By Thomas R. Gleason
Executive Director, MassHousing
One reform bill proposed in Congress would eliminate two bedrock components of housing finance —private activity bonds and 4% low-income housing tax credits—thereby severely disrupting or even halting affordable housing production and preservation in Massachusetts.
That bill, the Camp Tax Reform (named for House Ways and Means Chairman Dave Camp, R-MI) is one of three major housing reform proposals that MassHousing is monitoring, with the aid of the National Council of State Housing Agencies (NCSHA). The others are the Corker-Warner bill (named for Senators Bob Corker R-TN and Mark Warner D-VA); and the Johnson-Crapo bill (named for Senators Tim Johnson, D-SD and Mike Crapo, R-ID). All three bills propose changes to the so-called GSEs (i.e., Fannie Mae and Freddie Mac) and would affect other affordable housing efforts as well.
The Camp Tax Reform Act, a wide-ranging and voluminous bill that would alter the entire tax structure, was released in February by Ways and Means Chairman Dave Camp. Housing advocates and HFAs like MassHousing are deeply troubled by the bill’s elimination of tax-exempt private activity bonds and the 4% low income tax credit. MassHousing has successfully used both of these tools to finance the preservation of thousands of units of housing throughout the state. The Commonwealth receives approximately $685 million in funds from private activity bonds annually (used for housing, student loans and economic development).
The Corker-Warner bill would wind down Fannie Mae and Freddie Mac within five years and both this bill and Johnson-Crapo would transfer these functions to a new government "utility" known as the Federal Mortgage Insurance Corporation (FMIC). FMIC would be modeled in part after the FDIC. To varying degrees both would provide catastrophic reinsurance behind 10 percent first-loss, private capital.
Johnson-Crapo ensures that community banks and credit unions would have direct access to the secondary market and equitable pricing with larger originators. At the same time, it requires strong underwriting standards that mirror the new, stricter Qualified Mortgage criteria that went into effect this year, with a downpayment requirement of 5% (3.5% for first-time buyers). In a recent edition of its US Public Finance Weekly, Moody's Investors Service found many aspects of Johnson-Crapo would be positive for Housing Finance Agencies.
Based on statements made by Congressional leaders, it seems unlikely that there will be any action during this session on tax reform in general or the Camp bill specifically. Nevertheless, the affordable housing industry and interest groups are in a heightened state of alert. We will continue to monitor all of these proposals closely. We are also providing the Massachusetts Congressional delegation with information that illustrates the dramatic impact these bills could have on our efforts to produce and preserve affordable housing here in Massachusetts.
While housing reform is important, especially in light of the mortgage and foreclosure crises of the last five years, other well-established programs such as private activity bonds and tax credits have a long history of producing high-quality affordable housing in a very cost effective way.