund must be used to assist families earning below 80 percent of state or local median income, and 75 percent of the funds must go to assist families who earn less than 30 percent of median income or below the national poverty level. “We’ve had great success with housing trust funds at the local and state level, like Washington state, which has done about 35,000 units of housing with their trust fund,” says Cisneros, “Set up correctly, I think it can be one of the smartest things we’ve done.”