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86–711 PDF 2014

S. HRG. 113–175 

HOUSING FINANCE REFORM: ESSENTIAL ELEMENTS 

TO PROVIDE AFFORDABLE OPTIONS FOR 

HOUSING 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING RECOMMENDATIONS TO PROVIDE AFFORDABLE OPTIONS 

FOR HOME OWNERSHIP AND RENTAL HOUSING, AFFORDABLE MORTGAGE CREDIT IN RURAL AND UNDERSERVED COMMUNITIES, AND SOLUTIONS TO ADDRESSING THE COST BURDENS FACING MANY RENTERS 

NOVEMBER 7, 2013 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

LAURA SWANSON, Deputy Staff Director 

ERIN BARRY FUHER, Professional Staff Member 

BETH COOPER, Professional Staff Member 

KARI JOHNSON, Legislative Assistant 

GREG DEAN, Republican Chief Counsel 

JARED SAWYER, Republican Counsel 

CHAD DAVIS, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, NOVEMBER 7, 2013 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Crapo ................................................................................................... 2 

WITNESSES 

Hilary O. Shelton, Washington Bureau Director and Senior Vice President 

for Policy and Advocacy, NAACP ........................................................................ 4 

Prepared statement .......................................................................................... 31 

Responses to written questions of: 

Senator Warren ......................................................................................... 76 

Rick Judson, Chairman, National Association of Home Builders ....................... 6 

Prepared statement .......................................................................................... 34 

Sheila Crowley, President and CEO, National Low Income Housing Coalition . 7 

Prepared statement .......................................................................................... 49 

Responses to written questions of: 

Senator Heitkamp ..................................................................................... 76 

Douglas Holtz-Eakin, President, American Action Forum ................................... 9 

Prepared statement .......................................................................................... 54 

Responses to written questions of: 

Senator Coburn ......................................................................................... 77 

Ethan Handelman, Vice President for Policy and Advocacy, National Housing 

Conference ............................................................................................................ 10 

Prepared statement .......................................................................................... 61 

Responses to written questions of: 

Senator Reed .............................................................................................. 79 

Senator Warren ......................................................................................... 79 

(III)

(1) 

HOUSING FINANCE REFORM: ESSENTIAL ELEMENTS TO PROVIDE AFFORDABLE OPTIONS 

FOR HOUSING 

THURSDAY, NOVEMBER 7, 2013 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:04 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. I call this hearing to order. 

Today with the help of our witnesses, the Committee will examine the importance of affordability in the housing finance system 

for both homeowners and renters. It is imperative that any new 

system meets the housing needs for all Americans, and this morning, we will explore the well-functioning elements of the current 

system that should be maintained to provide renters, low- and 

moderate-income families, and those who live in rural areas affordable options for housing. 

Currently, Fannie Mae and Freddie Mac support affordable financing for multifamily lending and, prior to being placed in conservatorship, were authorized to provide funding for the Housing 

Trust Fund and Capital Magnet Fund to further target support for 

affordable housing to those families that need it most. 

In addition, Fannie Mae and Freddie Mac’s mission is to ensure 

a liquid market and stable access to mortgage credit in all communities, including rural and underserved markets. This mission cannot be scrapped in a new system. 

As we consider winding down Fannie Mae and Freddie Mac and 

transitioning to a new structure, we must consider what worked 

and what did not work in the old system, and how the roles currently filled by the GSEs will be replaced in a new system. 

While those who are opposed to the GSE’s affordable housing 

goals often link the goals—last increased for the single-family market by the Bush administration in 2004—to the problems experienced in the housing market, even Dr. Holtz-Eakin’s dissenting 

view in the Financial Crisis Inquiry Commission report found that 

the problems were complicated rather than solely focused on the 

GSEs. 

2 

And research conducted by the St. Louis Federal Reserve Bank 

determined that the affordable housing goals were not the cause of 

this subprime mortgage boom. 

According to a recent report by the Harvard Joint Center for 

Housing Studies, home ownership is at its lowest level since 1976 

for those ages 25 to 54. The statistics are equally troubling for affordable rental properties. As the home ownership rate decreased 

during the crisis, the demand for the rental stock exceeded the supply and the number of rent-burdened families increased as the supply of vacant rental housing declined to the lowest percentage since 

2001. 

Without a new system that includes a duty to serve all areas of 

the country, I am concerned that these levels could fall further and 

at the expense of rural and traditionally underserved markets like 

those in my home State. 

I look forward to hearing our witnesses’ recommendations to 

maintain and increase access to housing options that are affordable, and to ensure that all communities are served by any new 

secondary market structure. 

Now I turn to Senator Crapo for his opening statement. 

STATEMENT OF SENATOR MIKE CRAPO 

Senator CRAPO. Thank you, Mr. Chairman. 

Today we continue our important work examining essential elements of the housing finance system. I want to thank our witnesses 

for appearing today to present your thoughts on this important 

topic. For millions of Americans across the country, home ownership provides a source of security and a sign of responsibility. 

There are undeniable benefits derived from home ownership for 

both the families who buy and the broader community as long as 

the purchase of that home is achieved through responsible, sustainable means. Five years after the financial crisis, affordability is 

still a major concern for prospective homeowners. As we address 

this important issue, we must not return to the flawed politics of 

the past. 

Several prominent economists have criticized the affordable 

housing policies of the 1990s and the early 2000s as a significant 

contributor to the financial crisis. They argue mandatory affordable 

housing goals forced Fannie Mae and Freddie Mac to lower underwriting standards, reach into the subprime market, and ultimately 

take on more unsustainable risk. 

During the height of the housing bubble, Fannie and Freddie 

began acting like highly leveraged hedge funds, purchasing as investments nearly 40 percent of the private label subprime securities. These combined actions harmed borrowers, homeowners, and 

taxpayers through the creation of unsustainable mortgages. 

S.1217 aims to strike a delicate balance between making homes 

more affordable and protecting the American taxpayer. In exchange 

for a repeal of the flawed affordable housing goals the Governmentsponsored enterprises were previously required to meet, the new 

framework would provide funding to expand access to affordable 

home ownership and rental housing. 

Funds would be allocated to two existing programs, the National 

Housing Trust Fund and the Capital Magnet Fund. These funds 

3 

would provide grants and other aid for States, housing entities, and 

other nonprofits to ensure broad access to affordable housing options. 

I have heard a lot of positive feedback about the benefits of localized affordable housing policy and how it can provide more flexibility for tailored approaches. However, this new model still raises 

many questions. First, how would these funds interact with the 

myriad of other Federal affordable housing options already offered 

through HUD, Federal home loan banks, the USDA, and certain 

tax incentives? 

According to a recent Government Accountability Office report, 

Federal housing assistance is fragmented across 20 different entities administering 160 programs, receiving tens of billions of dollars each year in Federal funding. The GAO report recommends 

several actions that can be taken to eliminate duplication and increase efficiency among these programs. 

Second, is the five to ten basis point charge on guaranteed securities envisioned in S.1217 appropriate to capitalize these funds? 

Using today’s secondary market size, many estimate that these 

funds would receive $2.5 billion to $5 billion per year in funding. 

To put that in perspective, the allocation to these funds would be 

roughly 10 percent the size of HUD’s fiscal year 2012 budget. 

How do we make sure that the funds are accountable and transparent to the American taxpayers and Congress? As we debate 

ways to increase affordability, it is imperative that we strive to 

make our policies responsible, accountable, and efficient. 

We have an opportunity to achieve much needed reform in our 

housing finance system. In doing so, we must find a way to promote responsible housing policies without placing the American 

taxpayer at risk. The American taxpayer cannot be exposed to another GSE-like bailout as a result of deeply flawed policies. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Crapo. 

Are there any other Members who would like to give a brief 

opening statement? If not, I would like to remind my colleagues 

that the record will be open for the next 7 days for additional statements and other materials. Before we begin, I would like to introduce our witnesses that are here with us today. 

First, Mr. Hilary O. Shelton is the Washington Bureau Director 

and Senior Vice President for Policy and Advocacy at NAACP. Mr. 

Rick Judson is the current Chairman of the National Association 

of Home Builders, as well as a home builder from North Carolina. 

Dr. Sheila Crowley is the President and CEO of the National Low 

Income Housing Coalition. 

Dr. Douglas Holtz-Eakin is the President of the American Action 

Forum. And finally, we have Mr. Ethan Handelman, Vice President 

for Policy and Advocacy at the National Housing Conference. We 

welcome all of you here today and thank you for your time. 

Mr. Shelton, you may proceed with your testimony. 

4 

STATEMENT OF HILARY O. SHELTON, WASHINGTON BUREAU 

DIRECTOR AND SENIOR VICE PRESIDENT FOR POLICY AND 

ADVOCACY, NAACP 

Mr. SHELTON. Thank you very much and good morning. Good 

morning, Senators Crapo, Johnson, esteemed members of this 

panel. My name is Hilary Shelton. I am Director of the NAACP’s 

Washington Bureau, the legislative and public policy arm of our 

Nation’s oldest and largest grassroots-based civil rights organization. 

Owning a home remains the American dream. For many, it represents a degree of financial success as well as an opportunity to 

build and retain wealth. Our Nation, our communities, and our 

people all benefit from safe, affordable, secure housing, whether it 

be through home ownership or rental housing. 

Furthermore, it has been established that housing markets cur- rently generate more than $10 trillion per year in domestic economic activity. Yet, the communities served and represented by the 

NAACP have long been underserved by the housing market. We 

were, for decades, targeted by predatory lenders and, as a result, 

have been denied the opportunity to build wealth through housing. 

Furthermore, many of our communities, in fact, a disproportionate number of communities of color continue to suffer from the 

foreclosure prices and continue to be neglected by too many mainstream financial institutions. 

As Congress considers and debates the future of the housing 

market and the role to be played by the Federal Government, I 

cannot stress enough how important it is that any future housing 

finance system must affirmatively establish pathways to sustainable and affordable home ownership for a wide range of qualified 

buyers. 

We must also make sure that any genuine reform of the secondary market will assure an adequate supply of safe and affordable rental homes. A 2008 burst of the housing bubble had repercussions which are still being felt today, especially in communities 

of color across the United States. An estimated 4.5 million homes 

have been foreclosed upon since the crisis began, and many more 

are still at risk of foreclosure. 

Due largely to the targeted predatory lenders which have been 

going on for years in the communities of color, the rate of foreclosures is currently twice as high for borrowers of color when compared to white borrowers. In addition to the households actually 

facing prospects of foreclosure, the crisis has also impacted homeowners who live in neighborhoods with high levels of foreclosures, 

and again, racial and ethnic minority communities are disproportionately affected. 

One study estimated that racial and ethnic minority neighbor- hoods will lose $1 trillion in home equity because of the impact 

that homes going through foreclosure process has had on overall 

neighborhood property values, fully half of all overall national 

total. 

In my written testimony, I cite several studies which demonstrate that although mortgages made to low-income and racial 

and ethnic minority Americans were disproportionately predatory 

subprime loans, neither the borrowers nor the affordable housing 

5 

goals, which many claim led to the—been extended the loans in the 

first place were not at fault for the 2008 housing crisis. 

Nor was the housing crisis caused by compliance with the Community Reinvestment Act, as some of have tried to claim. In fact, 

studies show that loans made to low wealth homeowners as part 

of the banks’ efforts to meet their CRA obligations have actually 

performed better than the rest of the subprime market. 

Rather, the source of too many of our economic woes was the desire of Fannie Mae and Freddie Mac to make money for their private stakeholders and the willingness of the private label market 

to accommodate their desires. 

Chairman Johnson, Members of the Committee, I do not need to 

tell you that the Americans’ housing market is incredibly complicated and complex. Its needs and fortunes vary from region to 

region, income to income, and year to year. Nobody, including me, 

has all the answers of reform under the current system. 

Yet, I do know that if we take steps to reform the housing market, we must do all that we can to ensure that every American has 

access to safe, affordable, sustainable housing. For low-income 

Americans, this means that we must ensure that there is an adequate stock of safe and affordable rental units throughout the country, and for qualified middle income Americans, this means that we 

must make sure that sustainable, affordable mortgages are available. 

And the housing finance system must affirmatively establish affordable, sustainable pathways to home ownership for all qualified 

buyers. Ensuring that all Americans have access to fair and sustainable credit opportunities is crucial to a sustained economic recovery. The Federal Government is obligated to promote nondiscrimination, residential integration, and equal access to the benefits of decent and safe housing and ownership opportunities. 

Therefore, any reform of the secondary market must require all 

lenders and scrutinizers receiving a guarantee of any kind to affirmatively market or offer credit in the manner that promotes 

equal opportunity in all neighborhoods. 

Furthermore, without a duty to serve all communities, as is indicated by the Community Reinvestment Act, private capital will 

gravitate to the elite home buyers, those with traditional borrowing 

profiles, while middle class and first time home buyers, as well as 

purchasers of color, will be left without. This will result in the exacerbation of an unsustainable housing finance market in which 

qualified, but lower wealth and lower income buyers, especially minorities, will be underserved. 

Sadly, this trend is already evident. The private market overwhelming caters to traditional borrowers in well-served locations, 

a fact that harms both borrowers and minority communities and 

whole housing sectors. 

Let me wrap up by saying that the NAACP does not agree with 

any provisions in legislation proposed by—some of the provisions, 

not every provision, in legislation proposed by Senators Corker and 

Warner, especially provisions which would negatively and disproportionately affect racial and ethnic minorities, including the 

mandated 5-percent downpayment, and we will be quick to point 

out areas in which the proposed legislation is lacking. 

6 

We do congratulate them for moving the debate forward, however. Likewise, we are strongly encouraged by these hearings being 

held by Chairman Johnson and Ranking Member Crapo intended 

to look into the necessary elements of GSE reform. Members of this 

esteemed panel, I look forward to your questions and the ensuing 

debate regarding GSE reform, and to working with you to ensure 

that any reform will benefit all home buyers, renters, and our Nation as a whole. 

I thank you very much for holding this hearing and look forward 

to your questions. 

Chairman JOHNSON. Thank you. Mr. Judson, you may proceed. 

STATEMENT OF RICK JUDSON, CHAIRMAN, NATIONAL 

ASSOCIATION OF HOME BUILDERS 

Mr. JUDSON. Chairman Johnson, Ranking Member Crapo, and 

Members of the Committee, thank you for the opportunity to testify 

today. My name is Rick Judson. I am a builder/developer from 

Charlotte, North Carolina, and the Chairman of the Board of the 

National Association of Home Builders. 

NAHB believes that an effective housing finance system must address liquidity as well as affordability. It is essential that the housing credit is consistently available on affordable terms regardless 

of domestic and international economic and financial conditions. 

The U.S. housing finance system must be multifaceted, including 

private, Federal, and State sources of housing capital. To achieve 

this, it is important to reform and restructure the conventional 

mortgage market, but also to improve other parts of the housing 

finance system, including reform of the appraisal process. 

We urge Congress to move comprehensive housing finance reform 

legislation that contains elements that contribute to affordability 

and availability of safe and soundly underwritten loans. Most importantly, to maintain affordable mortgage credit, NAHB believes 

strongly that a Federal backstop is needed to ensure the continued 

availability of mortgage credit, specifically, 30-year fixed-rate mortgages and reliable mortgage financing for multifamily rental housing. 

The key to the sustainability of the 30-year fixed-rate mortgage 

is securitization outlet, because originators simply do not have the 

sufficient capacity to hold for such long-term assets. There are serious doubts as to whether a private housing finance system would 

be capable of supporting this type of product without some sort of 

Government guarantee. 

At a minimum, the cost and terms of a 30-year fixed-rate mortgage would be significantly less favorable in a totally private system and fewer families would be eligible for such mortgages. 

NAHB believes that S.1217, the Housing Finance Reform and Taxpayer Protection Act introduced by Senators Corker and Warner, 

represents an important bipartisan step in the debate on housing. 

NAHB believes that the—in particular, we support modifications 

to the Corker-Warner bill that would make the National Housing 

Trust Fund accessible. The future housing finance system must be 

viewed as more than a private conventional market. The array of 

Federal and State government programs that have been developed 

7 

over the years are still essential elements of an affordable housing 

option. 

FHA single family mortgage programs are unique and a vital 

component of the housing finance system. FHA is critical to providing home ownership opportunities, especially for first time home 

buyers, minorities, and those with limited downpayment capabilities. Similarly, FHA has historically played an important role in financing multifamily rental housing. 

For our Nation’s rural areas, programs operated by the USDA’s 

Rural Housing Service have played an important role in providing 

mortgage credit in underserved areas. The VA Home Loan Guarantee Program is an integral component of housing finance for our 

Nation’s service members, providing an outstanding example of 

how low to no downpayment programs can perform even in a difficult economic environment if they are properly underwritten. 

Finally, builders continue to have a very difficult time accessing 

production credit from the traditional financial institutions. NAHB 

greatly appreciates the efforts of Senators Menendez and Isakson 

for introducing legislation, S.1002, that addresses several regulatory barriers currently inhibiting access to construction credit. 

We hope this Committee will consider this legislation and other 

regulatory barriers to both construction and the broader, small 

business credit. NAHB looks forward to working with the Chairman and Ranking Member, and all Members of the Committee, to 

achieve comprehensive housing reform finance that maintains a 

proper level of Federal support necessary to provide the muchneeded, long-term stability for this critical section of our economy. 

Thank you for the opportunity to testify today. 

Chairman JOHNSON. Thank you. Dr. Crowley, you may proceed. 

STATEMENT OF SHEILA CROWLEY, PRESIDENT AND CEO, 

NATIONAL LOW INCOME HOUSING COALITION 

Ms. CROWLEY. Chairman Johnson and Ranking Member Crapo 

and Members of the Committee, thank you so much for inviting me 

to testify today. 

This Committee’s extensive work that you are engaged in housing finance reform is focused on how mortgage financing should be 

structured and what role the Federal Government should play. The 

reason that the Federal Government should be involved at all is to 

make sure that the housing sector works for everyone, not just for 

the most fortunate. 

I am here today to ask that you make sure that the least fortunate are included in your legislation, people for whom the housing 

market does not work at all and who cannot be reached through 

the existing low-income housing programs because the need far exceeds the resources. 

To do so, I ask that you protect and fund the National Housing 

Trust Fund. We have led the National Housing Trust Fund campaign since the year 2000. This includes some 7,000 organizations 

in every Congressional district across the country. We celebrated 

when the Trust Fund was created in 2008 in the Housing and Economic Recovery Act, HERA. 

We are very grateful to Senator Reed for his authorship of the 

Housing Trust Fund provisions in HERA, and to Senators Shelby, 

8 

Crapo, Corker, Johnson, Schumer, Menendez, Brown, Tester, and 

Warner for supporting the Housing Trust Fund in 2008. We are 

also grateful to Senators Corker and Warner and the other cosponsors for including the Housing Trust Fund in S.1217. 

All housing markets are local, but there is no community in our 

country that has a sufficient supply of decent rental homes that are 

affordable to extremely low-income families. In South Dakota, that 

is $18,784 a year. In Idaho, it is $16,932 a year, or less. These are 

people who labor in the low wage workforce and people who are elderly and disabled with incomes primarily from SSI. 

There are 10.1 million extremely low-income renter households 

in the United States and only 5.5 million units renting at prices 

they can afford. It is the only income group for whom there is a 

shortage of homes. Nationwide, there are just 30 homes that are 

available and affordable for every 100 extremely low-income renter 

households. 

And moreover, the shortage gets worse every year. HUD reports 

that the number of worst case housing needs increased by 43 percent between 2007 and 2011. That is why 6,500 people showed up 

last week when the East Providence Housing Authority, which only 

administers 330 vouchers and has none to give out right now, 

opened up its voucher waiting list to people who came the night before to camp out to be able to just put their names on a list. 

These are data about families who have to choose between food 

or heat, coats or medicine, and get behind on their rent and lose 

their homes anyway. They move in with others or they sleep in 

cars. Next time you are at home ask a local principal about how 

many homeless children there are in their schools. We have 1.1 

million homeless children enrolled in public schools in the United 

States now. 

And though we have made progress in reducing the number of 

veterans and people with chronic illnesses who are homeless, there 

has been an explosion in the number of homeless families with 

children. There are over 20,000 homeless children in New York 

City alone. 

The purpose of the National Housing Trust Fund is to end this 

housing shortage. The market will not do it on its own. The cost 

of building and operating rental housing is more than poor families 

can afford to pay in rent. 

There would be no need for the National Housing Trust Fund— 

and let me be clear about this—if existing Federal housing programs were sufficiently funded and properly structured. But there 

is no existing Federal housing program that produces rental homes 

targeted specifically for extremely low-income households, and 

more critical, current programs are grossly underfunded. 

HUD rent assistance only reaches 25 percent of the eligible population. All the HUD programs that serve low income people are 

part of domestic discretionary spending and are subject to sequestration. We estimate that 185,000 vouchers will be lost by the end 

of next year under sequestration. Given the constraints on appropriations today, it is inconceivable that the existing HUD programs 

will ever be enough. 

We estimate that it would cost $30 billion a year for 10 years, 

that is $300 billion, to close this gap. That is why we need a NaVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
9 

tional Housing Trust Fund, to produce, preserve, rehabilitate, and 

operate rental homes that these families can afford. It is modeled 

after housing trust funds created at the State and local level over 

the past 30 years. Those that are the most successful have robust, 

dedicated sources of funding. 

The National Housing Trust Fund is supposed to be funded with 

a dedicated source of funding, and as you know, the initial source 

provided in HERA was an assessment on Fannie and Freddie. The 

statute also says that the Trust Fund can be funded by any other 

amounts that Congress may direct toward it. 

Fannie and Freddie were taken into conservatorship soon after 

HERA was enacted. The conservator suspended their obligation. 

The story is well-known. We think that now that Fannie and 

Freddie are profitable again, that the suspension should be lifted. 

Given the current dire circumstances of so many poor Americans, 

it would be a Godsend if the conservator agreed with us, but unfortunately, he does not. 

Our specific requests related to the Housing Trust Fund in your 

bill are detailed in my written testimony and my letter to you of 

October 11. The essence is that we ask that you preserve the Housing Trust Fund as enacted in HERA with the sole purpose of expanding rental housing that is affordable for extremely low-income 

households, and to maximize the funding provided to it through the 

dedicated sources of revenue that you are creating in this bill. 

Thank you so much. 

Chairman JOHNSON. Thank you. Dr. Holtz-Eakin, you may proceed. 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, 

AMERICAN ACTION FORUM 

Mr. HOLTZ-EAKIN. Thank you, Mr. Chairman, Ranking Member 

Crapo, and Members of the Committee for the privilege of testifying today. I have a written testimony for the record and I will 

just make three brief points at this juncture. 

First, in my view, housing finance reform is long overdue and I 

applaud the Committee for taking up the legislation that you are 

working on, and I encourage you to continue to try to push it across 

the finish line. That is something the Nation needs. 

Second, in doing so, I think it is important not to replicate the 

affordable housing goals that were in the housing GSEs, and I 

want to thank the Chairman for noting my dissent in the Financial 

Crisis Inquiry Commission. I am now assured that the readership 

has reached one. 

[Laughter.] 

Mr. HOLTZ-EAKIN. But as you pointed out, I have never felt those 

affordable housing goals were central to the crisis that we experienced. It is a very complicated set of causes of that crisis. But they 

did not work either. They were poorly targeted. They tended to lag 

the market. And in my view, they also suffered from being offbudget and not subject to the appropriate scrutiny by the Congress. 

And that brings me to my main point, which is that I do not 

think you will find any great disagreement about the need to help 

low-income Americans have adequate shelter. That is a laudable 

and important policy goal that the Committee should pursue. And 

10 

as my written testimony makes clear, and the GAO report lays out, 

we have an enormous array of on-budget appropriated programs 

which are intended to meet that need. 

We have scrutinized tax expenditures which are run through the 

Finance Committee and are part of the budgetary process. I do not 

think it is appropriate to create a new program which is outside 

of the budget process, which does not require the Congress to annually look at the effectiveness of the program, to balance the 

tradeoffs between this policy objective and the others that you will 

face. They are unquestionably real and difficult. 

And that in going forward with assistance to low-income shelter, 

the starting point ought to be to take the programs that exist and 

make them work better, target them more effectively, and if more 

resources are needed, put them in through the budget process, not 

through something which is a fee outside the budget process that 

does not enter into the regulatory tradeoffs that you face. 

So I thank you for the chance to be here today and I look forward 

to answering your questions. 

Chairman JOHNSON. Thank you. Mr. Handelman, you may proceed. 

STATEMENT OF ETHAN HANDELMAN, VICE PRESIDENT FOR 

POLICY AND ADVOCACY, NATIONAL HOUSING CONFERENCE 

Mr. HANDELMAN. Thank you very much, Mr. Chairman, Ranking 

Member Crapo, and all the Members of the Committee for bringing 

me here today to testify. 

I particularly appreciate the constructive bipartisan manner that 

the Committee has been pursuing this exercise. It is essential to 

the future of America, and I think your efforts will certainly pay 

off in the system that is created. 

I am particularly glad to see affordable options for housing in the 

title of this hearing because that should be a central goal of housing finance reform. The work of rebuilding the mortgage finance 

system cannot only be about making markets function well. That 

has to be part of it, but it must also be about shelter. 

As the Federal Government creates new mechanisms for housing 

finance, deploys its full faith and credit, and encourages private entities to put capital to work, the social purpose of safe, decent, and 

affordable housing for all in America must guide those efforts. 

The new housing finance system you are working hard to create 

must find ways to harness the creativity and energy of the private 

sector to provide homes for people across this country, that is in 

cities, suburbs, and rural areas in houses, apartments, in manufactured homes, for old and young, renters and owners, singles and 

families of all backgrounds. 

To accomplish that, the housing system must, by design, serve as 

broadly as possible and then there must be specialized mechanisms 

to fill in the remaining gaps, and those must work together. You 

have heard a lot about the need for affordable housing and there 

is great consensus here. There is more in my written testimony 

about it, but I will not belabor it here. 

What I will suggest, however, is that the urgency of mortgage finance reform stems both from the growing housing needs of Americans and the need to restore a reliable source of mortgage capital 

11 

in the wake of the financial crisis. And there are several parts to 

that solution. 

The first part of the Federal guarantee. You have heard several 

of my colleagues on the panel talk about that. Second is allowing 

multiple sources of capital, multiple channels, including specialized 

lenders like housing finance agencies, credit unions, community 

banks, and other smaller lenders to have access to the most efficient form of mortgage capital. 

Third is safe and sustainable low-downpayment lending. You 

have heard a little bit about that on the panel. I am happy to talk 

more about it, but there are excellent studies that show that if 

properly structured, low-downpayment lending can be very safe 

and very sustainable, prime-like in its characteristics, and I would 

urge you to eliminate the overly rigid 5-percent downpayment restriction that is currently hard-wired into S.1217, and allow more 

flexibility to do safe and sustainable low-downpayment lending, 

consistent with safe underwriting. 

Next is particularly important and, Mr. Chairman, you mentioned this in your opening statement, that the market needs to 

serve all qualified borrowers in all areas of the country. It is very 

difficult for either the primary market that originates loans or the 

secondary market that securitizes them to cause the other to 

broaden its parameters for what loans to provide because neither 

can act without the support of the other. 

It is only by Government action using strong regulation consistent with safe and sound underwriting that we can make sure 

that all parts of the country are served and that the risk pooling 

that occurs through securitization does not just either cream the 

best loans or omit whole sections of the housing market from its 

service. 

Fifth is financing affordable multifamily housing. This is a very 

important source of rental housing. It has already been the subject 

of a previous hearing by this Committee, so I will not belabor it 

here. It is not part of my written testimony. But we are recommending that the successful Fannie Mae and Freddie Mac multifamily businesses, which have been proven and profitable even 

throughout the crisis, be prepared for eventual spin-off and privatization as part of the new mortgage finance system. 

