Senate Banking Committee Passes Legislation to Promote Homeownership & Community Economic Development

On May 21, the Senate Banking Committee passed "The Federal Housing Finance Regulatory Reform Act of 2008." This legislation is designed to strengthen the regulation of the government sponsored entitites: Fannie Mae, Freddie Mac, and the Federal Home Loan Banks by creating a new regulatory entity.
CFED commends Chairman Chris Dodd (D-CT), Jack Reed (D-RI) and the Banking Committee for the bipartisan efforts to pass the bill. The bill includes:
1. Greater resources for affordable housing -- including homeownership -- and community development.
The Bill creates a Housing Trust Fund for rental housing and home ownership for low- and very low-income people. Of those funds, 75% of the resources are for extremely low-income families (households below 30% of Area Median Income).
In addition, the bill also contains a Capital Magnet Fund to provide resources for Community Development Financial Institutions to lend for housing and community economic development activities. The funds are derived from a small percentage (4.2 basis points) of profits generated by new business of Fannie Mae and Freddie Mac.
In the first year, all of the Housing Trust Fund monies would be used for the HOPE for Homeowners Program, a new program designed to assist homeowners facing foreclosure. It insures loans worth more than a home's value. In the second year, half of the funds are for HOPE and half for the Housing Trust Fund and Capital Magnet Fund. In the third year, a quarter of the funds would be diverted to HOPE. After that, all resources would be allocated to the Trust Fund and Capital Magnet Fund.
The total trust fund estimates range from $500 million to $700 million a year.
The bill also specifically encourages advances (loans) for Federal Home Loan Bank members for community development activities.
2. Increased access to capital for Community Development Financial Institutions (Sec. 206)
The bill permits certified Community Development Financial Institutions (CDFIs) access to advances (loans) from the Federal Home Loan Banks. Advances will provide liquidity so CDFIs can make more loans in their communities.
The Capital Magnet Fund permits CDFIs to leverage 35% of Housing Trust Fund monies with private and other funding sources to increase the power of the original investment. Both the Magnet Fund and the CDFI access to FHLBank advances enables CDFIs to expand much-needed housing and economic development for extremely low- and very low-income families and communities.
3. Expanded mission investment oversight for the Federal Home Loan Banks (Sec. 205)
The Federal Home Loan Banks provide resources to our nation's financial institutions to help them meet their communities' credit and finance needs. Advocates have long decried the lack of information on the financial activities of the Federal Home Loan Banks that reach low-income people and communities. The bill would:
Require the newly created regulator to establish housing goals with respect to the purchases of mortgages.Require the regulator to annually report on the collateral pledged by the member financial institutions to the Banks.Establish a public use database for mission investment to promote oversight and accountability.4. Stronger roles for community interest and public interest directors on the boards of the Federal Home Loan Banks (Section 202)
Expands the service term from three years to four years and removes compensation caps which limited effective oversight.Preserves and strengthens public interest director requirements. The bill requires that no less than 40% of each Bank board has appointed directors. Of those, no fewer than two seats are designated as community interest and must have candidates with more than four years of experience in representing consumer or community interests on banking services, credit needs, housing or financial consumer protections. Current law only requires the community interest directors be affiliated with an organization that had two years of such experience.
Other Issues in the Bill Housing Counseling. The bill authorizes the Treasury Department's Office of Financial Education to improve homeownership counseling services.
Encourages chattel lending. The bill permits personal property (chattel) loans for manufactured housing to count toward GSE housing goals. CFED had led an effort to prohibit these loans from counting in the goals since chattel loans are frequently found on rented land without security of tenure which diminishes the asset-building potential of the home purchase.