Bipartisan support for using Fannie Mae/ Freddie Mac profits to fund affordable rental housing

Barney Frank’s latest article in the Portland Press Herald describes the virtues of a new bill proposed by Senator Susan Collins (R. -Maine) regarding the use of profits gleaned from Fannie Mae/ Freddie Mac. The two agencies, responsible for providing government-backed mortgages, are still in conservatorship. Profits do not go to shareholders, but to U.S. Treasury. These profits represent non-tax revenue that can be incorporated into the federal budget. Collins proposes, according to Frank, that a portion of these profits be used to supplement affordable rental housing programs nationwide. This would mark a positive improvement in the use of Frannie/Freddie funds, which continue to provide mortgages to people who cannot afford homeownership.

Or, as Frank puts it:

…[S]ince it is unclear when a consensus will form sufficient to enact the post-Fannie/Freddie arrangement, there is a very strong case for continuing to use the non-taxpayer-generated funds now available to support private-sector efforts to build the affordable rental housing that is the flip side of meeting the residential needs of low-income people without inducing or encouraging or even enabling them to take out mortgages that will likely lead to foreclosures.

By replacing a sustainable practice (rental assistance) with an unsustainable one (mortgage assistance) this bill could actually lead to more wealth among lower-income households because they will not have to sink money into property. Instead of struggling to pay for the ancillary (and often high) costs of keeping an owner-occupied house, these households can use money otherwise earmarked for emergency repairs to pay their bills and maybe (maybe) eventually have enough money left over to begin to save.

Furthermore, the efforts by Fannie Mae and Freddie Mac have not yielded the desired results. According to Ed Pintoco-founder of the American Enterprise Institute’s International Center on Housing Risk, the rate of homeownership “is no higher today than it was in the early 1960s and low-income households (those in the 20th to 40th percentile of the income distribution) had a median net worth of only $22,400 in 2013, the lowest inflation-adjusted amount in any of the Fed surveys dating back to 1989.” Not only have government-backed loans not created more homeowners (the supposed paragons of society) but they have not significantly increased the wealth of low-income households. 

The government here has a chance to actually create good in its country by providing rental assistance with no additional burden on taxpayers. No matter which aisle you sit on, this is a sound idea, backed by economics and logic. I hope lawmakers have enough sense to support such efforts.


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