Royce introduces bill to halt affordable housing funds

Rep. Ed Royce (R-Calif.) reintroduced legislation on Tuesday that would stop the Federal Housing Finance Agency (FHFA) from financing affordable housing trust funds at taxpayer-backed mortgage giants Fannie Mae and Freddie Mac.

Royce's move comes after FHFA Director Mel Watt spent four hours testifying earlier Tuesday before the House Financial Services Committee, of which Royce is a member.

Watt, a former Democratic congressman from North Carolina, announced in December that the agency would begin financing the Housing Trust Fund and Capital Magnet Fund, reversing the administration's 2008 decision to cut funding following the economic collapse.

Royce's legislation, dubbed the Pay Back the Taxpayers Act, would restrict Watt from carrying out that directive. There is no companion legislation in the Senate.

Royce and House Republicans argue that Watt should direct Fannie and Freddie's recent profits to the U.S. Department of Treasury. They argue that the trust funds are a "slush fund" that puts taxpayers at risk by financing housing loans to people in the U.S. who can't afford to purchase a home.

"Anyone who witnessed the financial crisis knows exactly how this will play out," Royce said in a statement. "A larger government presence in housing distorts the market and promotes a boom-and-bust cycle that leaves taxpayers holding the bag."

Watt and Democrats vehemently disagree. They argue that financing low-income Americans' housing will help boost economic growth.

After the 2008 economic collapse, Fannie and Freddie nabbed a $190 billion taxpayer bailout and the government took control of the two entities. While the government conservatorship was pitched as temporary, it still remains in place six years after the crisis.

Most housing finance proposals circulating Capitol Hill would end Fannie and Freddie, but it's unclear whether there's an incentive to act on house reform in this Congress.