The last part is filling in the gaps that the market leaves, that 

even with the best engineering, there will be parts of our country 

that are underserved, and you have heard some discussion of those 

areas. 

The three mechanisms that we recommend for solving that, one 

is the Housing Trust Fund. You have heard an excellent presentation about that. Second is the Capital Magnet Fund which supports financing for the preservation, rehabilitation, or purchase of 

affordable housing for low-income communities, and also community service facilities. It leverages other funds at least ten to one 

and has proven in its single round of funding to be extremely effective. 

The third is to create a market access fund which would help 

share the cost with the private sector of finding new ways through 

competitive research and development grants and temporary credit 

enhancement to more efficiently serve unmet housing need. 

12 

It is a way to cut through the far too common challenge where 

private sector entities say, Look we do not know how to serve certain sections. It is not profitable. And Government or advocates 

say, Well, you ought to, and the private sector says, Well, we just 

told you it is not profitable. 

By helping to share the cost and risk of the research, of figuring 

out how to do it consistent with safe underwriting, doing it in sustainable and profitable ways, we can help to broaden access. And 

I think that is why, as we shift to a new system, the Market Access 

Fund is an important complement to those efforts. 

I will close with two points. First really just a reference to my 

written testimony that talks about how addressing house need 

early and preventing homelessness, preventing foreclosure, preventing displacement and instability really does pay off in all sorts 

of ways that affect both Government revenue and economic activity. 

And last, urge you to think holistically about this problem, that 

as you are reengineering the system, as you are putting all of the 

pieces together, recognize how they fit together, and that by making the market serve as broadly as is possible profitably and then 

filling in the gaps, we can do a better job of making sure that the 

needs of all in this country for safe, decent, and affordable housing 

are met. 

Thank you very much. 

Chairman JOHNSON. Thank you. And thank you all for your testimony. As we begin questions, I will ask the clerk to put 5 minutes 

on the clock for each Member. 

A question for Mr. Judson, Mr. Shelton, and Mr. Handelman. Mr. 

Judson, do you believe that the new system should include a requirement to provide broad access to credit for qualified single family and multifamily credit in all geographies, including rural markets and market conditions? 

Mr. JUDSON. The simple answer to that—sorry—the simple answer to that is yes, it has to be accountable, it has to be properly 

underwritten, which I think you have heard from the panel and, 

as you all well know, is the fundamental element in any underwriting process. It has to be properly underwritten. 

We think it can be served, both the rural areas through some of 

the programs that are existing now at USDA. We think that the 

lower income markets can be served, again if they are properly underwritten. The key to all of it is have a program that is specifically addressing those components of geographic area, as well as 

the socioeconomic areas. 

Chairman JOHNSON. Mr. Shelton, do you have any additional 

thoughts? 

Mr. SHELTON. No, I strongly agree as well. The kind of economic 

support, these outlays, are extremely important as we move ahead. 

Chairman JOHNSON. Mr. Handelman. 

Mr. HANDELMAN. I would agree with my colleagues. The only 

point I would add is that as you think about securitization, it is 

largely an exercise in risk pooling and that without the requirement to serve very broadly, you get concentration of either very 

good credit risk or very bad credit risk in pools. 

13 

The very good ones, it is profitable, that gets done. If you concentrate the very—the worst credit risk, it does not get done and 

that is where you get underserving. So the requirement to serve 

broadly is part of making sure that the efficiency reaches all parts 

of the country. 

Chairman JOHNSON. Dr. Crowley, from your area with some of 

the housing challenges faced by families in Indian country, how 

could a housing trust fund assist tribes in creating good quality, affordable housing? 

Ms. CROWLEY. Thank you for that question, Senator Johnson. We 

are very fortunate the National Low Income Housing Coalition to 

have Pinky Clifford on our board who lives on the Pine Ridge Reservation, and is a member of the Oglala Sioux tribe. Pinky invited 

me out to Pine Ridge. I spent some days there with her. And it was 

a very eye-opening experience. The conditions, housing conditions 

there are quite extraordinary. 

The Housing Trust Fund is specifically designed to provide rental 

housing for the very poorest people, and as it is currently structured, the grants would go to the Governors, and any able and willing provider within the State could apply for those. 

We would certainly support any provision that you would like to 

offer about having a set-aside for tribes, which we think would be 

an important thing to do as well. I talked to Pinky yesterday and 

she got permission from a woman to tell you this story. She has 

been on the waiting list for housing there since 1995. 

She lives in a trailer with no running water. She has an outhouse. And that she has been waiting. She has patiently put her 

name on the list, recertified every year, and she is now at the top 

of the list. But there is no housing for her to go to. She is still waiting and she said that she hopes that she gets a house before she 

dies. 

So the situation is quite dire and the Trust Fund would be very 

important there. 

Chairman JOHNSON. I know Pinky well. 

Mr. Judson, this new legislation includes stricter underwriting 

such as a minimum downpayment. What impact would that have 

on the demand for new homes and how would that affect current 

home prices? Alternatively, should the regulator of the new system 

have the flexibility to adjust underwriting standards? 

Mr. JUDSON. Thank you. As mentioned earlier, the underwriting 

standards are the key to the success with this. The downpayment 

is less of a factor. There are certainly qualified buyers out there, 

particularly the entry level or first time buyer who cannot accumulate the funds or some of the required downpayments that are 

being proposed, i.e., the 20 percent. 

Five percent, 3 percent, whatever that number is, is supportable, 

again, if properly underwritten. You can look at the VA loans to 

substantiate that. The effect of having a lower downpayment would 

be that more people will be able to qualify, more people, specifically 

the first time buyer will be able to qualify to own their homes and 

begin that accumulation of their net worth and creating the social 

fabric that goes along with that home ownership. 

Chairman JOHNSON. Senator Crapo. 

Senator CRAPO. Thank you, Mr. Chairman. 

14 

Dr. Holtz-Eakin, in my opening statement, I noted that using the 

current funding mechanism in S.1217, the Housing Trust Fund and 

the Capital Magnet Fund would receive an estimated total of somewhere between $2.5 to $5 billion based on the current secondary 

market size, and this represents about 10 percent of HUD’s annual 

budget. 

What kind of safeguards do you think would be appropriate to 

ensure that these funds remain accountable to Congress and to the 

American taxpayer? 

Mr. HOLTZ-EAKIN. Well, I think first and foremost, they should 

go through the appropriations process. I think that the notion of 

creating off-budget entities and dedicated funding for them violates 

the integrity of the Congressional budget process. 

These are important policy goals, that is not in dispute, but the 

program should be reviewed on a regular basis to make sure that 

they are meeting their policy objectives. The funding for them 

should be traded off against funding for other objectives within the 

HUD budget, and, you know, the reality is many programs that are 

on the budget now could be improved or eliminated and those 

funds will be freed up for these objectives. 

Taking it outside the budget process relieves both the scrutiny on 

the trust fund, but also the scrutiny on the programs in the HUD 

budget, and that is a disservice to the taxpayer. 

Senator CRAPO. Thank you. And Dr. Crowley, your organization 

has been the leading supporter of the National Housing Trust Fund 

in the United States, I think, and Dr. Holtz-Eakin noted that the 

Appropriations Committees of Congress should have a role in these 

funds, as he has just testified. 

If they are going to be funded in the manner as suggested in 

S.1217, do you believe a role for Congressional appropriations 

through committees is appropriate, and perhaps through review 

and approval would be a reasonable method to assure accountability in the management of these funds? 

Ms. CROWLEY. Let me answer that by saying that there is nobody 

in the country who wants there to be more oversight and greater 

accountability in this program than me. We are extremely clear 

that the dollars need to be spent for precisely what it is that Congress has intended, and that there have to be very strong mechanisms for oversight for how the money is used, and how the housing is kept up over the years, and all the things that we think are 

important. 

We have worked too long and too hard to get this done just to 

see any of the money misused or wasted. So we support the strongest possible oversight that Congress can conceive of for this program. 

Having said that, I have real confidence that the Banking Committee can do that, and would encourage you to look at ways to expand the oversight that is possible here. We are certainly open to 

talking about anything that you would like to talk about. We do 

not want the funds in any way to be used for other purposes. Housing trust funds that have been built across the country have been 

done with dedicated sources of revenue and the ones that are most 

successful have housing-related sources of revenue. 

15 

So the housing market produces money in one way and then 

money is directed into the housing trust funds in order to solve 

unmet needs—solve problems. If we thought the appropriations 

process worked, and we do not think it does, and if we thought we 

could get the appropriated funds, as I said in my testimony, to 

solve this problem, then we would not need to have this conversation. 

But it has not proved to be the case. And we are losing ground 

in the existing affordable housing programs that we have. As the 

sequestration continues, for the very first time, people with vouchers are going to actually lose their homes. That has never happened. 

It is time for some creative outside of the box thinking. We cannot continue to try to solve this problem in the narrow constraints 

of what we have. And so, having the housing finance market, which 

is making a lot of money, pay some fee to support things that the 

market will not do, we think is highly appropriate and we urge you 

to seize this opportunity. 

Senator CRAPO. Thank you, Dr. Crowley. I can assure you you 

are not the only one who thinks the appropriations process needs 

to be fixed. I think we could get some strong bipartisan agreement 

on that today. Thank you very much. 

Chairman JOHNSON. Senator Reed. 

Senator REED. Thank you very much, Mr. Chairman. 

As an appropriator, Senator, I concur. 

Senator CRAPO. You agree with that? 

Senator REED. Yes, I concur. 

[Laughter.] 

Senator REED. Dr. Crowley, there has been discussion of the 

Housing Trust Fund, that it could accumulate to about $2.5 billion. 

My best guess of the housing market is about $5.5 trillion, roughly. 

So this is a very small fraction of resources that is going to a very 

compelling need, in my view, which is housing for low-income. 

Even if we were able to effectively deploy all this money, how 

much of the gap will we fill in terms of affordable housing for 

Americans? 

Ms. CROWLEY. A small portion of the gap. Our estimate is that 

it is, as I said, if we were to close this gap, we would need 30 billion additional dollars for 10 years. So we are not getting close to 

that in this program. But we think that this is a way to get started, and certainly it gives hope to people out there who are actually 

trying to do something about housing. 

If you go out and talk to people, as you all do, in your communities about the work that they do to try to help people find housing, there is a real sense of desperation. And I go out and I spend 

time with people and they say, ‘‘I have got so many people that I 

cannot place, I have got so many people that we are just spinning 

our wheels.’’ 

And what you are offering in the Housing Trust Fund is a sense 

of hope, that we have something that may happen, that we may 

begin to be able to dig ourselves out of this deep hole. So that is 

what we are striving for. 

Senator REED. The Trust Fund is aiming, as I understand it, for 

individuals and families with incomes below 30 percent—— 

16 

Ms. CROWLEY. Right. 

Senator REED. ——of the area median income. So essentially, 

these are working families. 

Ms. CROWLEY. That is right. 

Senator REED. These are families who are working and they 

make too much, in most cases, to qualify for public housing, you 

know, but they do not make enough to get to be able to afford decent rental housing. Is that fair? 

Ms. CROWLEY. Well, I think that the eligibility for public and assisted housing is 30 percent of area median income. 

Senator REED. So they would qualify, but—— 

Ms. CROWLEY. They would qualify, but it is totally insufficient, 

as I said in my testimony. You know, every time there is a waiting 

list that opens, there are thousands and thousands of people who 

come in. In East Providence this last week, our friends at the 

Rhode Island Coalition for the Homeless went and videotaped people in the line to find out what their stories were, and the stories 

are remarkable. 

People who are struggling and all they get to put their names on 

a list. They do not get a voucher, they do not get housing. They 

are just trying to get their names on a list to maybe get it someday. 

So it is people who are working hard, it is often people who are 

working more than one job. 

A story from Sioux Falls is about a woman who has a job in a 

grocery store and she has a second job in order to make ends meet. 

And she is being asked if she would like to be considered for a promotion at the grocery store which would require that she work 

more hours there, which would mean she would have to give up 

her second job. 

And she is not sure she can afford that promotion because she 

is not sure that she would be able to afford her home if she did 

not get to a certain wage in that new job. And so, she is making 

extraordinarily complex calculations about how many hours she 

has to work per week at what wage in order just to make ends 

meet. 

Senator REED. Thank you. 

Mr. Handelman, you mentioned the Capital Magnet Fund. We have had one tranche of $80 million in 2010. Can you kind of 

elaborate on how effective it was and how it engaged, perhaps, 

other sources? 

Mr. HANDELMAN. Sure. Thank you for the question, Senator 

Reed. 

The Capital Magnet Fund has been incredibly effective. It has required a leverage ratio of ten to one, so a lot of times it is used 

as gap financing or as bridge financing, which can be repaid and 

then reused. Some of the examples I have seen, there is a project 

in Alaska. It was one of the ones I cited in my testimony. It is 66 

townhome units for folks at 50 percent or 60 percent of area median income, funded by Volunteers of America through their Capital Magnet Fund grant. 

The leverage on that was exceptional. It is already being paid 

back so it can be then—the money can then be used again for gap 

financing. It integrates well with the Low-income Housing Tax 

Credit and it is very effective at preserving Section 8 rental housVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
17 

ing. So it works well with some of the existing insufficient resources to maintain the investments that the Federal Government 

has already made in affordable housing. 

Senator REED. Thank you. Thank you, Mr. Chairman. Thank 

you. 

Chairman JOHNSON. Thank you. Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman. I want to thank you 

again and Ranking Member Crapo for having these extensive hearings to touch on all topics, and I want to thank the witnesses for 

being here today. 

I know, for what it is worth, and especially sitting on this side 

of the dias you might not expect this, but the only reason I am in 

the Senate today probably is because of an effort that I started as 

a civic leader, not as a business, to provide the opportunity for all 

Chattanoogans to have decent, fit, and affordable housing. And 

that effort led to about 10,000 families in our community having 

housing that otherwise would not. 

So I very much appreciate this panel and appreciate the effort 

to try to solve this problem in an appropriate way. And the written 

testimony today touched on this more than we are actually touching on in the oral presentation. I do think that we have to figure 

out a way on the duty to serve that you do not end up in a situation where we create a finance system that allows wealthy people 

to have cheaper loans, on one end of the spectrum, and on the 

other end of the spectrum we push the duty to serve so much that 

we end up with predatory lending. 

And so, I know that we probably will not resolve that here today 

in this hearing, but I do welcome you in our offices, I know many 

other people do, too, to try to figure out a way to address that issue 

appropriately, and I think you know we can easily around here get 

things out of balance over time. So I invite you to our office, and 

I know other people here that are working on this issue would like 

to hear some of that same kind of input. 

I was really interested in Dr. Crowley and Dr. Holtz-Eakin talking about this trust fund. I actually heard some overlap and I 

would like to sort of tease that out a little bit if I could. I know 

that Doug does not like off-balance sheet funding and, candidly, a 

lot of people do not. On the other hand, Sheila, if I could, you want 

to make sure that there is some kind of funding stream that is in 

place. 

I just wonder if the two of you all might talk a little bit about 

how we could accomplish appropriate oversight if there, in fact, 

ends up being—and when we complete this work—a dedicated 

funding stream. Is there a way to have that accountability that 

Doug wants to see, and at the same time, have the income stream, 

Sheila, that you would like to see? And I wonder if you all might 

talk about that a little bit. 

Ms. CROWLEY. Well, the first thing that comes to mind is that 

what we should look at is what has happened at the State and 

local housing trust funds. And I am not an expert on those—we 

have experts who we work with very closely on that—to see precisely how they have answered that question. How is that State 

legislatures have answered that question to see what their procVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
18 

esses are? The States are the laboratories for how we figure out 

new ideas and then we bring them to the Federal level. 

So I would be certainly willing to search through and look at that 

and see what that looks like and see what the recommendations 

would be from our friends who have worked on those State and 

local housing trust funds to see precisely what the accountability 

mechanisms are. 

Senator CORKER. OK. 

Mr. HOLTZ-EAKIN. So I have several concerns, obviously. The 

first is simply that—you know, Dr. Crowley is a tremendous advocate for this cause. It is a legitimate cause and there is going to 

be all sorts of advocacy. If the response of the Congress in every 

instance is to create a special outside-the-budget funding mechanism, then the admittedly broken appropriation and budget process 

will only be worse. 

It will become a Balkanized, unbalanced set of efforts. And I am 

concerned about that. As the former CBO director in me, I am 

deeply concerned about the quality of the budgetary process that 

we have now. Steps like this go in the wrong direction, in my view. 

What could one do? Well, first is—— 

Senator CORKER. Let me just say this. At the end of the day—— 

Mr. HOLTZ-EAKIN. It would not just be housing. It would be everything. 

Senator CORKER. I understand. But we are talking about this. 

Mr. HOLTZ-EAKIN. No, no, I hear you. 

Senator CORKER. And I do think that—I mean, I think the reality of the situation is that a bill that likely passes the U.S. Senate—anyway, I do not know what happens on the House side—will 

likely fund the trust fund. I think that is likely to occur. 

So my question is, is there a way to have appropriate oversight 

so that you can continue to play a role in understanding and making sure that there is accountability that ought to take place? 

Mr. HOLTZ-EAKIN. Do not delegate too much authority to an 

independent regulator to set such a fee and fund such a trust fund. 

That should be something that is done within the Congress. Make 

it a mandatory spending program. If you do not like the appropriations process, I understand that. Have a mandatory spending program which has standard oversight by the authorizing committee 

and bring it through the budget process. 

The key policy error would be to put it outside the regular review 

and budgetary tensions that the Congress faces, and I know it is 

going to get funded. It is a legitimate policy goal. There is no dispute about that, I hope. The question is, how do you, in this instance and in many others that arise, meet that policy goal without 

completely undercutting the objective of good use of the taxpayers’ 

funds. 

Ms. CROWLEY. My understanding is that it is structured as a 

mandatory fund on the permanent side of the budget and it is subject to the oversight of this Committee. Maybe I should just talk 

a minute about how the trust fund actually would work. 

Senator CORKER. So the Chairman does not get too mad at me, 

make it a half a minute. 

[Laughter.] 

19 

Ms. CROWLEY. It is set up, so the regulator does not have a lot 

to say about it. It is set up as a trust fund, as a block grant that 

is housed at HUD, so the money that Congress would direct to it 

would go to HUD. There is a formula that is in the HERA that 

says this is how much money goes to each State. That formula has 

been developed. It is based on need. 

The Governor of each State would decide which agency would 

run it. It would usually be the housing finance agency. So that is 

all done. There is nothing optional there. That is all taken care of. 

And then the Governor has the responsibility to develop a plan for 

how to allocate those funds within the confines of what the trust 

fund is supposed to do, which is primarily rental housing for extremely low-income people. 

The Governor can say, I am going to dedicate these dollars to 

funding my plan to end homelessness, which every State has. Or 

the Governor can say, We are going to use these dollars to respond 

to our requirement that we provide community-based housing for 

every disabled person in our State. 

And then there are all sorts of prohibitions, things you cannot do 

with the money that are very clearly laid out in the statute. There 

are all sorts of requirements that if a Governor of a State does not 

spend its money in a certain amount of time, that HUD reclaim 

that money and distribute it to another State. 

The statute is full of very strong protections that I think are 

probably quite extraordinary compared to what other programs are. 

And I am happy to come here every month and tell you what I 

know about it. 

Senator CORKER. You are talking about the statutes that are actually in S.1217? 

Ms. CROWLEY. S.1217 basically repeats what is in HERA, and all 

those things are in HERA. And so we have been down this road. 

We have thought about this a lot, and so, it does not seem to me 

that there is a lot of questions about accountability at this point. 

Senator CORKER. I am going to thank you so much. And also, I 

have a hearing starting myself. Thank you so much. I appreciate 

it. Thank you all of you for your testimony. 

Mr. HOLTZ-EAKIN. Mr. Chairman, without penalizing Senator 

Corker, can I add one thing quickly? 

Chairman JOHNSON. Yes. 

Mr. HOLTZ-EAKIN. A suggestion I would make is do not fund it 

with a G fee, which is what 100 percent gives it this dedicated 

function. Fund it out of general revenues. All the fee is going to do 

is raise mortgage costs, so that goes against affordability anyway, 

and then the program competes on a legitimate basis for funding 

in the policy process. 

Chairman JOHNSON. OK. Thank you. Point well-taken. Senator 

Tester. 

Senator TESTER. Yes, thank you, Mr. Chairman, and I want to 

echo what many have said. Thank you for having this hearing, as 

well as Ranking Member Crapo. I appreciate it. We all know how 

important affordable housing is; that is why we are here today. I 

want to thank our witnesses. 

Unfortunately, I think, over the past several years, we have seen 

many mechanisms to provide more affordable housing, many of 

20 

them get defunded. I want to talk a little bit about what we have 

been talking about and that is the Market Access Fund as envisioned in S.1217 that provides dedicated funding to the National 

Housing Trust Fund, as well as the Capital Magnet Fund. 

These programs are going to be funded by five to ten basis points 

for folks using—for securities use a common securitization platform. To be honest with you, as we hear the discussion here today, 

I think I would like—this would give a dedicated stream of funding, and I think that is the real advantage. I think when you get 

into the appropriations process, and I like Senator Reed and Senator Johnson, are all appropriators and it is not working very well 

right now. It is not working very well at all. 

And so, consequently, it puts at risk that dedicated funding 

stream. Because I think you are both going to agree on this, could 

you tell me how important that dedicated funding stream is for affordable housing? If the amount of money has a lot of peaks and 

valleys in it, what does that do to affordable housing? Both of you, 

either one go first, second. 

Mr. HOLTZ-EAKIN. I guess what I would say lovingly to the appropriators is that it is time for you to get your act together. The 

solution is not to bypass this. It is time to do it right. 

Senator TESTER. I understand that. But we are where we are for 

a number of reasons and—— 

Mr. HOLTZ-EAKIN. Well, the second point would be, I believe it 

was a mistake to make permanent reforms on temporary current 

conditions. We should design a program that we want in 2013, ’23, 

’33. And third, I think dedicated funding is better than these cycles 

up and down. 

Senator TESTER. And why? 

Mr. HOLTZ-EAKIN. It allows a planning process. Housing is a durable asset and you have to plan. The local planning process with 

the environment regulations and the community planning objectives requires lead time and funding security. I mean, all those are 

legitimate parts—— 

Senator TESTER. Cost effectiveness, would it have any impacts on 

things that we do not like to spend money on like admin? 

Mr. HOLTZ-EAKIN. Yes. 

Senator TESTER. And those would be negative consequences? 

Mr. HOLTZ-EAKIN. Yes. A clearly planned funding stream is superior, there is no doubt about that. 

Senator TESTER. Cool. Would you like to comment on that at all, 

Ms. Crowley, Dr. Crowley? 

Ms. CROWLEY. I just want to be really practical at this point. 

Senator TESTER. Sure. 

Ms. CROWLEY. And that the notion that we are creating a program to respond to temporary conditions seems pretty outrageous. 

These are not temporary conditions. We have had a housing shortage for extremely low-income people for many years in this country. It has not always been that case. In 1970, we had a small surplus. But we have been consistently losing ground in this area. We 

have had growing homelessness and it is unacceptable. 

Senator TESTER. From your perspective, does S.1217 address the 

issues you are concerned about? 

21 

Ms. CROWLEY. S.1217 creates a very good dedicated funding 

stream and we certainly would support that. 

Senator TESTER. Do you think that is adequate at five to ten 

basis points? 

Ms. CROWLEY. No, but we are not asking for more—— 

Senator TESTER. All right. 

Ms. CROWLEY. ——at this point. It is not adequate to solve the 

housing problems of the very poor. We would like to see the Trust 

Fund maximized in S.1217. We are concerned about the way that 

the bill is structured, that the funds are jumbled together instead 

of held separate. We would like to see them be separate. 

Senator TESTER. OK. Mr. Handelman, in your testimony, you 

highlighted some of the ways that the Market Access Fund has envisioned S.1217, support innovation, promote home ownership. 

Briefly, could you talk more specifically about the areas where 

there are opportunity for innovation that could lead to home ownership? 

Mr. HANDELMAN. Sure. Thank you for the question, Senator. I 

will highlight some examples and then—recognize that the point of 

the Market Access Fund is to do a bunch of experiments, so it is 

not just what I can think up sitting here at this table. It is going 

to be a whole lot of other people, much smarter about it than me, 

coming up with different things to try. 

But some of the examples I highlight in the testimony, one is 

about energy efficiency and underwriting. Right now household energy costs in the country are about $230 billion annually and they 

make up 15 percent of the total cost of home ownership for average 

families. 

So if we can find ways to encourage lending that encourages energy efficiency, there can be savings throughout and make housing 

more affordable. Thus far, we have not found great ways to lend 

against that efficiency. So this is where research and development 

and testing and process improvement can really make a difference. 

Another great example is reserve funds for home ownership success. Rather than asking a family to really stretch and put all of 

their savings into a downpayment, if you can take a portion of that, 

separate it into a reserve fund to take care of the needs of the 

home, right, when the roof leaks or the boiler breaks, there is some 

funds to fix it, that could actually really improve the success rate 

of those borrowers and be better for the lender, be better for the 

community, be better for the homeowner. 

So these are just examples and there are many more, but that 

is the point of trying to share the cost of R&D. 

Senator TESTER. Well, thank you. And I want to thank all the 

folks on the panel. Very quickly, this is not a question, this is just, 

with your indulgence, a thank you. To Mr. Judson, I want to take 

a minute to thank you for your group’s impacts on the appraisal 

system. 

It is a broken system in Montana. Your members in the State 

have stepped up in a big, big way, and hopefully, we can continue 

to work with your input on how we can improve that appraisal 

process. With that, thank you all for your testimony. I very much 

appreciate it. 

Chairman JOHNSON. Senator Johanns. 

22 

Senator JOHANNS. Let me also say thanks to the panel. If I could 

just comment, a word of thanks to the Chair and the Ranking 

Member. We have been going through a series of hearings on 1217. 

I am one of the cosponsors, truly a bipartisan bill. I think these 

have been excellent. I think the witness panels have been good; 

this is no exception to that and we have learned a lot. 

I came to the Senate having done a lot of different things. Started out in county government and went to city government to then 

the Governor’s office and then came out in the Bush administration 

to head up the USDA. So I have been in affordable housing really 

all of my public life. Here is a couple of things that I would offer 

about 1217, and I think it is really important to keep this in mind. 

Number one, I think there is real urgency here. Yes, the market 

is improving and maybe some would think that takes the pressure 

off. It should not take the pressure off. We have got to fix this system and we have yet to have a witness come in here and say, Do 

not touch anything, I love the system. We all know it is a system 

waiting for the next crash, to be another real calamity. 

The second thing I would say is that the only way this bill is 

going to pass is it has to be bipartisan. You know, if I were king 

for a day, which is not going to happen, I would probably write this 

bill differently. I think we all probably would write this bill differently and we would be more insistent on, I want it my way and 

there is no other way, but at the end of the day, we are going to 

have to get Democrats and Republicans to sign onto this bill and 

get it across the finish line. 

So I would not argue that this is perfection, but I would argue 

that it is a gigantic step in the right direction in a whole bunch 

of areas. Here is what I am thinking about when I think about this 

bill. On one hand, we have a real estate finance system that is 

really a mess and we have got to fix it and I think this bill takes 

a giant step in that direction. 

On the other hand, everybody here wants to do something about 

housing and affordable housing. I do, my colleagues on the other 

side do. I do not think there is a lack of heart here, but I would 

like your comment. I am going to start, Sheila, with you. My experience in affordable housing, and Rick, I will ask you to weigh in 

on this, too. 

