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Constructive criticism

By Sandra Fleishman
The Washington Post

The nation’s home builders, real estate sales people and mortgage bankers stood by their man in the presidential election, and now they hope he stands by his housing agenda during the next four years.

The National Association of Home Builders, the National Association of Realtors and the Mortgage Bankers of America don’t endorse presidential candidates, they’re quick to point out. But the trade associations acknowledge that many of their members, as small-business owners and big-business executives, are in the GOP fold.

Industry members also voted decisively with their checkbooks. Employees and political action committees in the three industries gave almost three times as much money to President Bush as to his rival, Sen. John F. Kerry, D-Mass. — about $10.8 million compared with $3.7 million as of Oct. 4, according to information from the Center for Responsive Politics.

Now that their favorite is in for another four years, you might think the three big housing industry groups could relax. After all, during the campaign Bush repeated his commitment to two of their prime goals: boosting homeownership and cutting regulation.

But because housing has never been the No. 1 item on presidential agendas, spokesmen for the groups said, they need to keep the pressure on.

A big concern is that Bush’s second-term domestic priorities could have unforeseen effects on housing.

For instance, the administration may move quickly to tighten regulation of secondary mortgage giants Fannie Mae and Freddie Mac, said Gerald Howard, chief executive and executive vice president of the builders group. “What we’re going to try and impress them with ... is ‘Please, before you get into the details of re-regulating or reforming, make sure that you analyze the potential impacts on the housing market of doing that.’”

Spokesmen for the three housing groups say their members also support the president’s key agenda item, tax code reform, but they want to slam the door on any talk about eliminating the deduction for mortgage interest payments.

Meanwhile, affordable housing advocacy groups and those interested in preserving federal rental assistance funds warn that the record budget deficit could make a fatter target of federal housing programs, including those that Bush has proposed in order to boost homeownership and create affordable housing.

Any effort to ease the deficit by cutting spending will increase pressure on departments such as Housing and Urban Development, which spends more than half its budget on rental assistance, they say.

These groups previously have criticized Bush for what they see as underfunding of programs for lower-income families. The administration disagrees; in fact, it trumpets its increases to various programs.

“We’ve obviously had four years of experience with the Bush administration and what they would do to low-income programs, so we know what to expect,” said Sheila Crowley, president of the advocacy group National Low Income Housing Coalition. “We don’t expect them to do any better and probably to do worse.”

These critics have consistently said the Bush administration has neglected renters, low-income housing residents and affordable housing development while favoring homeowners.

The administration has defended its approach on housing, which encourages private development of affordable housing and would establish economic opportunity zones to encourage public and private investment in distressed neighborhoods.

Bush in 2003 signed the American Dream Down Payment Act, which authorizes $200 million a year in down-payment and closing-cost assistance for about 40,000 low-income families, and has directed federal agencies to eliminate regulatory barriers to affordable housing development.

He has also proposed a zero-down-payment initiative for Federal Housing Administration borrowers, which would cut that required down payment from 3 percent to nothing, and a tax credit for lower-income home buyers. But Crowley points out that the American Dream Down Payment Act has never been fully funded and that the other proposals have not been pushed by Republican congressional leaders or the administration.

Here’s a closer look at what the various housing interest groups see ahead:

Tax reform

While officials at the three big housing lobbies say they want to preserve affordable housing and rental assistance programs, they are more focused on what could happen to housing if Bush and Congress tackle tax reform.

In his first postelection news conference, Bush announced plans for a panel to forward suggestions to Treasury Secretary John Snow by early 2005. The last sweeping rewrite of the tax code came in 1986 under President Ronald Reagan.

The home builders’ Howard is among those who believe the president himself has taken the mortgage interest deduction off the table.

“I heard the president say he wants to preserve the mortgage interest deduction” when he spoke to the builders association on Oct. 2 at its annual conference in Ohio, Howard said last week. “We’ve got him on tape ... and we take him at his word.”

But Howard said his group isn’t taking any chances that the panel might recommend differently.

“We also know people on the Hill who want to go to a complete (national) sales tax” and remove all tax breaks, Howard said. A flat tax, which would include
eliminating all deductions, also has advocates. “Our position is that the mortgage interest deduction is essential to housing and that it needs to be preserved.”

