A new approach to America’s Affordable Housing Crisis

• What is America's Affordable Housing Crisis?
• How did it happen?
• What is the National Housing Trust Fund?
• What is a housing fund?
• Why is a trust fund the best model?
• What are the proposed sources of funding for the National Housing Trust Fund?
• What is the Federal Housing Administration surplus?
• What is the Ginnie Mae Surplus?
• Matching Funds
• Who will benefit from the trust fund?
• Why is the time for the trust fund right now?
• Who's involved with the campaign?
• What is the current status of the campaign/proposed legislation?
• ELCA Policy Base

For an estimated 95 million Americans, owning an affordable home or even finding a safe and affordable rental unit is financially unattainable.

The gap between the number of affordable housing units and the number of people needing them has grown substantially in the last 25 years; in 2001 this gap was at its largest on record, estimated at 5.07 million units. In no jurisdiction in the country can a full-time minimum wage worker afford the fair market rent.  On average, families across the country must earn $15.21 an hour—nearly three times the minimum wage—to afford a two-bedroom apartment at fair market rent.

Adequate, affordable housing is both a basic human need and an internationally recognized human right. Over 50 years ago, Congress passed the landmark Housing Act of 1949, which established the national goal of "a decent home and a suitable living environment for every American family.”  Sadly we have not come close to reaching this national goal, and the affordable housing crisis continues to worsen.

While by many indicators the United States is the best-housed nation on earth, it continues to far exceed other industrialized countries in the depth and severity of its low income housing problems.

The nation’s public housing program was created in 1937 and is one of the oldest and most extensive efforts to provide decent and affordable housing for low income families, the elderly, and those with disabilities.  Public housing has been chiefly characterized by high rise apartment complexes that have been largely unsuccessful in alleviating the housing problems for those with housing burdens, and by the 1970’s, public housing had become a symbol of failed social policy.  A moratorium on public housing was declared in 1974 and housing policy shifted to subsidizing the private sector through the new Section 8 housing voucher program. Federal funds specifically for adding to the public housing stock were last appropriated in 1994, but little public housing has been built since the early 1980s, nearly 25 years ago.

In addition to the decrease in affordable housing creation, in recent years, a strong economy has caused rents to soar, putting housing out of reach for the poorest Americans. And despite the increasing cost of housing, the Federal minimum wage remains unchanged at $5.15 an hour, last raised 7 years ago in 1997.   The national median Housing Wage, or wage that a fulltime worker would need to earn per hour to afford paying fair market rent, is $15.21 an hour – nearly 3 times as much as the current minimum wage.

The loss of modest rental housing stock continues, rents are on the rise, and there is nothing on the horizon to show that this trend will not persist.

The National Housing Trust Fund Campaign is working to establish a National Housing Trust Fund that would build, rehabilitate, and preserve 1.5 million units of rental housing for the lowest income families over the next 10 years. The trust fund itself will be an ongoing, permanent dedicated source of revenue through which billions of dollars will be invested in new federal resources. The trust fund will promote the development, rehabilitation, and preservation of affordable and safe housing through grants to states and local jurisdictions.

Housing trust funds at the local and state level are public funds established by state or local legislation, ordinance or resolution to receive specific revenues, which can only be spent on housing. The key characteristic of a housing trust fund is that it receives on-going revenues from dedicated sources of public funding such as taxes, fees or loan repayments. 

Typically, legislation or an ordinance is passed that increases an existing revenue source, such as a real estate transfer tax, with the increase being committed to the housing trust fund. Trust funds typically make loans at less than the prevailing commercial rate to all applicants. On average, for every $1 committed to a housing project by a housing trust fund, another $5-10 is leveraged in other public and private resources.

The key components of current Housing Trust Funds at the state and local level

• Purpose of the fund: Trust funds are established to provide the financial resources needed to address the housing needs of low income households.
• Administration: A board of Trustees is appointed to oversee the responsibilities for the fund
• Programs: State and local housing trust funds are designed so they take advantage of unique opportunities and address specific needs that exist within a community such as addressing homelessness.

A housing trust fund provides funding to eligible applicants to construct low-income housing, to rehabilitate vacant or under-utilized residential property (or portions of a property), or to convert vacant non-residential property to residential use for occupancy by low-income homesteaders, tenants, tenant-cooperators or condominium owners.

Trust funds are a proven way to build needed housing.  Nationwide, more than 280 state and local housing trust funds have produced hundreds of thousands of affordable units and have increased housing options for low income families.  The National Housing Trust Fund will be modeled after these successful programs.

