The Housing Trust Fund: Background and Issues

Summary

In the years after the contributions to the funds were suspended, affordable housing advocates searched for a new source of funds for the program, as well as arguing that Fannie Mae's and Freddie Mac's contributions to the Housing Trust Fund should be reinstated as those entities returned to profitability. At the same time, policy makers who oppose the Housing Trust Fund have made efforts to repeal it or to prevent Fannie Mae and Freddie Mac from contributing to it while they remain in conservatorship. In recent Congresses, legislation has been introduced to fund the Housing Trust Fund through alternate sources, as well as to eliminate the Housing Trust Fund entirely. The Housing Trust Fund has also been debated in the context of housing finance reform, which is largely concerned with proposals for how to reform, eliminate, or replace Fannie Mae and Freddie Mac. However, no legislation to either fund the Housing Trust Fund through a different source or eliminate the Housing Trust Fund entirely has been enacted to date.

On December 11, 2014, FHFA announced that it was directing Fannie and Freddie to begin contributions to the Housing Trust Fund and the Capital Magnet Fund starting in 2015. The first funds would be transferred to the Housing Trust Fund and the Capital Magnet Fund in early 2016.

Introduction

Many states and localities across the nation have created housing trust funds that provide dedicated sources of state or local funding for affordable housing activities. For several years, affordable housing advocates campaigned for a national affordable housing trust fund to provide a permanent federal source of funding for affordable housing that would not be subject to the annual appropriations process. In July 2008, Congress passed the Housing and Economic Recovery Act of 2008 (P.L. 110-289), which was signed into law by President George W. Bush on July 30, 2008. The law included a wide range of housing-related provisions.¹ Among other things, it established two new affordable housing funds: a Housing Trust Fund and a Capital Magnet Fund.

These two new funds were to be funded through contributions from two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. However, Fannie Mae and Freddie Mac were both placed in conservatorship in September 2008, and their contributions were suspended before they had begun. On December 11, 2014, the Director of the Federal Housing Finance Agency (FHFA), Fannie Mae's and Freddie Mac's regulator and conservator, directed Fannie Mae and Freddie Mac to begin setting aside contributions for the Housing Trust Fund and the Capital Magnet Fund beginning in 2015. By statute, 65% of the funds will be allocated to the Housing Trust Fund and 35% will be allocated to the Capital Magnet Fund. This will be the first funding the Housing Trust Fund has received.

This report briefly describes the structure and eligible uses of the Housing Trust Fund as authorized in P.L. 110-289. It also discusses legislation related to the Housing Trust Fund that has been introduced in recent Congresses, including bills that would provide alternative sources of funding for the Housing Trust Fund and bills that would eliminate the program entirely.

For several years prior to the establishment of the Housing Trust Fund in 2008, a coalition of low-income housing organizations had advocated for the establishment of a national affordable housing trust fund. The idea of an affordable housing trust fund was not new; several states and localities had already adopted their own state and local trust funds. In general, affordable housing trust funds are permanent funding streams that are not reliant on annual appropriations and are dedicated to affordable housing activities for low-income households. According to the Center for Community Change, an advocacy group, nearly 700 state, city, and county housing trust funds have been established in 47 states across the nation.²

Advocacy organizations such as the Center for Community Change and the National Low Income Housing Coalition, one of the leading proponents of a national affordable housing trust fund, have long argued that a federal fund should be established to complement these state and local efforts. These advocates want this fund to be capitalized with new resources devoted to affordable housing activities, rather than from current appropriations for other affordable housing programs. They argue that a national affordable housing trust fund would be more targeted towards increasing the supply of rental housing affordable to households with the lowest incomes than most existing housing programs.

Opponents of a national housing trust fund argue that the federal government already provides funding for affordable housing through other programs, including flexible block grant programs such as the HOME Investment Partnerships Program.³ They argue that a national affordable housing trust fund is duplicative of these programs since the activities that it would fund are eligible uses of these other sources of funds. Some opponents have also expressed concerns that funds could be used as a "slush fund" for special interest groups or otherwise misused.⁴

Legislation to establish a national affordable housing trust fund was introduced several times, beginning in the 106^th Congress.⁵ One major question surrounding the creation of an affordable housing trust fund was how such a program would be funded. Early legislation proposed using a portion of receipts from the Federal Housing Administration (FHA), but diverting FHA receipts to a housing trust fund would count as new spending and would be subject to annual spending limits, including the Pay-As-You-Go rule (PAYGO).⁶

The suspension of the GSEs' contributions left the Housing Trust Fund without a source of funding. Without a funding source, the Housing Trust Fund has not been operational. However, in December 2014, FHFA directed Fannie Mae and Freddie Mac to begin their contributions to the affordable housing funds. The GSEs are to set aside funds beginning in 2015, with the first funds scheduled to be transferred to the Housing Trust Fund and the Capital Magnet Fund in early 2016. For more information on the beginning of the GSE contributions to the affordable housing funds, see the "Start of Fannie Mae and Freddie Mac Contributions to the Housing Trust Fund" section later in this report.

