The Mission Fannie and Freddie Are Good At


There has been a lot of (perhaps well-deserved) criticism of the two big Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, lately.   Certainly, the housing bubble popping left Fannie and Freddie on their knees, and forced the federal government to seize them to keep the home purchase mortgage market from completely collapsing and taking most of the financial industry with them.  But lost in the mud being thrown over who to blame, and how to restructure Fannie and Freddie, there is a nugget of gleaming gold that gets overlooked.



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State Assembly Hearing Debunks the Myth that “Foreclosures = Housing Affordability”

On December 5th, the State Assembly Housing and Community Development Committee heard from economists, for-profit and nonprofit developers, and state agency heads who explained to policymakers the current state of California’s housing market.

Three themes wound through the testimony of the six witnesses:

First — The continuing glut of foreclosed homes has NOT increased housing affordability for the vast majority of Californians;

Second — Multifamily construction is increasingly important; and

Third — The state is comprised of numerous housing markets, resulting in a locational mismatch between vacant homes and Californians who need affordable places to live.

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One Way to Reform LA’s Housing Authority

The Los Angeles area media have been reporting on some alleged misbehavior at the Housing Authority of the City of Los Angeles (the unfortunate acronym is HACLA).   KCET, the LATimes, the LAWeekly and others have had articles, published databases, bringing charges of misuse of funds, extravagant spending, and other malfeasance and misfeasance.  The City Council and Controller have now weighed in with some resolutions and preliminary audit results calling for significant reform at HACLA.  The acting Chief Executive Officer has been demoted and a new interim President & CEO nominated by the Mayor, and appointed by the HACLA Board of Commissioners.

Throughout this period there have been several concerns expressed that HACLA was not subject to the usual oversight from the City’s Mayor, Controller and City Council because it is technically a state agency primarily subject to federal regulations.

But that isn’t how it has to be. And it is not how some other large cities in California have organized their public housing authorities. Read more

Should Mortgage Borrowers Pay for the Payroll Tax Cut?

As most people have heard, the temporary payroll tax cut approved by Congress as part of the economic stimulus effort will expire at the end of the year (along with some other important programs), which would result in an increase deduction from wage earners’ paychecks of about $1,000 per year (on average–some would lose more, other less, depending on their wages).

Congress has been debating whether to extend the payroll tax cut, and how to offset the cost by increasing other fees or taxes so that the net effect on the overall Federal Budget is “neutral.”  Many proposals have been made by the two major political parties, with no agreement to date.

The latest proposal to come out of the House of Representatives has been to increase a fee charged by two of the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac.  These fees are designed to fund “guarantees” for the mortgages that the GSEs buy from lenders, primarily large banks and mortgage lenders.  (For more details, see articles in The Fiscal Times, or BusinessWeek.) Read more

CA Redevelopment Doomsday Scenario 2.1

As most everyone in the affordable housing business or local government is aware, the California State Supreme Court is considering the arguments regarding the legality of ABx1-26 and ABx1-27, the two Redevelopment Restructuring Acts.  It is clear that the Legislature expected that both statutes would be found constitutional and would work together to create a stream of revenue to help close a substantial part of the Budget gap projected to occur over the coming years.

However, the statutes have been challenged and the Supreme Court has accepted briefs and oral arguments regarding their legality.  Most observers have expected that both statutes would be found constitutional together, or that they would be found unconstitutional together.  But the County of Santa Clara and others argued for a different outcome – that ABx1-26 be validated and that ABx1-27 be overturned.  This would result in local redevelopment agencies going out of business (ABx1-26) and not having the option of resurrection through “voluntary” payment of an annual remittance (ABx1-27).

There is, however, a twist to this outcome that most people have not considered. Read more

Is This the REAL Issue Facing the Housing Industry?

While much though is expended on how the financing side of the housing market needs support for a recovery, a BusinessWeek article by Steve Matthews posits an interesting and powerful, if underappreciated, factor in the recovery of the housing market – a slowing birthrate in the United States. Data from the National Center for Health Statistics show that births in the US numbered just slightly more than 4 million in 2010, the fewest since 1999 and down by 6% from 2007 (table below). Why do fewer children matter to the housing market? When couples delay marriage and starting a family because they lack of confidence in the economy, the move from apartment (renter) to a home (owner) is also delayed. This may be a good sign for continued strength in the apartment industry, but it will certainly keep the single family residential market down, in most the country, for the next several years.