These unique funds are a fundamental aspect of emerging housing policy in the United States. Housing trust funds provide a more secure and sensible way to fund needed housing. Safe, affordable housing is essential to the health of every community and deserves the kind of funding a housing trust fund can promise.   Having funds that are committed to housing over time is crucial because housing advocates have long had to compete with numerous social causes to secure dwindling public resources for affordable housing. The on-going dedicated source of revenue also allows for more intelligent planning to address housing needs and for improved proposals submitted by the housing industry in an effort to effectively use existing resources.

The trust fund is intended to supplement and complement existing supply-oriented programs, including public housing, HOME, the Low Income Housing Tax Credit, and the rural programs of the Farmers Home Administration, and to enhance their capacity to meet the housing needs of low income people.

The National Housing Trust Fund will need to be funded with ongoing, permanent, dedicated and sufficient sources of revenue to meet the goal of 1,500,000 housing units over the next decade. Two of the initial sources of funding proposed by the trust fund campaign are excess revenue from the Federal Housing Administration and Ginnie Mae.

Prior to 1934, if the average American family wanted to buy a home but did not have sufficient funding to do so, it would enter into a mortgage agreement with a mortgage provider (their bank, a trust company). The bank would run a credit check on the family, and if approved, together they would negotiate the terms of the mortgage (the amount and interest rate of the mortgage, etc).  A mortgage is effectively a loan to buy a home at the present time, which the family will pay off (with interest) over a given period of time.  Since the mortgage company takes a risk by loaning money to the family, it is in their best interest to give mortgages only to families that have a certain level of credit history and financial stability, thus decreasing the likelihood the family will default on the loan. Unable to meet the conventional loan requirements for a mortgage, this practice excluded many low and moderate income American families from owning their own home. 

To remedy this, in 1934 Congress established the Federal Housing Administration (FHA), the purpose of which was to improve housing standards and to provide an adequate home financing system by insuring mortgages for primarily low and moderate income families. By making these insurance policies available to low and moderate income families, the FHA was essentially substituting the credit of the U.S. Treasury for that of each low income family who held an FHA insurance policy.  In this way, FHA mortgage insurance encourages mortgage companies to make loans to lower income families who might not otherwise be able to meet conventional loan requirements, by protecting the mortgage company against loan default. As a result of the FHA insurance policies, families that would otherwise be excluded from the housing market were finally able to buy the homes of their dreams.

In order to receive this FHA insurance coverage families must pay a fee, known as the insurance “premium.” The premiums of all those who have a single family mortgage are put into a fund called the FHA Mutual Mortgage Insurance (MMI) Fund, which insures all single-family mortgages.  Each year, the MMI Fund pays out claims to lenders, covers administrative costs, and refunds premiums for paid-off mortgages. This fund is required by law to maintain a minimum 2% reserve (called a “capital adequacy ratio”) at all times to guard against an unexpected rash of foreclosure which the agency would have to cover.

This reserve must remain above a minimum adequate level so that there is little risk of the FHA MMI Fund going bust.  Applying this required 2% reserve serves to protect depositors and promote the stability and efficiency of the fund. This reserve must remain above a minimum adequate level so that there is little risk of the FHA MMI Fund going bust.  Applying this required 2% reserve serves to protect depositors and promote the stability and efficiency of the fund.

From the time of its creation until 1990, the FHA MMI Fund was running deficits. The National Affordable Housing Act of 1990 instituted reforms to the program to put it on firmer financial footing. The implementation of these reforms, more efficient management of the FHA, and increased homeownership rates in the 1990s have created a surplus in this fund. A recent actuarial analysis projects that between 2003 and FY 2009, the excess in this fund above the required 2% reserve will be $34.124 billion.  This is the amount of money that can be safely taken from the fund while still maintaining the required 2% reserve in the fund. This is one proposed source of funding for the National Housing Trust Fund.

The current National Housing Trust Fund proposal also calls for the use of surplus Ginnie Mae funds. Ginnie Mae is a nickname for the Government National Mortgage Association, which was created by Congress in 1968. Ginnie Mae is also part of the Department of Housing and Urban Development, and is an important sister agency to the Federal Housing Administration (FHA).

