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WASHINGTON, DC-The Senate has lagged the efforts made in the House to pass legislation that address the affordable housing issue–until last week, that is. Sen. Jack Reed has introduced a bill called the Government Sponsored Enterprise Mission Improvement Act of 2007 that would require Fannie Mae and Freddie Mac to pay 4.2 basis points (0.042%) of each dollar of unpaid principle balance of total new business purchases for two Affordable Housing Programs. Reed estimates this would generate $500 million to $900 million annually.

The two programs are an Affordable Housing Block Grant Program for states and a Capital Magnet Fund. The majority of the funds–65%–would go to the block grant program for states. The Capital Magnet Fund, for its part, would be created within the US Department of Treasury to finance low-income housing through the Community Development Financial Institutions Fund.

The House bill, passed earlier this year, takes a similar approach, although there are some nuanced differences between the two pieces of legislation. Called the National Affordable Housing Trust Fund Act of 2007, the House bill’s goal is to produce, preserve and rehabilitate 1.5 million units in the next 10 years, homes that are affordable for extremely low income people. The trust fund would be allocated to cities (60%) and states (40%) through a formula to be developed by HUD. The trust fund would be funded by various sources, including Fannie Mae and Freddie Mac, and from expansion of the Federal Housing Administration’s (FHA) home equity conversion mortgage (HECM) product. In the first year, these sources would funnel about $800 million to $1 billion into the trust fund.

The two approaches are not exclusive of one another, Mark Pinsky, president and CEO of Opportunity Finance Network, tells GlobeSt.com. The group is a private sector aimed at creating opportunities for low-income people. The Capital Magnet Fund, for instance, would use housing as an anchor to support other development activities to create economic mobility for low-income areas, he says. “CDFIs have an important role to play in bringing in capital into local markets. They can bring significant value-add to these developments.”

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