My experience in affordable housing is this: It is one of the most 

complicated endeavors you could possibly imagine. When we are in 

session, we have a place out here and the community where our 

place is at has this ongoing discussion about affordable housing. 

And I am thinking, My goodness, this is the worst place in the 

world for affordable housing because it is so danged expensive to 

live here. Land is expensive, development costs are expensive. Everything is expensive. How do you get affordable housing out of 

that? 

Well, I think one opportunity with the Trust Fund—and if I were 

the Governor looking at this and it was funded, I would bring all 

my housing people together and I would say, OK, is this a program 

that we can fill some gaps? And maybe this is the bridge money 

that makes the project work that would not otherwise work, because at the end of the day, it has got to make economic sense or 

it is not going to come out of the ground. 

23 

Am I thinking of all of this in the right way? Sheila and then 

Rick, I would like your thoughts on that. 

Ms. CROWLEY. Absolutely, Senator. The beauty of the structure 

of the Trust Fund—and we owe this to Senator Reed and the folks 

who worked on this before—is that it is a program where the 

money goes to the Governors who figure out how best to use those 

dollars in the markets in their States. Every market is different. 

Every community is different. 

And you would bring together the experts in the State and say, 

‘‘How can we deploy these dollars in the best possible way to do 

what we want to do, which is to lower that gap?’’ We can tell you 

what the gap is in Nebraska and we want to say that after a certain period of time, we will have fewer extremely low-income 

households who do not have affordable housing. And we are going 

to be able to count that and see how we get to that. 

And it does include saying, ‘‘Where do we need to put money into 

other deals so that we can have certain units that are affordable 

to people in this income group.’’ We would see these dollars being 

coupled with low-income housing tax credits. 

We would see them being coupled with any number of other 

kinds of resources that create new housing or preserve housing, but 

where there is not the money to be able to write it down to be affordable for people at that lowest income level, and that is the 

whole idea. 

Senator JOHANNS. Rick, thoughts? 

Mr. JUDSON. Yes. Your point is very well taken and I think there 

are two things that jump to my mind, is the incorporation of lowincome housing tax credits, which are private money, which are 

revenue-neutral to the Government, we will say, but provide a 

service to the community. So it is a win-win proposition, to incorporate that right balance between the low-income housing tax credits and the need for the community for affordable housing. 

The other would be zoning issues, which are probably more locally driven, which may allow for greater density opportunities if 

there is an affordable housing component involved. So the balance—I think we are all talking about the balance and the accountability. The economic balance is to provide service needed for lowincome housing, and yet, to do it at the least possible cost to 

achieve the greatest result. 

I think that is not going to be simply a dole from public coffers, 

but a combination of set-asides, a combination of incentives, fees, 

a number of components that will fuel that end result. 

Senator JOHANNS. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. Again, I want to 

thank you and Ranking Member Crapo for continuing to hold these 

hearings. 

I want to start where Senator Johanns left off and thank him 

and the cosponsors of 1217 because you are right. We would have 

written it all differently, but we wrote something that I believe actually advances the ball on a lot of fronts, including the affordability function, because, you know, one of the things is—and I 

think we kind of went for a long time with a system that worked 

relatively well. 

24 

But when we think back from a policy standpoint, who would 

have ever designed a system where we combined the function of 

private sector money making, a profit-making entity with this also 

quasi-role of an implicit Government. Immediately you have got 

some conflict there. And then on top of that, we layer a very, I believe, very important social function on these entities. Let us face 

it, they were damned if they do, damned if they do not. 

We have lots and lots of folks on the progressive side who said 

the GSEs never did enough. We have lots of folks on the conservative side who feel like those very goals brought about the crisis. 

Now, I reject that notion, but there are people who have those 

strongly held views. 

The idea of saying, first of all, do no harm, so whether it is lowincome housing credits, whether it is Section 8, whether it is all 

the other pieces that make affordable housing, and particularly 

when you get to multifamily, without those, we would have no multifamily at all, and then say, let us maintain. 

I again want to thank my Republican colleagues for working with 

this. Let us say, let us make sure we still promote this function, 

but let us charge for it in an appropriate way, let us set it off, let 

us put appropriate oversight, and let us take great things like the 

Housing Trust Fund that has been set up. 

It is a great idea, but never had any money. And, you know, the 

dollars are in many, many billions a year that could actually help 

us achieve these goals. And I know, you know, one of the concerns—I missed and I apologize. We were at a budget conference. 

You may recall we have had this shut-down problem in the past. 

We are trying to avoid that going forward. 

You know, I know there are questions about, Well, somehow if 

we take this out of the budget process, I would argue that if you 

have got the appropriate oversight, and I am going to get to a question here. If you take it out of the budget process, but you have the 

appropriate oversight that has representatives from the low-income 

housing community, from home builders, others on this board, and 

we have got this steady flow, do we not actually—and I will even 

ask Doug to comment on this as well—is, do we not actually create 

a countercyclical balance by having this funding source that is not 

subject to the budgetary constraints so that in these downturns, 

this fund that is still going to be stable actually could help us 

achieve our goals? 

So if we could speak to the countercyclical protection nature, and 

love to have anybody on the panel address that. If you want to go 

down the line, that would be fine. Anybody want to start? Doug, 

do you want to start first? Go at it. 

Mr. HOLTZ-EAKIN. I do not, but I will. I do not think there is anything about this structure that dominates the ability of the U.S. 

Treasury to borrow against cycles. So there is nothing, I think, supremely countercyclical. And indeed, the base, which is a 

securitization of underlying mortgages, has been traditionally a 

very cyclical part of our economy. So I do not think its cyclical 

properties are a virtue, quite frankly. 

Senator WARNER. What I am saying, though, is that the ability 

to have a steady stream of income that is not subject to the budgVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
25 

etary constraints, I actually believe, helps us in that countercyclical. Sheila, if you want to comment? 

Ms. CROWLEY. Precisely, and that is one of the things that is attractive about it from the perspective of people who are trying to 

solve housing problems on the ground, is that it would be a predictable stream of funding. Now, it does not mean it is going to be the 

same amount every year and hopefully it will, as the housing market is robust, then that money will, in fact, increase. 

But it is a predictable stream of funding which they do not have 

now at all through the HUD programs. It is just really critical to 

understand that we have put most of our money in the HUD programs to maintain the housing that we have. We put very little 

into doing anything new. 

And the money that we have put into doing anything new, the 

HOME Program, has been slashed dramatically over the past couple of budget cycles. So what it is that people can predict, that they 

can rely on. They can rely on the low income housing tax credit 

program, but it is highly competitive. It is not deeply targeted. 

There is a little bit of money for the Affordable Housing Program 

in the Federal Home Loan Banks, but that is highly competitive. 

There is just nothing out there and this would be a Godsend to 

people who are trying to solve these problems. 

Senator WARNER. I am running out of time, but if anybody wants 

to make a quick comment, if you could include Godsend in your 

comment, that would be helpful as well. 

[Laughter.] 

Mr. HANDELMAN. I will not use the word Godsend, but I will add 

that, you know, I think the countercyclical nature of it from an economic standpoint is probably somewhat limited, but by creating additional supply of homes affordable to extremely low-income folks, 

it helps to cushion against the impact of cycles on those households. 

A lot of what we saw, and this is some of what our Center for 

Housing Policy found, both in renters and homeowners is that even 

as the cost of housing fell somewhat, because housing values fell 

and housing costs fell, incomes fell much worse. So that is part of 

the countercyclical nature of this, too. 

Chairman JOHNSON. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

I am going to pick up with Senator Warner’s note, that a lot of 

people claim that Fannie and Freddie’s affordable housing goals 

caused the 2008 crisis, but there is no evidence to back that up. 

In fact, the data studied by the Financial Crisis Inquiry Commission and the Federal Reserve show that the affordable housing 

goals had no impact on either the subprime loans, the number of 

the subprime loans, or on the price of those loans. 

And, in fact, that the data showed that the underlying cause of 

the crisis was subprime lending in the private label market, not 

with Fannie and Freddie. But that is not to say that the affordable 

housing goals had no impact. They did have a powerful impact. 

They helped millions of families purchase homes. 

According to data from Fannie and Freddie, from 2002 to 2007, 

between 6 million and 12 million families each year benefited from 

the affordable housing goals. That is millions of creditworthy, lower 

26 

income or rural families that are building up savings even today 

thanks to those goals. 

So before we all conclude that we are throwing out the affordable 

housing goals on the basis of some myth, I think we need to look 

carefully at what we would be giving up. And I would like to just 

get a single statement on the record here, if I can. Mr. Shelton, if 

the affordable housing goals are eliminated, what do you estimate 

would be the impact on home ownership rates in minority neighborhoods? 

Mr. SHELTON. Well, it would be devastating. Quite frankly, we 

depended on that kind of support for years and years to make sure 

that we have access. You have seen what happened with the housing crisis. Over 52 percent of African Americans lost their homes. 

They lost all their wealth and everything else that was so important to looking at the future and everything that we do with our 

homes, from educating our children to planning for our retirement. 

Senator WARREN. Thank you. And, Dr. Crowley, could I ask you, 

would eliminate affordable housing goals, could you describe the 

impact on rural communities? 

Ms. CROWLEY. Well, I think that it would be horrible because 

rural communities are where lenders are not likely to go unless 

there is some encouragement, incentive, requirement that they go 

there. I think that this Committee really needs to look at making 

sure that whatever is passed has something that holds the system 

accountable for getting lending into every single geography. We are 

talking about inner cities, but we are also talking about the most 

remote parts of the country. 

And that is what your job is, is to figure out how to make sure 

that the system is fair and accessible to everybody. 

Senator WARREN. So I want to just see if we can then wrap this 

into the next piece of it. I want to say, I commend Senators Warner 

and Corker for the work they have put into S.1217 and how you 

have moved this debate forward. But I am concerned about 

S.1217’s elimination of the affordable housing goals. 

We have all been talking about the strip of five to ten basis 

points on the Government-backed securities for the Housing Trust 

Fund, and I think the estimate is it would be about—produce about 

$2.5 to about $5 billion annually, is the estimate. 

But the question I want to ask, Dr. Crowley, in your views, will $5 billion a year substitute for the benefits that the affordable 

housing goals provide for lower-income and rural communities? 

Ms. CROWLEY. No way, no way. Let me just say that the affordable housing goals, which are very important, they did not reach 

poor people. And so, the Housing Trust Fund is—the reason that 

we established it is so that we, in fact, have a way to come up with 

a dedicated revenue source to get to rental housing for extremely 

poor people. 

And so, we would like a good portion of that to have the $5 billion to go to the Housing Trust Fund, which is not going to do the 

kinds of things that we need to do to create access to home ownership for middle income families. 

Senator WARREN. So the point I just think I wanted to make sure 

that we are clear on, one is not a substitute for the other? 

Ms. CROWLEY. No, no. 

27 

Senator WARREN. And we have got to look at both of these independently. I see that I am running low on time and the Chairman 

has been so gracious to let me go over so many times. I will quit 

now, but I do have a question for the record about duty to serve 

and how we make sure that that reaches rural communities and 

low-income communities. So I will add that as a question. Thank 

you. 

Chairman JOHNSON. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman, and thanks to the 

Ranking Member. I think these are have been extraordinarily helpful, especially for some of the newer Members who have not been 

in the trenches for years and years, kind of looking at housing 

struggles, and certainly affordability is one of the biggest challenges we have as we look forward. 

Arguably, one of the biggest challenges we have today in North 

Dakota is housing. We have a huge economic boom, and which you 

can all say are you not lucky, but the person who is working at the 

grocery store making $15 an hour who cannot afford to live and is 

living in their car do not feel so lucky. 

And so, one of the questions that I have is how we define affordability, and a lot of this is based on national standards on, you 

know, taking a look at what housing costs are. When you tell people in Dickinson, North Dakota, half-a-million-dollar house does 

not buy you much, you might all look at me like I am crazy, but 

it is the truth. 

And so, my question is, do you think there is enough flexibility 

in this effort to accommodate for regional variances and for, you 

know, kind of boom times, which really have a huge affordability 

impact on those who are not getting—opening up their mailbox and 

getting a $1,000 check every week from the oil industry. I would 

ask anyone on the panel to respond. 

Mr. HANDELMAN. Sure. So I will start. I would say one of the 

strengths not just of the trust fund, but the Capital Magnet Fund, 

but of the way affordable housing is, in general, delivered is that 

it is tied to area median income, which is imperfect, but pretty 

good at addressing some of the challenges you identified. 

If there is a local boom in income, which then pushes up rent 

and pushes up housing costs, both of those can be captured. There 

is sometimes a lag, right, because Government data take awhile to 

work through the machine. But the way different programs are 

structured, so, for instance, HUD Section 8 program is tied to the 

fair market rent, which is a survey everywhere. 

Senator HEITKAMP. Right. 

Mr. HANDELMAN. Imperfect, but it gets to some of that variation. 

Senator HEITKAMP. If I can just interrupt you there? 

Mr. HANDELMAN. Sure. 

Senator HEITKAMP. Section 8 has become irrelevant in western 

North Dakota. Those vouchers have been moved east because they 

do not accommodate the increased housing costs. Now we are in 

the third or fourth year of this and they have not caught up. And 

so, not to belabor this point, but this is something that I want to 

kind of lay down the marker on that. We need to have more flexibility for other parts of the country. 

28 

Dr. Crowley, I really appreciate your response on Native American housing, and I want to ask this question and I know that it 

is not necessarily directly related to this bill itself. The Income Tax 

Credit Program, which is a program that States have the ability to 

allocating those resources, have you seen those income tax credit 

programs work effectively in Indian country throughout the United 

States? 

Ms. CROWLEY. You mean the Low-Income Housing Tax Credit 

Program? My understanding is that it has not reached Indian 

country very well, and part of the problem is that the people who 

live in Indian country are too poor to be able to afford the minimum rents that are required in tax credit properties. 

For tax credit properties, the rent is set at a flat amount and 

they are not required to be targeted to the very poorest people. So 

unless you have other subsidies, tax credits are not very useful in 

Indian country. 

Senator HEITKAMP. So this very significant program across the 

country is not particularly responsive. The other thing I would tell 

you is that you need someone who wants to use those credits, who 

is willing to come to Indian country and do the development, and 

that has also been a problem. 

Finally, and following up on Senator Warner’s line of questioning, we have tried to find some kind of actual economic 

verification of the impact of the affordable housing goals, you know, 

actually quantified. Can I just—you do not need to respond to this 

now, but can I ask that, to the extent that you have actual data, 

hard data on the impact as we have discussed here, that you could 

provide it, certainly to my office and maybe any other Member who 

would interested in seeing that? 

Because we are having this discussion about the affordable housing goals, and I think it is really important that we operate on not 

emotion, but on fact. And so, I would appreciate if you would submit that information for the record and provide it to my office. 

Ms. CROWLEY. OK. 

Senator HEITKAMP. Thank you. 

Chairman JOHNSON. Senator Hagan. 

Senator HAGAN. Thank you, Mr. Chairman. Thanks for Senator 

Johnson and Crapo for hosting—holding this today. 

I want to start out by welcoming Rick Judson to the panel. Rick 

is a North Carolinian. He is a home builder who has been in the 

industry building single family, multifamily, commercial projects 

for 30 years, and he is the owner of the Evergreen Development 

Group in Charlotte. So, Mr. Judson, thank you for joining us today 

on the panel. 

I wanted to start off with a question for you. Talking about access and affordability of the housing. In your testimony, you highlighted the shift that is taking place today as children of the baby 

boom generation are beginning to form households. These are the 

young adults today that were born in the 1980s and the 1990s, primarily. 

So can you talk about this demographic shift that is playing out, 

not only in North Carolina, obviously with your background, but 

also how this demographic shift is actually impacting access and 

affordability in the housing market? And do you believe that housVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
29 

ing finance reform can help alleviate some of these affordability 

concerns for this cohort group of the echo boomers? 

Mr. JUDSON. I will answer that question—thank you—with an 

example, a specific example, and it is typical of what exists across 

the country. I have a project in Charlotte that is an infill project, 

190-unit townhome project. The profile of the buyer is all the same: 

Young, first-time professional buyers, my children, our children, 

that era. 

The community was selling very robustly until the market 

tanked a few years ago. The same profile buyer is now renting in 

that project. They are afraid to buy. It is not that they cannot qualify, it is not that their social fabric has changed. Their income is 

still good. It is the uncertainty of the market. Are they concerned 

about their jobs? Yes. Are they concerned about rising interest 

rates? Yes. 

They are equally concerned about what they have heard for 3 

years about qualifying for a loan. They are of the mentality that 

they have to put down 20 or 25 percent when, in fact, there are 

programs and should be programs that support a qualified buyer 

to purchase a home, that first home. 

The adage in our industry is if you do not buy the first home, 

you will certainly not buy the second or the third. And it is that 

first-time buyer that represents 35, almost 40 percent, in some 

cases, of the housing stock in this country, which is 17 percent of 

the GDP. 

So long story short, the financial reform will help the market. It 

will help stabilize the market. It will create certainty for the market and it will create a sense of confidence in that first-time buyer 

who is a qualified buyer. This is not a no-doc loan or some of the 

things that got us in trouble in the past, but it is a legitimately 

well underwritten product. 

Senator HAGAN. Do you see things changing now? Are things getting better? 

Mr. JUDSON. The market is improving because the confidence of 

the general consumer is improving. They are finding there is opportunity. There is a supply/demand scenario that is moving people off 

the fences and out of our basements into purchasing their own 

home because they feel better and brighter future opportunity as 

we move through this. 

Senator HAGAN. Thank you. Dr. Crowley, in North Carolina 32 

percent of the households, as Mr. Judson was saying, are renters, 

and we have got close to 300 households that have extremely low 

income, meaning a family of four with income less than $17,300. 

So over 75 percent of those families spend more income on housing 

cost than—on housing cost and utilities. They spend more than 75 

percent of their income on their housing and utilities. 

Would you agree that providing a dedicated source of funding for 

the National Housing Trust Fund in GSE reform could help to alleviate the affordable housing strains that we are seeing, at least 

in my State in North Carolina, and how exactly would the Trust 

Fund actually accomplish that? 

Ms. CROWLEY. The answer is yes, and I do agree with that, and 

the specifics is that the Trust Fund is dollars that would be distributed to the Governors and the Governor would develop a plan for 

30 

how to use those dollars. There is a great deal of flexibility in what 

they can do with the dollars, except that the dollars primarily have 

to benefit precisely the population that you are talking about. 

Ninety percent of the dollars have to be for rental housing; at 

least 75 percent have to benefit extremely low-income households. 

But how they do that, if they build new housing, if they want to 

rehabilitate housing, if they want to create operating subsidies to 

go along with Trust Fund-funded housing, those are the things that 

the legislation allows them to do in a way that fits local markets. 

Senator HAGAN. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you again to all of our witnesses for 

being here with us today. I also want to thank Senator Crapo and 

all of my colleagues for their ongoing commitment to examine this 

topic in detail. This hearing is adjourned. 

[Whereupon, at 11:37 a.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 

31 

1http://www.nasdaq.com/article/1-in-5-predicted-to-default-cm95228 

2 Center for Responsible Lending, ‘‘State of Lending in America’’, December 2012, available 

at: http://www.responsiblelending.org/state-of-lending/reports/3-Mortgages.pdf. 

3 Center for Responsible Lending, August, 2013, available at: http:// 

www.responsiblelending.org/mortgage-lending/research-analysis/2013-crl-research-update-foreclosure-spillover-effects-final-aug-19-docx.pdf. 

PREPARED STATEMENT OF HILARY O. SHELTON 

WASHINGTON BUREAU DIRECTOR AND SENIOR VICE PRESIDENT FOR POLICY AND

ADVOCACY, NAACP 

NOVEMBER 7, 2013 

Good morning, Senator Johnson, Senator Crapo, and esteemed members of this 

panel. Founded more than 104 years ago, in February of 1909, the National Association for the Advancement of Colored People, the NAACP, is our Nation’s oldest, largest, and most widely recognized grassroots based civil rights organization. We currently have more than 2,200 membership units across the Nation, with members in 

every one of the 50 States. 

My name is Hilary Shelton, and I am the Director of the NAACP Washington Bureau and the Senior Vice President for Policy and Advocacy. I have been the Director of the NAACP Washington Bureau, our Association’s Federal legislative and political advocacy arm, for over 16 years. 

Owning a home remains the American dream. For many, it represents a degree 

of financial success as well as an opportunity to build and retain wealth, which in 

turn can be passed down to future generations, used as collateral for college tuition, 

or used as a nest egg in one’s senior years. Our Nation, our communities, and our 

people, all benefit from safe, affordable, secure housing, whether it be through home 

ownership or rental housing. Furthermore, it has been estimated that the housing 

market currently generates more than $10 trillion per year in domestic economic activity. Given that our Nation’s overall economic activity is estimated at roughly $17 

trillion, we all have a vested interest in a healthy housing market. 

Yet the communities served and represented by the NAACP have long been underserved by the housing market; were, for decades targeted by predatory lenders; 

and, as a result have been denied the opportunity to build wealth through housing 

or worse yet have had their wealth stripped from them because they, like almost 

every other person in our Nation, were chasing the American dream. Furthermore, 

many of our communities, in fact a disproportionate number of communities of color, 

continue to suffer from the foreclosure crisis and continue to be neglected by too 

many mainstream financial institutions. 

As Congress considers and debates the future of the housing market and the role 

to be played by the Federal Government, I cannot stress enough how important it 

is that any future housing finance system must affirmatively establish pathways to 

sustainable and affordable home ownership for a wide range of qualified buyers as 

well as assure an adequate supply of safe and affordable rental homes. It is vital 

that the Federal Government uses its authority and its might to ensure that the 

secondary market serves all borrowers in a fair and equitable manner, and that 

some of the profits from the housing market be reinvested in the American people 

and in our economy through the construction, renovation, and preservation of safe 

and affordable rental housing. 

The Origins and the Impact of the Housing Crisis on Communities of Color 

The 2008 ‘‘burst’’ of the housing bubble had repercussions which are still being 

felt today, especially in communities of color across the United States. An estimated 

4.5 million homes have been foreclosed upon since the crisis began, 1 and many more 

are still at risk of foreclosure. Due largely to the targeted predatory lending which 

had been going on for years in communities of color, the rate of foreclosures is currently twice as high for borrowers of color when compared to white borrowers. 2

In addition to the households actually facing the prospect of foreclosure, the crisis 

has also impacted homeowners who live in neighborhoods with high levels of foreclosures. This so-called ‘‘spillover’’ effect has reduced property values and home equity for many homeowners, including a large number of homeowners of color. One 

study estimated that racial and ethnic minority neighborhoods will lose $1 trillion 

in home equity because of the impact that homes going through the foreclosure process has on overall neighborhood property values, fully half of the overall national 

total. 3 Furthermore, too many homeowners have found that as a result of unscrupulous loans and the ‘‘spillover’’ effect their homes are now ‘‘underwater,’’ whereby 

they owe more than their home is currently worth. 

32 

4Signe-Mary McKernan, Caroline Ratcliffe, C. Eugene Steuerle, and Sisi Zhang, ‘‘Less Than 

Equal: Racial Disparities in Wealth Accumulation’’ (Washington, DC: The Urban Institute, 

2013). 5Financial Crisis Inquiry Commission, ‘‘The Final Crisis Inquiry Report’’, January 2011. 

6 Ruben Hernandez-Murillo, Andra C. Ghent, and Michael T. Owyang, Federal Reserve Bank 

of St. Louis, ‘‘Did Affordable Housing Goals Contribute to the Subprime Securities Boom?’’ (Aug. 

2012), at http://research.stlouisfed.org/wp/2012/2012-005.pdf. 7 In an analysis of CRA-motivated loans sold to CRL’s affiliate Self-Help, a community development financial institution (CDFI), Ding, Quercia, Ratcliffe, and Li (2008) found that the default risk of these loans was much lower than subprime loans made to borrowers with similar 

income and credit risk profiles. 8Senator Elizabeth Warren, Speech Before the Mortgage Bankers Association, Washington, 

DC, October 29, 2013. 

One result of this disproportionate impact of the foreclosure crisis on communities 

of color has been that they have, in recent times, suffered a disproportionately extreme loss of wealth. Between 2007 and 2010, African Americans lost an estimated 

31 percent of their wealth; Hispanic families lost 44 percent of their wealth; and 

White families lost 11 percent. 4

A study by the Federal Reserve Bank of San Francisco found that CRA-eligible 

loans made in California during the subprime boom were half as likely to go into 

foreclosure as loans made by independent mortgage companies (Laderman and Reid, 

2008). 

Despite the disproportionately devastating impact the housing burst and foreclosure crisis has had on communities of color across the United States, there is 

strong evidence to indicate that we neither profited from the calamity nor did we 

cause it. 

According to the Financial Crisis Inquiry Commission, the crisis was triggered by 

the rapid growth in the origination and securitization of subprime loans in the private-label market. 5 Furthermore, according to a careful analysis of the housing crisis released just last year by the Federal Reserve Bank of St. Louis, Fannie Mae 

and Freddie Mac’s affordable housing goals were not to blame for the rapid increase 

in subprime originations. Although Fannie and Freddie purchased securities backed 

by subprime loans, and some of those purchases helped fulfill their affordable housing goals, the study’s authors found that the housing goals had no impact on either 

the number of subprime loans originated or the price of those loans in the privatelabel market. 6

In short, while the communities served and represented by the NAACP have suffered disproportionately from the housing crisis and subsequent recession, they were 

not caused by laudable affordable housing goals. Nor was the housing crisis caused 

by compliance with the Community Reinvestment Act, as some have tried to claim. 

In fact, studies show that loans made to low-wealth homebuyers as part of banks’ 

efforts to meet their CRA obligations have actually performed better than the rest 

of the subprime market. 7

Rather, the source of too many of our economic woes was the desire of Fannie and 

Freddie to make money for their private stakeholders, and the willingness of the 

private-label market to accommodate their desires. To quote an esteemed member 

of this panel, the gracious and brilliant Senator from Massachusetts, who happens 

to be a former professor at Harvard specializing in bankruptcy law and who helped 

create the Consumer Financial Protection Bureau, ‘‘Affordable housing goals have 

been scapegoated by those who have been itching to get rid of the goals for a long 

time, but I think it’s time to drop that red herring.’’ 8 The NAACP could not agree 

more. 

Necessary Elements of Genuine Reform 

Chairman Johnson, Members of this Committee, I do not need to tell you that the 

American housing market is incredibly complicated and complex; its needs and fortunes vary from region to region, income to income, and year-to-year. Nobody, including me, has all the answers to reforming the current system, ensuring that all 

the housing needs of the American people are met, and reducing if not eliminating 

the risk to tax payers of another bailout and another recession. 

Yet I do know that as we take steps to reform the housing market we must do 

all that we can to ensure that every American has access to safe, affordable, sustainable housing. For low income Americans, this means that we must ensure that 

there is an adequate stock of safe and affordable rental units throughout the country, and for qualified, middle income Americans this means that we must make sure 

that sustainable, affordable mortgages are available. 

Nationwide, there are currently approximately 7.1 million American households 

for whom even a modest rental home is unaffordable and unavailable. Families in 

33 

this situation find themselves making impossible choices between food, clothing, 

medicine, and rent. When illness, job loss or other tragedy strikes, they often become homeless. The NAACP has long been a strong supporter of the National Housing Trust Fund (NHTF) and as such, we are extremely pleased to see the current 

debate focusing on how to best ensure that it is fully and adequately funded, not 

if it should be funded at all. 

In short, a solid stock of safe and affordable rental housing, such as that which 

could be supplied by the NHTF, is sufficiently important to the NAACP that we 

were pleased when the original source of funding for the NHTF was a dedicated 

source of revenue, namely contributions from Freddie Mac and Fannie Mae. In these 

days of sequestration and other budgetary cuts, this meant that the NHTF would 

not be subjected to the annual budget process. Furthermore, we felt strongly that 

the NHTF should never compete with existing HUD programs. Yet as history has 

shown us, the GSE funding stream proved to be unstable, and as a result, crucial 

funding for the NHTF has been suspended. 

