Homeownership Mission Vulnerable After Rescue
Wednesday, September 10, 2008
The suspension of Fannie Mae and Freddie Mac as private enterprises means the federal government can no longer require them to spend shareholders' money on affordable-housing programs. Now the government must decide how much of its own money to spend.
Some checks are already being written. The Treasury Department last week began issuing millions of dollars in "Hope bonds" to fund refinance loans for homeowners facing foreclosure. Fannie Mae and Freddie Mac were supposed to pick up the tab. Now it's on the government.
Some spending decisions are reversible. Congress this summer created an affordable-housing trust fund, to be filled with money from Fannie Mae and Freddie Mac beginning in 2010. Affordable-housing advocates, who fought for years to create the fund, now wonder when it will see the first dollar of funding.
But the overarching question is about the future of the companies' founding purpose and long-standing mission to promote homeownership for lower-income families.
Regulators have made clear that they see Fannie Mae and Freddie Mac as essential to the health of the whole mortgage market, not just the lower end. James B. Lockhart III, director of the Federal Housing Finance Agency, barely mentioned affordable housing Sunday as he described an eight-point plan for the companies. Instead, he chose to underscore a broader mission: "the critical importance each company has in supporting the residential mortgage market in this country."
That has affordable-housing advocates wondering whether affordable housing will be seen as an expendable luxury in a drive to restore the two companies to profitability as soon as possible.
"Our concern is that the rhetoric has been about preserving the global financial system," said Mike Shea, executive director of Acorn Housing. "There has not been a whole lot of rhetoric about preserving homeownership."
Fannie Mae and Freddie Mac were created by the federal government to make mortgage loans less expensive and more available. They enjoyed indirect financial support from the government in exchange for focusing their efforts on making mortgages affordable for lower-income families.
As they became highly profitable, they felt increased pressure from Congress to invest directly in affordable housing. The resulting programs include the classic philanthropy of grants to community groups and the complicated wizardry of low-cost financing for apartment construction projects.
Two of the companies' largest obligations were created this summer by the same legislation that gave the government the power to take them over. When the government assumed control of the firms, it also took over the obligations.
The more immediate of the two obligations arises from a deal the government struck with lenders: If you, the lenders, agree to write new mortgage loans for borrowers reflecting the current value of their homes, we, the government, will promise to repay those loans even if the borrower cannot. Fannie Mae and Freddie Mac were going to cover the cost.
The government said it would guarantee up to $300 billion in such refinance loans over the next three years. The Congressional Budget Office estimated the cost of the program at about $729 million.