With or Without A Housing Fund?

Private banks criticize Fannie Mae and Freddie Mac for not buying more of the loans they make to underserved communities. "These are solid gold loans," said Judith A. Kennedy, president and chief executive of the National Association of Affordable Housing Lenders, a group of large financial institutions and nonprofit developers that includes Fannie Mae and Freddie Mac. She said the laws governing private lenders include much tougher requirements to finance low-income housing than those governing Fannie Mae and Freddie Mac.

Forcing Fannie Mae and Freddie Mac to commit a portion of their profit to low-income housing would potentially make hundreds of millions of dollars a year available for projects around the country, at no cost to taxpayers, Kennedy said. Some supporters of the program argue as well that it would be an appropriate way for Fannie Mae and Freddie Mac to use some of the profit they make by virtue of their government charter.

Opponents of the proposed fund, however, are less concerned about the policy impact than about the political one.

Before the accounting scandals that prompted calls for more oversight, Fannie and Freddie Mac were noted for the aggressiveness of their lobbying tactics. Some argue that the housing set-aside would become a "slush fund," supporting community organizations that would then support Fannie Mae and Freddie Mac before Congress.

"There will not be enough regulators on the planet to watch the dollars that are going to spread out to these hungry advocacy groups if we establish this fund," said Tom Feeney (R-Fla.) in a congressional hearing.

In reaction, House supporters of the low-income housing fund have agreed to restrictions on how the money can be used and proposed penalties for misuse. Moreover, they say, similar fears were raised about the FHLB fund when it was created in 1989 but did not come to pass.

Though a limited amount of money is available for the down-payment programs run by groups such as ACORN Housing, the FHLBs' program is tightly regulated and much of it goes to bricks-and-mortar projects, according to a March study by the FHLBs' regulator, the Federal Housing Finance Board. The bank examiners concluded that the FHLBs "have contributed substantially to affordable housing," putting aside more than $2.1 billion over the past 14 years and creating more than 400,000 affordable housing units. In the District, the FHLB of Atlanta has helped finance more than 30 projects that serve families with annual incomes of $44,853 or less.

The home loan banks were created during the Depression. The FHLB program would not be affected by the current legislation.

Local lenders and nonprofit developers that have participated in the FHLB program gave it high marks. "It's a very transparent process. . . . The only complaint is there is not enough money," said Robert Pohlman, executive director of the Coalition for Nonprofit Housing & Economic Development and a member of the Atlanta bank's affordable housing advisory board.

It is also highly decentralized: The 12 home loan banks vet each project, but so do the credit unions, commercial banks and other local lenders whose sponsorship of the projects is also required.

Grants from the home loan bank are limited to $500,000 but can be an important portion of a project's overall funding. "Banks still want to see a deal that is not 100 percent financed by them. The softer money helps you get other money," said Russell Simmons, a former Riggs Bank executive who is now a community development consultant.

A $561,000 FHLB grant, for example, proved critical to the construction of N Street Village off Thomas Circle, which houses a homeless shelter and transitional and permanent housing for women. By providing credibility for the project, the home loan bank's involvement helped developers raise the rest of the $20 million needed to finish it, said N Street officials.

"I have everything I need. Rents go up but not so I have to sweat bullets," said Evelyn Green, who was homeless before she found a place at N Street. She now manages N Street's drop-in shelter and pays $800 a month to live in one of the affordable housing units next door.

The FHLB program is not immune to abuse. Regulators said they found one case in which members of an FHLB advisory council appeared to favor certain housing groups. In another case, a nonprofit housing agency applied for funds using fraudulent cost estimates. The examiners also found a few instances in which recipients of down-payment assistance made too much money to qualify for the subsidy. Regulators, however, said they found fewer than a dozen such cases out of hundreds of grants over five years.

Most projects are monitored closely by several agencies. In the case of N Street, the D.C. Department of Housing and Community Development, which provided a low-interest loan, conducts surprise inspections at least once a year, said Beth Glascock, N Street's director of operations. In the end, home loan bank officials and nonprofit housing groups said, policymakers cannot expect them -- or Fannie Mae and Freddie Mac -- to be affordable housing developers without being affordable housing advocates.

"We wouldn't be as effective if we didn't do outreach efforts," said Lawrence H. Parks, senior vice president for external affairs for the FHLB of San Francisco. "We want to avoid a situation where we have a pot of money and no one to give it out to."