HUD published a proposed rule governing the allocation formula for the Housing Trust Fund on December 4, 2009,¹⁴ and a proposed program rule on October 29, 2010.¹⁵ This report describes the Housing Trust Fund based on the statutory requirements in P.L. 110-289 and HUD's proposed rules.

The Housing Trust Fund is intended to provide formula-based grants for states to increase housing opportunities for extremely low- and very low-income households. Extremely low-income households are defined as households that have an income at or below 30% of area median income. Very low-income households are defined as households that have an income at or below 50% of area median income.

P.L. 110-289 required the Secretary of HUD to develop a formula for allocating funds available from the Housing Trust Fund among the states,¹⁶ and, as mentioned above, HUD has published a proposed rule governing the allocation formula. By statute, the formula is based on the following factors:

• the relative shortage of affordable standard rental units available to extremely low-income renter households in the state (this factor is given "priority emphasis");
• the relative shortage of affordable standard rental units available to very low-income renter households in the state;
• the relative number of extremely low-income renter households living with incomplete kitchen or plumbing facilities, more than one person per room, or spending more than 50% of income on housing costs in the state; and
• the relative number of very low-income renter households spending more than 50% of income on rent in the state.

In December 2014, the Director of FHFA, Mel Watt, sent letters to Fannie Mae and Freddie Mac directing them to begin making contributions to the Housing Trust Fund and the Capital Magnet Fund.²¹ In lifting the suspension, Director Watt noted Fannie Mae's and Freddie Mac's recent profitability.

As required by statute, Fannie Mae and Freddie Mac will set aside 4.2 basis points (.042%, or .042 cents per dollar) of the unpaid principal balance of their new business purchases beginning in 2015, with the amounts being transferred to the housing funds within 60 days after the end of 2015. By statute, 65% of the contributions will go to the Housing Trust Fund and 35% to the Capital Magnet Fund.

The letters sent by FHFA specify that Fannie Mae or Freddie Mac will not be required to make contributions in any year during which they draw funds under the preferred stock purchase agreements they have in place with Treasury, or if the contributions would cause them to make such a draw.²² The FHFA director continues to have the authority to suspend the contributions in the future if he determines that circumstances require it.

FHFA also released an interim final rule to implement a provision of HERA prohibiting Fannie Mae and Freddie Mac from passing the costs of the contributions on to mortgage lenders.²³

Affordable housing advocates and some lawmakers praised the decision to direct Fannie Mae and Freddie Mac to begin contributions to the housing funds, noting the need for additional affordable housing in many communities.²⁴ However, other lawmakers criticized the decision based on opposition to the Housing Trust Fund in general or because of concerns about requiring Fannie Mae and Freddie Mac to make contributions to the housing funds while they remain under government control and subject to agreements with Treasury. Critics also argued that Fannie Mae and Freddie Mac should not make contributions to the affordable housing funds because they have technically not repaid Treasury for financial support they received in recent years, although they have paid Treasury dividends in an amount that exceeds what they received in support.²⁵

When the decision to begin contributions was announced in December 2014, some lawmakers stated that they intended to hold hearings on the topic during the 114^th Congress.²⁶ Critics of the Housing Trust Fund could also introduce legislation to block the contributions.

P.L. 110-289 allows other funds to be "appropriated, transferred, or credited" to the Housing Trust Fund. In the years following the suspension of contributions to the Housing Trust Fund, affordable housing advocates searched for both a new dedicated source of permanent funding for the Housing Trust Fund and for a source of funding to initially capitalize the Housing Trust Fund. Although FHFA directed the GSEs to begin their contributions to the Housing Trust Fund and the Capital Magnet Fund in December 2014, housing advocates may continue to search for additional sources of funding for the Housing Trust Fund.

A range of other potential sources of either permanent or initial funding have been suggested by advocates in the past, including proposals to make changes to the mortgage interest deduction and direct revenue generated by the changes to the Housing Trust Fund.²⁷ The President's budget requests have included mandatory funding for the Housing Trust Fund in each year of President Obama's Administration, although the budget requests have not identified a funding source.

