Fannie Mae’s New $3.5 Billion Commitment to Home Ownership

You recently assumed a new position with Fannie Mae. Share with our readers your new employer's agenda and what brought you to this new challenge.

As part of its charter, Fannie Mae has made a huge commitment to provide home loan mortgage financing to low, moderate and middle-income Americans, and to provide financial stability in the mortgage market to make money available for people to buy homes. Fannie Mae's mission is to help stabilize and provide financial security to communities. 

My job is basically a continuation of the challenges I had in the City of Los Angeles for a number of years: to have this community reflect the needs of the people who live here and help people invest in their communities. 

Shan with us the goals of Fannie Mae's Housing LA Program and what it portends for Los Angeles' housing supply. 

Approximately one year ago, Fannie Mae announced a new initiative called "Showing America a New Way Home." When I first read it, I thought it was just another one of those slick announcements. A bank announces anew commitment to community lending, an agency with a new "community" program, etc. However, Fannie Mac announced it was committing in the next six years a 20 percent increase in their dedicated business for lower income, inner-city lending. A $1 trillion program, representing an increase of $200 billion above their baseline business commitment. 

I saw two important elements in the program. First, an institutional commitment to ending discrimination in housing lending; and second, housing not only for the ownership community, which is Fannie Mae's primary focus, but different forms of ownership, such as people with special needs, and making sure the City's rental housing is high quality and we can rehabilitate our housing stock before it falls down the slippery slope of decline, taking entire neighborhoods with it. 

What comprises this $1 trillion commitment? 

Of the $1 trillion commitment and the $200 billion in new funding, $3.5 billion has been specifically earmarked for business in Los Angeles. The purpose of the program is to provide focused lending and mortgage availability in several areas. 

For example, Fannie Mae is creating new housing opportunities with new lending products to make home ownership available for many more citizens. We're using creative and flexible underwriting and a renewed commitment to work with lenders to ensure no one is turned down for a home loan. Some paths are shorter, some are longer, but anyone who has the means to make a mortgage payment will be able to find their way into housing. 

Also, Fannie Mae is committed to developing a rehabilitation product that works not only for single-family homes, but will also help the city as it recovers from the earthquake and years of urban neglect. There is a crying need for a workable rehabilitation program in this city. The City of Los Angeles has pumped millions of dollars into a rehabilitation program, but it has not been met with a similar commitment from the private sector. 

Rehabilitation is not sexy or fun and getting people involved is very hard work. I was impressed the City's insistence on a workable rehabilitation program was met with agreement on the part of Fannie Mae. In this community, it is more critical to have a commitment to a rehabilitation program than to new construction. 

Who are Fanny Mae's partners in this Los Angeles home ownership initiative? 

There are several partners. First, the City of Los Angeles - Gary Squier at LAHD, the Mayor's Office and other officials who have a stake in the Los Angeles housing market. Second, the lending community. Fannie Mae has long-standing lending relationships with Los Angeles -- everyone from mortgage bankers, thrifts, savings and loans to emerging community lenders. The third group is the non-profit sector. Fannie Mae bas had very successful relationships at the national level, but needs to develop the same relationships at the local level with local partners such as Neighborhood Housing Services, USC and others. 

Part of my portfolio includes $250,000 of grant funds from the California Community Foundation to support local community institutions. We have already committed a portion of the funds to Habitat for Humanity, for instance. We are also supporting the National Association of Latino Elected Officials (NALEO) with funds to educate new citizens about home ownership. One of Fannie Mae's national initiatives is to link citizenship with learning bow to buy a home. When people have the goal of becoming a citizen, they usually have other goals which include building a better life. 

What are the common perceptions Fannie Mae must overcome in the community?

 It is a big, anonymous and faceless bureaucracy. Most people have no idea what Fannie Mae does. Many people think it is a government agency which comes with a government mindset. Fannie Mae is not a government organization, and from what I have seen, they made a huge change in the mid-80s to revitalize itself with regard to meeting its mission, striving to be the industry and national leader. 

Fannie Mae's jurisdiction is larger than the boundaries of the City of Los Angeles, so give us a better understanding of how other jurisdictions might be a partner with Fannie Mae's home ownership initiative? 

As you know, in every element of government services, the demand exceeds the supply, from available funds to human and political will. While my job concentrates on Los Angeles, it exists in a much larger area, and the housing market is not a city-market, but a regional-market. Fannie Mae has a regional office in Pasadena with a support staff to educate and inform the region. There are also congressional and national contacts Fannie Mae nurtures in this process, because one of our goals is to make sure everyone is on the same field, looking at the same end result. 

I think an important challenge for local jurisdictions is to find out whether their traditional source of funding will be committed to housing. The government cannot do what it's done in the past. It must seek out new partners such as Fannie Mae. 

For example, the City of Los Angeles has a successful mortgage revenue bond program. Aside from the fight with the State of California to allow any localities to issue mortgage revenue bonds, there is the question of how to get a better value from those bonds. In December, the City of Los Angeles completed a private placement bond with Fannie Mae cutting its cost by 50 percent. That is an example of how business with a private partner can yield equal benefits at a reduced cost.