Ginnie Mae packages FHA-insured loans (see above) into mortgage-backed securities, which are guaranteed by the U.S. Government.  Let’s say you are a private mortgage provider and you make an FHA-insured mortgage loan to a low income family.  You know that even if the family defaults on their loan, you will be able to claim your money from FHA.  Once you have made this loan, Ginnie Mae can package it in something called a “mortgage-backed security,” (MBS) and you can sell it to your investors, not unlike a bond.  It is a safe investment because these MBS’s are backed by the U.S. Government, just as an FHA insured loan is a safe loan because it is backed by the Government. So even if the family does not make its mortgage payment, the investor will still receive his or her payment because it is guaranteed by Ginnie Mae. And because they are guaranteed, you as a mortgage provider are able to sell these loans to investors for a better price and then use the profits to make more loans available, enabling more low and moderate income families to take out mortgages.

While the function of Ginnie Mae is different from that of FHA, both entities facilitate the availability and attainability of mortgages for low and moderate income families.  Since its inception in 1968, Ginnie Mae has helped some 30 million low and moderate income Americans become homeowners, resulting in more than $2 trillion in residential mortgages.

Ginnie Mae collects more than $700 million from fees charged to lenders and investors, and, like FHA, has surplus funds. These excess funds are estimated at $2 billion with projected increases of $500 million a year.  This is the second proposed source of initial funding for the NHTF. 

In addition to these two possible sources of funding, additional revenue sources will have to be identified for the NHTF to achieve its goal of 1.5 million new homes in 10 years. 

For further information about the FHA and Ginnie Mae “surplus” as a source of revenue for the National Housing Trust Fund, see: http://www.nhtf.org/pdf/FHA%20surplus.PDF

The time to pass a National Housing Trust Fund is now. There is bi-partisan support in Congress for housing production and preservation in the form of a National Housing Trust Fund. H.R. 1102 (legislation that would create a National Housing Trust Fund) has been proposed in the House of Representatives, and is currently cosponsored by 212 Members of the House of Representatives. A companion bill to establish a National Housing Trust Fund has been introduced in the Senate in the form of S. 14111, and is beginning to gain cosponsors there, with 9 Democrats and 2 Republicans.

The National Housing Trust Fund Campaign is a project of the National Low Income Housing Coalition, an organization dedicated solely to ending America’s affordable housing crisis.  The Campaign currently has over 5,000 endorsing partners across the country in the form of local, state, and national organizations, as well as elected officials and state and local governments.  The Evangelical Lutheran Church in America is one of the national endorsers, as well as a number of our state public policy offices.

In April 2004 the National Housing Trust Fund Campaign had over 5,000 endorsers across the country.  That number continues to grow.  The Campaign has begun to seek the support of Governors in a number of states, and has recently targeted its efforts in this direction.

If your organization would like to endorse the NHTF Campaign, visit: http://www.nhtf.org/forum/signup.asp

H.R. 1102, also known as the National Affordable Housing Trust Fund Act of 2003, is legislation that would create a National Housing Trust Fund. It was introduced into the House of Representatives in March 2003 by Representatives Bernard Sanders (I-VT), Barbara Lee (D-CA), and Robert Simmons (R-CT).  As of April 2004, the legislation had 211 co-sponsors: 195 Democrats, 15 Republicans, and one Independent. In March 2003 the bill was referred to the House Subcommittee on Housing and Community Opportunity, where it remains today.

To see if your Representative is a co-sponsor of this bill, visit: http://www.nhtf.org/onthehill/housebill.asp

The “Sufficient, Sustainable Livelihood for All” social statement (adopted by more than two-thirds majority vote—872-124 in 1999) states:

“We are called to be stewards of what God has given for the sake of all.”

“Government is intended to serve God’s purposes by limiting or countering narrow economic interests and promoting the common good.”

“God has created a world of sufficiency for all…the problem is not the lack of resources, but how they are shared, distributed, and made accessible within society.”

“Sufficiency means adequate access to income and other resources that enable people to meet their basic needs, including nutrition, clothing, housing…”

“Those who are rich and those who are poor are called into relationships of generosity from which each can benefit.”

The “Sufficient, Sustainable Livelihood for All” social statement calls for:

“adequate, consistent public funding for the various low-income services non-profit organizations provide for the common good of all;”

“scrutiny to ensure that new ways of providing low-income people with assistance and services (such as through the private sector) do not sacrifice the most vulnerable for the sake of economic efficiency and profit;”

The ELCA message “Homelessness: A Renewal of Commitment” (adopted by ELCA Church Council on October 22, 1990) states:

“Christians who have shelter are called to care, called to walk with homeless people in their struggle for a more fulfilling life and for adequate, affordable, and sustainable housing.”

“Walking with people who are homeless includes the responsibility to prevent homelessness.”

“We are called to be aware of and concerned for people in our midst who are vulnerable to losing their housing.”