	Introduction

As Congress considers different approaches to reform the housing finance system, one of the major policy issues to emerge concerns the role of the federal government in supporting affordable housing for low- and moderate-income households. Much of this debate centers on Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). As GSEs, Fannie Mae and Freddie Mac are hybrid entities, private companies with congressional charters that contain special privileges and certain responsibilities. Although the most prominent proposals to reform the housing finance system—the Protecting American Taxpayers and Homeowners Act (PATH Act; H.R. 2767 , Representative Garrett), the Housing Opportunities Move the Economy Forward Act proposal (HOME Forward Act, Representative Waters), and the Johnson-Crapo GSE Reform Proposal (Senator Johnson and Senator Crapo) —agree on the need to dissolve the GSEs and eventually revoke their charters, there is disagreement on what should replace the GSEs. Some argue that the hybrid nature of the GSEs—private companies with a public mission—led to perverse incentives to lower underwriting standards in an effort to expand credit availability to low-income borrowers. Instead, they argue, in a future system the government should support affordable housing primarily through existing government programs or agencies with an explicit mission of supporting affordable housing, such as the Federal Housing Administration (FHA) and other programs administered by the Department of Housing and Urban Development (HUD). Others argue that the perverse incentives can be realigned such that private companies could be encouraged to support affordable housing and broad access to credit in a responsible manner. This report explains the ways in which the GSEs currently support affordable housing and describes the different affordable housing approaches contained in the reform proposals. The GSEs' Support for Affordable Housing

The GSEs' business model (see shaded box below) is intended to provide support to the broader mortgage market, but certain actions of the GSEs are geared primarily toward assisting low- and moderate-income households. First, the GSEs have been directed to provide support through affordable housing goals mandated by Congress since 1992. The goals are numerical standards in which each GSE is required to focus a certain amount of its business on specified types of low-income borrowers and areas that are considered to be underserved by the mortgage market. Under the duty to serve requirement, the GSEs are required to provide leadership to assist low-income households in the manufactured housing, affordable housing preservation, and rural markets. Duty to Serve

HERA also established for the GSEs a duty to serve requirement. The Housing Trust Fund and the Capital Magnet Fund

The third method by which the GSEs were to support affordable housing is through contributions to two new affordable housing funds, the Housing Trust Fund and the Capital Magnet Fund. The funds were established by HERA and were intended to increase the supply of housing that is affordable to low-, very low-, and extremely low-income households. 2767 ), the Johnson-Crapo GSE Reform Proposal, and the HOME Forward Act proposal. As part of its wind down of the GSEs, the PATH Act would repeal the GSEs' affordable housing goals, its contributions to the affordable housing funds, and the statutory authorization for the Housing Trust Fund. The newly created National Mortgage Market Utility would not have a mandate to support affordable housing.
Congress is considering different approaches to reforming the housing finance system. One of the major policy issues to emerge concerns the role of the federal government in supporting affordable housing for low- and moderate-income households. Much of this debate centers on Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). As GSEs, Fannie Mae and Freddie Mac are hybrid entities, private companies with congressional charters that contain special privileges and certain responsibilities to support affordable housing. Some argue that the hybrid nature of the GSEs—private companies with a public mission—leads to perverse incentives and, therefore, the government should instead support affordable housing primarily through existing government programs or agencies, such as the Federal Housing Administration (FHA). Others argue that the perverse incentives can be realigned such that private companies could be encouraged to support affordable housing in a responsible manner.
The GSEs' business model is intended to provide support to the broader mortgage market, but they take certain required actions that are geared primarily toward assisting low- and moderate-income households. The ways in which the GSEs currently support housing that is affordable to low- and moderate-income households provide one potential baseline to compare recent legislative proposals. This report discusses three major channels of support. First, since 1992 the GSEs have provided support through affordable housing goals mandated by Congress. The goals are numerical standards in which each GSE is required to dedicate a certain amount of its business on specified types of low-income borrowers and underserved areas. Second, in 2008 Congress also established for the GSEs a duty to serve requirement. Under the duty to serve requirement, the GSEs are required to provide leadership to assist low-income households in certain market segments: manufactured housing, affordable housing preservation, and rural markets. Third, in 2008 Congress also directed the GSEs to make contributions to two affordable housing funds, the Housing Trust Fund and the Capital Magnet Fund. The funds were intended to increase the supply of housing affordable to low-income households. The duty to serve regulation has not been finalized and the housing funds have not received contributions from the GSEs since the GSEs were placed into conservatorship.
Although three of the more prominent housing finance reform proposals—the Johnson-Crapo GSE Reform Proposal, the Housing Opportunities Move the Economy Forward Act proposal (HOME Forward Act), and the Protecting American Taxpayers and Homeowners Act (PATH Act, H.R. 2767)—would repeal the affordable housing goals and wind down the GSEs, they offer different approaches to supporting affordable housing in a reformed system. The PATH Act would not have a mandate or requirement for private actors to support affordable housing and would leave the support to existing government agencies and programs. The Johnson-Crapo GSE Reform Proposal and the HOME Forward Act differ in their details but offer similar approaches; they would impose a fee on certain mortgage-backed securities and direct that fee to the Housing Trust Fund, Capital Magnet Fund, and a newly established Market Access Fund. They would also have, among other provisions, affordability requirements in their proposed multifamily finance systems.
This report explains the ways in which the GSEs currently support affordable housing and describes the different affordable housing approaches contained in the reform proposals.