With this history in mind, and given that at least 90 percent of the funds set 

aside for the NHTF must be used for the production, preservation, rehabilitation, 

or operation of rental housing, and that it is intended to help extremely low income 

and very low income households, I will reiterate the NAACP’s support for an inclusion of a consistent, adequate funding stream for the NHTF in any GSE reform. The 

NAACP is confident that the NHTF, once fully funded, will go a long way towards 

addressing many of our Nation’s most urgent housing needs. The NAACP is dedicated to working with Members of Congress, the Administration, and private nonprofit groups at the local, State, and Federal levels to ensure that consistent, adequate funding for the NHTF is included in any GSE reform. 

In addition to ensuring adequate, affordable rental stock, the future housing finance system must also affirmatively establish affordable, sustainable pathways to 

home ownership for all qualified buyers. 

Allow me to back up a little, to the late 1990s and the early 2000s. As I have 

previously stated, targeted predatory lending—offering mortgages to people which 

were much more expensive than what they qualified for and which they could not 

afford—was rampant in the communities of color across the United States. These 

subprime loans were driven by greed, pure and simple, and they played upon the 

desire of people to live in their own homes. These nefarious loans were abetted and 

often encouraged by legal policies and practices such as steering and yield spread 

premiums. 

Every time the NAACP or other, like-minded groups spoke out in opposition to 

these predatory policies and practices we were told that making them illegal would 

be contrary to ‘‘Preserving access to credit.’’ It took the financial crisis of 2008 to 

get to the point at which our words sank in. In 2010, we were finally able to pass 

legislation, the Dodd/Frank Wall Street Reform bill, to curb many of these abuses. 

The NAACP strongly supported the enactment of Dodd/Frank, and we continue to 

support the strong regulations which are resulting from it; regulations which we believe will strengthen the underlying market. 

Ensuring that all Americans have access to fair and sustainable credit opportunities is crucial to our sustained economic recovery. The Federal Government is obligated to promote nondiscrimination, residential integration, and equal access to the 

benefits of decent and safe housing and ownership opportunities. Therefore, any reform of the secondary market must require all lenders and securitizers receiving a 

Government guarantee of any kind to affirmatively market and offer credit in a 

manner that promotes equal opportunity in all neighborhoods. 

The receipt of Federal support, including insurance and guarantees, invokes the 

mandate to affirmatively further the objectives of the Fair Housing Act. Therefore, 

the delivery of Government-supported mortgage credit or rental financing cannot be 

withheld from any geographic location or neighborhood. Instead, the delivery infrastructure must make deliberate provisions for the flow of credit to all qualified borrowers and neighborhoods. Moreover, the infrastructure must include a mechanism 

for monitoring and enforcing compliance, both by the Government and the public. 

Simple, transparent, and timely data must be made publicly available to measure 

the market’s progress in providing fair, sustainable capital to underserved people 

and communities. 

Furthermore, without an obligation to serve all markets, communities of color in 

particular will find it extremely difficult to access mortgage credit. Without a duty 

to serve all communities, as is dictated by the Community Reinvestment Act, private capital will gravitate to the elite homebuyers—those with traditional borrowing 

profiles—while middle class and first time homebuyers, as well as purchasers of 

color—will be left without. This will result in the exacerbation of an unsustainable 

housing finance market in which qualified but lower-wealth and lower-income buyVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00037 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
34 

9 Bhutta, Neil, and Glenn B. Canner. 2013. ‘‘Mortgage Market Conditions and Borrower Outcomes: Evidence From the 2012 HMDA Data and Matched HMDA-Credit Record Data’’, Federal 

Reserve Bulletin. http://www.federalreserve.gov/pubs/bulletin/2013/pdf/2012lHMDA.pdf. 

Accessed on October 25, 2013. 10 Joint Center for Housing Studies of Harvard University. 2013. ‘‘The State’s of the Nation’s 

Housing’’, Harvard University. http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/ 

son2013.pdf. Accessed on October 25, 2013. 

ers, especially minorities, will be underserved. Sadly this trend is already evident; 

the private market overwhelmingly caters to traditional borrowers in well-served locations. 9

This trend does not just harm borrowers in minority communities, but rather the 

whole housing sector. Although African Americans and Hispanics are already significant segments of the housing market, they are projected to be an even larger 

portion of the market over the next 10–20 years. According to the Joint Center for 

Housing Studies at Harvard, minorities will account for 70 percent of net new 

households over this period and 33 percent of all households by 2020. These households will be younger than traditional borrowers and will likely have lower incomes 

and less credit history. These new borrowers will therefore need access to affordable 

housing credit. Without affordable access to credit for these prospective buyers, 

there will be a large supply of housing stock left unsold, leading to decreasing prices 

and wealth. 10

Thus, it behooves all of us to ensure the availability of safe, sustainable, credit 

access and affordability for all homeowners and prospective homeowners alike. Reforming our Nation’s current housing finance system requires a great balance. Reform must facilitate a stable, liquid secondary market—accessible to small and large 

lenders alike—which will extend credit and capital on an equitable basis to all 

qualified borrowers and in all communities. While the NAACP does not agree with 

every provision in the legislation proposed by Senators Corker and Warner (especially provisions which will negatively and disproportionately affect racial and ethnic minorities, including the mandated 5 percent downpayment), and we will be 

quick to point out areas in which the proposed legislation is lacking, we do congratulate them on moving the debate forward. Likewise, we are strongly encouraged 

by these hearings, being held by Chairman Johnson and Ranking Member Crapo, 

intended to look into necessary elements of GSE reform. 

Members of this esteemed panel, I look forward to your questions, to the ensuing 

debate regarding GSE reform, and to working with you to ensure that any reform 

will benefit all homebuyers, renters, and our Nation as a whole. Thank you again 

for holding this hearing and for seeking the perspective of the NAACP. 

PREPARED STATEMENT OF RICK JUDSON 

CHAIRMAN, NATIONAL ASSOCIATION OF HOME BUILDERS

NOVEMBER 7, 2013 

Chairman Johnson, Ranking Member Crapo, and Members of the Committee, I 

am pleased to appear before you today on behalf of the National Association of 

Home Builders (NAHB) to share our views on housing finance reform and the essential elements needed to provide affordable options for housing. My name is Rick 

Judson, and I am a builder/developer from Charlotte, North Carolina, and NAHB’s 

2013 Chairman of the Board. 

NAHB represents over 140,000 members who are involved in building single family and multifamily housing, remodeling, and other aspects of residential and light 

commercial construction. NAHB’s members construct approximately 80 percent of 

all new housing in America each year, and many of our builders rely on the programs of the Department of Housing and Urban Development (HUD), (most involving the Federal Housing Administration, FHA) and the U.S. Department of Agriculture’s Rural Housing Service (RHS) to help provide decent, safe, and affordable 

single family and multifamily housing to many of our fellow citizens. 

We believe that an effective housing finance system must address liquidity as well 

as affordability and that those two elements are very closely related. Therefore, 

while it is important that the system provide housing credit at affordable terms as 

well as address specific housing needs, it is also essential that credit is consistently 

available on those terms regardless of domestic and international economic and financial conditions. 

NAHB is a strong proponent of housing finance system reform and feels significant changes should occur in the conventional mortgage market, where Fannie Mae 

and Freddie Mac currently account for almost all activity. NAHB supports steps to 

35 

increase the role of private capital but does not believe the market can rely exclusively on private sources. Recent experience demonstrates that private players are 

unwilling or unable to participate in periods of extreme economic and financial distress. 

NAHB also believes that the future housing finance system must be viewed as 

more than the private conventional market. The array of Federal Government programs that have been developed over the years in response to identified needs are 

essential elements in ensuring that there are affordable options for providing housing. Thus, this testimony includes NAHB’s position on how those programs contribute to the national housing finance system. 

Demographic and Economic Overview 

The underlying demographics of the U.S. forecast a continuing rise in demand for 

housing over the next two decades. A combination of record births and past immigration will produce over four million people moving into prime household formation 

ages every year for at least the next 20 years. These young people, primarily the 

children of the baby-boom generation, will form their own households as they age 

into the 25- to 34-year old cohort. These younger households were among the hardest hit by the economic recession, reducing household formation rates by more than 

most other age groups. 

While older households have largely recovered from household arrangement setbacks, younger households are still struggling to return to prerecession headship 

rates. And despite having lower headship rates than older segments of the population, these younger households are expected to add 2.4 million units to total housing demand over the next 10 years. Given their economic vulnerability, affordability 

will be key to recovery for these households. 

Most newly formed households are just beginning their employment career and 

will not have large downpayments or lofty credit scores. Current extra tight underwriting standards have made mortgage attainment even more difficult for younger 

families. Student debt responsibilities and lower starting salaries and wages compound the ability for younger individuals to transition to home ownership without 

access to affordable opportunities. 

In addition to the oncoming demand, NAHB estimates that two million households did not form during the recession and represent an additional pent up demand 

that will come to the housing market as the economy improves and hiring returns 

to more normal levels. Many young and not so young individuals either did not 

launch into an independent household or returned to live with their parents, relatives or friends after losing their job or experiencing a significant reduction in income. NAHB expects these individuals to establish their own home and be in the 

market for an apartment or owned home as the economy expands. 

Providing affordable homes will also present a challenge to home builders as the 

cost of ingredients rises. Builders are paying more for labor, land, and building materials. As discussed later, builders continue to have difficulty accessing production 

credit from the traditional financial institution sources and have turned to nontraditional equity and debt sources that cost more. 

Land development for homes ceased to take place during the Great Recession and 

building that capacity and process back up has taken time. In many revived and 

reviving markets, lots for single-family homes are very scarce, and prices have been 

bid up beyond what could be supported by current selling prices of completed homes. 

Construction workers found other sources of employment during the building collapse and can only be attracted back to home building with higher wages. Building 

material prices are back to or near the levels of 2005 when production was at two 

million homes. Production currently is less than one million, but while waiting for 

the material-producing industries to get back to capacity, prices have risen for the 

major building products like lumber, plywood, and drywall. 

Current Restrictions and Gaps in the Market 

The ability of the home building industry to meet the demand for housing, including addressing affordable housing needs, and contribute significantly to the Nation’s 

economic growth is dependent on an efficiently operating housing finance system 

that provides adequate and reliable credit to home buyers and home builders at reasonable interest rates through all business conditions. 

At present, home buyers and builders continue to confront challenging credit conditions weighed down by strict underwriting requirements and an uncertain future 

regulatory environment. For home buyers, while mortgage rates have fallen to 

record lows, access to mortgage credit is limited to those with pristine credit histories who can qualify for Government-backed programs. Presently, FHA, VA, 

36 

1 Joint Center for Housing Studies of Harvard University, ‘‘State of the Nation’s Housing 

2013’’, p. 19. 

Fannie Mae, and Freddie Mac (the Enterprises) account for more than 90 percent 

of mortgage originations. 

Credit Overlays 

Lender overlays in the mortgage credit process have been flagged as a major element in the greater difficulty potential home buyers are having in obtaining financing as lenders are imposing credit underwriting standards that are more restrictive 

than FHA, VA, Fannie Mae and Freddie Mac require. These credit overlays are employed due to heightened lender concerns over forced loan buy-backs on mortgages 

sold to Fannie Mae and Freddie Mac and/or greater required indemnifications on 

FHA-insured and VA-guaranteed loans. 

While FHA and the Federal Housing Finance Agency (FHFA), which regulates 

Fannie Mae and Freddie Mac, have announced efforts to encourage lenders to refrain from excessive mortgage credit requirements, lender concerns about how Federal agencies will implement repurchases and indemnifications continue to constrain 

credit availability. This is evidenced by the sharp increase in average credit scores 

for new Enterprise loans from about 720 in 2006 to 760 in 2012. For FHA loans, 

average credit scores have jumped from around 650 in the early 2000s to 756 in 

2012. According to the 2013 State of the Nation’s Housing Report, these trends 

largely reflect the evaporation of loans to borrowers with weaker credit histories. 

‘‘In 2007, borrowers with credit scores below 620 accounted for 45 percent of FHA 

loans. By the end of 2012, that share was under 5 percent.’’ 1 Similar trends are evidenced in the share of first-time home buyers which accounted for 28 percent of 

home sales in September 2013, well below the historical average of about 40 percent. 

Regulatory Constraints 

The regulatory environment for mortgage lending is undergoing significant 

changes as regulators implement new rules mandated by the Dodd-Frank Act. Uncertainty about the eventual regulatory landscape is another key factor that has 

tightened access to mortgage credit. Attempts by lawmakers and regulators to prevent a repeat of the housing boom/bust and the financial crisis by purging risk from 

mortgage lending has further tightened the credit box. 

NAHB supports steps to ensure that mortgage lending occurs in a safe and sound 

manner, with appropriate underwriting, prudent risk management and sound consumer safeguards and disclosure. NAHB believes that loans should be carefully underwritten and adequately disclosed. NAHB also believes that it is critical that 

mortgage lending reforms are imposed in a manner that causes minimum disruptions to the mortgage markets, while ensuring consumer protections. 

The release of the final Ability to Repay (ATR) standard by the Consumer Financial Protection Bureau (CFPB), which will take effect on January 10, 2014, has alleviated some of the regulatory uncertainty by defining new requirements and liabilities on lenders, but will undoubtedly create new hurdles for borrowers. The ATR 

rule establishes standards for complying with the ability-to-repay requirement by 

making a ‘‘qualified mortgage’’ (QM). The CFPB included a safe harbor in the definition of a QM that would provide some assurance to lenders that they will not be 

subject to increased litigation if they use sound underwriting criteria. The safe harbor would apply to lower-priced loans that are typically made to borrowers who pose 

fewer risks. However, the CFPB also included a ‘‘rebuttable presumption of compliance’’ for higher-priced loans typically for consumers with insufficient or weak credit 

history. Additionally, the QM includes a 3-percent cap on points and fees, which is 

a new calculation that has to be incorporated into the mortgage approval process. 

The ATR provides a new framework for all mortgage lending. To the extent that 

lenders will remain cautious during the transition and beyond, creditworthy borrowers may not have access to affordable mortgage credit, or may be left out of the 

credit box all together. Reports also are surfacing about the challenges that lenders 

are experiencing in preparing their systems for operation under the ATR and QM 

regulations. 

NAHB was pleased in August when the six Federal agencies responsible for implementing the credit risk retention requirements mandated by the Dodd-Frank Act 

reissued a proposed rule with a revised definition of a ‘‘qualified residential mortgage’’ (QRM) that would equate with the definition of the QM. Aligning the QRM 

with the QM has many benefits. Establishing one streamlined regulation, instead 

of having two separate sets of underwriting criteria, will alleviate confusion in the 

marketplace and will provide clarity and transparency for home buyers, lenders, inVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00040 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
37 

2The full details of NAHB’s housing finance system recommendations are contained in ‘‘A 

Comprehensive Framework for Housing Finance System Reform’’, published by NAHB on February 9, 2012. 

vestors and other housing market participants. Additionally, the underwriting criteria and product limitations contained in the QM will promote more prudent lending and will provide investors with an assurance that the loans are sustainable. 

NAHB is supportive of ensuring safe, well documented, and soundly underwritten 

loans without limiting the availability, or increasing the costs of credit to borrowers. 

Aligning QRM with QM levels the playing field, promotes liquidity in the mortgage 

market and allows access to credit for a diverse range of home buyers, particularly 

first-time and low- to moderate-income home buyers. If the QRM is too restrictive, 

this important group of home buyers will have to rely on Government programs or 

potentially risky mortgage products for low-downpayment options. Encouraging private capital to provide mortgages with reasonable terms to a broad range of home 

buyers is imperative to support a sustained housing market recovery. 

Commercial Real Estate 

The proposed credit risk retention rule also sets forth the underwriting standards 

for a ‘‘qualified commercial real estate loan’’ (QCRE), which is presumed to be a lowrisk loan. In the revised proposed rule, the agencies made modifications to their 

originally proposed criteria. 

NAHB appreciates and supports the agencies proposed modifications. However, 

NAHB remains concerned that the regulators did not make distinctions among the 

different asset types included in CRE loans (hotel, retail, multifamily, office, etc.) 

in setting underwriting standards, except for the debt service coverage and amortization period of the loan. NAHB believes that it is not appropriate to apply the 

same standards to different classes because there are significant differences in property features, lease structures, tenant characteristics, etc., that affect how a CRE 

property is underwritten. 

NAHB believes the QCRE is an important component of the credit risk retention 

requirements and setting an appropriate QCRE standard will be key to minimizing 

the impact on borrower financing costs for multifamily borrowers. To the extent that 

risk retention requirements raise multifamily financing costs, there will be an impact on rents. Higher rents have an immediate impact on renter households’ budgets. For aspiring homeowners, higher rents also mean that it will take longer to 

save for a downpayment on a home. In addition, for other types of commercial properties, higher rents affect companies’ ability to grow, and thus negatively impact job 

creation. 

NAHB is concerned that, if not properly implemented, the credit risk retention 

regulations will further restrain credit to the multifamily housing sector. In addition 

to the adverse impact on families seeking affordable rental homes, such disruptions 

in the market have the potential to slow down the job creation and monetary contributions to the economy that are currently fueled by multifamily construction. 

Importance of Federal Government Backstop 

As stated earlier, NAHB’s priority in housing finance system reform is ensuring 

liquidity for the housing sector in all markets throughout the economic cycle. This 

is only possible if market participants know there is a Federal Government backstop 

that will maintain stability in catastrophic circumstances. While NAHB agrees that 

the current degree of Government intervention is unsustainable, an ongoing, though 

more limited, Government role must be maintained to avoid future interruptions in 

the flow of credit to mortgage borrowers. 

NAHB recommends establishing a new securitization model for single family and 

multifamily mortgages where Fannie Mae and Freddie Mac would be transitioned 

to private housing finance entities that would aggregate mortgages into securities 

for sale to investors worldwide. 2 Private capital from mortgage originators and securities issuers would be in the first loss position but the principal and interest for 

investors in the mortgage-backed securities would be guaranteed through a privately capitalized, federally backed insurance fund. Only mortgages with reasonable 

and well understood risk characteristics would be eligible to serve as collateral for 

Government-backed mortgage securities, and the system would be overseen by a 

strong and independent regulator. 

The new housing finance system envisioned by NAHB is similar to that proposed 

in the Housing Finance Reform and Taxpayer Protection Act of 2013 (S.1217, 

Corker-Warner bill) which NAHB largely supports. In contrast, NAHB opposes the 

House Financial Services Committee-passed bill, H.R. 2767, the Protecting American Taxpayers and Homeowners Act of 2013 (PATH Act), which removes GovernVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00041 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
38 

3Laurie S. Goodman and Jun Zhu, ‘‘The GSE Reform Debate: How Much Capital Is Enough?’’ 

Urban Institute Housing Policy Center Paper, October 23, 2013. 

ment support to the conventional mortgage market. While NAHB agrees that private capital must be the dominant source of mortgage credit, the future of the housing finance system cannot be left entirely to the private sector. The historical track 

record clearly shows that the private sector is not capable of providing a consistent 

and adequate supply of housing credit without a Federal backstop. 

NAHB believes Federal support is particularly important in continuing the availability of the affordable 30-year fixed-rate mortgage (FRM), which has been a staple 

of the U.S. housing finance system since the 1930s. These loans are geared toward 

affordability; 30-year terms lock in low monthly payments, allowing households with 

average incomes to comfortably budget for their home loan. Knowing their monthly 

housing costs will remain the same year in and year out regardless of whether interest rates rise provides households with a sense of financial security and also acts 

as a hedge against inflation. Many young buyers know that as their incomes rise, 

their housing costs will stay constant and become less of a burden, enabling them 

to prepare for other long-term obligations, such as college tuitions and retirement 

savings. In most instances, all of the interest and property taxes borrowers pay in 

a given year can be fully deducted from their gross income to reduce taxable income. 

These deductions can result in thousands of dollars of tax savings, especially in the 

early years of a 30-year mortgage when interest makes up most of the payment. 

The key to the sustainability of the 30-year FRM is a securitization outlet because 

originators (banks and thrifts) do not have the capacity to hold such long-term assets which are funded with short-term deposits. Currently, Fannie Mae and Freddie 

Mac provide the securities vehicle along with a Government guarantee for investors. 

There are serious doubts on whether a private housing finance system would be capable of supporting this type of product without some Government backing. At a 

minimum, the cost and terms of 30-year FRMs would be significantly less favorable 

under a totally private system. 

A Government role is also essential for multifamily mortgage programs which also 

play a critical role in the overall health of the U.S. housing finance system. More 

than one-third of Americans live in rental housing and demand for rental housing 

in the future is expected to increase. As discussed further below, the multifamily 

sector performed much better than the single family housing market during the recent downturn. Multifamily loans held or guaranteed by Fannie Mae and Freddie 

Mac have very low default rates and the multifamily segments of both Enterprises 

are profitable. FHA also provides support to the multifamily market through the 

FHA multifamily mortgage insurance programs. Private market financing is not 

readily available for all segments of the multifamily market. Thus, there is a need 

to maintain a viable, liquid and efficient secondary market for multifamily rental 

financing where the Federal Government continues to play a role. 

Future Cost of Housing Credit 

In a future housing finance system, where several layers of private capital stand 

in front of a Government backstop for catastrophic circumstances, the relative cost 

of housing credit would increase from current levels as home buyers ultimately bear 

the charges needed to attract the private capital and cover the cost of the Government guarantee. However, NAHB believes that such a system would entail lower 

housing credit costs than one that relied exclusively on private players. Also, as 

mentioned previously, a completely private system likely would be subject to inconsistent credit availability. 

With the prospect of higher mortgage borrowing costs, NAHB believes it is extremely important to make every effort to ensure that mortgage interest rates and 

fees do not increase more than is absolutely necessary to safely sustain the new system. The requirement in S.1217 (Corker-Warner bill) that first-loss capital providers 

hold capital of 10 percent of their risk exposure is excessive and would unnecessarily increase mortgage borrowing costs. A capital cushion of 4 to 5 percent would 

have been sufficient for Fannie Mae and Freddie Mac to sustain all of their losses 

during the recent decline in home prices and their current, more restrictive, book 

of business would require only a 2 to 3 percent capital under such a drop in collateral values. 3

Guarantee fees or insurance premiums for the catastrophic Government backstop 

could be subject to similar inflation. It is important to base Federal guarantee/insurance charges on the universe of mortgage products and underwriting requirements 

that will be in place in the future rather than on products and protocols that are 

no longer in existence. Careful study should be undertaken to determine the level 

39 

of private capital and Federal guarantee/insurance charges that are needed for a 

safe, sound, and sustainable future housing finance system. 

A Multifaceted Housing Finance System Is Needed 

NAHB believes that the U.S. housing finance system should be multifaceted with 

both competing and complimentary components, including private, Federal, and 

State sources of capital liquidity. To ensure all markets are served, broad market 

participation should be encouraged. Barriers to entry to the secondary market 

should be a low as possible while balancing safety to the system. Compliance with 

regulatory requirements should not be more burdensome for smaller lenders—recognizing the unique role many small lenders have carved out for their communities. 

To-Be-Announced (TBA) Market 

The to-be-announced (TBA) market plays a critical role in maintaining a liquid 

secondary market for mortgage-backed securities (MBS). Fannie Mae, Freddie Mac, 

and Ginnie Mae securities make up the TBA market, and liquidity in these agency 

mortgage-backed securities is key to an efficient marketplace and affordable interest 

rates. Agency MBS are comprised of relatively homogenous mortgage loans with 

known underwriting criteria and standard documentation. 

This well-defined marketplace supports the necessary fungibility to allow investors to buy and sell without the due diligence applied to non-TBA market securities 

and leads to the liquidity that is vital. TBA securities allow mortgage originators 

to lock-in interest rates to consumers by using the TBA securities to hedge their 

exposure to an increase or a decrease in interest rates before the mortgage loans 

close. 

Reforms to the secondary market system should take into account the potential 

impact on the securitization of mortgage loans and the issuance and trading of MBS 

to insure the liquidity of the TBA market is not negatively affected. 

Federal Home Loan Bank System 

The Federal Home Loan Bank System (FHLBank System) is composed of 12 member-owned regional cooperatives chartered by Congress to provide reliable funding 

for housing and economic development to their members. Membership in the 

FHLBank System includes community banks, thrifts, credit unions, insurance companies and Community Development Financial Institutions (CDFIs). Each day the 

Federal Home Loan Banks (FHLBs) lend billions of dollars to member institutions 

through secured loans called ‘‘advances’’ to support the credit and financial needs 

of their members. Combined, the FHLBank System has 7,600 member institutions. 

NAHB believes the Federal Home Loan Banks should continue to exist and provide their member institutions access to housing credit and liquidity. The FHLBs 

offered the housing market significant stability during the mortgage credit crisis 

when many banks were unwilling or unable to provide mortgage credit. NAHB has 

advocated for the FHLBs to capitalize on their acknowledged solid performance and 

risk management strength and seek to expand their role in housing finance as housing finance reform is considered. 

Currently, the FHLBs can purchase mortgage loans from their member institutions but have only limited leeway to manage the resulting portfolios. NAHB believes the FHLBs would benefit from being allowed to aggregate loans from their 

members for sale to investors. A statutory change to allow the FHLBs to issue conventional mortgage-backed securities would significantly increase their value to 

members seeking enhanced access to the secondary market. In particular, small 

lenders would benefit from increased options for selling their loans to FHLBs rather 

than selling to large aggregators that may be less responsive and more expensive. 

In fact, NAHB was very pleased to see the recent announcement by the Federal 

Home Loan Bank of Chicago that it will begin issuing Ginnie Mae securities backed 

by mortgages originated by its member institutions. This is extremely innovative 

and will provide the access to the secondary market that many of its member institutions currently lack. 

Reform to the housing finance system must carve out a role for the FHLBs. 

NAHB would support an expanded role as long as any new lines of business, new 

mortgage programs, or statutory changes to the FHLB charters are considered carefully in order to avoid unintended consequences that might conflict with the FHLBs’ 

existing authorities and primary activity of providing advances to members. 

As we think about ensuring affordability in a reformed housing finance market, 

the Federal Home Loan Banks should continue to support affordable housing 

through their Affordable Housing Program (AHP). Since 1990, each FHLBank has 

been required by statute to put aside 10 percent of its net income each year toward 

grants for affordable housing. The AHP is designed to be local in nature. It is administered regionally by each FHLBank through its financial institution members 

40 

4 ABA Federal Home Loan Bank Member Insights, October 10, 2013, Vol. 4, No. 1. 

5Statement of Sandra Thompson, Deputy Director for the Division of Housing Mission and 

Goals, Federal Housing Finance Agency; Subcommittee on Securities, Insurance, and Investment, U.S. Senate Committee on Banking, Housing, and Urban Affairs, July 23, 2013, pp. 4– 

5. 

and each member’s community-based partners to insure the programs are designed 

to meet the specific needs of local neighborhoods. 

Access by Community Banks 

While not having the dominant share of mortgage originations, community financial institutions originate a significant volume of mortgage loans. During the first 

quarter of 2013, $435 billion of mortgages were originated nationwide. Community 

banks and thrifts with less than $10 billion in total assets originated $55 billion of 

residential mortgage loans during the first quarter of 2013. 4

As the name implies, community banks offer financial services designed to meet 

the specific needs of their unique local markets. They are known particularly for 

serving rural areas and traditionally underserved markets. In the current environment of increased regulatory compliance requirements, tighter underwriting standards, and overall less availability of mortgage credit, it is important to be vigilant 

about the impact of housing finance reform on community banks and the mortgage 

borrowers they serve. Meeting the needs of their communities can mean these institutions are not originating standard products that can be sold in the secondary markets. This inability or difficulty to sell their loans to the secondary market can restrict their primary market activity. 