Another example is the Mortgage Credit Certificate program. The City was late to enter the Mortgage Credit Certificate market because they had other goals. But as traditional sources such grant money and bond money became tighter and as interest rates changed, Mortgage Credit Certificates looked like a better deal. They are targeted at middle and moderate-income households (people who have federal tax liabilities) and they get people into housing for 1 to 

1.5 points less in interest, an average of $200 less for an average mortgage payment. The City has already run through its first $30 million credit allocation and is ready to start another $30 million. 

Fannie Mae will always be there to buy the mortgage, but there are a lot of tools to make it easier for people to qualify. 

In the March issue of TPR, LAHD's Gary Squier remarked the City’s resources for affordable housing will not be as great as they have been in the past. Is this a fair summary?

I think it is an optimistic summary. Again, we have an urban agenda with equal and competing needs, and housing is not on the top of the agenda for the current administration. 

Housing is hard because it is not instantaneous. It takes a long time to develop a viable program, the results lag the commitment by a considerable amount of time and the difference you make in the lives of families is not as instantaneous. But, it is long-lasting. We see what happens when we don't do anything, but we don't necessarily see what happens when we do. 

I think LAHD will be the victim of two kinds of difficulties. On the national level, we are in a difficult period. There were some very enlightened changes at HUD to form true partnerships with local administrations in that localities had an opportunity to decide what works best. Of all the public programs I have worked with, housing is the best example of one size does not fit all; it needs to be tailored to the needs of the area. What's important in Los Angeles may not be important in Santa Monica or Oakland. 

Unfortunately, the innovative changes at HUD have run into the new political reality. While housing is expensive to build and maintain, it is even more expensive to do nothing. Between the loss of momentum and absolute funds as well as the loss of congressional support, housing is not the same priority as public safety and economic development. Although I happen to believe housing is a form of economic development. 

The Housing Department is likely to lose one-third of its budget. The loss of funds, however, is likely to be invisible because LAHD is busy expending earthquake funds. Under the proposed Riordan Administration budget, housing funds have been cut one-third to one-half from its traditional sources of grant funding.

What are the strengths and weaknesses of the current LA Housing Department?

LAHD has a clear mission and it knows what it is supposed to do. I've worked in five city departments, but I can only say that about two of the five. It's hard to achieve this kind of focus in the public sector. It's not a question of delivering a product, but having a mindset. Getting the same mindset from the mail clerk to the general manager is very difficult. LAHD is also strong in program development and developing focus. When we started, we were spread out, it was hard to say "no" to projects and "yes" to targeting. That has changed under Gary Squier's leadership. It's a much more focused department. 

It's weakness continues to be unreliable funding. This translates into good employees jumping ship, relationships based on political expediency rather than true progressive partnerships and suffering productivity because people are simply trying to hold-on or run for cover.

What are your views on consolidation of the City's housing and CDD/CRA economic development functions? 

There are some advantages to consolidation. However, after 21 years with the City of Los Angeles, and due to the structure of Los Angeles government, single-purpose agencies tend to be more productive and effective in achieving their goals. I've seen the mega-department attitude tried for five years or so, then the various functions are once again separated into distinct areas. I have seen at least five iterations of mega-departments eventually breakup into little de­partments. 

I think consolidating the housing functions of LAHD, LA/CRA and ultimately, the Housing Authority, because their role is being redefined substantially, is a worth­while goal with a single administration and a single purpose. Whatever the city does, I hope it does it, and moves on. 

The California Tax Credit Allocation Committee (TCAC) is formulating new funding guidelines to reduce per project allocations in order to fund more projects. What is your reaction? 

I think Mr. Maddy lacks experience in looking at housing issues. He presents a simplistic analysis which does not look at the differences between communities or different housing product types. One set of assumptions cannot be applied to a senior citizens project, special needs housing or a family project. 

The TCAC rules don't make sense. The best way to fix the problem is not to make everything simple and give everyone a nickel. We will have invested in these projects and abandoned them at the same time. I have foreclosed on some non-profit housing projects and I don't like to have to do that. 

Mr. Maddy needs to get some sense real quick. He can do more damage to housing in 60 days than any administration, be it democrat or republican, has done in the last ten years. 

Finally, what is the cost to a City, both its treasury and civility, which doesn't attend to its housing needs? 

There are two kinds of costs. First, there are dollar costs. A leaky roof fixed today is $1,000, while unattended leaky roof turns into a $15,000 problem. It's a geometric problem if you ignore the present infrastructure.

Second, I think we also lose the confidence of our citizens. Residents look to government to make sense out of the chaos which prevails in so many communities. Hope is shutting down the crack house down the street or rehabilitating an empty building. When citizens see their neighborhoods deteriorating before their eyes it costs the city in immeasurable ways such as reinvesting in neighborhoods, sending your kids to public schools and voting in elections. We lose support when we don’t take care of our community.