Man Plans, Gods laugh, Housing-Style

I remember a saying, "Men make plans and the gods laugh." In 2008, after years of hard work and endless advocacy, the National Housing Trust Fund passed the Housing and Economic Recovery Act of 2008 and signed by President Bush.  By law, it would serve the lowest income category-75% of the funding going to units for those under 30% of Area Median Income.  It initially was meant to be funded through Fannie Mae and Freddie Mac.  Apparently this is when the laughing began.

Shortly after the Trust Fund was signed into law, the housing market collapsed, putting an end to any thoughts of a portion of the profit from Fannie Mae and Freddie Mac going into the Trust Fund.  Hilarious.

So a new search began for a new funding source.  That was the topic of a webinar hosted by the National Low-Income Housing Coalition (NLIHC).  President Obama's 2012 budget request includes $1 billion in the HUD budget to capitalize the Trust Fund.  Bills HR 1477 and S489, both primarily bills aimed at the foreclosure crisis, also includes $1 billion for the Trust Fund.  Those are one-time requests, with the funding in the Congressional bills coming from the sale of TARP warrants (I look at it as the sale of stocks in banks & companies that were given to the government in exchange for stimulus money.  Or, rather, sale of the right to buy those stocks at a specific price.). 

But again, that'd be just one-time funding, which means a permanent ongoing source of revenue is needed.  A possibility is a change to the home mortgage interest deduction subsidy that given mostly to the well-off; Only 25% of taxpayers benefit from it, and the top 32% of those taxpayers receive 72% of the benefits.  As a housing subsidy, it's remarkably ill-designed, in 2009 costing over $80 billion, or 2% of federal spending,  according to this article. 

There are already proposals to modify or remove the deduction, and NLIHC is saying that a slice of this should go to the Trust Fund-particularly since the Trust Fund, when originally proposed, included this funding source.

NLIHC supports a proposal that includes the following:

• Reduce the size of eligible mortgages from $1 million to $500,000.  Keep in mind that if your mortgage is $500,001, you'd still see a benefit on that first $500,000-that extra $1 won't qualify for the deduction.  This has the benefit of ensuring that the $1 million home is not subsidized needlessly.
• Convert the deduction to a non-refundable tax credit (15%) available to everyone.  Basically this reduces the taxpayer's tax bill-no matter if you're a renter or an owner.  Hard to argue against that-reduce ineffective subsidies benefiting mostly the well-off and lowering everyone's tax bill.

NLIHC estimates that those the proposal can save $30 billion a year, if wholly directed to the Trust Fund, would provide enough housing units for every person with extremely low income.  3.5 million housing units over the next 10 year-imagine the number of jobs that'd create and the boost to the economy!

Of course, there's always someone who has to play the spoilsport.  Rep. Royce (R-CA) is proposing to eliminate the Trust Fund.  He believes it'll be a "slush fund" for special interest groups. 

As NLIHC notes from a recent hearing on the issue:

In his opening statement, Mr. Royce said that the NHTF should be abolished in order to ensure that funds do not flow “to activist organizations who dabble in housing and rental assistance as well as dabble in political activism.” The NHTF statue prohibits the use of NHTF dollars for political activities, lobbying, counseling, outreach, and project administration. Mr. Royce did not stay to hear Ms. Crowley’s testimony.

Don't let facts confuse ya, Royce!