Over the years, community banks have sold their loans to large aggregators, including Fannie Mae and Freddie Mac, and have paid higher fees based on smaller 

volumes. In a new housing finance system, access and pricing should not be based 

on the volume of business or size or geographic location of the selling institution. 

Recently, community banks have been increasing their secondary market activity. 

Loans delivered to Fannie Mae and Freddie Mac by community banks have increased significantly from 2007 to 2012. For example, in 2007, only 3.6 percent of 

loans delivered to Freddie Mac came from outside the top 100 lenders. In 2012, this 

increased to 15.1 percent of all loans at Freddie Mac. 5 Access for community banks 

should be a priority when considering housing finance system reform. 

The Corker-Warner bill acknowledges the importance of providing access to the 

secondary mortgage market to community banks. As proposed, Corker-Warner 

would create the Federal Mortgage Insurance Corporation (FMIC) which would be 

required to ensure that credit unions and community and midsized banks have 

equal access to the common securitization platform. The FMIC is authorized to create the Mutual Securitization Company to purchase, pool and securitize loans from 

insured depositories having less than $15 billion in assets or a nondepository mortgage originator having a minimum net worth of $2.5 million. NAHB supports 

Corker-Warner’s provision to create a Mutual Securitization Company, which would 

be an approved issuer. However, as an issuer purchasing from small entities, its 

ability to compete with larger issuers should be carefully monitored to ensure a level 

playing field. 

Housing Finance Agencies 

NAHB believes State and local housing finance agencies should play an expanded 

role in providing housing funds. These agencies have proved critical in helping communities meet the needs of consumers who have faced hardships in the face of tight 

credit conditions. 

State and local housing finance agencies utilize tax-exempt and taxable bonds as 

well as State and Federal resources to offer a range of single family and multifamily 

housing programs. These agencies are uniquely positioned to assess community 

housing needs and should play an even more prominent housing finance role 

through the development of new programs for new, for-sale housing and multifamily 

rental homes. This should include partnering with Federal and private providers of 

housing capital. 

Single Family Housing 

Retain Capacity of FHA To Meet Its Vital Housing Mission 

The FHA single-family mortgage programs are a unique and vital component of 

the housing finance system, providing access to home ownership for underserved 

communities, primarily first-time homebuyers, minorities, and those with limited 

downpayment capabilities. During the recent mortgage crisis, FHA demonstrated 

how invaluable its countercyclical role was in providing mortgage market liquidity 

41 

as FHA’s share of the market jumped from 3 percent during the housing boom to 

a high of almost 30 percent early in the crisis. Nearly 80 percent of FHA’s purchase 

loans have been to first-time home buyers. This dramatic shift is evidence that FHA 

is performing its mission of providing the Federal backstop to ensure that every 

American has access to a stable mortgage product. In times of crisis, private sources 

of mortgage credit have demonstrated they are unable or unwilling to meet housing 

capital needs. 

NAHB supports efforts to reform FHA and understands that this is not a simple 

undertaking. However, reform must be approached with caution. Since 2010, FHA 

has implemented a series of policy changes, including higher mortgage insurance 

premiums, tighter underwriting requirements, stricter mortgage lender enforcement, and improved risk assessment, all intended to strengthen the performance of 

the Mutual Mortgage Insurance Fund (MMIF) and rebuild the capital reserve ratio. 

These changes are the most sweeping combination of reforms to credit policy, risk 

management and lender enforcement in FHA history. Further changes to FHA’s 

programs cannot be separated from the larger discussion of reforming the complex 

housing finance system to ensure homebuyers have affordable financing solutions. 

NAHB urges Congress to proceed carefully and not significantly alter FHA’s role 

of providing affordable single family financing. We are concerned that several of the 

provisions in H.R. 2767 (PATH Act) would greatly reduce the scope and reach of 

FHA’s programs. In particular, NAHB opposes provisions in the PATH Act that 

would limit FHA’s single family programs to first time or low- and moderate-income 

home buyers, increase downpayments, and reduce the minimum FHA mortgage 

limit or floor. These proposals would have a detrimental impact on FHA’s ability 

to serve its mission and facilitate the flow of mortgage credit to its targeted borrowers. 

Provide a Reasonable Menu of Conventional Mortgage Products 

America’s future housing finance system must be designed to ensure that creditworthy borrowers have access to a reasonable menu of conventional mortgage products that are prudently developed and appropriately underwritten. While standardized product features and underwriting requirements are necessary to ensure liquidity, these mortgage products must also have practical flexibilities to meet the diverse financial needs of first-time homebuyers, minorities, buyers with limited 

downpayment capabilities, and move-up buyers. 

Research suggests that the greatest obstacle faced by potential first-time homebuyers, especially low-income, minority individuals and families, is not the ability 

to make monthly mortgage payments, but rather the ability to assemble enough 

funds to pay the downpayment and closing costs. Because of the financial downturn, 

many more potential homebuyers will have the ability-to-repay but will need affordable downpayment conventional mortgage products. 

Maintain Role of Mortgage Insurance Industry 

Private mortgage Insurance (MI) companies provide a vital component of our 

country’s residential mortgage finance system by protecting mortgage investors from 

credit losses. Mortgage insurance also benefits home buyers by helping them achieve 

home ownership earlier with low-downpayment loans. 

Mortgage investors require healthy counterparty risk mortgage insurance partners, and both will need to continue to form strong partnerships to serve borrowers 

with well underwritten, competitively priced and flexible MI programs to ensure the 

availability of 95 percent loan-to-value (LTV) mortgage products. 

Another benefit to this type of counterparty risk arrangement is that the loan is 

underwritten by both the mortgage investor and the MI company. This due diligence 

helps to ensure the consumer’s ability-to-repay. MI companies are also providers of 

homeowner assistance programs that go well beyond the initial purchase of their 

home. 

Preserve Rural Housing Service and Veteran’s Administration (VA) Loan Programs 

The Federal Government historically has played an important role in providing 

mortgage credit to rural areas. The National Housing Act of 1949 authorized the 

Farmers Home Administration to issue mortgages for the purchase and repair of 

single family homes in rural areas and to provide financing and rental assistance 

for multifamily rental housing. Later legislation moved this function to the Rural 

Housing Service (RHS), which is part of the U.S. Department of Agriculture 

(USDA). 

Section 502 housing loan guarantee programs provide well underwritten loan programs to low- and moderate-income individuals and families without having to 

make a downpayment because they may borrow up to 100 percent of the appraised 

value of the home. Since a common barrier to owning a home for many is the lack 

42 

6 ‘‘A Comprehensive Blueprint for Residential Appraisal Reform’’, National Association of 

Home Builders, February 2013. 

of funds to make a downpayment, this program makes the possibility of owning a 

home a reality for many Americans in rural communities. 

The VA home loan guarantee program is an integral component of housing finance and is an outstanding example of a how a low- to no-downpayment program 

can perform even in difficult economic markets. The VA attributes its track record 

of success to strong principles of underwriting loans and high-touch service for its 

veterans throughout the mortgage process. 

Appraisal System Reform 

The current residential appraisal system is impaired due to inconsistent and conflicting standards and guidance; inadequate and uneven oversight and enforcement; 

a shortage of qualified and experienced residential appraisers; and, the absence of 

a robust and standardized data system. NAHB believes these problems must be addressed in order to restore confidence in the residential real estate market and to 

establish a foundation for sustainable growth of the U.S. economy. This can only be 

accomplished through sound valuation practices, policy, and procedures that 

produce more credible valuations under all economic circumstances. 

In 2012, NAHB formed an Appraisal Working Group (AWG), consisting of home 

builders and representatives from the financial and appraisal sectors, to develop recommendations for comprehensive appraisal reform and produced a White Paper 

with specific recommendations. 6 In this process, there was extensive dialogue with 

all stakeholders in the residential appraisal process. The AWG continues to meet 

and discuss the importance of appraisal reform and below are their key recommendations: 

• Reform the regulatory framework for real estate valuation to more effectively 

oversee standards, guidance, and enforcement. 

The goal is to better integrate and streamline the jumble of existing entities to 

ensure the valuation of collateral in housing finance transactions occurs in a coordinated and effective manner. This would contribute to uniform and consistent standards and avoid the current multitude of conflicting and confusing requirements. In 

particular, urgent steps should be taken to improve the effectiveness and consistency of State appraisal oversight. 

• Develop and build a real estate data superhighway with a national real property registry and supporting networks. 

The development of a real estate database would facilitate the safe and efficient 

transfer of real property. The reformed regulatory system would be responsible for 

the establishment of standards for data, methodology and practice. Stakeholders 

would be able to view all valuations, and secondary market participants would have 

access with proper rights established. Access rights would be granted to any registered purchaser, securitizer, or servicer. 

• Establish a single, consistent set of rules and guidelines for appraisers and appraisals and set standards to ensure the engagement of an appraiser who has 

the training and experience necessary for the assignment. 

The establishment of a single set of rules and appraisal forms should be incorporated as a high priority as part of housing finance system reform. Currently, 

Fannie Mae and Freddie Mac impose de facto appraisal authority through the 

guidelines they have established for appraisals on the mortgages they purchase and 

the forms they use to collect appraisal information. These Enterprise appraisal rules 

tend to restrict appraisers’ ability to pursue approaches that could result in more 

accurate valuation. In addition, confusion arises in how to interpret the Enterprise 

appraisal guidelines in relation to the rules established by The Appraisal Foundation (TAF) in the Uniform Standards of Professional Appraisal Practice (USPAP) 

and the appraisal regulations of the banking regulators. 

In addition, there have been reports of appraisal problems due to appraisers not 

being familiar with the area in which the subject home is located and not having 

experience in valuing the type of property in question. This is a particularly acute 

issue for builders and purchasers of newly constructed homes, which normally require more extensive analysis and research. Standards and processes should be established to ensure appraisers have the training and experience needed to provide 

an accurate property valuation. 

• Develop a workable process for appealing inaccurate or faulty appraisals. 

43 

It is extremely important to establish a timely value appeals process that is fair, 

balanced, and appropriate to allow all parties of the transaction to appeal appraisals 

that do not meet USPAP standards or are based on inaccurate data or assumptions. 

Today’s residential appraisal system remains in a state of uncertainty. The current patchwork system cannot continue indefinitely. A key consideration must be to 

establish stability and restore confidence in the system that determines the value 

of mortgage collateral. NAHB remains committed to residential appraisal reform 

and looks forward to working with industry stakeholders to address the problems 

and implement solutions to the current U.S. residential appraisal system. 

Multifamily Housing 

Future Conventional Multifamily Finance System 

NAHB and several of the most prominent trade associations representing multifamily developers, owners, property managers, and lenders have prepared a set of 

principles under which we believe the future multifamily finance system should be 

framed. (The set of principles accompanies this statement.) 

Key principles include: 

• The Nation’s multifamily housing finance system should rely primarily on private capital. 

• The Federal Government is the only entity that can ensure the availability of 

liquidity in all market cycles, and the appropriate mechanism to do that is 

through a catastrophic backstop role. 

• The Government guarantee-related market should be subject to strong and 

independent regulatory oversight and risk-based capital requirements. 

• Policy makers should protect and preserve existing resources, as well as support 

greater transparency, during the transition to an overhauled housing finance 

system. 

NAHB cautions against overreaching in regard to reforming the multifamily finance system. This component of the Nation’s housing finance system has performed, and continues to perform, very well. NAHB does not believe it is necessary 

to take draconian steps that are not needed to ‘‘fix’’ an unbroken system. Such steps 

would include setting income or rent restrictions on loans as a condition of access 

to a Federal Government backstop, standardizing products, or requiring only one 

securitization platform. Again, NAHB believes that the critical consideration in a 

new system is broad and continued liquidity during all economic cycles and for all 

geographic areas. 

Preserve Successful Infrastructure, Products, Programs From Conventional Market 

As noted earlier, in spite of the crisis affecting single family housing, the multifamily sector has performed well. Multifamily loans held or guaranteed by Fannie 

Mae and Freddie Mac have very low default rates, and both businesses are profitable. Both of the Enterprises’ multifamily businesses involve risk-sharing with private capital, and both businesses have practiced disciplined underwriting. In addition, because of the range of products and business lines employed by the Enterprises, a wide range of multifamily rental properties that provide housing for verylow to middle income households can be financed in the conventional market. NAHB 

strongly supports retention of the successful infrastructure, products and programs 

that have been built over the years by the Enterprises and which are used as the 

core of most of the major financial institutions providing multifamily debt financing. 

NAHB is thus alarmed at recent actions taken by FHFA related to the Enterprises’ multifamily businesses. In an August 2013 press release, FHFA stated it was 

seeking input on strategies for reducing the Enterprises’ presence in the multifamily 

housing finance market in 2014. FHFA’s Strategic Plan for Enterprise 

Conservatorships, released in February 2012, included a goal to contract the Enterprises’ presence in the market while simplifying and shrinking certain operations. 

The 2013 conservatorship Scorecard included reducing their volume of new multifamily business by 10 percent relative to 2012. FHFA expects this reduction to be 

achieved this year through a combination of increased pricing, more limited product 

offerings and stronger underwriting standards. FHFA stated its intention to continue a path of gradual contraction of the multifamily businesses while awaiting a 

legislative resolution to the conservatorships. 

It is disturbing to NAHB that FHFA is taking these steps in the absence of direction from Congress. NAHB believes that the FHFA’s directive to the Enterprises to 

reduce their multifamily businesses is arbitrary and unnecessary. In fact, NAHB 

strongly believes that it is critical that the Enterprises retain their ability to provide 

44 

broad liquidity to the market, which includes having a diversified line of products 

and the ability to address financing for a large range of multifamily property types. 

This critical aspect of the Enterprises’ mission—to provide liquidity during all economic cycles—should not be regulated by the conservator; that is the job of Congress. To lose any of the successful products or business activities at this point in 

time—before decisions are made by Congress as to the future of the multifamily 

housing finance market—means they may have to be rebuilt at a future point. 

NAHB has urged FHFA not to take unwarranted actions that will result in damage 

to the multifamily market now and in the future, and NAHB urges members of Congress to convey the same message to FHFA. 

Private Market Participants Are Selective Investors 

It is important to understand that not all private market sources of capital for 

multifamily financing are available for all segments of the multifamily market. Each 

has strength in specific niches and markets and thus moves in and out of the market as economic conditions and their investment goals change. Life insurance companies typically target low-leverage, high-quality deals in the strongest markets 

(usually urban) and typically serve the highest income households. Once they meet 

their own portfolio investment targets, life insurance companies retract their lending. Banks do not provide long-term financing and are subject to significant restrictions in terms of capital requirements. Banks also have significant exposure to regulatory pressure that influences their lending decisions, including obligations under 

the Community Reinvestment Act (CRA). While the commercial mortgage backed securities (CMBS) market was significant at one time, it has not recovered from the 

financial crisis and is not expected to resume its past levels of volume. 

These facts point to the need to maintain a viable, liquid and efficient secondary 

market for multifamily rental financing where the Federal Government continues 

to play a role. In addition, the secondary market must be structured to ensure that 

the appropriate range of products is available to provide the capital needed to develop new and to preserve existing rental housing, as well as to refinance and acquire properties. An adequate flow of capital will ensure that demand for rental 

housing is met and that affordable options are available for a range of households 

and communities. 

Legislative Proposals 

NAHB appreciates that S.1217, the Housing Finance Reform and Taxpayer Act 

of 2013, introduced by Senators Corker and Warner, recognizes the importance of 

the Enterprises’ multifamily businesses. The bill would transfer both multifamily 

businesses to the newly created Federal Mortgage Insurance Corporation (FMIC). 

However, NAHB does not believe it is practical for the regulator to absorb and run 

the multifamily businesses. A more practical option is to transition the Enterprises’ 

multifamily businesses to private entities, which would then be allowed access to 

the Federal Government guarantee through FMIC. 

The House Financial Services Committee-passed bill, H.R. 2767, the Protecting 

American Taxpayers and Homeowners Act of 2013 (PATH Act), does not address the 

multifamily conventional market at all, which is a major omission. 

Maintain FHA’s Multifamily Capacity 

FHA historically has played an important role in the financing of multifamily 

rental housing, and it was especially important during the economic crisis. FHA provides an explicit Federal Government guarantee on multifamily loans for which borrowers pay a mortgage insurance premium set by HUD. The FHA multifamily loans 

have performed well with low default rates (as published by HUD in May 2013), 

and the programs generate significant revenue to the Federal Government in the 

form of a negative credit subsidy, generating positive cash flow to the U.S. Treasury. 

In 2008, FHA endorsed just over $2 billion in multifamily loans (excluding health 

care programs), which grew to $18.3 billion (excluding health care programs) in 

FY2013. This unprecedented increase in FHA multifamily loan volume occurred as 

other private market sources of multifamily financing withdrew from the market 

when economic conditions worsened. FHA, along with Fannie Mae and Freddie Mac, 

became the primary sources of multifamily financing as the recession deepened. 

Like in the single family market, the FHA multifamily mortgage insurance programs are fulfilling the function and mission for which Congress originally intended. 

NAHB has long-supported these programs, notably Section 221(d)(4) and Section 

223(f), which have enabled the construction of new affordable and market rate rental housing units, as well as the acquisition, refinance, and rehabilitation of the Nation’s existing stock of rental housing. Of importance, FHA financing is often used 

in smaller markets where Fannie Mae, Freddie Mac and other market participants 

45 

are less active, and FHA has filled the niche that local banks and thrifts have retreated from in recent years. 

Risk Management Protocols 

It is important to note that over the last 3 years, HUD has instituted new risk 

management protocols for the FHA multifamily mortgage insurance programs. The 

new protocols tightened underwriting requirements, created a national loan review 

committee, and strengthened policies related to large loans, sponsor creditworthiness, and experience. There is closer scrutiny on market strength and FHA presence 

than before the economic crisis. In 2012, for the first time in 10 years, HUD raised 

the mortgage insurance premiums (MIPs) for programs in the General Insurance/ 

Special Risk Insurance (GI/SRI) fund. All of these actions were intended to strengthen risk management practices related to the FHA multifamily mortgage insurance 

programs, ensure the health of the GI/SRI fund, and attract high quality borrowers, 

without taking market share from the private sector or endangering taxpayers. 

HUD’s most recent step towards increasing efficiency and standardizing policies 

across field offices was the announcement of a major restructuring of the Office of 

Multifamily Programs. The restructuring in the Office of Multifamily Programs will 

consolidate its program Hubs and field offices and reorganize the offices within its 

headquarters in Washington, DC. The goal of the restructuring is to allow more consistent, efficient processing of loans and servicing of existing assets. 

NAHB has testified previously that, as important as these steps have been towards increasing risk management, the FHA multifamily field offices continue to 

struggle because of inadequate staffing and resources. NAHB is supportive of HUD’s 

efforts to address these difficult issues, and we urge members of Congress to ensure 

that the department has the resources it needs to safely and properly manage its 

large portfolio and to ensure that the programs remain strong and viable. 

Commitment Authority 

NAHB recently expressed strong concern to members of Congress that the uncertainty related to the availability of commitment authority for the FHA multifamily 

programs creates the potential for major disruptions in financing much needed affordable and market-rate rental properties, as well as health care facilities, which 

are also included under the GI/SRI fund. FHA exhausted its commitment authority 

for FY2013 in mid-September, which forced borrowers to wait until new authority 

became available before they could be assured of a loan commitment. As a result, 

affordable housing construction and other related jobs have been delayed, and in 

some cases, may not even go forward. The Government shutdown only made the situation worse, as the queue of loans waiting for commitment authority accumulated 

rapidly and is now in excess of one-half billion dollars. 

NAHB suggests that an area of reform for the FHA multifamily and health care 

insurance programs is to consider giving FHA multiyear commitment authority, as 

is the case with the FHA single family programs. Another option would be to devise 

an automatic trigger of additional commitment authority if certain conditions are 

met to ensure the uninterrupted operation of the programs during all economic cycles. 

Legislative Proposals—The PATH Act 

NAHB is concerned about proposals to more narrowly limit FHA’s current mission. The PATH Act would allow FHA to provide mortgage insurance for residential 

properties having five or more dwelling units—multifamily rental housing—subject 

to occupancy and rent restrictions applied during the life of the mortgages. The bill 

restricts occupancy to families having incomes no greater than 115 percent of area 

median income (AMI). It allows for higher income limits (up to 150 percent of AMI) 

in high cost areas. The bill gives FHA the discretion to establish lower occupancy, 

income and rent restrictions. 

NAHB does not support setting occupancy and rent restrictions based on AMI for 

the FHA multifamily mortgage insurance programs. The Census Bureau’s 2012 

Rental Housing Finance Survey shows that an overwhelming majority of tenants in 

properties with FHA-insured mortgages have incomes of 115 percent or less of area 

median income. However, the FHA multifamily mortgage insurance program is also 

a key source of liquidity, so the imposition of income limits would impede that portion of FHA’s mission, particularly in higher-cost markets. 

The FHA multifamily mortgage insurance programs are subject to statutory mortgage loan limits, which effectively serve to focus the provision of FHA multifamily 

mortgage insurance on affordable and workforce rental housing. Imposing burdensome provisions that require developers, lenders, and property managers to track 

and document incomes and rents on unsubsidized properties is costly and unnecesVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00049 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
46 

sary, given that the proposed targeted population is already being served by the programs. 

The PATH Act also requires the Director of FHFA to set capital reserve requirements for the GI and SRI funds. The bill does not specify target reserve ratios. Currently, there are no statutory requirements for capital ratios for either the GI or 

SRI funds. While NAHB understands that members of Congress and the Administration are focused on strengthening the risk management practices for both the single and multifamily FHA programs, NAHB strongly urges that an in-depth analysis 

is conducted to determine any impact on the mortgage insurance premiums for the 

FHA multifamily programs before any reserve requirements are considered. NAHB 

does not believe that it is appropriate to use the type of capital reserve ratios used 

for the MMIF for the GI/SRI fund, because the nature of the multifamily portfolio 

is significantly different from the single family portfolio insured under the MMIF. 

The implementation of a capital reserve on the GI/SRI funds could have significant impacts on MIPs. Higher MIPs will lead to higher costs for borrowers and renters who are served by the FHA multifamily programs. A key example is the Section 

221(d)(4) program where a higher MIP will raise the required borrower debt service 

and/or equity contribution, resulting in a lower mortgage amount at a higher rate 

of interest. These higher costs would be passed along in the form of higher rents 

to the low- and moderate income families who reside in rental units financed 

through the program or could result in properties not being built or rehabilitated 

because of the higher equity contribution required. 

Need To Address Rural and Small Rental Projects 

Over the years, NAHB has discussed with FHA and the Enterprises the need to 

develop more options for small multifamily financing (typically defined as 5 to 49 

units) and to address credit needs in rural areas. According to HUD, almost a third 

of the Nation’s renters, more than 20 million households, live in small, unsubsidized 

housing. These properties tend to be owned by individuals (mom-and-pop owners), 

as well as small businesses. Rents charged at such properties are typically more affordable to low- and moderate-income families. 

Owners of small multifamily properties do not have many options for financing 

acquisitions and/or rehabilitation work. Many lenders view such loans as high risk, 

and the costs of underwriting the loans are more expensive for both the lender and 

borrower. In addition, servicing costs for such loans are high, reducing lenders’ incentive to make them. Small loans are not easily securitized, as it takes too long 

to accumulate the volume needed to issue a security. 

The Enterprises have struggled with this type of loan, and FHA has not been successful at developing a viable small loan program. Although many local commercial 

banks are active in lending for small multifamily properties, the availability of financing is not very consistent. Large banks without a presence in rural areas have 

no Community Reinvestment Act (CRA) incentive to invest in such properties. Some 

State housing finance agencies address this need through set-asides for rural areas, 

where many small multifamily properties are located. A few NAHB members have 

been successful in refinancing a small portfolio of properties into one loan, which 

helps reduce costs. 

HUD is currently exploring an expansion to its FHA risk-sharing program that 

would allow mission-based financial institutions to enter into risk-sharing arrangements with FHA to provide acquisition and rehabilitation financing for small multifamily properties. HUD is seeking a legislative change that would allow Ginnie Mae 

to securitize such loans. NAHB believes there is potential in this effort and has participated in several discussions with HUD and other stakeholders. NAHB urges 

Congress consider the legislative changes that are needed to develop a viable program. 

As mentioned previously, the Corker-Warner bill acknowledges the importance of 

providing access to the secondary mortgage market to community banks. The proposed Federal Mortgage Insurance Corporation could provide opportunities for small 

multifamily lending. 

Reform and Adequately Fund HUD’s Rental Assistance Programs 

HUD provides rental assistance to over five million households. Sixty-five percent 

of HUD-assisted households are elderly or disabled, and HUD-assisted families had 

an average income of $12,500 in 2012. Just one in four families that needs rental 

assistance is able to receive it because there are not enough resources to help everyone. The rental assistance programs have been under stress due to rising costs and 

the difficult economy. There are many potential areas for reform, yet agreement on 

how to proceed remains elusive. A major problem is the whipsaw of funding levels, 

47 

which creates great stress on property owners, public housing agencies and residents. 

Section 8 Housing Choice Voucher Program 

NAHB has long supported the Section 8 Housing Choice Voucher program, which 

provides rental subsidies to approximately two million very-low income households 

who obtain housing in the private rental market. The program, which is intended 

to broaden the range of housing choices for families seeking affordable housing, has 

proven to be effective in helping low income families find decent, safe, and affordable housing. In addition, the rental vouchers can be leveraged to build or rehabilitate additional affordable housing, a necessity in today’s tight rental markets. 

In recent years, the program has been the subject of policy discussions because 

of its growing costs and strain on the HUD budget. Funding levels have fluctuated, 

causing public housing agencies (PHAs) to struggle to maintain assistance to current tenants. A major reform bill first introduced in 2004 has been revised and debated without moving to passage. The goals of the most current House version, the 

Affordable Housing and Self Sufficiency Improvement Act of 2013 (AHSSIA), are to 

reduce taxpayer costs within HUD’s rental housing programs and facilitate greater 

private-sector participation in affordable housing. Streamlining aspects of the program will reduce costs and improve the delivery of services to the households seeking affordable housing. Private property owners will be more amenable to participating in HUD’s affordable housing programs, as well, as the administrative burdens are eased and costs to participate are lowered. 

NAHB, along with a large group of industry stakeholders, has identified a core 

set of reforms to the program. Included are reforms that would streamline various 

processes, including: unit inspections; rent calculations; income determinations; and 

tenant screening. Other reforms would improve the voucher funding allocations to 

make them more stable and predictable while still permitting appropriators to set 

overall annual funding levels. While some additional improvements could be included, NAHB and stakeholders agree that it is important to move forward quickly 

on these consensus reforms. 

Section 8 Project Based Rental Assistance Program (PBRA) 

The Section 8 Project Based Rental Assistance Program (PBRA), which provides 

rental subsidies directly to property owners for specific properties, is at risk due to 

inadequate funding while costs are rising. The budget sequester that became effective on March 1, 2013, resulted in a cut of $470 million for the PBRA program in 

FY2013. HUD had to issue a letter to owners outlining its plans to manage the program due to the reduced funding, which included providing less than 12-months of 

funding to owners with expiring contracts. The shortfall becomes worse in FY2014 

when 15,900 contracts (1.1 million units) will be up for renewal. HUD acknowledges 

that all contracts will be have to be less than 12-month funding due to an anticipated shortfall of over $1 billion. 

