Here in Washington, Congress has finally done its primary job: that of funding the government. The process of last-minute scrambling and late-night bargaining is clearly no way to run a government—as members of Congress and their staff become harried, priorities don’t get properly vetted. This style of governance also offers an opportunity for special interests to pass legislation that otherwise wouldn’t stand a chance, were it disconnected from must-pass spending bills. In what has become the most famous example from the latest round of spending debates, a new provision to weaken the regulation of derivatives will potentially require us to revisit of one of the key causes of the financial meltdown.
Since all of this has become standard operating procedure for Congress over the past years, I think we may lose sight of one of the most significant pitfalls of this approach: We start to consider “level funding”—merely the avoidance of funding cuts—as a victory.
In some cases, it makes sense to retain or reduce spending for federal programs while funding of many programs can be eliminated outright. But, in programs that are often the only barrier to destitution, homelessness or the only opportunity for a shot at self-reliance, level funding means that we are choosing to leave even more families without viable housing options in communities across the country. Level funding of housing programs fails to account for increases in operating costs and rent increases, threatening current residents with even greater financial challenges, and failing to account for population and housing market shifts. This happens despite the fact that no one believes current U.S. housing programs are sufficiently funded to even come close to fully meeting U.S. housing needs.
Thus, more than six years after the financial crisis, many families still struggle to find adequate housing, despite somewhat sustained job growth and the first real good news on wages in quite some time.
Given that we now know Congress will not act, where else should we focus our efforts?
There is some good news when it comes to housing. Earlier this month, the Federal Housing Finance Agency announced guidelines for Fannie Mae and Freddie Mac’s new low down-payment mortgage products, which will offer qualified buyers the opportunity to secure mortgages with as little as 3 percent down. Then, on December 11—after six years of inaction—FHFA ordered Fannie and Freddie to fund the Housing Trust Fund and the Capital Magnet Fund, as required by federal law. Coupled with vigorous Affordable Housing Goals for Fannie and Freddie in coming years, the funds—essentially to be funded through these government-sponsored entities’ (GSE) profits—have the potential to at least partially fill the federal funding void for affordable housing. If we can’t count on Congress, perhaps the FHFA is becoming what so many had hoped it would be when FHFA Director Mel Watt assumed office.
While this is good news, it also means that two explanations for the 2008 housing crash will certainly reemerge, so these explanations are worth revisiting. The first is the common misconception that GSE support for home loans to low- and moderate-income families was to blame for the crash. Such nonsense deserves no more credence now than it did in 2008.
The second explanation that will likely reemerge is that underregulated, complex financial instruments were not sustainable, and that private entities (i.e., not the GSEs) tanked the market because they could not cover losses. This explanation, I believe, should get some new airtime. After all, you can be assured that the derivatives provision just enacted is just the first of many camel noses under the Dodd-Frank financial reform tent. Prepare to withstand the coming onslaught of bills and hearings attacking reform, the Consumer Financial Protection Bureau, and, if there is a must-pass bill to attach a rider to, motherhood and apple pie.
So, how do we move forward? Advocates and local policymakers need to figure out the most effective ways to request and use these new funds and products. One answer has to be to fund initiatives that, once occupied, will not need operating subsidies to be sustainable. Affordable homeownership, when done fairly and honestly, has to be part of this equation. Models such as shared-equity cooperatives, community land trusts and other, similar property acquisition and development approaches are ripe to be expanded.
We need to step up and embrace a range of housing solutions and products. We know that manual underwriting and high-touch servicing can help reduce defaults. We also know that reducing the costs of ownership through energy efficiency, manufactured housing (with high-quality loans) and access to economic opportunities also help stabilize household and community balance sheets.
Through both action and inaction, maybe Congress just did us a favor.
(Photo credit: Flickr user GlynLowe Photoworks, CC BY 2.0)