Other than the original funding mechanism in P.L. 110-289, no funding for the Housing Trust Fund has been included in annual appropriations acts or in any other enacted legislation to date.

In recent years, a major issue on Congress's agenda has been housing finance reform. In the wake of the recent turmoil in the housing and mortgage markets, Congress and the Administration have expressed interest in reforming the housing finance system in general, and Fannie Mae and Freddie Mac in particular, to reduce the federal government's exposure to future losses related to mortgages. Because much of the discussion of housing finance reform centers on Fannie Mae and Freddie Mac, and because the Housing Trust Fund's statutory funding source is contributions from these entities, the Housing Trust Fund has been a part of housing finance reform discussions.

While there is broad agreement on the need for housing finance reform, there is no consensus on how the system should be reformed. Several housing finance reform bills were introduced in the 113^th Congress. Two bills that were ordered to be reported out of committee were the Protecting American Taxpayers and Homeowners (PATH) Act in the House (H.R. 2767) and the Housing Finance Reform and Taxpayer Protection Act of 2013 (commonly referred to as the Johnson-Crapo bill) in the Senate (S. 1217).²⁸ These bills took different approaches to housing finance reform in general and to the Housing Trust Fund in particular.

The PATH Act would have wound down Fannie Mae and Freddie Mac over several years and replaced them with a new entity that would facilitate mortgage securitization but would not provide any kind of government guarantee. The PATH Act would have abolished the Housing Trust Fund. The Johnson-Crapo bill would have also wound down Fannie Mae and Freddie Mac over several years and replaced them with a new entity, which would have provided federal reinsurance on certain eligible mortgage-backed securities. The bill would have retained the Housing Trust Fund and directed the new entity to make contributions to the Housing Trust Fund through a fee on covered mortgage-backed securities.

For more information on how housing finance reform proposals in the 113^th Congress would have affected the Housing Trust Fund, see CRS Report R43507, Affordable Housing Provisions in Selected Housing Finance Reform Proposals, by [author name scrubbed], [author name scrubbed], and [author name scrubbed].

In addition to housing finance reform legislation, other bills have been introduced in recent Congresses that would fund or, alternatively, eliminate the Housing Trust Fund.

In the 113^th Congress, the Common Sense Housing Investment Act of 2013 (H.R. 1213) would have made changes to the mortgage interest deduction and diverted some of the revenue generated by the changes to the Housing Trust Fund. It would also have required the Secretary of HUD to make certain revisions to the regulations governing the Housing Trust Fund.

On the other hand, the New Fair Deal Banking and Housing Stability Act of 2013 (H.R. 3550) would have eliminated several government policies, programs, and agencies related to housing and mortgage markets, including repealing the Housing Trust Fund. The Pay Back the Taxpayers Act of 2014 (H.R. 3901) would have prohibited Fannie Mae and Freddie Mac from making any contributions to the Housing Trust Fund or the Capital Magnet Fund while in conservatorship or receivership. None of these bills was enacted prior to the end of the 113^th Congress.

In the 112^th Congress, as in the 113^th Congress, some bills would have provided funding to the Housing Trust Fund, while others would have eliminated the Housing Trust Fund entirely. Bills called the Preserving Homes and Communities Act were introduced during the 112^th Congress in both the House and the Senate (H.R. 1477 and S. 489, respectively). Both of these bills would have provided $1 billion to the Housing Trust Fund, with the funding coming from the sale of warrants under the Troubled Asset Relief Program (TARP).²⁹ Another bill, the Common Sense Housing Investment Act of 2012 (H.R. 6677), would have made changes to the mortgage interest deduction and diverted some of the revenue generated by the changes to the Housing Trust Fund. It would have also directed the Secretary of HUD to make certain revisions to the regulations governing the Housing Trust Fund.

Legislation was also introduced in the 112^th Congress to eliminate the Housing Trust Fund. The GSE Bailout Elimination and Taxpayer Protection Act was introduced in both the House and the Senate (H.R. 1182 and S. 693, respectively) and would have repealed the section of law that established the Housing Trust Fund. The Housing Trust Fund Elimination Act of 2011 (H.R. 2441) would have eliminated the Housing Trust Fund and transferred any amounts available in the fund to the Treasury, to be used solely for the purpose of reducing the federal budget deficit. None of these bills was enacted by the end of the 112^th Congress.

