By Eugene T. Lowe
April 2, 2007

By a vote of 45 to 19, the House Financial Services Committee March 29, Chaired by Representative Barney Frank (MA), passed H.R. 1427, the Federal Housing Reform Act of 2007. The legislation authorizes an Affordable Housing Trust fund, which the Conference of Mayors called for in its 10-Point Plan released in January. H.R. 1427 also overhauls the regulatory oversight of the government sponsored enterprises (GSE) of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. A new independent regulator is created with powers similar to current banking regulators.

The Affordable Housing Fund will be managed by the new GSE regulator and will be funded through contributions by Fannie Mae and Freddie Mac “in amounts equal to 1.2 basis points on each GSE’s total outstanding mortgages (including both those held in portfolio and those securitized) each year from 2007 through 2011.” The Department of Housing and Urban Development (HUD) estimates that this could provide approximately $500 million for the fund. Seventy-five percent of the funds in the first year will go to Louisiana and 25 percent will go to Mississippi for affordable housing needs that came about as a result of the Gulf Coast hurricanes.

After the first year, the funds will be allocated by a formula developed by HUD to the states. If HUD does not develop the formula in time, the states would receive the funds based on HOME allocations to the states and Participation Jurisdictions.

One hundred percent of the funds must be used for the benefit of very low and extremely low income families. Eligible uses of the funds include rental housing, homeownership (the states must used ten percent of funds for this purpose), and public infrastructure activities in conjunction with housing (limited to 12.5 percent in any state).

Each state will allocate the funds under its own Allocation Plan. The GSE regulator will determine how much the states can spend on administrative costs and will audit each state’s compliance with all requirements; the regulator will impose penalties on states that do not comply with requirements.

The legislation is expected to be considered by the full House of Representatives later this spring.