Affordable housing advocates have moved one critical step closer to their long-awaited goal of establishing a national trust fund with dedicated, ongoing sources of funding. On July 31, the House of Representatives' Financial Services Committee approved H.R. 2895, the National Affordable Housing Trust Fund Act of 2007. Originally proposed in 2000 by Sen. John Kerry, the concept of a national trust fund for affordable housing had never made it past the committee stage until now.

The bill is intended to provide funding for the construction, rehabilitation, and preservation of 1.5 million units of affordable housing over the next decade. Supporters say it will initially provide between $800 million and $1 billion per year directly to states and local agencies, without increasing government spending or the federal deficit.

All of the money from the trust fund must be used to assist families earning below 80 percent of state or local median income, and the lion's share of the money - 75 percent - must go to assist extremely low-income families, who earn less than 30 percent of median income or below the national poverty level. The funds would be funneled through states and local jurisdictions to organizations, for-profit builders, and faith-based charitable groups to build, rehab, acquire, or preserve affordable housing, including rental housing, as well as for down-payment and closing-cost assistance for first-time home buyers.

The remaining 25 percent can go to families with incomes up to 60 percent of area median income until the fund reaches $2 billion per year, according to the National Low Income Housing Coalition. If the trust fund goes above that amount, 25 percent of the fund can be used to help families with incomes up to 80 percent of area median income.

Supporters say the trust fund model has worked well at the local and state level to provide an ongoing, consistent source of aid to provide housing for very low-income families.

"We've had great success with housing trust funds at the local and state level, like Washington state, which has done about 35,000 units of housing with their trust fund," says former HUD Secretary Henry Cisneros, now chairman of affordable housing developer CityView. "Set up correctly, I think it can be one of the smartest things we've done."

In its current form, the bill identifies funding from two primary sources - the portfolios of Fannie Mae and Freddie Mac and FHA surplus funds. The enabling legislation for both those sources is tied to the government-sponsored enterprises (GSE) reform bill, Federal Housing Finance Reform Act of 2007 (H.R. 1427), and the Expanding American Homeownership Act of 2007 (H.R. 1852), which is the FHA modernization act. The House has approved the GSE reform bill and referred it to the Senate. Both FHA modernization and the trust fund bill are expected to be brought to the full House for discussion after representatives return to Congress after its August break.

While using funds from Fannie Mae and Freddie Mac for affordable housing has been called appropriate by affordable housing advocates, drawing funds from FHA profits is more controversial. Under the bill, the trust fund would draw from a portion of the profits from FHA mortgage insurance premiums paid by reverse mortgage borrowers. Reverse mortgages, also known as home-equity conversion mortgages, are available to homeowners ages 62 and older who either have paid off their mortgages or have small balances. They can borrow against the equity in their homes to provide them with monthly income or use it as a line of credit as long as they continue to live in their home. The loan is repaid when the house is sold, with the balance going to them or their heirs. If the sale amount is less than the balance due on the loan, HUD pays the shortfall. In testimony before the House Financial Services Committee last month, FHA Commissioner Brian Montgomery said that FHA receipts are already credited toward HUD appropriations.

"Under H.R. 2895, we could find ourselves in the position where the Affordable Housing Trust Fund is funded, but other, higher-priority programs are cut," Montgomery said in his testimony. "There's no free lunch here. We would essentially be robbing Peter to pay Paul." While admitting that the FHA funding is "somewhat more controversial" than the GSE component, Cisneros says its still an appropriate use of those funds. "It's not a hit on the federal treasury," he says. "Given that advocates have been looking for the right vehicle [to fund the trust], here is one that suits it."

Then there's the question of whether the money will truly benefit the families its designed to serve. The legislation doesn't address the issue of providing a dedicated source of operating dollars, which will make it challenging to serve extremely low-income families in the long run, says Alazne Solis, vice president and director of public policy for Enterprise Community Partners, a national, nonprofit organization that builds and finances affordable housing.

"It's not just about getting these families into housing, but also about maintaining healthy environments," Solis says. "At this income level, families are right on the cusp [of poverty], so developers and managers of affordable housing need to maintain these units down the road. If the goal is to keep the units affordable [long-term], you need additional operating support. The goal of the [financial services] committee is to funnel additional operating resources, but we've got a discretionary funding problem"

Sean Burton, COO of CityView, praised the House Financial Services Committee and its chairman, Rep. Barney Frank, for pushing affordable housing to the forefront of public debate. However, he says that even with the trust fund, there's still a tremendous unmet need. Citing the Millennial Housing Commission, he says it would take the production of 250,000 units a year for 20 years to close the affordable housing gap.

"It's nice to see some leadership at the federal level on the housing issue because we haven't seen that recently," he says. "The goals of the committee are a great start, but we'll need to do more to meet the need."

For more information on the affordability issue and tools to help achieve affordable homeownership, visit
For more information on the National Affordable Housing Trust Fund, visit
To read the press release from the House Financial Service Committee, visit
To read the text of the Federal Housing Finance Reform Act of 2007 (HR 1427), or the Expanding American Homeownership Act (HR 1852), visit and type in the bill name or number in the search field.
To read FHA Commissioner Brian Montgomery's testimony to the House Financial Service Committee, visit
To read Henry Cisneros' testimony to the House Financial Services Committee, visit (PDF)
For information on Enterprise Community Partners, visit
For details on CityView, visit
For information on the Millennial Housing Commission, visit