Affordable housing advocates fume over possible deal

Affordable housing advocates are furious over a possible Senate deal that could threaten a stream of funds they had counted on to expand the stock of cheap housing for the poor.

The advocates had high hopes for approval this year of a trust fund–siphoned from the profits of mortgage giants Fannie Mae and Freddie Mac–to finance the construction of housing for the neediest families.

{mosads}But under an emerging agreement between two key senators, a chunk of the money could be diverted, at least temporarily, to rescue middle-income families from foreclosure.

 “We were very close to getting this done this year until Sen. [Richard] Shelby (R-Ala.) decided that taxpayers couldn’t be exposed to this bailout. I find this unconscionable,” Sheila Crowley, the president of the National Low Income Housing Coalition, said. 

Sen. Christopher Dodd (D-Conn.) and Shelby, the Banking panel’s chairman and ranking member, have been wrangling for days over legislation to rescue at-risk homeowners. The bill would also tighten the reins on Fannie Mae and Freddie Mac and the twelve Federal Home Loan Banks, which are collectively known as the government-sponsored entities (GSEs).

Dodd pushed back a Thursday mark up of the legislation to next week, saying he and Shelby were on the brink of a deal.

Shelby concurred that he was hopeful the two would reach an agreement, which would divert some or all of the GSE profits earmarked for the affordable housing trust fund to cover the cost of the homeowner rescue.

Under the plan, which the House has approved, strapped borrowers would be able to refinance into cheaper loans backed by the government.

Taxpayers will only be saddled with the cost of loans that default, which will be some fraction of the roughly $300 billion in mortgages expected to be refinanced under the program.

The Congressional Budget Office (CBO) estimated that the plan will cost taxpayers $1.7 billion over five years and refinance as many as 500,000 at-risk mortgages.

Shelby, who believes the CBO low-balled its estimate, argues that the GSE profits meant for affordable housing should be used to prevent taxpayers from swallowing the cost of any defaulted loans.

Affordable housing advocates counter that diverting the trust fund to save homeowners from foreclosure would pit some of the poorest families against a group struggling to hold on to its homes.

The move “could grow overnight the population that is un-housed,” warned a top lobbyist for Catholic Charities USA, Candy Hill.

Affordable housing advocates have fought for years for federal funds to expand rental housing for poor families.

They inched closer to achieving their goal last year when the House passed GSE reform legislation that would set up an affordable housing trust fund, drawn from a portion of Fannie and Freddie's profits.

Housing groups expected that as much as $600 million would flow annually from the GSEs into the fund, which would make grants to states for low-income housing.

The House also passed legislation to establish a National Affordable Housing Trust Fund. But both bills failed to gain momentum in the Senate until key Democrats decided to tie the foreclosure rescue plan to GSE reform, which Shelby and the Bush administration badly want.

Hopes among affordable housing advocates soared at the prospect of achieving the trust fund this year. Now, many are deeply distressed over a potential delay in funds they argue are urgently needed.

"The whole concept behind the affordable housing trust fund was a response to a crisis [before the housing market collapsed]," Hill said. "What we're doing is not addressing either crisis, and possibly making one crisis worse."

Over the course of a year, between 2.5 and 3.5 million people live on the streets or take refuge in emergency shelters. And advocates claim the problem is growing worse.

They point to a recent study by Harvard University's Joint Center of Housing Studies that found that the number of American households spending more than 30 percent of their income on housing increased by 2.3 million to 37.3 million in 2005.

Meanwhile, Congress has not approved any new money to construct housing for poor families since the 1970s.

House and Senate language would mandate that 75 percent of the affordable housing trust fund goes to "extremely" poor families–those earning a third or less of the median area income. The fund would pay for the construction of 1.5 million new units for such families over the next decade, according to Hill.

Crowley of the National Low Income Housing Coalition said her group sent letters to all 100 senators this week urging them to oppose any deal that imperils the affordable housing money.

“This notion that somehow the taxpayer needs to be protected from potential liability when the taxpayers haven’t been protected for years from huge deficits … is absurd," Crowley said.

But Shelby’s plan could win over Republicans anxious to respond to the housing mess yet reluctant to expose taxpayers to losses.

Many GOP lawmakers also are cool to the idea of a permanent affordable housing trust fund because the money will flow to community groups that they claim will use it to help get out the vote for Democratic candidates.