An increased understanding of current efforts towards affordable housing by the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, can usefully inform the broader debate regarding future housing finance reforms, according to a white paper by the Milken Institute, which looked at the effectiveness of the measures, especially affordable housing fee being charged under the GSE assessment.
Written by Dr. Michael A. Stegman and Dr. Phillip L. Swagel, both Senior Fellows at the Milken Institute’s Center for Financial Markets, the white paper explained the origin and history of the affordable housing assessments of the GSEs, summarizes some common concerns, and brings together preliminary data on its use to date with the objective of providing a framework for an informed discussion about its uses to support affordable housing today and in a future reformed system.
The study primarily focused on the role of the Housing Trust Fund (HTF) and the Treasury’s Capital Magnet Fund (CMF)—two programs that are part of the GSEs’ affordable housing and credit access requirement to pay an assessment on each dollar of new business to HTF for the U.S. Department of Housing and Urban Development (HUD), and CMF for the U.S. Treasury.
The annual assessment of both these funds is projected to raise $2.8 billion for affordable housing over the next 10 years, according to the study. The annual assessment was levied and collected from the GSEs in 2015 for the first time with proceeds flowing the following year and each year thereafter into HTF and CMF.
According to the study, the controversy over the uses of the affordable housing fee levied on the GSEs reflects three arguments—that by design affordable housing funds are off-budget; it is an ineffective program; and a somewhat “ideological concern” regarding the affordable housing fee’s resources being used as a political slush fund.
On assessing the program requirements for HTF and CMF and what is currently know about how these affordable housing resources are put to work, the white paper said that the goal of these funds, generated as part of the housing finance reform was “to provide incremental support to a federal housing assistance system which, today, barely serves one in four eligible households.”
“Success will be achieved when targeted resources reduce the occupancy costs of assisted housing developments below otherwise-required rent levels, improving the supply of housing that is affordable for those nearer to the bottom of the income distribution, which is consistent with the limited available CMF and HTF program data to date,” it concluded.
Click here to read the white paper.