Thursday, March 08, 2007

Ben Bernanke on Affordable Housing

OK - I'll concede it - this linked document is mostly boring for non-banker types. BUT - it shows that the issue of affordable housing and the many repercussions for communities that lose touch with a diverse pool of housing options is getting attention at the highest levels.

Here is an informative (if a bit wonkish) speech by Ben Bernanke, Federal Reserve Chairman that touches on the issue. The section about affordable housing and Government Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac comes about midway down the speech. Here's a blurb from Bernanke's speech, particularly the section on the topic:

"Affordable Housing and the GSE Portfolios

What public purpose should be served by the GSE portfolios? An obvious and worthy candidate is the promotion of affordable housing. The Congress has frequently expressed the priority it attaches to affordable housing through, for example, the provision of various housing programs and tax incentives aimed at increasing the availability of moderately priced homes and rental housing.

The Congress has also determined that financial institutions have a role in providing credit to low- and moderate-income households. Most notably, the Community Reinvestment Act (CRA) obligates insured depository institutions to help meet the credit needs of their entire local communities, including low- and moderate-income borrowers and neighborhoods, consistent with the institutions’ safe and sound operation.

Along similar lines, in 1992 the Congress established an affordable housing mission for Fannie Mae and Freddie Mac by directing HUD to create specific mortgage purchase goals for these GSEs. However, evidence that Fannie and Freddie have had beneficial effects on the supply of affordable housing (over and above the benefits of their securitization activities for the mortgage market as a whole) has been difficult to find. After conducting several studies of the effects of GSEs on the mortgage market and establishing the GSEs’ disappointing results, HUD in 2004 raised the numerical goals that these institutions must reach to fulfill their affordable housing mission. As noted by HUD, “With respect to these public purposes, Congress does not simply expect the GSEs to strive toward achievement of these purposes but rather to lead the mortgage finance industry and to ensure that citizens throughout the country enjoy access to the public benefits provided by these federal entities.”

Thus, a standard for determining the public benefit of Fannie’s and Freddie’s portfolios seems readily available: Do the GSE portfolios support affordable housing? At the present time, Fannie and Freddie appear to fail this test. Indeed, by OFHEO’s estimation, less than 30 percent of the GSEs’ current portfolio holdings are oriented toward affordable housing (Lockhart, 2007)."