In the 111^th Congress, several legislative proposals included funding for the Housing Trust Fund. For example, the House-passed version of H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, would have provided $1.065 billion for the Housing Trust Fund.³⁰ Of this amount, $1 billion would have been used for formula grants to states, and the remaining $65 million would have been used for project-based rental assistance associated with those grants. The bill also would have made some changes to the underlying statute that governs the Housing Trust Fund. The version of the bill enacted into law did not include any provisions related to the Housing Trust Fund.

The House-passed version of the Jobs for Main Street Act of 2009 also included funding for the Housing Trust Fund in the 111^th Congress. Like the version of H.R. 4213 that was passed by the House, the House-passed version of the Jobs for Main Street Act included $1.065 billion for the Housing Trust Fund, including $65 million for project-based rental assistance to be used in conjunction with projects funded by the Housing Trust Fund. The funding for the Housing Trust Fund was not included in the version of the bill that was signed into law (P.L. 111-147).

Additionally, two House bills would have used TARP funds to fund the Housing Trust Fund in the 111^th Congress. The first (H.R. 3068) would have provided $1 billion for the Housing Trust Fund from dividends paid to the Treasury by financial institutions that received funds under TARP. The second (H.R. 3766) would have provided $1 billion for the Housing Trust Fund by diverting TARP funds directly to the Housing Trust Fund, rather than using dividends paid to the Treasury by TARP recipients. The latter bill also would have limited the rents paid by tenants living in housing assisted with funds from the Housing Trust Fund to no more than 30% of the family's adjusted income. A Senate bill (S. 1731) would also have provided $1 billion for the Housing Trust Fund, using funds from the sale of warrants under TARP. No bills that included funding for the Housing Trust Fund were enacted into law by the end of the 111^th Congress.

106^th Congress

107^th Congress

108^th Congress

109^th Congress

110^th Congress

Footnotes

For more information on the Housing and Economic Recovery Act, see archived CRS Report RL34623, Housing and Economic Recovery Act of 2008, coordinated by [author name scrubbed].

For more information on the HOME Investment Partnerships Program, see CRS Report R40118, An Overview of the HOME Investment Partnerships Program, by [author name scrubbed].

For example, see a July 2011 press release from the office of Representative Ed Royce, describing committee passage of a bill he had introduced to eliminate the Housing Trust Fund during the 111^th Congress at http://royce.house.gov/news/documentsingle.aspx?DocumentID=251288.

See archived CRS Report RL34300, Pay-As-You-Go Procedures for Budget Enforcement, by [author name scrubbed], for more information on PAYGO.

The GSEs are private companies that are chartered by Congress to ensure liquidity in the mortgage market. They purchase mortgages from private lenders, guarantee the principal and interest payments on the mortgages, and package them into mortgage-backed securities that they either hold on their balance sheets or sell to investors. In 2008, Fannie Mae and Freddie Mac experienced financial trouble and were in danger of being unable to meet their financial obligations. They agreed to go into voluntary conservatorship and their regulator, the Federal Housing Finance Agency, took over their management. The Treasury Department agreed to provide financial support to the GSEs through the purchase of senior preferred stock. Under the amended terms of the preferred stock purchase agreements, the GSEs currently send any profits they earn in a quarter to Treasury as dividend payments. For more information on the current status of the GSEs, see CRS Report R42760, Fannie Mae's and Freddie Mac's Financial Status: Frequently Asked Questions, by [author name scrubbed].

For more information on the GSEs and the privileges that they have historically enjoyed, see archived CRS Report RL33756, Fannie Mae and Freddie Mac: A Legal and Policy Overview, by [author name scrubbed] and [author name scrubbed]. For background on the GSEs' affordable housing goals, see CRS Report R43507, Affordable Housing Provisions in Selected Housing Finance Reform Proposals, by [author name scrubbed], [author name scrubbed], and [author name scrubbed].

P.L. 110-289 established the Housing Trust Fund by amending the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. The program is codified at 12 U.S.C. 4568.

More information on the Capital Magnet Fund is available on the Treasury Department's CDFI Fund website at http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=11.

Specifically, the GSEs were to contribute 4.2 basis points (.042%, or .042 cents per dollar) of the unpaid principal balance of their new business purchases. Sixty-five percent of the contributions would go to the Housing Trust Fund, and the remaining 35% would go to the Capital Magnet Fund.

12 U.S.C. §4567(b)

United States Securities and Exchange Commission filing, Form 8-K, Federal National Mortgage Association, November 18, 2008, available at http://www.sec.gov/Archives/edgar/data/310522/000129993308005442/htm_30041.htm, and United States Securities and Exchange Commission Filing, Form 10-Q, Federal Home Loan Mortgage Corporation, November 14, 2008, p. 66, available at http://ir.10kwizard.com/files.php?source=1372.

