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Affordable Housing Takes Center Stage for 2014

In contrast to current acting director Edward DeMarco, who has interpreted his role as conservator of the agencies more strictly and has worked to reduce the dominance of the agencies, Watt is expected to do more to support the mortgage market and ease credit conditions.

He has already said he would delay a recently announced proposal to raise guarantee fees on mortgages backed by Fannie and Freddie, a move that would have raised interest rates on mortgage loans conforming to GSE guidelines.

Other controversial moves such as a plan to reduce the volume of multifamily loans purchased by Fannie and Freddie by 10% and a proposal to reduce the size of single-family home loans purchased by the agencies are also likely to be delayed or abandoned under Watt, according to analysts.

On the rental side, Lazio expects Watt to reinstitute the Housing Trust Fund that was established under the Housing and Economic Recovery Act of 2008. The trust fund was originally expected to be financed by an assessment on new mortgage lons purchased by the GSEs. Under the plan, grants would be provided to states and state-designated entities, with at least 80% of the fund used for rental housing; up to 10% for homeownership and up to 10% for the grantee's reasonable administrative and planning costs.

However, when the GSEs were taken into conservatorship in late 2008, they suspended payments into the fund.

Now that Fannie and Freddie are profitable again, there have been calls to re-establish the fund. The fund would not require congressional approval, but with the agencies in conservatorship, it would mean diverting taxpayer money from the Treasury and towards the Trust Fund.

As a Republican focused on affordable housing, Lazio himself favors increasing the allocation to the Low-Income Housing Tax Credits, a program that has enjoyed bipartisan support. "It gets private capital involved. The states decide who gets awarded credit. There is no federal bureaucracy. It is flexible, there is no one-size-fits-all approach," says Lazio, listing the reasons the scheme has won the favor of both parties.

Lazio acknowledges that it is very hard to argue for new spending in the current fiscal climate. His solution is to refocus the mortgage interest deduction so that it targets lower income borrowers and not the homeowners making more than $200,000 a year, whom he contends do not need support.

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