The consequences of this funding uncertainty every year are many: property owners may stop participating in the program because of the uncertainty revolving 

around appropriations; property owners who continue may have to defer needed 

maintenance or reduce contributions to reserves, which means residents may lose 

good quality housing; lenders may be reluctant to provide financing for the rehabilitation of these properties because of the uncertain revenue stream. NAHB strongly 

supports adequate and predictable funding for the PBRA program. 

USDA Rural Housing Service (RHS) Multifamily Programs 

The USDA administers multifamily housing programs that help finance rental 

housing in rural areas. The Section 515 direct loan program provides long-term, low 

interest loans to nonprofit and for-profit developers to support the construction, acquisition and rehabilitation of multifamily housing for low- and moderate-income 

renters. The program has financed over 15,500 properties with 443,150 units, with 

the average property consisting of 28 units. The USDA’s Section 521 Rental Assistance (RA) program is project-based and provides rental subsidies to properties that 

were financed through USDA’s Section 515 multifamily direct loan program. The 

majority of residents living in these properties are elderly, and average annual incomes are below $11,000. 

Yet this valuable source of affordable rental housing for low-income rural families 

is in jeopardy of being lost. Section 515 funding has been cut drastically; the Section 

521 RA program is experiencing a shortfall of funds due to sequestration, causing 

some property owners to have to take drastic steps to find funds to cover the shortfall for FY2013. It is very possible another shortfall will occur in FY2014, absent 

Congressional action. Property owners will not be able to maintain their properties 

without the RA funds and may be forced at some point to exit the program. 

48 

NAHB believes it is critically important that Congress take action to provide the 

funding needed to preserve this important portfolio of rural rental housing and to 

ensure that residents will continue to have affordable, decent and safe housing. 

However, funding is not the only issue; legislative action is needed to authorize a 

viable preservation program for the portfolio, as well as to consider what steps need 

to be taken to ensure the RA program can be sustained over the long term. 

National Housing Trust Fund and Other Government Funding Programs 

Housing Trust Fund 

S.1217 includes provisions to fund the National Housing Trust Fund (HTF) and 

to make some modifications to its purpose and eligible uses. The HTF was first created by the Housing and Economic Recovery Act of 2008 (HERA) and was to be 

funded by the Enterprises. However, the Enterprises went into conservatorship 

shortly after passage of HERA, and the conservator determined it was not in the 

interests of safety and soundness to allow the Enterprises to transfer funds to the 

HTF. 

S.1217 imposes fees on single and multifamily securities accessing the Federal 

guarantee through the proposed Federal Mortgage Loan Corporation (FMIC), which 

would be transferred to the HTF. Eligible activities would include grants and loans 

that support sustainable home ownership and rental housing for households for a 

range of households. S.1271 also includes a provision to ensure rural areas get proportionate shares of money and that States give priority to nonentitlement areas 

(population less than 20,000). 

These provisions are consistent with NAHB’s position on the purposes and uses 

of a national housing trust fund. NAHB believes that the purposes of a HTF should 

be broadly defined to include allowing a significant spectrum of eligible activities 

and with income targeting requirements that allow grantees and grant recipients 

to meet the fullest range of critical housing needs. It is important that the funds 

also meet the needs in rural and underserved areas. Also, NAHB believes that the 

statutory and regulatory framework of the HFT must allow for the effective and efficient use of trust fund monies in conjunction with other Federal and State housing 

programs, particularly the HOME Investments Partnership Program and the Low 

Income Housing Tax Credit (LIHTC) program. 

Finally, NAHB strongly believes that eligible recipients must include both forprofit and nonprofit developers, and all recipients must be able to demonstrate that 

they have the necessary experience and capacity to carry out proposed projects. Adequate standards of experience and capacity for grant recipients should be required, 

along with results-focused allocation criteria, to ensure the best possible use of these 

valuable resources. 

Role of the Home Investment Partnerships Program and Community Development 

Block Grants 

NAHB has long supported the HOME Investment Partnerships Program and 

Community Development Block Grant (CDBG) programs. These two programs provide invaluable support to cities, counties, and rural areas in meeting their affordable housing and community development needs. The HOME program has been essential in providing gap financing for affordable rental housing financed with Low 

Income Housing Tax Credits, as well as for home ownership for first-time and lowincome homebuyers. CDGB funds may be used to provide needed infrastructure that 

supports housing, such as sidewalks and streets, but also community centers, day 

care centers, and other important community assets. 

Both programs have suffered deep budget cuts. NAHB has consistently supported 

adequate funding for both programs and has also supported reforms that would ensure the funds are spent efficiently and effectively. NAHB has also supported efforts 

to streamline the use of HOME funds with other Federal housing programs, especially those administered by State housing finance agencies (such as the LIHTC) 

and the USDA RHS. 

Low Income Housing Tax Credit Program 

The Low Income Housing Tax Credit (LIHTC) is the most successful affordable 

rental housing production program in U.S. history. It was created as part of the Tax 

Reform Act of 1986 as a more effective mechanism for producing affordable rental 

housing. Since its inception, the LIHTC has produced and financed more than two 

million affordable apartments. As LIHTC properties must generally remain affordable for 30 years, they provide long-term rent stability for low-income households 

around the country. 

However, the demand for affordable housing is acute and exceeds the availability 

of financing through the LIHTC program. According to the most recently available 

49 

7 ‘‘America’s Rental Housing: Meeting Challenges, Building on Opportunities’’, Joint Center 

for Housing Studies of Harvard University, 2011. P. 6. http://www.jchs.harvard.edu/publications/rental/rh11lamericaslrentallhousing/AmericasRentalHousing-2011.pdf 

annual survey released by the National Council of State Housing Agencies 

(NCSHA), State housing finance agencies generally receive $2 in requests for every 

$1 in LIHTCs available. At the same time, the supply of private, affordable housing 

stock is rapidly shrinking. Of the 6.2 million vacant or for-rent units with rents 

below $400 in 1999, 11.9 percent were demolished by 2009. Upward filtering to 

higher rent ranges, conversions to seasonal or nonresidential use, and temporary removals because of abandonment added to the losses. On net, more than 28 percent 

of the 1999 low-cost stock was lost by 2009. 7

NAHB strongly urges Congress to maintain this critical affordable rental housing 

program. 

Importance of a Reliable Supply of Affordable Acquisition, Development, 

and Construction Credit 

A significant factor in the availability and cost of home ownership and rental 

housing is the cost and availability of the credit required to produce such housing. 

This credit is referred to as land acquisition, development, and construction (AD&C) 

financing. Affordable housing needs cannot be met by solely through utilization of 

the existing housing stock. This is particularly true if affordability is defined to include the cost of operating a home. Builders of new housing are required to meet 

increasingly stringent energy efficiency standards, which make new homes considerably less expensive to live in than older existing units. Also, new home construction 

occurs to satisfy consumer demand driven by lifestyle and location preferences such 

as urban living, multigenerational homes, and fifty-plus communities. Therefore, 

significant levels of production of new homes will be needed to meet future housing 

needs in choices. 

Since the affordability of newly constructed homes is affected by the availability 

and cost of AD&C loans, it is important to ensure that this form of financing is 

available at reasonable rates and terms. The home building industry is predominantly made up of small businesses and, currently, these companies are having difficulty in obtaining AD&C loans. These home building companies have traditionally 

relied on community banks for AD&C loans, but those institutions have been under 

severe regulatory pressure to curb their AD&C lending and reduce the concentration 

of such loans in their portfolios. 

NAHB appreciates the efforts of Senator Robert Menendez (D-NJ) and Sen. Johnny Isakson (R-GA) for introducing The Home Building Lending Improvement Act of 

2013 (S.1002) that would address several of these regulatory barriers to sound construction lending. NAHB looks forward to working with this Committee to advance 

regulatory reform in this area. Going forward, it does not seem likely that community banks will again resume the levels of AD&C lending previously undertaken unless some form of secondary market outlet is created to allow these institutions to 

sell their AD&C output and obtain liquidity for additional lending. 

Conclusion 

NAHB thanks the Committee for the opportunity to submit its views on essential 

elements to provide affordable options for housing. Whether they rent or own, Americans want to choose where they live and the type of home that best meets their 

needs. Given the significant role that housing plays in the economy, we urge Congress to take a long-term, holistic approach to housing finance reform. NAHB also 

urges Congress to carefully consider the differences between the single family and 

multifamily market and not apply solutions to one piece of the market that are not 

appropriate for the other. NAHB thanks the Committee for its leadership on this 

important issue, and stands ready to work with you to achieve such reforms and 

provide much-needed stability for this critical sector of the economy. 

PREPARED STATEMENT OF SHEILA CROWLEY 

PRESIDENT AND CEO, NATIONAL LOW INCOME HOUSING COALITION

NOVEMBER 7, 2013 

Chairman Johnson, Ranking Member Crapo, and Members of the Committee, 

thank you for the opportunity to testify today on the issues of affordability in housing finance reform and in particular on the National Housing Trust Fund. 

I am Sheila Crowley, President of the National Low Income Housing Coalition 

(NLIHC). NLIHC is dedicated solely to achieving socially just public policy that 

50 

assures people with the lowest incomes in the United States have affordable and 

decent homes. 

Our members include nonprofit housing providers, homeless service providers, fair 

housing organizations, State and local housing coalitions, public housing agencies, 

private developers and property owners, housing researchers, local and State Government agencies, faith-based organizations, residents of public and assisted housing and their organizations, and concerned citizens. We do not represent any sector 

of the housing industry. Rather, NLIHC works only on behalf of and with low income people who need safe, decent, and affordable homes, especially those with the 

most serious housing problems, including people who are homeless. NLIHC is funded entirely with private contributions. 

We organize our work in service of three overarching goals for Federal housing 

policy: 

• There will be no further loss of federally assisted affordable housing units or 

Federal resources for affordable housing or access to housing by extremely low 

income people. 

• The Federal Government will increase its investment in housing in order to 

produce, rehabilitate, and/or subsidize at least 3,500,000 units of housing that 

are affordable and accessible to the lowest income households in the next 10 

years. 

• Housing stability in the neighborhood of one’s choice, which is foundational to 

good health, employment, educational achievement, and child well-being for 

people with the lowest incomes, will be the desired outcome of Federal low income housing programs. 

The Committee’s work on housing finance reform has largely focused on how 

home mortgage financing should be structured and what role the Federal Government should play. These are thorny, complex issues of great importance to the 

American economy and to all facets of the housing and lending industry. But the 

reason that the Federal Government should be and is involved in the housing finance system is to make sure that the U.S. housing sector works for all people in 

our country, not just for the most fortunate. 

I am here today to ask that you provide for the least fortunate in the legislation 

under consideration, people for whom the housing market does not work, people who 

cannot be reached through existing publicly funded low income housing programs 

because the need far exceeds the resources. Specifically, I ask that you protect and 

fund the National Housing Trust Fund in your bipartisan bill. 

Since 2000, NLIHC has led the National Housing Trust Fund campaign, a movement of more than 7,000 national, State, and local organizations located in every 

Congressional district. We celebrated when the National Housing Trust Fund was 

created in 2008 as part of the Housing and Economic Recovery Act (HERA). We are 

grateful to Senators Corker and Warner and the other cosponsors for including the 

Housing Trust Fund in S.1217, just as we are grateful to Senator Reed for his authorship of the Housing Trust Fund provisions in HERA and to Senators Shelby, 

Crapo, Corker, Johnson, Schumer, Menendez, Brown, Tester, and Warner for their 

support of the Housing Trust Fund as part of HERA in 2008. 

Each of us knows how important home is to us, to every aspect of our well-being. 

We only have to imagine what it would be like to be displaced even for a few days 

to realize how essential our homes are to our health and happiness. Imagine what 

it would be like to be without a home, or to be afraid you will lose your home, or 

to be consigned to a home that was cold or dangerous. Then imagine trying to care 

for your children under those circumstances. Imagine being a child growing up without a secure and safe home. 

There is a growing body of research that validates what we all tacitly understand: 

home matters to who we are, how we learn, how we feel, and how we perceive the 

world around us. I have a picture in my office of a 9-year-old child who, when asked 

what home means to her answers, ‘‘home is important as water and air.’’ 

If it is the business of this Congress to look out for the well-being of all your constituents, and I believe it is, then you are obligated to do everything within your 

power to make sure everyone in our country has a decent and affordable home in 

which to grow up, in which to raise a family, from which to go out from and return 

to each day, and in which to grow old with dignity. 

Why We Need a National Housing Trust Fund 

All housing markets are local, but there is one fact that is true in every community in the country. No community has a sufficient supply of decent rental homes 

that are affordable to extremely low income families, defined as having incomes at 

or below 30 percent of the area median. 

51 

1 Note: Housing and income data in SD may not reflect the total Native American population. 

2 Bravve, E., Bolton, M., and Crowley, S. (2013). ‘‘Out of Reach 2013’’. Washington, DC: National Low Income Housing Coalition. 3 Ibid. 

4 Cooper, E., O’Hara, A., Singer, N, and Zovistoski, A. (2013). ‘‘Priced out in 2012’’. Boston, 

MA: Technical Assistance Collaborative, Inc. 5 National Low Income Housing Coalition. (2013). ‘‘America’s Affordable Housing Shortage 

and How To End It’’. Housing Spotlight 3(2). Washington, DC: Author. 6 U.S. Department of Housing and Urban Development. (2013). ‘‘Worst Case Housing Needs 

2011: Report to Congress’’. Washington, DC: Author. 7 Joint Center for Housing Studies of Harvard University. (2013). ‘‘The State of the Nation’s 

Housing 2013’’. Cambridge, MA: Author. 8 Bipartisan Housing Commission. (2013). ‘‘Housing America’s Future: New Directions for National Policy’’. Washington, DC: Bipartisan Policy Center. 9Weicher, J. (2012). ‘‘Housing Policy at the Crossroads: The Why, How, and Who of Assistance Programs’’. Washington, DC: The AEI Press. 

Thirty-one percent of the households in South Dakota 1 are renters; the average 

renter in South Dakota has income of $20,176 a year. The annual household income 

needed to afford a modest two-bedroom rental home in South Dakota is $26,665. An 

extremely low income family in South Dakota has an annual income of $18,784 or 

less. 2

In Idaho, 29 percent of all households are renters and the average renter earns 

$21,902 a year. The minimum income needed to afford a modest two-bedroom rental 

is $27,593 a year, but extremely low income in Idaho is $16,932 or less. 3

Who has incomes that low? They are service workers—retail clerks, day care 

workers, home health care aides—the people on whom the rest of us depend to get 

our jobs done. They are waitresses, day laborers, farm workers, and office cleaners. 

They are people who are elderly or with disabilities, whose income is primarily Supplemental Security Income (SSI). The annual income of an SSI recipient in South 

Dakota is $8,556; in Idaho, it is $9,012. South Dakota and Idaho are among the 21 

States that supplement the Federal SSI level. 4

In 2011, there were 10.1 million extremely low-income renter households in the 

United States and only 5.5 million homes renting at prices they could can afford. 

This is the only income group for whom there is an absolute shortage of homes. 

Worse, many of the homes renting in the price range that an extremely low-income 

family could afford are in fact occupied by higher-income people. The real shortage 

for this income group is 7.1 million units. Nationwide, there are just 30 homes that 

are available and affordable for every 100 extremely low-income renter households. 5

The most important thing to know about the housing shortage for poor Americans 

is that it gets worse each time it is measured and the number has skyrocketed in 

the Great Recession. HUD reports that the number of households with worst case 

housing needs (households with incomes less than 50 percent of the area median 

and who pay more than half of their income for their homes) increased by 43 percent between 2007 and 2011. 6

These findings are confirmed by everyone who studies the housing gap. Other recent analyses that I recommend the Committee review are by the Joint Center on 

Housing Studies of Harvard, 7 the Bipartisan Housing Commission, 8 and former 

FHA Commissioner John Weicher. 9

These data tell the story of families in your communities who have to choose to 

pay for food or heat, coats or medicine, and often get behind on the rent anyway 

and lose their homes. Then they have to move in with someone else or end up sleeping in their cars. I just heard from a service provider in rural Michigan about families living in deer blinds. Next time you are home, ask a local principal how many 

homeless children are enrolled in his or her school. 

Homelessness is the most tragic manifestation of this housing shortage. In this 

very dangerous game of musical chairs, the people who are most likely to end up 

with no housing at all are those who are the poorest, the most vulnerable, those 

with the weakest support systems and the fewest coping skills. Although, we have 

made progress in reducing the number of veterans and people with chronic illnesses 

who are homeless, there has been an explosion in the number of homeless families 

with children in this recession. There are over 20,000 homeless children in New 

York City alone. Surely, we can do better than this. 

The people who conceived of and have advocated for the National Housing Trust 

Fund see its purpose as ending this shortage, closing this gap. We think this is a 

proper role for Government. This is a shortage of a good that is fundamental to 

human well-being; housing is not an optional expense. It is clear that the market 

will not fill this gap. The cost of building and operating rental housing simply exceeds what can be paid in rent by extremely low income households. 

52 

10To learn more about State and local housing trust fund, go to http:// 

housingtrustfundproject.org. 

You may and should ask why we need another low income housing program. 

What about all the HUD programs? What about the Low Income Housing Tax Credit? The answer is that there would be no need for the National Housing Trust Fund 

if the existing Federal programs were differently structured and sufficiently funded. 

However, no existing Federal housing program produces rental homes specifically 

targeted for extremely low income households, precisely the program that is most 

needed. 

More critical, the existing programs are grossly underfunded. HUD rent assistance programs only serve 25 percent of eligible households. While we have had periods of modest growth in HUD programs in the last 30 years, more typically, the 

programs have been held flat or reduced. All HUD low income housing programs 

are part of domestic discretionary spending and thus subject to sequestration. Given 

the incredible constraints on appropriations that show no sign of abating, it is inconceivable that existing HUD programs will ever be enough. We estimate that it would take $30 billion a year for 10 years to close the gap. 

That is why we need the National Housing Trust Fund. 

How the National Housing Trust Fund Will Work 

The primary purpose of the National Housing Trust Fund is to produce, preserve, 

rehabilitate, and operate rental homes that extremely low income households can 

afford. At least 90 percent of the funds must be used for rental housing and up to 

10 percent can be used for home ownership activities. At least 75 percent must be 

used for extremely low income households and up to 25 percent can be used for 

households with incomes between 30 percent and 50 percent of the area median 

(very low income). 

The National Housing Trust Fund is modeled after the over 600 housing trust 

funds created at the State and local level over the past 30 years, all of which help 

to supplement Federal funds for affordable housing. By 2013, 47 States and the District of Columbia had at least one State housing trust fund, for a total of 57 State 

housing trust funds. Five new trust funds have been established since 2011 in North 

Dakota, Virginia, Alabama, Colorado, and South Dakota. 

Housing trust funds are run by a Government agency guided with priorities and 

programs established in the enabling legislation. Most commonly, trust fund resources are used for new construction, rehabilitation, preservation of affordable 

housing, as well as land or property acquisition for affordable housing development. 

Some trust funds also focus on the development of housing for individuals with special needs, including permanent supportive housing. Other activities include providing matching funds for Federal programs, predevelopment loans, emergency rental assistance, weatherization, and downpayment assistance. Although income targeting varies, many trust funds target the lowest income households. 

Housing trust funds receive revenue from a wide range of sources, including general funds, but the preferred model is dedicated sources of revenue. For example, 

Nebraska has a documentary stamp tax, New Jersey has a realty transfer tax, and 

Ohio and Oregon have document recording fees. The most successful housing trust 

funds as those with robust dedicated revenue sources as they offer a predictable revenue stream. 

It is important to note that at their peak in 2011, the combined value of State 

and local housing trust funds was approximately $1 billion. 10 They have lost ground 

since then. It is not realistic to think that State and local housing trust funds, even 

combined with other State and locally funded low income housing assistance, can 

ever get to the scale needed to solve the housing shortage. 

The National Housing Trust Fund is structured as a block grant that is housed 

at HUD. Funds are to be distributed to the States and territories by a formula that 

is based on need, primarily need for rental homes affordable for extremely low income families. The funds will go to governors who will designate a State agency to 

administer the program. In most cases, we expect the National Housing Trust Fund 

to be run by State housing finance agencies that now administer the Low Income 

Housing Tax Credit program. 

The State has to design an allocation plan and create performance goals. States 

can choose to use their National Housing Trust Fund dollars to address specific 

goals, such as ending homelessness or providing community based housing for all 

people with disabilities. States could use some of their allocation to preserve existing low income housing. 

The State can use the funds to develop housing itself or can establish a grant 

making process to allocate the funds to subrecipients. The statute requires that a 

53 

subrecipient has experience relevant to the activity it proposes and demonstrates financial expertise and experience. 

The State is responsible for assuring that all funds are used properly and for assuring that any funds that are not properly used are reimbursed. HUD can reduce 

future grants to States that are not reimbursed for improperly used funds. 

Funds cannot be used for advocacy, lobbying, political activities, travel, counseling, or preparing of tax returns. The State can use up to 10 percent of its allocation to administer the program, but no funds can be used for outreach or other administrative activities by the State or subrecipients. 

HUD is required to recapture any funds that a State has not committed within 

2 years and reallocate the funds to other States. 

HUD has developed the regulations for implementation of the National Housing 

Trust Fund. They have been published for public comment, comments have been received, and final regulations are expected to be ready soon. 

How the National Housing Trust Fund Should Be Treated in Housing Finance Reform 

The National Housing Trust Fund has never been funded. It is intended to be 

funded with dedicated sources of revenue, such that it is not subject to the vicissitudes of the annual appropriations process and does not compete for funding with 

existing HUD low income housing programs. The initial source of funding provided 

for in HERA was an assessment on Fannie Mae and Freddie Mac. The statute also 

says that the National Housing Trust Fund can be funded by ‘‘any amounts as are 

or may be appropriated, transferred, or credited to such Housing Trust Fund under 

any other provisions of law.’’ 

As you well know, Fannie and Freddie were taken into conservatorship soon after 

HERA was enacted and the conservator suspended their obligation to fund the National Housing Trust Fund. That suspension continues to this day. Our analysis is 

that now that Fannie and Freddie are again profitable, this suspension should be 

lifted. Given the dire housing circumstances of so many poor Americans, it would 

be a godsend if the conservator agreed with us, but unfortunately he does not. 

As you develop your legislation on the next generation of Federal housing finance 

policy, please include the following provisions related to the National Housing Trust 

Fund. 

• Preserve the National Housing Trust Fund as enacted in HERA as a standalone program housed at HUD that provides grants to States for the core purpose of expanding rental housing that is affordable for extremely low income 

households. Do not change or add to its purposes or eligible activities unless 

doing so would strengthen this core purpose. This means the proposed Market 

Access Fund should be a separate program, not added to the Housing Trust 

Fund, as is done in S.1217. We also object to the segregation of the rental housing and home ownership activities in the National Housing Trust Fund as is 

the case in S.1217. 

• Preserve the principle established in HERA that the U.S. housing finance system, which benefits from its affiliation with the Federal Government such as 

the explicit Federal guarantee that you contemplate, should make financial contributions to support housing activities that address housing needs that the 

market will not, specifically those of the poorest households. 

• The financial contributions called for above should come from at least a 10 basis 

point annual user fee, i.e., a ‘‘strip,’’ assessed on all mortgage backed securities 

(MBS), not just guaranteed securities. This includes both single family and multifamily MBS. Further, we support an additional fee on multifamily MBS for 

properties with rents geared to households with incomes over 150 percent of the 

area median. 

• Maximize the amount of funding to the National Housing Trust Fund from 

these financial contributions, recognizing that even a 10 basis point annual user 

fee on all MBS would not generate sufficient funding to address the shortage 

of rental housing affordable for extremely low income households. Continue to 

provide for other funding to go to the National Housing Trust Fund in ‘‘any 

amounts as are or may be appropriated, transferred, or credited . . . under 

other provisions of law’’ as does HERA. 

• Maintain the National Housing Trust Fund as a permanent fund on the mandatory side of the budget. We strongly urge that the Banking Committee retain 

and, if necessary, strengthen its oversight duties and responsibilities for the National Housing Trust Fund. If the funds generated by the user fee called for 

above are made available for appropriations, there is no way to assure that all 

54 

(or any) of the funds would be used for the National Housing Trust Fund or 

even for low income housing. 

• Assure payments are made to the National Housing Trust Fund during the 

transition period from Fannie Mae and Freddie Mac to the successor entity and 

immediately upon establishment of the new housing finance system. 

Thank you for the opportunity to testify today. I look forward to your questions. 

PREPARED STATEMENT OF DOUGLAS HOLTZ-EAKIN 

PRESIDENT, AMERICAN ACTION FORUM

NOVEMBER 7, 2013 

Chairman Johnson, Ranking Member Crapo, and Members of the Committee, 

thank you for the opportunity to appear today. In this testimony, I wish to make 

three basic points: 

• The legislation being worked on by this Committee represents a necessary and 

long-overdue effort to address damaging weaknesses in the U.S. housing finance 

system. The status quo is unsustainable and undesirable. I applaud the Committee for moving forward; 

• While helping low-income households afford necessary shelter should be a policy 

priority, and such support should be appropriated by Congress and on the budget. Budgetary integrity requires that Congress balance the full range of policy 

priorities; and 

• The affordable housing goals imposed on the housing GSEs were flawed, and 

should not be repeated. 

The Need for Reform 

Housing finance was at the center of the 2008 financial crisis that visited substantial economic stress on Americans and spawned dramatic Government intervention. 

Yet, over 5 years later the central actors in the crisis and response—Fannie Mae, 

Freddie Mac, and the Federal Housing Administration (FHA)—remain essentially 

unchanged. While the task is politically daunting and mechanically difficult, I applaud the Committee’s desire to undertake these reforms. 

Fannie Mae and Freddie Mac 

Fannie Mae and Freddie Mac need to be wound down and closed as a matter of 

both policy and politics. From a policy perspective, the Government-sponsored enterprises were central elements of the 2008 crisis. First, they were part of the 

securitization process that lowered mortgage credit quality standards. Second, as 

large financial institutions whose failures risked contagion, they were massive and 

multidimensional cases of the too big to fail problem. Policy makers were unwilling 

to let them fail because financial institutions around the world bore significant 

counterparty risk to them through holdings of GSE debt, certain funding markets 

depended on the value of their debt, and ongoing mortgage market operation depended on their continued existence. They were by far the most expensive institutional failures to the taxpayer and are an ongoing cost. 

There is vigorous debate about how big a role these two firms played in 

securitization relative to ‘‘private label’’ securitizers. There is also vigorous debate 

about why these two firms got involved in this problem. In the end, this debate need 

not be fully resolved to recognize that while Fannie Mae and Freddie Mac did not 

by themselves cause the crisis, they contributed significantly in a number of ways. 

The mortgage securitization process turned mortgages into mortgage-backed securities through the Government-sponsored enterprises, as well as Countrywide and 

other ‘‘private-label’’ competitors. The securitization process allows capital to flow 

from investors to homebuyers. Without it, mortgage lending would be limited to 

banks and other portfolio lenders, supported by traditional funding sources such as 

deposits. Securitization allows homeowners access to enormous amounts of additional funding and thereby makes home ownership more affordable. It also can diversify housing risk among different types of lenders. If everything else is working 

properly, these are good things. Everything else was not working properly. 

There were several flaws in the securitization and collateralization process that 

made things worse. Fannie Mae and Freddie Mac, as well as Countrywide and other 

private label competitors, all lowered the credit quality standards of the mortgages 

they securitized. A mortgage-backed security was therefore ‘‘worse’’ during the crisis 

than in the preceding years because the underlying mortgages were generally of 

poorer quality. This turned a bad mortgage into a worse security. Mortgage originaVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00058 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
55 

1 American Action Forum, ‘‘AAF Releases New Poll of Public Attitudes on Fannie, Freddie 

Mac, and Housing Reform’’, (July 2013); http://americanactionforum.org/topic/aaf-releases-newpoll-public-attitudes-fannie-mae-freddie-mac-and-housing-reform. 

tors took advantage of these lower credit quality securitizations standards and the 

easy flow of credit to relax the underwriting discipline in the loans they issued. As 

long as they could resell a mortgage to the secondary market, they didn’t care about 

its quality. 