Department of Housing and Urban Development, "Housing Trust Fund; Allocation Formula; Proposed Rule," 74 Federal Register 63938-63942, December 4, 2009. This proposed rule would create a new Part 93 to Title 24 of the Code of Federal Regulations.

Department of Housing and Urban Development, "Housing Trust Fund; Proposed Rule," 75 Federal Register 66978-67009, October 29, 2010. This proposed rule would create a new Subpart N to Part 92 of Title 24 of the Code of Federal Regulations. Part 92 of Title 24 contains the regulations governing HUD's Home Investment Partnerships Program.

The term "states" includes the 50 states, the District of Columbia, and the territories and possessions of the United States, including Puerto Rico, the Northern Mariana Islands, Guam, the Virgin Islands, and American Samoa.

In 2010, HUD's Office of Policy Development and Research released preliminary estimates of the amount of funding that each state could receive from $1 billion allocated to the Housing Trust Fund, based on the proposed formula. These estimates are available at http://www.huduser.org/portal/periodicals/cityscpe/vol12num1/ch7.pdf.

The $3 million minimum grant amount applies only to the 50 states and the District of Columbia.

HUD requires jurisdictions to submit a Consolidated Plan in order to receive funds from its block grant programs, such as the Community Development Block Grant (CDBG) program and the HOME Investment Partnerships Program. The Consolidated Plan describes a jurisdiction's affordable housing needs and explains how funds received from HUD and other sources will be used to meet those needs.

The home must be available for purchase by extremely low- or very low-income families who will use the home as a principal residence and are first-time home buyers, meaning that they have not owned a home in the prior three years. Home buyers must also complete a pre-purchase financial counseling requirement. The home is subject to initial purchase price and resale restrictions.

The letters are available at http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Statement-on-the-Housing-Trust-Fund-and-Capital-Magnet-Fund.aspx.

When Fannie Mae and Freddie Mac were placed into conservatorship in 2008, Treasury also agreed to provide financial support to Fannie Mae and Freddie Mac through purchases of senior preferred stock. In total, Fannie Mae and Freddie Mac received about $187 billion from Treasury under these agreements. Neither Fannie nor Freddie has required support from Treasury since early 2012, but under the terms of the agreements, they can receive additional funds from Treasury if necessary. For more information on these agreements, see CRS Report R42760, Fannie Mae's and Freddie Mac's Financial Status: Frequently Asked Questions, by [author name scrubbed].

Federal Housing Finance Agency, "Housing Trust Fund," 79 Federal Register 74595-74597, December 16, 2014.

For example, see the statement of then-Chairman of the Senate Banking Committee Tim Johnson at http://www.banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=487d95bb-d627-24da-4ac7-72bca1f2a6ee.

According to the terms of the preferred stock purchase agreements with Treasury, Fannie Mae and Freddie Mac pay dividends to Treasury equal to the amount of any profits they earn in a quarter. These dividend payments compensate Treasury for the risk it incurred in providing support for Fannie Mae and Freddie Mac, but do not count as repayment of the amount Fannie Mae and Freddie Mac received. For more information on the terms of the agreements with Treasury, see CRS Report R42760, Fannie Mae's and Freddie Mac's Financial Status: Frequently Asked Questions, by [author name scrubbed].

For example, see the statement of House Financial Services Committee Chairman Jeb Hensarling at http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=398566.

For example, see National Low-Income Housing Coalition, "National Housing Trust Fund Current Avenues for Funding," updated September 2013, http://nlihc.org/sites/default/files/NHTF_Funding.pdf. For an overview of the mortgage interest deduction, see CRS Report R41918, The Mortgage Interest and Property Tax Deductions: Brief Overview with Revenue Estimates, by [author name scrubbed]. For more detailed analysis and policy options related to the mortgage interest deduction, see CRS Report R41596, The Mortgage Interest and Property Tax Deductions: Analysis and Options, by [author name scrubbed].

For more information on these bills, see CRS Report R43219, Selected Legislative Proposals to Reform the Housing Finance System, by [author name scrubbed], [author name scrubbed], and [author name scrubbed].

For more information on TARP, see CRS Report R41427, Troubled Asset Relief Program (TARP): Implementation and Status, by [author name scrubbed].

The version of H.R. 4213 that passed the House on May 28, 2010, was a House amendment to the Senate amendment to H.R. 4213.