Senate Committee Reaches Housing Finance Reform Agreement
On Tuesday, March 11, the Senate Banking, Housing, and Urban Affairs Committee announced that the committee has reached an agreement on a housing finance reform proposal. Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) are putting finishing touches on draft legislation that they plan to release publicly in the coming days, and they plan to hold a markup in the coming weeks. This committee has been examining options to reduce the government’s footprint in the housing finance market and methods to close the Government Sponsored Enterprises of Fannie Mae and Freddie Mac.
According to the committee’s summary of the soon to be released legislation, the agreement closely follows the proposals of S. 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013. Below are some of the details that Chairman Johnson and Ranking Member Crapo have agreed to as part of the housing finance reform text. The reform agreement will:
- Eliminate Fannie Mae and Freddie Mac and replace them with a new federal company called the Federal Mortgage Insurance Company (FMIC) to provide catastrophic reinsurance for mortgage-backed securities;
- Facilitate the broad availability of credit for eligible multifamily borrowers, monitor consumer and market access to credit, and provide market based incentives and transparency to serve underserved areas;
- Maintain the multifamily market by building upon successful risk-sharing mechanisms and products and providing access to a broad range of markets; and
- Eliminate affordable housing goals and establish transparent and accountable housing-related funds that would focus on ensuring there is sufficient decent housing available.
Winding down Fannie and Freddie is a massive and complex job, and the transition being contemplated would be the largest such undertaking in history. The two GSEs currently hold slightly more than $5 trillion in mortgage-related assets, and since the sudden and steep decline in private mortgage finance that occurred in 2008, they have been responsible for more than 60% of new mortgage originations. According to testimony made by Moody’s Analytics from previous housing finance reform hearings, “Demand for multifamily mortgage originations will increase, and are expected to total $170 billion in 2016. The GSE’s multifamily divisions had strong performance throughout the financial crisis with default rates for multifamily loans below one percent. Any reforms to the GSEs and housing finance structure should preserve this outstanding success and increase incentives for private investment in the multifamily market.”
The online summary does not confirm or deny that upcoming finance reforms will follow S. 1217’s proposal to allocate funds for the National Housing Trust Fund (NHTF), an affordable housing production program that will complement existing Federal, state and local programs. Also absent is confirmation if these proposals will seek to abolish the Federal Housing Finance Agency (FHFA) and transfer its staff, infrastructure, technology and other resources to the newly created FMIC, which was also a proposal under S. 1217.
NAHMA agrees that reforms to housing finance should continue the success of Fannie and Freddie’s multifamily division. An objective of the Senate Banking Committee in these reforms is to promote stable, liquid, and efficient mortgage markets for single-family and multifamily housing. NAHMA will urge lawmakers to avoid proposals that remove affordable housing goals or decrease financing options/ access for multifamily owners.
To read the press release and summary document issued by the Banking, Housing and Urban Affairs Committee, please
click here.
Congressional Hearing on FY 2015 Budget for U.S. Department of Agriculture
On March 14, the Secretary for the U.S. Department of Agriculture, Tom Vilsack, appeared before the House of Representatives’ Appropriations Subcommittee on Agriculture to discuss the Obama Administration’s budget request for agriculture and Rural Development programs. While much of the Secretary’s testimony focused on food supplement programs and agricultural issues, he did mention the funding need and program initiatives for rental assistance. In his written testimony submitted to the Agriculture Subcommittee, Secretary Vilsack states:
“The Budget includes over $1 billion to renew approximately 243,000 outstanding contracts for rental assistance. We appreciate the Subcommittee’s on-going support for this program. For 2015, we are proposing changes to the operation of the Rental Assistance Program to ensure its long term viability.”
In his testimony delivered in person to the subcommittee, Secretary Vilsack said:
“We will also continue to focus our efforts to reform the Rental Assistance program, so that it continues to support the 285,000 families that benefit from the rental assistance program. We need to right size that program and we need additional tools to be able to do that, given actions taken by Congress in the past that have created challenging situations to fit Rental Assistance within existing budgets (sic).”
In the Obama Administration’s budget request for FY 2015, the Department of Agriculture requested new authorities in an effort to “improve the management of the rental assistance program.” The authorities included in the request are:
- The ability to renew contracts “at the discretion of the Secretary”;
- Rental assistance agreements entered into or renewed during the current fiscal shall be funded up to one year and will not be renewed within the 12 month contract period;
- A minimum of $50 in rent for tenants unless they qualify for a “hardship exemption”; and
- The ability to verify income through IRS and HHS databases.
The Secretary was not specific about the reforms needed for the Rental Assistance (RA) program during his appearance before Congress or in his written testimony. However, the Congressional Justifications for the FY 2015 USDA budget request outline why and how Rural Development plans to reform Rental Assistance.
Congressional Justifications
The rationale behind the first proposed reform (the ability to renew contracts “at the discretion of the Secretary”) is to “selectively renew RA agreements during Continuing Resolutions and uncertain budget situations. The agency will clearly establish priority order of funding in situations similar to the recent sequestration, when funding was substantially reduced.” This is a short term tool that would be used only for properties that meet selection criteria such as properties where more than 50 percent of the units are covered by RA or properties located in rural areas; only RA units used within the prior 12 months will be renewed.
In the second proposal, Rural Development believes that ending automatic renewals will allow the agency to more efficiently utilize the RA resources and will eliminate the uncertainty of future program costs and provide budget predictability for the RA Program. The Congressional Justifications state that properties will receive an allocation for up to a one-year period and will be renewed on the funding anniversary date.
For the next proposal, Rural Development believes a minimum rent will reduce the burden on the rental assistance program, provide exemptions for hardship cases, and foster tenant responsibility for program residents. “The agency believes this change will encourage financial responsibility in tenants, increasing their opportunity for success on the path to homeownership, a major goal of RD’s programs.”
NAHMA agrees that some reforms are necessary, and that better oversight will be beneficial to the federal government and property owners/managers. However, there is skepticism that ending automatic renewals will be a net benefit, and concern that RD’s proposed ability to renew contracts “at the discretion of the Secretary” is too broad under the current proposed language. We will review these proposals in consultation with our Rural Housing Committee to determine their possible impact on properties using rental assistance.
To read Secretary Tom Vilsack’s testimony and watch an archived video of the hearing, please
click here.