Steve Cook, vice president of public affairs for the National Association of Realtors, said its members are adamant about protecting the deduction.

“We’re not taking a stand against any of the president’s positions at all,” Cook said. “We’re simply remaining opposed to changing the position on the mortgage deduction.

“We fought (elimination) in the ’80s, we fought it in the ’90s and we will continue to fight it,” Cook said. “It’s a critical part of making homeownership available to millions of families.”

While some observers pooh-pooh the idea that the Bush administration would ever consider dropping the deduction, others point out that tax purists and conservative think tanks have consistently proposed killing it. That includes a much-ballyhooed flat-tax option by GOP presidential candidate and billionaire Malcolm S. Forbes Jr. in the mid-1990s, which drew a major counterattack from the housing industries.

The Kerry campaign also claimed this year that tax reform proposals developed during Bush’s first term would eliminate the tax deduction.

Fallout from Fannie and

The home builders and mortgage bankers say they worry about unintended consequences from the administration’s push to reform secondary mortgage giants Fannie Mae and Freddie Mac.

Setting up a stronger regulator for the government-sponsored enterprises and cracking down on reported accounting irregularities are broadly supported, said the NAHB’s Howard. “What we’re concerned about is, will there be any vacuums created” in the mortgage market.

“If they’re just changing the structure of the regulator, perhaps there will not be as broad an impact. But if they’re talking about changing the way the GSEs do business, that’s a different kettle of fish,” Howard said. His group’s goal is to ensure the flow of capital to housing and the price of that capital is not hurt.

Steve O’Connor, vice president of industry relations and policy development at the Mortgage Bankers Association, agreed.

“The GSEs play an important part” in the housing market, he said, “and we want to make sure they continue to play that role. ... We support reform but not if it hurts housing.”

Housing budget

Crowley, of the low-income housing coalition, said that with the record budget deficit and the Bush administration’s intention to extend tax cuts and fully fund military spending, “they’re going to look to non-homeland security domestic programs (to cut), and housing is one of those that they will continue to try to squeeze money out of.”

The coalition this year decried a $1.6 billion cut in rental vouchers in the administration’s fiscal 2004 budget request and has worked hard with congressional allies to restore the funds in appropriations bills that await final action.

But Crowley predicts things will only get tighter in the next budget request, as the administration looks for places to make up the deficit.

“If they just wiped HUD off the face of the Earth this year, it would hardly make a difference in the deficit,” Crowley said, but it would kill the federal commitment to public and low-income housing.

The coalition and other advocates say the administration has done little in the face of an affordable housing crisis and has unfairly favored homeowners to the detriment of renters.

Bush did get Congress to pass his American Dream Down Payment assistance program last year, Crowley said, but “it got only $87 million (in appropriations) the first year and this year they will be lucky if it gets $50 million.”

And even though Bush has proposed a homeownership tax credit to make housing more affordable, it hasn’t been included in any of his tax bills, she said. “If (Bush) wanted it to be enacted he could have said ‘Put it in one of these tax bills,’” Crowley said. “He has not spent one political dime on this. ... I think it’s all talk. It’s a lot of noise without much substance.”

Officials at the coalition and the National Housing Conference, a nonprofit advocacy organization, say they will continue to work to protect the rental vouchers. Both groups also will work to protect HUD funding for affordable housing.

Conrad Egan, president and chief of the housing conference, said his group is also worried that existing low-income housing tax credits and other tax incentives could be eliminated in tax reform bills.

National housing trust fund

Crowley’s group will work to pass an alternative approach to affordable housing production that was introduced in 2000 by Democratic presidential candidate Kerry. This national housing trust fund would create a dedicated source of money to build 1.5 million affordable rental units over 10 years, its backers say.

While the administration says the trust fund would duplicate other HUD programs and unwisely takes funds from an FHA mortgage insurance fund, Crowley and her allies say the idea would work.

In the House, trust fund legislation has 214 co-sponsors, but the Republican chairman of the House Financial Services Committee has not allowed it to come up for a vote, Crowley said. The coalition next year will seek to line up enough votes to bring the bill to the House floor.