GSEs’ Business Boost Bodes Well for Housing Trust Fund, Capital Magnet Fund

Published by Michael Novogradac on Thursday, August 13, 2015 - 12:00am

Fannie Mae’s and Freddie Mac’s Securities and Exchange Commission filings for the second quarter of 2015 were made public last week. They show that both single-family and multifamily volume has increased, which is good news for the Housing Trust Fund (HTF) and Capital Magnet Fund (CMF).

The Housing and Economic Recovery Act of 2008 (HERA) required Fannie Mae and Freddie Mac to contribute to the HTF and the CMF. In December 2008, the Federal Housing Finance Agency (FHFA) suspended contributions because of concerns about the GSEs’ fiscal solvency as the firms were placed in government conservatorship. Last December, recognizing their improved fiscal condition, FHFA Director Mel Watt lifted the suspension and directed Fannie Mae and Freddie Mac to set aside contributions to the HTF and CMF throughout calendar year 2015. These contributions will be transferred to HUD (for HTF) and Treasury (for CMF) within the 60 days after the end of 2015. HUD will then distribute the funding as per the HTF formula to the 50 states, Washington, D.C., and Puerto Rico. The Treasury Department’s Community Development Financial Institutions (CDFI) Fund will hold a national competition among nonprofit housing developers and CDFIs for the CMF funding.

Affordable housing and community development advocates continue to monitor the situation and look forward to when the HTF and CMF are capitalized, because both funds could support affordable housing and community development by providing gap financing for low-income housing tax credit (LIHTC) developments.

The question of how much Fannie and Freddie will eventually contribute to the HTF and CMF has been the subject of speculation. Last year, this blog compared NLIHC estimates with projections based on SEC filings by Fannie and Freddie from the preceding four quarters. That post noted that the contribution is likely to be smaller than expected by some affordable housing advocates at that time.

Based on last week’s SEC filings by Fannie Mae and Freddie Mac, if the GSEs had contributed 4.2 basis points of their new business purchases over the past four quarters, as required by HERA, the HTF would’ve received more than $178 million in contributions and the CMF would’ve received a little more than $96 million in contributions. The total contributions to both funds for those four quarters would have been almost $275 million. In addition, HERA also mandates a one-time contribution of almost $92 million, equal to 25 percent of the 2015 Fannie and Freddie contributions to the HOPE reserve fund. If the one-time diversion to the HOPE reserve fund was not mandated, HTF and CMF would receive $238 million and $128 million, respectively.

To ensure that all recipients receive the statutory minimum allocation of $3 million, the HTF must receive at least $156 million. If the actual sum is smaller than $156 million, then HUD will publish guidance for an alternate allocation.

For the CMF, the CDFI Fund is expected to publish interim final regulations soon and a notice of funding availability (NOFA) this fall, in anticipation of the funding being available early next year. CMF award announcements are expected within 60 days of receiving the allocation.

While it is likely the HTF and CMF funding will be available next year, some in Congress have introduced bills to eliminate or divert the funding. The House fiscal year (FY) 2016 Transportation-HUD (THUD) appropriations bill would divert HTF dollars to backfill the HOME program account. H.R. 574, the Pay Back the Taxpayers Act of 2015, introduced by Rep. Ed Royce, R-Calif., and currently cosponsored by 16 House Republicans, would prevent Fannie Mae and Freddie Mac from making HTF and CMF allocations while they are in conservatorship.