GAO Releases Report on Housing Finance Reform

The Government Accountability Office (GAO) issued a new report Housing Finance: Prolonged Conservatorships of Fannie Mae and Freddie Mac Prompt Need for Reform. The report, prepared for Chairwoman of the House Committee on Financial Services Maxine Waters (D-CA) and Congressman Sean Duffy (R-WI), calls on Congress to “consider legislation for the future federal role in housing finance that addresses the structure of the enterprises, establishes clear, specific, and prioritized goals and considers all relevant federal entities, such as FHA and Ginnie Mae.”

The GAO reviewed 14 housing finance reform proposals from Congress, agencies, industry groups and think tanks. They found that most assessed potential changes to the housing finance system, such as addressing fiscal exposure, protecting investors and considering the implications of the transition to a new system. However, many proposals lack clearly defined and prioritized goals or do not address the role of other federal entities in the housing finance system, such as Federal Housing Administration (FHA) and Government National Mortgage Association (Ginnie Mae).

Since 2013, GAO has designated the federal role in housing finance as a high-risk area because of the explicit fiscal exposure for the federal government. As of October 2018, the dollar amounts of Fannie Mae and Freddie Mac’s (enterprises) outstanding mortgage-backed securities (MBS) have grown by more than $800 billion since the end of 2008. Together, the enterprises and Ginnie Mae have issued or guaranteed 95 percent or more of all MBS issued annually since 2008.

Microsoft Commits $500 Million Towards Affordable Housing in Seattle Area

In a Microsoft Corporate Blog, president Brad Smith and CFO Amy Hood committed $500 million in loans and grants to accelerate the construction of more affordable housing across the Seattle region across the next three years.

$225 million will be invested at lower than market rate returns to inject capital to subsidize the preservation and construction of middle-income housing. These investments initially will be made in six cities east of Seattle and Lake Washington: Bellevue, Kirkland, Redmond, Issaquah, Renton and Sammamish.

$250 million will be invested at market rate returns to support low-income housing across the entire King County region to help accelerate the construction of low-income housing across the region.

$25 million in philanthropic grants will be made available to address homelessness in the greater Seattle region. This will include a $5 million philanthropic grant to the newly announced Home Base program created by the Seattle Mariners, the United Way of King County and the King County Bar Association. This program helps keep people facing eviction in their homes through legal aid, access to flexible funds and case management. Another $5 million will support a new joint agency on homelessness being formed by the city of Seattle and King County. Microsoft has yet to announce how the remaining $15 million of grants will be used.

The authors also call on the state government to:

  • Include a $200 million appropriation to the Housing Trust Fund to expand support for very-low-income individuals and families
  • Support condominium liability reforms
  • Extend the Multifamily Tax Exemption
  • Create new incentives for local communities to enact more efficient land use polices

Jared Bernstein op-ed: “give OZs a chance, while scrutinizing their progress”

In a Washington Post op-ed, Jared Bernstein, former chief economist to former Vice President Joe Biden and senior fellow at the Center on Budget and Policy Priorities, describes the early developments, including the Zone certification process, market reactions and some proposed investment targets of Opportunity Zones. While Bernstein notes the gentrification risk of Opportunity Zones, he concludes that the selected Zones have both the need and capacity to absorb new investment, development and people without displacing local residents. He calls on Treasury to dictate strong reporting requirements that will accommodate thorough evaluation.

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Economic and Fixed Income Insights, January 16, 2019

Home sales in the US slumped in December, while prices inched up slightly. The median home price rose to $289,800 in December, a gain of 1.2%, the slowest monthly pace since March 2012. Sales dropped by almost 11 percent, the biggest decline for any month since 2016, according to Bloomberg. In other economic news, the Consumer Price Index (CPI) declined 0.1% in December, following a flat reading the month prior. Year-over-year, headline consumer prices rose 1.9% in December, the slowest pace since August 2017. Yields on the long end of the curve were up slightly for the week, while the front end remained largely unchanged.  The 10-year UST was steady at 2.70%, and the 30-year UST was 6 basis points higher at 3.05%.  Tax-exempt yields trended in lockstep with taxable rates, with the 10-year MMD just 1 basis point higher and the 30-year MMD 6 basis points higher to yield 2.21% and 3.03% respectively.

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