[from BusinessWeek article] The fall-off in births is part of a vicious cycle that stems partly from the housing slump. States with the largest economic declines in 2007 and 2008 were most likely to have relatively large declines in babies from 2008 to 2009, based on an analysis in October by the Pew Research Center.

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Homeless Students Should Be Able to Live in Tax Credit Housing

Seal of the U.S. House of Representatives

Seal of the U.S. House of Representatives

The Low-Income Housing Tax Credit (LIHTC) program is now the nation’s most important source of financing for the development of affordable homes.  Like all public subsidy programs, LIHTCs come with restrictions to make sure that the money is being spent to help the intended population.  But those rules sometimes have unintended consequences.

A couple of years ago, Century Housing ran into one of those situations.  The Internal Revenue Code governing LIHTCs prohibits full-time students from living in tax credit-funded housing.  Originally, these rules seem to have had a sound basis, but like so many such hard and fast rules, it also has some impacts that were not thought of when adopted.

Luckily, Representative Jim McDermott of Washington State has introduced a bill, H.R. 3076,  to fix the rules so they make sense.   Read more

NIMBYs – Do They Have It Too Easy?

Getting back to work

Let’s dust off Economics 101 and review “barriers to entry,” a key factor in assessing competition and dynamics in a market. Recent posts at The Atlantic Cities (here and here),  and David Smith’s Affordable Housing Institute blog (regarding a fight in peaceful Woodstock, part 1, part 2 and part 3), with a slightly contrasting view from Megan McArdle discuss the “low cost of admission” that NIMBYs have to the development process. From Ryan Avent:

People tend to have a proprietary feeling about their neighborhoods, particularly when they have large sums of money on the line thanks to their investment in their home. This feeling leaves urban property rights in a gray area. Residents are remarkably willing to dictate to private property owners what can and can’t be done with their land. They’re willing to approve restrictive zoning rules and lobby against permitting in ways that dramatically reduce potential land value, without ever dreaming of compensating owners and would-be developers.

Finally, an honest sign

Developers have to cultivate local political and civic relationships, find equity investors, locate sites appropriate for developing, obtain entitlement approvals, and secure a whole passel of capital before they can turn one shovel of dirt. Affordable housing developers often have three or four (or ten) extra steps, cobbling together political support (which always has a cost) for zoning changes and securing a complete financing package. All of this takes months or years, for every project. NIMBYs, on the other hand, they just need to go to Kinko’s, run off a few hundred flyers, and organize a few vocal folks to attend a couple planning commission or city council meeting to derail a project.

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Century Backs CRA/LA in Sylmar

Sylmar Court RenderingNew state legislation, and a resulting court challenge, affected redevelopment agencies statewide and could have derailed a high-impact affordable housing development in Sylmar. But a smart partnership and timely bridge financing between Century Housing, developer DDCM and the Community Redevelopment Agency of the City of Los Angeles has kept the project on track.

CRA/LA approved purchase of a Sylmar development site in August, planning to lease it to DDCM to build Sylmar Court, a project with 150 units of senior affordable housing plus ground-floor retail. But the California Supreme Court put the deal on hold when it issued a stay while it reviewed new redevelopment legislation. CRA/LA faced losing the property when sellers declined to extend an option on the lot beyond September 30th.

On September 1st, CRA/LA contacted Century to arrange a $3.1 million bridge loan for the Sylmar property. Century was able to underwrite, approve and close the loan in 29 days, thanks to close cooperation with CRA/LA’s East Valley Region staff and DDCM President Kurken Alyanakian.

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How Long Will Interest Rates Stay Low?

Pretty much everyone knows that the Federal Reserve has been working hard to keep short-term interest rates very low.  Recently, the Fed also began taking action to reduce long-term interest rates as part of their efforts to prop up the financial services industry and support economic growth.  No one knows how long these efforts will continue, but there is at least one indicator that the need to keep rates low will last for at least another year. Read more