In addition to feeding poorly originated mortgages into the system, Fannie Mae 

and Freddie Mac proved to be so deeply interconnected with the broader financial 

system that policy makers were forced to step in to prevent their failure. In September 2008, the Federal Housing Finance Agency (FHFA) put Fannie Mae and 

Freddie Mac into conservatorship. Policy makers in effect promised that ‘‘the line 

would be drawn between debt and equity,’’ such that equity holders were wiped out 

but GSE debt would be worth 100 cents on the dollar. 

They made this decision because banking regulators (and others) treated Fannie 

and Freddie debt as equivalent to Treasuries. A bank cannot hold all of its assets 

in debt issued by General Electric or AT&T, but can hold it all in Fannie or Freddie 

debt. The same is true for many other investors in the United States and around 

the world—they assumed that GSE debt was perfectly safe and so they weighed it 

too heavily in their portfolios. Policy makers were convinced that this counterparty 

risk faced by many financial institutions meant that any write-down of GSE debt 

would trigger a chain of failures through the financial system. In addition, GSE debt 

was used as collateral in short-term lending markets, and by extension, their failure 

would have led to a sudden massive contraction of credit beyond what did occur. 

Finally, mortgage markets depended so heavily on the GSEs for securitization that 

policy makers concluded that their sudden failure would effectively halt the creation 

of new mortgages. All three reasons led policy makers to conclude that Fannie Mae 

and Freddie Mac were too interconnected with the system to be permitted to fail. 

As a matter of politics, Fannie Mae and Freddie Mac are extremely unpopular 

and the public supports winding them down. (This section draws on a poll commissioned by the American Action Forum. 1) The polling shows that a large majority 

of the voters have a ‘‘hard ID’’ of Fannie and Freddie. They are viewed favorably 

by only 20 percent and unfavorably by 52 percent. 

This is related to another finding, namely that 52 percent of the voters said that 

their greatest concern is either no accountability of banks and Wall Street or that 

Wall Street banks are so big that if they fail the taxpayers will have to bail them 

out again. By a small margin (11 percent) voters are still unfavorable toward the 

bank bailouts and TARP. Likely for this reason, a majority favor (52 percent) phasing out both Fannie and Freddie. 

Greater information sharpens these views. When informed that Fannie and 

Freddie played an instrumental role in the housing bubble and received nearly $200 

billion in a bailout, voters’ opposition to Fannie Mae and Freddie Mac moves to 59 

percent. Additionally, the notion that Fannie and Freddie could require more public 

money in future bailouts is unacceptable to a sizable majority of the voters. 

Using Housing Reform To Address Affordability 

As the Committee considers housing finance reform, the affordability of shelter 

naturally arises as a policy concern. How should this be addressed? First, the affordable housing goals of Fannie Mae and Freddie Mac were both unsuccessful and dangerous, and should not be repeated. The Housing Finance Reform and Taxpayer 

Protection Act (S.1217), being considered by this Committee, does not authorize 

HUD to set similar goals, but it does aim to preserve them in other ways. 

Affordable Housing Goals. Previously, HUD was the mission regulator of the 

GSEs, setting minimum percentage-of-business housing goals for mortgage purchases. The goals were set to support low-income lending and lending in underserved geographic regions. Specifically, the GSEs had three annual affordable housing goals: 

1. Low- and Moderate-Income Goal: targets borrowers with income no greater 

than area median income (AMI) 

2. Special Affordable Goal: targets very low-income borrowers (less than 60 percent of AMI) and low-income borrowers (less than 80 percent of AMI) living in 

low-income census tracts 

3. Geographically Targeted or Underserved Areas Goal: targets low-income and 

high-minority neighborhoods 

56 

2 Bunce, Harold L., Office of Policy Development and Research, U.S. Department of Housing 

and Urban Development, ‘‘Working Paper No. HF-018. The GSEs’ Funding of Affordable Loans: 

A 2004–2005 Update’’, (June 2007); http://www.huduser.org/portal/publications/pdf/ 

workpapr18.pdf. 3FHFA, ‘‘Mortgage Market Note 10-2—The Housing Goals of Fannie Mae and Freddie Mac 

in the Context of the Mortgage Market: 1996–2009,’’ (February 2010); http://www.fhfa.gov/ 

webfiles/15419/HousinglGoalsl1996–2009l02-01.pdf. 4 John C. Weicher, ‘‘The Affordable Housing Goals, Home Ownership and Risk: Some Lessons 

From Past Efforts To Regulate the GSEs’’, Conference on ‘‘The Past, Present, and Future of the 

GSEs’’, Federal Reserve Bank of St. Louis, (November 2010); http://research.stlouisfed.org/conferences/gse/Weicher.pdf. 5 National Low Income Housing Coalition, ‘‘National Housing Trust Fund’’; http://nlihc.org/ 

issues/nhtf. 

Overall, Freddie Mac consistently lagged the conventional market in funding the 

three groups targeted by HUD’s housing goals. Fannie Mae, while performing better 

than Freddie Mac, performed on average below market levels except over the 2001– 

03 period when it only lagged the market in funding underserved area loans.2 3 Yet 

despite failing to meet their goals, HUD added subgoals and consistently raised the 

purchase percentages of existing goals to ever-higher levels. 

Though inclusion of affordability goals did not singularly undermine the GSEs’ 

profitability or cause their demise, the goals complicated their mission, blurring 

public purpose and pursuit of private profits. More importantly, the goals were not 

successful. Evidence shows the other lenders were buying more loans that met the 

goals than the GSEs themselves. Furthermore, if the purpose of the goals was to 

provide shelter, it did not have to take the form of owner-occupied homes. If the 

goal was to promote home ownership, the GSEs failed by concentrating more on 

homebuyers with homes already (not first-time homebuyers) and on homeowners refinancing. 4

Funding the National Affordable Housing Trust Fund. Provisions under Title IV 

of the proposed legislation would replace the failed affordable housing goals of the 

GSEs with a user fee of 5–10 basis points on FMIC-insured securities to fund the 

Housing Trust and Capital Magnet Funds. Instituting that surcharge presents three 

main problems: 

• The cost of contributions may be passed on to mortgage borrowers, raising the 

cost of mortgage rates even further than the proposed legislation likely will already. That is, it works against the goal of affordable mortgage finance; 

• Fund advocates have an increased incentive to encourage the FMIC to grow beyond its chartered purpose; and 

• Revenues from the surcharge and the effectiveness of the ways they are spent 

will not be subject to the scrutiny and approval inherent in the budget and appropriations process. 

Advocates for a national affordable housing trust fund—e.g., the National Low Income Housing Coalition—have stated the importance of ‘‘[a] dedicated source of 

funding not subject to the annual appropriations process.’’ 5 Why? Despite the woes 

of the congressional budget process, it would fundamentally diminish the accountability of the Housing Trust and Capital Magnet Funds to which the fee is allocated 

if they stay outside of the regular appropriations process. A fundamental lack of 

transparency and accountability underscored the GSE model and continues to trouble the FHA. It would be a core policy error to make a similar mistake in the funding of these trusts included in the proposed legislation. 

Preserving Support for Small Institutions and Underserved Communities. Support 

for all geographic regions of the country, whether an underserved rural or urban 

community, has been a mainstay of bipartisan proposals for housing finance reform. 

Additionally, equal access to the secondary market for institutions of all sizes is important to widespread availability of affordable credit. 

S.1217 contains several provisions that aim to preserve support for small institutions and underserved communities. First, the legislation mandates in Title II that 

the FMIC ‘‘help ensure all geographic locations have access to mortgage credit.’’ The 

FMIC is also charged with facilitating securitization for credit unions and community and midsize banks. In developing products, structures, contracts, etc., the FMIC 

must take into account how their actions would affect small financial institutions, 

the availability of credit, and equitable access to secondary mortgage market financing for lenders of all sizes and locations including those in rural communities. The 

legislation also requires fee uniformity for institutions purchasing insurance from 

the FMIC regardless of location or size of the institution. Finally, if concerns exist 

about the viability of those aforementioned duties, those concerns must be submitted in a report to Congress. 

57 

6 Neil Bhutta and Glenn B. Canner, Division of Research and Statistics, Federal Reserve, 

‘‘Mortgage Market Conditions and Borrower Outcomes: Evidence From 2012 HMDA Data and 

Matched HDMA-Credit Record Data’’, (September 2013); http://www.federalreserve.gov/pubs/ 

bulletin/2013/pdf/2012lHMDA.pdf. 7Douglas Holtz-Eakin, Cameron Smith and Andrew Winkler, ‘‘Regulatory Reform and Housing Finance: Putting the ‘Cost’ Back in Benefit-Cost’’, (October 2012); http:// 

americanactionforum.org/sites/default/files/RegulationlandlHousing.pdf. 8 National Association of Realtors, ‘‘Recent Lessons for the QRM’’, (December 2011); http:// 

economistsoutlook.blog.realtor.org/2011/12/08/recent-lessons-for-the-qrm/. 9Mark Zandi and Cristian deRitis, ‘‘Evaluating Corker-Warner’’, (July 2013); http:// 

www.economy.com/mark-zandi/documents/2013-07-08-Evaluating-Corker-Warner.pdf. 

Reforming the FHA. Housing finance reform, whether S.1217 or another piece of 

legislation, should consider undertaking needed reforms to FHA. While the GSEs 

supported affordable housing through goals sets by HUD, those goals worked to undermine the housing finance system. Following the housing bust and entry of the 

GSEs into conservatorship, significant market share shifted to FHA, causing unprecedented financial losses for the agency. 

Some of the potential reforms—for example, as embodied in the PATH Act—would 

narrow FHA’s mission to support only low-income and first-time homebuyers. With 

a mix of income-based borrower requirements and revised loan limits, the FHA 

would more adequately address a demonstrated need among low-income communities and first-time homebuyers while also enhancing the role of the private market. Addressing FHA in conjunction with the wind down of the GSEs is preferable 

because of how easily misaligned prices, limits, and standards can shift market 

share between Government-backed programs. S.1376, the FHA Solvency Act of 

2013, considered by this Committee, does not include similar income-based borrower 

requirements, fundamental changes to the administration of FHA, fair-value and 

GAAP accounting requirements, or tightened loan limits present in the House legislation. 

The Dodd-Frank Act and Affordability. Housing finance reform must also take 

into account how Dodd-Frank regulations deeply affect affordability. Eligible mortgages under the S.1217 are limited to qualified mortgages (QM) as defined by regulators. A recent analysis of Home Mortgage Disclosure Act (HMDA) data by economists at the Federal Reserve found that 22 percent of borrowers in 2010 had debtto-income ratios above the 43 percent standard set by the QM rule. 6 Seventy percent of borrowers above that threshold had FHA, VA, or RHS insured loans. Those 

borrowers with debt-to-income ratios above 43 percent were also most likely to be 

lower-income, black, or Hispanic-white. This exemplifies just how easily regulations 

enacted from the Dodd-Frank Act can severely can impact affordability among 

lower-income communities and communities of color. Under the new regulatory regime, it will be either costly or impossible for private capital to back high LTV or 

non-QRM lending to fill the Government’s role. 

AAF previously estimated that the bottom line effects of proposed Dodd-Frank 

and Basel III regulations may include 20 percent fewer loans, resulting in 600,000 

fewer home sales. In turn, the resulting tightened lending and reduced sales were 

estimated to cost up to 1,010,000 housing starts, 3.9 million fewer jobs, and a loss 

of 1.1 percentage points from GDP growth over the next 3 years. 7 While some of 

those regulations have been revised, the reality of tightened credit and its potential 

effect on the economy remain largely the same. 

Another study by the National Association of Realtors estimated that Dodd-Frank 

regulations could raise mortgage rates by 75–125 bps for non-QRM, high LTV borrowers and Basel III could raise rates by 80 bps. 8 These estimates of the effect regulations have on mortgage rates are equivalent or higher than the effect economist 

Mark Zandi estimated S.1217 would have on mortgage rates. 9 To not take into account how Dodd-Frank regulations affect affordability in a future system would be 

a mistake. 

Redundant Government Support for Affordable Housing 

The Federal Government provides multiple avenues of support for the construction of affordable housing and assistance for low-income renters and homebuyers. 

While the success of these programs can be debated, support exists and does so in 

many forms; primarily the Federal Government provides appropriated funding 

through more than 30 programs within the Department of Housing and Urban Development (HUD), tax credits and deductions for both corporations and individuals, 

housing programs for veterans through the Department of Veterans’ Affairs (VA), 

rural housing programs through the Department of Agriculture (USDA), the mortgage insurance programs of the Federal Housing Administration (FHA), and Government corporation Ginnie Mae. In attempting to overhaul the housing finance sysVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00061 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
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10Government Accountability Office, ‘‘Housing Assistance: Opportunities Exist To Increase 

Collaboration and Consider Consolidation’’, (August 2012); http://gao.gov/assets/600/ 

593752.pdf. 

tem, it would be wise to address the issue of affordability through the reform or increased support of existing programs and not through legislation addressing the mechanics of the Government’s role in the secondary market. 

Last year the Government Accountability Office (GAO) concluded that the Federal 

Government ‘‘incurred about $170 billion in obligations for Federal assistance and 

estimated forgone tax revenue in fiscal year 2010.’’ 10 The GAO found housing assistance fragmented across 160 programs and activities. Table 1, which does not include any tax expenditures, provides an example of the number of programs that 

exist across agencies. (Note: housing programs are not limited to those in Table 1.) 

According to the Joint Committee on Taxation, tax expenditures subsidizing housing, for individuals and corporations, will cost the Federal Government $868 billion 

in foregone taxes from 2012 to 2017 (see Table 1). While many of these credits, deductions, and exemptions favor owner-occupied housing over rental housing, that 

problem can and should be addressed through tax reform. 

The redundancy of Federal support of housing calls into question the efficiency 

and effectiveness of Government efforts to assist low-income renters and homebuyers and maintain affordability. Tackling affordability requires both a dedication 

to greater job and wage growth, as well as a renewed look at what improvements 

can be made to existing Federal housing programs. 

The effects of reform legislation on affordability will ultimately depend on the system put in place; whether the new system has many players, maintains the flow 

of mortgage credit and protects taxpayers from liabilities is more important than 

any fund or single program. The most important components of housing finance reform are the mechanics of a new system and how to transition to it. 

Thank you. I look forward to answering your questions. 

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61 

1 Center for Housing Policy, ‘‘Housing Landscape 2013’’, May 2013, available at http:// 

www.nhc.org/media/files/Landscape2013.pdf. 2 Harvard Joint Center for Housing Studies, ‘‘State of the Nation’s Housing 2013’’, p. 5, available at: http://www.jchs.harvard.edu/research/statelnationslhousing. 

PREPARED STATEMENT OF ETHAN HANDELMAN 

VICE PRESIDENT FOR POLICY AND ADVOCACY, NATIONAL HOUSING CONFERENCE

NOVEMBER 7, 2013 

My name is Ethan Handelman, and I am the Vice President for Policy and Advocacy at the National Housing Conference. I am grateful to the Committee for inviting me to testify, and I particularly thank the Chair, the Ranking Member, and the 

many other Committee Members who are working on housing finance reform in a 

constructive, bipartisan manner. 

I appreciate your choice of ‘‘affordable options for housing’’ in the title of this hearing, as that should be a central goal of housing finance reform. The work of rebuilding the mortgage finance system cannot be only about making markets function— 

it must be about shelter. As the Federal Government creates new mechanisms for 

housing finance, deploys its full faith and credit, and encourages private entities to 

put capital to work, the social purpose of safe, decent, and affordable housing for 

all in America must guide those efforts. The new housing finance system you are 

working hard to create must find ways to harness the creativity and energy of the 

private sector to provide homes for people across this country: in cities, suburbs, and 

rural areas; in houses, apartments, and manufactured homes; for old and young, 

renters and owners, singles and families, of all backgrounds. To accomplish that, the 

housing finance system must by design serve as broadly as possible, and there must 

be mechanisms to fill in the remaining gaps. 

About the National Housing Conference 

The National Housing Conference (NHC) represents a diverse membership of 

housing stakeholders including tenant advocates, mortgage bankers, nonprofit and 

for-profit home builders, property managers, policy practitioners, realtors, equity investors, and more, all of whom share a commitment to safe, decent, and affordable 

housing for all in America. We are the Nation’s oldest housing advocacy organization, dedicated to the affordable housing mission since our founding in 1931. As a 

nonpartisan, 501(c)3 nonprofit, we are an evidenced-based research and education 

resource working to advance housing policy at all levels of Government in order to 

improve housing outcomes for all in this country. 

The Large and Growing Need for Affordable Housing 

The reform of our Nation’s housing finance system occurs in the context of a long 

trend of increasing housing need. For both homeowners and renters, the cost of 

housing outpaces income, often creating a severe burden. The annual Housing Landscape publication from NHC’s Center for Housing Policy documents the prevalence 

of severe housing cost burdens, meaning housing costs in excess of 50 percent of income, for working households. More than one in four working renter households 

(26.4 percent) spent more than half of their income on housing costs in 2011, an 

increase of more than three percentage points since 2008. Despite falling mortgage 

interest rates and home prices—a period when housing affordability for owners 

should have improved—rates of severe housing cost burden remained stable and 

high for working owners between 2008 and 2011. Roughly one in five working owners experienced a severe housing cost burden during this period. 1

If we look beyond the subset of working households to all housing need, the picture is even worse. In 2011, over 40 million households in this country were paying 

more than 30 percent of their income for housing, and 20.6 million were paying 

more than 50 percent. Recent increases in cost burdens have been primarily among 

renters, with those of lowest income hit hardest. Yet, only one in four households 

eligible for housing assistance actually receives it. 2

Looking to the future, we should expect the aging of the population and an Echo 

Boom with an increase in minority households to drive much housing need. Aging 

households will increase demand for modification of existing homes, smaller homes 

with supportive services, and better access to transportation. Rental housing demand will rise, driven by the more mobile Echo Boom and a larger proportion of 

minority and low-wealth household. Demand for starter homes and the need of lowwealth households for affordable home mortgages without overly restrictive downVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00065 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
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3 ‘‘State of the Nation’s Housing’’, p. 16. Also, Bipartisan Policy Center Housing Commission, 

‘‘Demographic Challenges and Opportunities for U.S. Housing Markets’’, March 2012, available 

at http://bipartisanpolicy.org/sites/default/files/BPC%20Housing%20Demography.pdf. 

4 ‘‘Plan B, a Comprehensive Approach To Moving Housing, Households, and the Economy Forward’’; April 4, 2011, by Lewis Ranieri, Ken Rosen, Andrea Lepcio, and Buck Collins. Figure 

14 shows that minority households in 2007 had median before tax family income of about 

payment requirements will directly affect households’ ability to achieve home ownership. 3

Serving Housing Needs by Encouraging Private Enterprise 

The urgency of mortgage finance reform stems both from the growing housing 

needs of Americans and the need to restore a reliable source of mortgage capital 

in the wake of the 2008 financial crisis. We are still operating with what was 

thought to be a temporary conservatorship for Fannie Mae and Freddie Mac (the 

Government Sponsored Enterprises, or GSEs). Overall, the Federal Government 

continues to guarantee over 85 percent of new mortgages. Private capital has yet 

to return to sustainable precrisis levels. Finance for multifamily housing has fared 

somewhat better thanks in large part to the GSE’s multifamily operations, but overall production of multifamily housing has only just returned to historically stable 

levels, leaving 5 years of pent-up demand to make up. 

Mortgage finance reform must address both reliable capital flows and household 

need. A strong Government presence in the secondary mortgage market can create 

the necessary stability and liquidity for private enterprise to provide home mortgages and finance rental housing effectively—in other words, to make the market 

function well. But we know that private enterprise does not serve all parts of the 

market well. Many rural areas, lower-income households, small rental properties, 

manufactured housing properties, subsidized rental housing, communities of color, 

and neighborhoods hit hard by waves of foreclosure lack adequate capital. Government’s action must be about more than just market functioning. It should aim to 

unleash the energy of private enterprise to serve the shelter needs of all in America. 

Enabling Long-Term Financing With a Federal Guarantee 

The critical first part must be a Federal guarantee that is explicit, paid-for, and 

protected by layers of risk-bearing capital. The guarantee should be limited to securities, separate from the issuing entities or their debt. Absent that guarantee, there 

simply would not be enough private capital to make 30-year fixed-rate mortgages 

widely available. Nor would the To Be Announced (TBA) market function, which 

would make mortgages more expensive and deprive homeowners of the ability to 

lock an interest rate before closing. 

The Federal Housing Administration (FHA), the U.S. Department of Agriculture 

(USDA), and Veterans Affairs (VA), are essential and at times play a critical countercyclical role, but they should remain focused on specific populations such as veterans, first-time homebuyers, and low-wealth households. We cannot rely on them 

to be the sole source for affordable, long-term mortgages. 

Rather, we need to allow multiple, proven capital channels to serve housing 

needs. Ensuring a mechanism by which housing finance agencies, credit unions, 

community banks, and other smaller lenders have access to securitization on an equitable footing would provide additional means to finance affordable home loans and 

finance affordable rental housing. 

Safe and Sustainable Low-Downpayment Lending 

Downpayment has an intuitive appeal from a regulatory standpoint, since it is a 

simple, bright line with a correlation to default rate. However, it is only one factor 

among many in a full underwriting analysis, and on its own is neither a necessary 

nor sufficient condition for a good loan. Using downpayment as a minimum threshold, moreover, powerfully disadvantages responsible low- and moderate-income 

homebuyers. Eliminating the overly rigid 5-percent downpayment requirement currently in S.1217 is an important step toward broadening access to the most efficient 

source of mortgage capital. 

A high downpayment threshold creates a powerful barrier to home ownership for 

low-wealth families, one that is uniquely difficult to overcome. A family can improve 

its credit performance over time or pay down nonmortgage debt, but saving up 

$20,000 or $40,000 (even more in high-cost markets) for a downpayment can take 

decades. Making the accumulation of wealth a requirement for access to affordable 

mortgage finance in effect excludes Americans who do not already have individual 

or family wealth. Not only is that fundamentally unfair, but it also skews disproportionately against communities of color. 4

63 

$37,000, compared to about $52,000 for white families. Similarly, Figure 15 shows minority family net worth in 2007 of almost $30,000, compared to more than $170,000 for white families. 5Lei Ding, Roberto G. Quercia, Wei Li, Janneke Ratcliffe, ‘‘Risky Borrowers or Risky Mortgages: Disaggregating Effects Using Property Score Models’’, Center for Community Capital 

Working Paper, May 17, 2010. Available at http://www.ccc.unc.edu/documents/ 

Risky.Disaggreg.5.17.10.pdf. 6The survey is available at http://www.mortgagebankers.org/NewsandMedia/PressCenter/ 

75706.htm. 7 Urban Institute. ‘‘Balancing Affordability and Opportunity: An Evaluation of Affordable 

Home Ownership Programs With Long-Term Affordability Controls’’, October 26, 2010. 8 ‘‘State of the Nation’s Housing 2013’’, p. 22. 

We know that well-structured, low-downpayment loans to responsible borrowers 

perform well. The best data on this come from the Center on Community Capital, 

which found that properly structured, low-downpayment loans performed 3.5 to 3.99 

times better than subprime loans to comparable borrowers, even during the height 

of the foreclosure crisis. 5 The well-structured low-downpayment loans perform with 

comparable stability to prime loans. Data illustrate the converse, too: in the fourth 

quarter of 2010, the percent of prime fixed rate loans in foreclosure was 2.67 percent, the highest level in the history of the Mortgage Bankers Association National 

Delinquency Survey. The rate for prime adjustable rate loans was a whopping 10.22 

percent. 6 These data underscore that the housing crisis resulted from inherently 

risky mortgage features—exploding ARMs, no-doc loans, negative amortization— 

rather than loans with low downpayments. 

We further know that downpayment assistance programs provided by localities 

and approved nonprofits generate low-risk loans. Indeed, buyers with assistance 

from affordable home ownership programs have default rates well below local market averages, even with very low or no downpayment from the buyer’s own funds. 7

Home ownership assistance programs use public resources efficiently to create longterm affordable housing, often making the loans safer than some unassisted transactions. 

Serving All Qualified Borrowers 

Discussions of how to get the mortgage finance system to serve all qualified borrowers often bog down in circular questions of whether the primary or secondary 

market should lead. The primary market lenders originate loans and so are the first 

gatekeepers of access to credit. However, their ability to lend is constrained by the 

liquidity supplied by the secondary market. Without a capital supply, the primary 

market cannot originate large volumes of loans. The secondary market, in contrast, 

focuses on efficiency, using high volumes of homogeneous loans to achieve economies 

of scale and attract capital. Packaging easily standardized, lower-risk loans into securities has great benefits, but the business is necessarily constrained to work with 

the loans that the primary market originates. It therefore becomes difficult for either the primary market or the secondary market to cause the other to broaden its 

parameters for what loans to provide, since neither can act without the support of 

the other. 

Government is uniquely placed to align the primary and secondary markets to 

serve as broadly as possible. A rebuilt housing finance system should include a 

strong regulatory agency with the necessary powers to supervise the market. The 

regulator could implement a requirement that secondary market participants who 

benefit from the stability, transparency, and liquidity created by the housing finance 

system serve the entire primary market. To the extent that the primary market is 

serving low-income areas, rural areas, communities of color, small rental properties, 

subsidized rental housing, manufactured housing, and other underserved market 

segments, the secondary market should also. 

The Housing and Economic Recovery Act of 2008 (HERA) created a framework for 

measuring the secondary market’s performance and evaluating it against the primary market. Home Mortgage Disclosure Act data provide a useful metric, among 

others. Similar mechanisms could be incorporated into the new legislation the Committee is developing, for both single family and multifamily, provided there is a 

strong regulatory agency with the ability to gather market information and supervise participants. 

Financing Affordable Multifamily Housing 

Renters make up more than one third of the country, and their median income 

is approximately half that of owners. 8 Demand for rental housing is increasing, and 

multifamily properties are an important component of meeting that demand. EnsurVerDate Nov 24 2008 09:31 Oct 20, 2014 Jkt 046629 PO 00000 Frm 00067 Fmt 6621 Sfmt 6621 L:\HEARINGS 2013\11-07 ZDISTILL\110713.TXT JASON
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9Data compiled by the National Housing Trust from public sources including Fannie Mae and 

Freddie Mac quarterly statements and the 2012 FHFA Report to Congress. 10Life companies offer some long-term debt, but they are a very small slice of the market 

and focus on only pristine, A-class properties. 11Freddie Mac, ‘‘Report to the Federal Housing Finance Agency: Housing Finance Reform in 

the Multifamily Mortgage Market’’, December 2012, p. 13. 

ing a steady supply of capital to multifamily housing, therefore, is a necessary part 

of ensuring that Americans can afford a range of housing options. 

