U.S. Representative Ed Royce (R-California) responded to the FY 2016 Transportation, Housing, and Urban Development (THUD) Appropriations Subcommittee funding bill released earlier this week by saying money from the GSEs should be used to reduce the national deficit instead of being allocated to housing groups.
The new THUD Appropriations bill would essentially eliminate the Housing Trust Fund but would instead direct GSE money into the HOME Investment Partnerships Program, which is a federal block grant that provides states and localities with a flexible funding source to meet their diverse affordable housing needs.
Royce and other Republicans were highly critical of Federal Housing Finance Agency Director Mel Watt's decision in December to lift the suspension of GSE funds into housing groups such as the Housing Trust Fund and Capital Magnet Fund, saying the diversion of GSE money to those groups violates the 2008 Housing and Economic Recovery Act and puts taxpayers at risk.
In January, Royce responded to Watt's action by introducing the Pay Back the Taxpayers Act of 2015, which states that no funds from the GSEs can be used to fund the housing groups while the GSEs are in conservatorship or receivership and requires that any payments already allocated or set aside should instead be used to reduce the deficit.
"While I'm supportive of keeping money siphoned away from the GSEs out of the hands of ideological housing groups, I'm concerned about the precedent set by redirecting money from the Trust Fund to other housing programs," said Royce, who is a senior member of the House Financial Services Committee and a member of the Capital Markets and GSEs Subcommittee and the Housing and Insurance Subcommittee. "A better solution would be passage of the Pay Back the Taxpayers Act, which requires any money diverted from Fannie Mae and Freddie Mac go to paying down our federal deficit."
The Housing Trust Fund and Capital Magnet Fund were created in 2008 as part of the Housing and Economic Recovery Act, but funding of the groups was suspended shortly after the government seized control of Fannie Mae and Freddie Mac in September 2008. The government provided the enterprises with a combined $187.8 billion bailout shortly thereafter. Current law requires FHFA to suspend the allocation of GSE funds to housing groups if payments would contribute to the financial instability of the GSEs, cause the enterprises to be undercapitalized, or prevent the enterprises from successfully completing a capital restoration plan.
Watt's decision to lift the suspension of GSE funds from those housing groups was met with mixed reactions. While many Republicans vehemently opposed the move, many progressives praised Watt's decision, saying it created more homeownership opportunities, especially for low-income Americans.