The Fannie Mae and Freddie Mac multifamily businesses are critical capital 

sources with a proven track record for the creation and preservation of affordable 

rental housing. The majority of Fannie Mae and Freddie Mac’s multifamily business 

finances rental homes for families of modest means. In 2012, over 68 percent of 

units financed by Freddie Mac were affordable to households earning less than 80 

percent of area median income (AMI), and 14 percent were affordable to those earning less than 50 percent of AMI. Fannie Mae’s performance is comparable: 67 percent of the units financed in 2012 were affordable to households at 80 percent of 

AMI and 19 percent were affordable to those earning less than 50 percent of AMI. 9

Production of so much affordable housing is in part due to the specialized products that Fannie Mae and Freddie Mac provide. They are able to provide longerterm debt than pension funds, banks, or conduit lenders typically offer. 10 Having 

stable debt service costs is often essential to regulated affordable housing properties 

that must pledge long-term use restrictions, and it also critical to allowing properties to maintain lower rents even without a formal use restriction. Fannie Mae 

and Freddie Mac have also forged relationships with State housing finance agencies, 

community development financial institutions, and others financing affordable housing in ways that private capital sources simply will not fill in. A specific example 

is the advance commitments for permanent take-outs of bond-financed properties 

without which many bond-financed affordable housing properties could not come 

about. 

The Fannie Mae and Freddie Mac multifamily businesses are proven and profitable, and they remained so even during the crisis. Both businesses have delinquency 

rates consistently under 1 percent, compared to 12.15 percent delinquency for commercial mortgage backed securities (CMBS) in 2010 and 9.65 percent for CMBS in 

2012. 11

We recommend separating the multifamily businesses now, while still in conservatorship, to prepare for eventually privately capitalizing them as issuers of 

FMIC-insured multifamily mortgage-backed securities (MBS). FMIC should have a 

separate Office of Multifamily Finance to oversee the spun-off issuers as well as new 

issuers who are able to meet the same criteria for participation. All issuers of insured multifamily MBS should be obligated to meet a minimum affordability threshold at a portfolio level. More detail on our specific recommendations for improving 

treatment of multifamily appears in the proposal developed through the Mortgage 

Finance Working Group, presented in Attachment 1. Principles developed by NHC 

to guide mortgage finance reform for multifamily are presented in Attachment 2. 

Filling in the Market’s Gaps 

The secondary mortgage market, despite its great efficiency, does not serve all 

those who need housing equally well. We therefore need specialized tools to fill in 

the gaps that are left. As currently proposed, S.1217 includes a small fee on MBS 

to fund three complementary mechanisms for improving access and affordability: 

• The National Housing Trust Fund (NHTF) directly serves the needs of extremely low-income renters using a combination of capital subsidy to create affordable rental homes and rental subsidy to enable those homes to serve extremely low-income households. Enacted in the Housing and Economic Recovery 

Act of 2008 (HERA), it still requires funding to begin allocating funds to the 

States for deployment. HUD is a natural fit to implement the NHTF, given its 

expertise in allocation of block grants and understanding of property finance 

and rental subsidy. 

• The Capital Magnet Fund (CMF) supports financing for the preservation, rehabilitation, or purchase of affordable housing for low-income communities and 

community service facilities such as day care centers, workforce development 

centers, and health care clinics. It leverages other funds 10 to 1, and proved 

extremely effective in its first (and only) round of funding. CMF, also enacted 

in HERA, is capably managed by the Treasury’s CDFI Fund and should continue there. 

65 

12This section relies heavily on material produced by the Housing Partnership Network and 

the Opportunity Finance Network. 

• The Market Access Fund (MAF) should be created to provide a way for Government to share the risk of new product development and piloting, to help private 

enterprises develop more effective ways to direct capital to underserved households and communities. Through competitive research and development grants 

and temporary credit enhancement, MAF would seek to enable the private sector to more efficiently address unmet housing need. MAF would be best administered by FMIC, which would have the necessary expertise and contact with 

secondary and primary market financing to evaluate product proposals and 

oversee credit enhancement. 

To enable each of these complementary mechanisms, we therefore support the creation and funding of a multipurpose fund that builds on Title IV of S.1217 so that 

the new housing finance system can better serve a range of housing needs. We recommend assessing all mortgage backed securities (not just guaranteed securities) a 

10 basis point annual user fee (i.e., a ‘‘strip’’) that would be used to support the 

Market Access Fund, the National Housing Trust Fund, and the Capital Magnet 

Fund. We strongly suggest that percentage allocations to the three funds provided 

in Title IV be reconsidered to assure that the allocations more closely reflect the 

needs that each fund addresses. 

All MBS, not just those with a guarantee, should pay the small fee to support 

these programs, for several reasons. Firstly, the entire market benefits from the stability and liquidity that the Government creates through its guarantee and regulation. The jumbo market, for instance, benchmarks to the conventional guaranteed 

market and is modeled on processes developed by Fannie Mae and Freddie Mac. 

Secondly, having a fee on just the guaranteed market would distort incentives, unnecessarily steering securitization away from the Government-backed channel and 

as a result requiring a higher fee. Thirdly, creating opportunities for wealth-building, stable rental housing, and stronger neighborhoods helps ensure more future 

homebuyers to keep the system running. 

Others on the panel have already addressed the NHTF, but additional information on the CMF and the MAF may be helpful. 

Capital Magnet Fund 

The Capital Magnet Fund was created in HERA to supply capital to community 

development financial institutions (CDFIs) and nonprofit housing developers to finance affordable housing and related community development activities. 12 The CMF 

uniquely combines several features to empower nonprofits efficiently: 

• Competitive allocation encourages efficiency by applicants and, if iterated in 

successive funding rounds, should lead to increasingly effective uses. 

• A leverage requirement of 10:1 requires that grantees raise additional private 

capital to stretch Government dollars further. Indeed, many grantees in the initial round report higher than required leverage ratios. 

• Enterprise-level capital grants helps high-capacity nonprofits increase their 

scale and magnify their impact. For instance, grant funds deployed as loans can 

often be recycled as loans are paid off. 

• Accountability for performance, monitored by the Treasury Department’s CDFI 

Fund, ensures that program dollars are used well. 

A few examples of CMF awards demonstrate the range and effectiveness of the 

program. Volunteers of America National Services used a CMF soft loan to fill the 

capital gap for Trailside Heights Apartments in Anchorage, Alaska, providing 446 

affordable townhomes for families. Habitat for Humanity International used a CMF 

grant to create a loan fund to help finance affordable homes in California, Florida, 

and Tennessee. The Low Income Investment Fund used CMF dollars as credit enhancement for land acquisition funds to create 146 affordable apartments for seniors. 

Although the CMF was created in HERA, it was never funded by the intended 

fee on the GSEs. It did, however, receive a single appropriation of $80 million in 

2010 (far below the originally intended funding level). That single initial allocation 

round received $1 billion in applications from 230 organizations, of which nearly 

half scored into a highly qualified pool. That level of demand and application quality 

strongly suggests that the CMF could allocate far more funds to great effect, particularly as the competitive dynamic encourages the applicant pool to grow and improve. 

66 

13This section relies heavily on material produced by the Center for American Progress 

(CAP). The Market Access Fund concept was developed by the CAP’s Mortgage Finance Working 

Group, in which NHC participates. 

Market Access Fund 

The Market Access Fund (MAF), if created, would enable participants in the new 

housing finance system such as lenders, issuers, and guarantors to safely and 

sustainably serve the broadest possible range of creditworthy borrowers and underserved markets. 13 The MAF would accomplish this goal through competitively 

awarded grants and temporary credit enhancements that help the private sector 

find ways to better reach the underserved. Its resources would support a combination of product research and development and testing at a scale sufficient to enable 

commercial evaluation of new products and processes. In other words, the MAF 

breaks through the common impasse in which private businesses underserve potentially profitable creditworthy borrowers because it is challenging to invest in specialized systems and products. With the MAF sharing the cost of that initial investment, we can identify ways to serve more housing needs in profitable ways. 

Some examples help illustrate areas where the MAF could support useful innovation: 

• Energy efficiency and underwriting: Household energy costs in this country are 

about $230 billion annually and make up 15 percent of the total cost of home 

ownership for average families—even more for lower-income families. Research 

has found a clear association between home energy efficiency and loan performance, but more research is needed to quantify that link and incorporate it into 

the mortgage qualification process. Lenders in markets with high energy costs 

could test using energy savings to adjust their loan underwriting, supported by 

the MAF. 

• Reserve funds and home ownership success: To make a downpayment and pay 

closing costs, low-wealth households often use the bulk of their savings to acquire a home. However, new homeowners with additional liquid reserves have 

lower default rates. Lenders could experiment with requiring smaller 

downpayments from borrowers but instead having them contribute to a dedicated reserve fund; this way, they could see if participating borrowers experience lower default rates than similar borrowers who make somewhat higher 

downpayments but have fewer reserves. 

• Affordable housing preservation: Owners of affordable rental properties sometimes need to refinance their loans, but often find it difficult to do so at terms 

that will enable them to keep rents within reach. As a result, affordable units 

disappear from the market, yet replacing them is less efficient and more expensive than preserving them. One way to fix this problem is to make financing 

for affordable housing preservation available on better terms, but experiments 

in doing so will need to be proven before they will become broadly acceptable. 

MAF resources could help lenders experiment with new ways to serve this market. 

Not every experiment will work, nor should we expect them all to. MAF funding 

will be by nature temporary, so that successful experiments can find a home in the 

private sector or with specialized lenders and failed experiments can end. Putting 

the MAF in the hands of an agency with direct understanding of primary and secondary mortgage markets is essential, so that it can measure results accurately and 

evaluate success or failure. In the framework of S.1217, the FMIC is the logical fit. 

The MAF is essential to supplement the housing finance system, but on its own, 

it cannot fill the overall need for the mortgage market to provide broad access and 

affordability. It is rather a way to discover and test new tools to better fulfill the 

goals of access and affordability. 

Addressing Housing Need Early To Avoid Emergency Fixes 

A large body of research documents the benefits of investments in affordable housing—from transitional housing for homeless individuals and families to rental housing complemented by case management and supportive services to programs supporting affordable home ownership for low- and moderate-income households. Investments in housing early can result in future economic benefits and cost savings. 

Myriad studies document the benefits of stable and affordable housing to individual and family well-being, including health, educational opportunities, increased 

income, and wealth building. Stable, affordable housing helps children’s school performance and health, improving outcomes for them and for society. Recent research 

from Children’s Health Watch demonstrated that children living in overcrowded 

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14 Children’s Health Watch. 2012. ‘‘Stable, Affordable Housing Supports Young Children’s 

Health in Philadelphia’’. http://www.childrenshealthwatch.org/upload/resource/ 

12l05lPAhousingbrief.pdf accessed 11/4/2013. 15 Brennan, Maya. 2011. ‘‘The Impacts of Affordable Housing on Education: A Research Summary’’. Washington DC: Center for Housing Policy. http://www.nhc.org/media/files/InsightslHousingAndEducationBrief.pdf. Maya Brennan and Jeffrey Lubell. 2007. ‘‘Framing the 

Issues—The Positive Impacts of Affordable Housing on Education’’. Washington DC: Center for 

Housing Policy. http://www.nhc.org/media/documents/FramingIssueslEducation1.pdf. 16 Hernandez, Javier C. 2009. ‘‘Study Cites Dire Economic Impacts of Poor Schools’’. New York 

Times. http://www.nytimes.com/2009/04/23/nyregion/23klein.html?lr=0 accessed 11/4/2013. 17Kushel, M.B., Perry, S., Bangsberg, D., Clark, R., and Moss, A.R. (2002). ‘‘Emergency Department Use Among the Homeless and Marginally Housed: Results From a Community-Based 

Study’’. American Journal of Public Health, 92, 778–784. Kuno, E., Rothbard, A.B., Averyt, J., 

and Culhane, D. (2000). ‘‘Homelessness Among Persons With Serious Mental Illness in an Enhanced Community-Based Mental Health System’’. Psychiatric Services, 51, 1012–1016. Salit, 

S.A., Kuhn, E.M., Hartz, A.J., Vu, J.M., and Mosso, A.L. (1998). ‘‘Hospitalization Costs Associated With Homelessness in New York City’’. The New England Journal of Medicine, 338, 1734– 

1740. 18 Culhane, D.P., Metraux, S., and Hadley, T. (2002). ‘‘Public Service Reductions Associated 

With Placement of Homeless Persons With Severe Mental Illness in Supportive Housing’’. Housing Policy Debate, 13, 107–163. 19Ludwig, Terri. 2013. ‘‘To Curb Medicaid Spending Tomorrow, Invest in Housing Today’’. 

http://www.huffingtonpost.com/terri-ludwig/curb-medicaid-spendinglbl4117001.html 

accessed 11/4/2013. 20 Culhane, D.P., Metraux, S., Park, J.M., Schretzman, M., and Ventura, J. (in press). ‘‘Testing a Typology of Family Homelessness Based on Patterns of Public Shelter Utilization in Four 

U.S. Jurisdictions: Implications for Policy and Program Planning’’. Housing Policy Debate. 21Laura Williams, Center for Housing Policy, ‘‘The Role of Housing Counseling in Reducing 

Mortgage Delinquency and Foreclosure’’, 2011, fact sheet available at http://www.nhc.org/ 

media/files/RoleloflHousinglCounselinglinlPreventinglForeclosure.pdf. 

housing or in families that cannot consistently afford their rent are at increased risk 

of poor educational outcomes, developmental delays, and hospitalizations compared 

with other children. 14 Stable and affordable housing is associated with fewer school 

disruptions, better academic performance, and greater school and community involvement by families. 15 A substantial amount of research has been done to demonstrate the link between education outcomes and future economic prospects for 

children. In fact, there is little debate about the relationship between academic performance and future earnings (positive relationship), future receipt of public assistance (negative relationship), and future incarceration (negative relationship). As a 

result, these relationships suggest positive impacts on the economy through higher 

taxes paid on higher wages and lower use of publicly funded services. Finally, a 

study by McKinsey and Company Consulting concluded that if the gap in test scores 

between poor and wealthy students could be closed, yearly gross domestic product 

would be trillions of dollars higher, or $3 to $5 billion dollars per day higher. 16

Housing the homeless is perhaps the clearest example of cost-effective housing 

intervention. Several researchers have found that there are higher rates of emergency room use and hospitalization for mental health and substance abuse problems, and longer in-patient hospital stays, for homeless adults compared with other 

very low-income individuals. 17 A study of supportive housing in New York City 

found that homeless individuals who received supportive housing were less likely to 

be hospitalized or incarcerated than comparable homeless individuals who did not 

receive services. The authors found that the costs of the supportive housing were 

offset by the savings in health care, law enforcement, and other service utilization. 18 Additional studies in Seattle, Los Angeles, and Maine reached similar conclusions about the cost effectiveness of investing in permanent supportive housing, 

specifically finding that for every dollar invested in programs offering long-term 

housing and services for homeless individuals, there is an average saving of two dollars in terms of other publicly funded services. 19 Additional research has shed light 

on the relative costs associated with housing families in temporary shelters compared to providing families with rental subsidies. The analysis of homeless families 

in four U.S. jurisdictions found the average cost of housing a family in a shelter for 

1 year was about four times the cost of providing a rental subsidy to that same family, suggesting that investment in rental subsidies was a much more cost effective 

way of meeting homeless families’ needs. 20 In short, making stable housing available to end and prevent homelessness is cost effective. 

Housing counseling is a second example of cost-effective preventative housing assistance. Studies have found that housing counseling can prevent foreclosure in 

times of distress, reduce family housing costs, and reduce the likelihood of mortgage 

delinquency. 21 A nationwide study of the foreclosure mitigation counseling program 

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22 Neil Mayer, et al. 2010. ‘‘National Foreclosure Mitigation Counseling Program Evaluation: 

Preliminary Analysis of Program Effects’’. Washington, DC: The Urban Institute. 23For an overview, see, ‘‘Understand Why Foreclosures Matter’’ on the Center for Housing 

Policy’s site foreclosure-response.org, at http://www.foreclosure-response.org/policylguide/ 

whylforeclosureslmatter.html. 

found that borrowers who had missed a payment on their mortgage were 45 to 50 

percent more likely to get up-to-date on payments if they received counseling. The 

same study found that households who received counseling had on average lower 

monthly payments and were 45 percent more likely to sustain their mortgage modifications. 22 Furthermore, most studies of prepurchase counseling find that it reduces mortgage delinquency. Making housing counseling an integral part of mortgage finance would build on the lessons learned during the foreclosure crisis, namely, that housing counseling improves outcomes for borrowers, lenders, and neighborhoods alike by helping more families sustain home ownership. 

The foreclosure crisis also provides a cautionary example of the costs of failing to 

act early. Allowing waves of foreclosure to occur, particularly concentrated in vulnerable neighborhoods, triggered a vicious cycle of disinvestment that has proven 

expensive and difficult to break. 23 Preventing foreclosures and avoiding long-term 

vacancy by acting earlier would have avoided costly neighborhood rebuilding, better 

maintained home values, and helped families avoid the pain and cost of displacement. 

Making Housing Finance About Shelter 

In closing, I urge you again to make shelter an explicit and central goal of housing 

finance reform. Realign the incentives of the myriad market participants so that the 

energy and creativity of the private sector makes affordable housing options available broadly, and use targeted programs to fill in the gaps for those harder to serve. 

I hope that this bipartisan effort will move our country closer to safe, decent, and 

affordable housing for all in America. 

Thank you again for the opportunity to be here. I am glad to answer questions 

from the Committee. 

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76 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN 

FROM HILARY O. SHELTON 

Q.1. Fannie Mae and Freddie Mac’s duty to serve the entire primary market is an important aspect of our current housing finance 

policy. The duty to serve ensures that creditworthy people in all 

parts of the country can get access to mortgages with reasonable 

rates and terms. Without a duty to serve, people in rural areas, 

lower-income neighborhoods, and primarily immigrant or minority 

neighborhoods might find that mortgages are no longer readily 

available. 

S.1217 envisions a secondary market with many issuers of Government-guaranteed securities. Unlike Fannie and Freddie, which 

serve the entire Nation, certain issuers in the S.1217 model may 

purchase loans only from certain parts of the country or may specialize in targeted loan profiles. Assuming there is a secondary 

market with several issuers, do you have views on how we could 

structure and enforce a duty to serve? 

A.1. Answer not received in time for publication. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP 

FROM SHEILA CROWLEY 

Q.1. We have tried to find some kind of actual economic 

verification of the impact of the affordable housing goals, quantified. Please provide, to the extent that you have actual data, hard 

data on the impact as we have discussed here. 

A.1. Government-Sponsored Enterprise (GSE) activities that meet 

the affordable housing goals criteria support households with incomes below 80 percent of the area median income. The affordable 

housing goals were put in place to benefit households at 80 percent 

of area median income (low income) and 50 percent of area median 

income (very low income). 

The National Low Income Housing Coalition does not have its 

own data to measure the effectiveness of the GSE affordable housing goals, but we have done a modest scan of what data others may 

have in order to respond to this question. While it is not possible 

to discern the precise number of low-income households who would 

been served absent the goals, it is generally agreed that the goals 

have allowed access to mortgages and lending in traditionally underserved communities, including low-income communities and 

communities of color. 

Based on the National Community Reinvestment Coalition’s 

analysis of Fannie Mae and Freddie Mac’s 2012 Annual Housing 

Activity Reports, GSE activity that met the criteria the affordable 

housing goals target amounted to approximately $267 billion, including $41.4 billion of investment in rental multifamily units that 

met the goals’ criteria. 

While the affordable housing goals are important, we must note 

that the goals do not support housing that is affordable to extremely low-income households, those with income at or below 30 

percent of the area median or the poverty level, whichever is lower. 

People with incomes this low generally cannot support mortgages 

and frequently pay more than affordable levels of rent. In 2011, 76 

percent of extremely low-income households spent over half of their 

77 

income for housing, a level considered a severe cost burden. The 

market simply can produce and operate housing that this income 

group can afford, no matter how many goals are set. 

That is the rationale for the National Housing Trust Fund 

(NHTF), which was authorized in 2008 in HERA specifically to expand the supply of housing affordable to extremely low-income 

households. We are pleased that the NHTF is included on S.1217, 

the Corker-Warner bill, we object to the addition of other activities 

to it that were not part of HERA. We urge that the uses of the 

NHTF remain as written in HERA and that the funding to the 

NHTF be maximized. 

In 2012, there was a nationwide shortage of 7.1 million rental 

homes that extremely low-income households could afford. We estimate that it would take $30 billion a year for 10 years to close the 

gap. The funding provided in S.1217 is a good start, but should be 

increased in further bills developed by the Committee. 

In term of the future of the affordable housing goals, NLIHC’s 

position is as follows: It is essential that the U.S. housing finance 

system assure access to credit for all creditworthy borrowers who 

want to take out mortgages in order to purchase homes in which 

they will live. The broadest possible access to credit must reach 

inner cities and remote rural areas and every geography in between. The U.S housing finance system must affirmatively reach 

out to all segments of the home-buying market and those lenders 

who fail to do so must be held accountable. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN 

FROM DOUGLAS HOLTZ-EAKIN 

Q.1. In your testimony, you highlighted the Government Accountability Office’s finding the Federal Government essentially spends 

$170 billion a year on 160 housing programs, including tax expenditures. Ironically, as the Committee discusses affordable housing, 

many of these housing programs are subsidizing those with incomes well beyond the typical aim of Federal assistance. Please 

identify the proportion and total benefit of the mortgage interest 

deduction and the capital gains exclusion going to households earning over $100,000 per year. 

A.1. Using figures by the Joint Committee on Taxation, approximately 77.3 percent of the total benefit of the mortgage interest deduction goes to households earning over $100,000 per year. Approximately 75.2 percent of the total benefit of the capital gains exclusion goes to households earning over $100,000 per year. 76.7 

percent of their combined benefit goes to households earning over 

$100,000 per year. 

Q.2. Please identify the maximum home value that can be insured 

by the single family loan guarantee programs of the U.S. Departments of Agriculture and Housing and Urban Development. 

A.2. The USDA’s single family loan guarantee program does not 

contain such limits; instead the program is limited to applicants 

with 115 percent of median area income. Loan limits, and therefore 

the maximum home value, are determined by the applicant’s ability to repay the loan. 

78 

In a high-cost region—the District of Columbia—these loan limits 

apply for FHA: 

Q.3. Many of the 160 Federal housing programs could be consolidated and better targeted to improve the Federal response to our 

Nation’s housing needs. For example, in 2009, the Congressional 

Budget Office identified savings of over $500 million annually in 

Community Development Block Grant (CDBG) funding by slightly 

reducing the amount going to communities whose median incomes 

exceed 110 percent of the national median income. Would improving the targeting and allocation of existing Federal resources enable Congress to address affordable housing needs without placing 

new mandates on the private sector or future housing finance system? 

A.3. Yes. The GAO report and the CBO report mentioned highlight 

the fragmented and inefficient nature of Federal housing assistance. Eliminating waste, consolidating overlapping programs, and 

limiting existing programs to those most in need of shelter would 

help Congress better address affordable housing needs. New mandates on the private sector are unattractive, especially given uncertainty over the mechanics of the future housing finance system, 

and the general trend toward the imposition of new regulatory burdens. 

Q.4. Many affordable housing advocates have pointed to the need 

for the Market Access Fund as proposed in S.1217. This policy 

would place a fee—essentially a new tax—on all federally guaranteed mortgage-backed securities to the tune of $2.5 billion–$5 billion annually. Would you agree the economic impact of this new tax 

on guaranteed mortgage-backed securities would likely be to increase the cost of home ownership and dampen the housing sector 

overall? Do you foresee any other unintended adverse consequences 

of the tax? 

A.4. Yes, this tax on guaranteed MBS would increase the cost of 

home ownership for borrowers, adding to the existing trend of rising housing prices and mortgage interest rates. It would come on 

top of the impact of pricing for risk (the guarantee fee, which necessarily raises costs for borrowers) and costs associated with new 

regulatory burdens under the Dodd-Frank Act. It seems perverse 

to fund an affordability initiative by making housing less affordable. 

Finally, the access to dedicated funds could encourage advocates 

of the Market Access Fund to grow the FMIC to grow beyond its 

chartered purpose. 


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RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM ETHAN HANDELMAN 

Q.1. In your testimony, you make the case that ‘‘investments in 

housing early can result in future economic benefits and costs savings.’’ You seem to be suggesting that funding the Housing Trust 

Fund and the Capital Magnet Fund and addressing known rental 

housing needs prospectively is actually the more cost effective and 

efficient way to go. Could you connect the dots for us here? Do we 

have any evidence that these sorts of investments have actually 

saved money in the past? 

A.1. Thank you very much for the question, Senator. As you say, 

addressing known rental housing needs prospectively is less costly 

than providing emergency housing assistance or other emergency 

services. Stable housing, either rental or home ownership, also provides long-lasting benefits to the children who grow up in it, which 

provides a net benefit to society. 

To connect the dots, as you put it, let me highlight the specific 

example of programs to end homelessness, which save public dollars by reducing demand for emergency services. Providing homeless individuals and families with affordable rental housing and 

supportive services reduces the need for emergency hospital treatment, temporary shelters, and incarceration. The studies cited in 

my written testimony show cost savings of as much as two to one 

in such diverse locations as New York City, Seattle, Los Angeles, 

and Maine. 

Similar evidence exists for housing counseling services, foreclosure prevention, and provision of stable rental housing more 

generally. Children with stable housing are healthier and perform 

better in school, which we know improves their future earnings potential with the concomitant benefits to society. As I detail in my 

written testimony, a large body of research documents the benefits 

of investments in affordable housing—from transitional housing for 

homeless individuals and families to rental housing complemented 

by case management and supportive services to programs supporting affordable home ownership for low- and moderate-income 

households. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN 

FROM ETHAN HANDELMAN 

Q.1. Fannie Mae and Freddie Mac’s duty to serve the entire primary market is an important aspect of our current housing finance 

policy. The duty to serve ensures that creditworthy people in all 

parts of the country can get access to mortgages with reasonable 

rates and terms. Without a duty to serve, people in rural areas, 

lower-income neighborhoods, and primarily immigrant or minority 

neighborhoods might find that mortgages are no longer readily 

available. 

S.1217 envisions a secondary market with many issuers of Government-guaranteed securities. Unlike Fannie and Freddie, which 

serve the entire Nation, certain issuers in the S.1217 model may 

purchase loans only from certain parts of the country or may specialize in targeted loan profiles. Assuming there is a secondary 

80 

market with several issuers, do you have views on how we could 

structure and enforce a duty to serve? 

A.1. Thank you very much for the question, Senator. The duty to 

serve the entire primary market is indeed an essential part of ensuring the availability of safe, decent, and affordable housing for 

all in America. Applying a similar obligation to new participants in 

a multi-issuer system requires careful structuring and enforcement. 

First, the duty to serve must be a threshold obligation for issuers 

who wish to purchase the Government guarantee of their securities. Simply put, if the Government balance sheet is going to be at 

risk, public benefits should accrue. An efficient, stable, liquid secondary mortgage market that serves all in America, either through 

home ownership or rental housing, should be a basic premise of the 

housing finance system. 

Fannie Mae and Freddie Mac, if reconfigured to operate in a new 

system, should meet the threshold obligation. So should any new 

issuers who wish to issue Government-guaranteed securities. The 

playing field should be level. 

Second, issuers should be obligated to serve all qualified borrowers within their defined area of business, be that a geographic 

region or product type. Initial approval by the regulating agency 

(FMIC, for instance) and ongoing oversight are both essential to ensure that issuers do not simply target the lowest-risk, highest-return loans, leaving out qualified but less attractive loans in areas 

already underserved by capital markets. For the Government backstop to insure the housing finance system effectively, the pools of 

loans must include all qualified borrowers. 

For geographically defined areas, issuers should be obligated to 

serve the entire area, such as the entire country, a multistate area, 

or a single large State. Location alone should not disqualify a loan 

to a qualified borrower from being part of a security. For issuers 

defined by product type, the regulator should careful scrutinize the 

proposed product type and its expected borrower profile to determine whether it is compatible with a duty to serve the entire primary market. The regulator should examine both the borrowers expected to be served and those who would not be served by a particular issuer’s proposed scope to ensure that the area defined does 

not leave a subset of the market without access.