The Urbanist Case Against Fannie Mae and Freddie Mac

The Congress for the New Urbanism (CNU), an advocacy group working to reform local development practices, is seizing on House Financial Services Committee Chairman Barney Frank's (D-MA) recent call for a new system of housing finance to replace government-controlled Fannie Mae and Freddie Mac.

Mixed-use developments, such as Atlanta's Atlantic Station (above), are often incompatible with Fannie and Freddie's rules. (Photo: AJC)

The CNU's concerns about Fannie and Freddie, which the government has used for more than 40 years to promote home ownership by backstopping trillions of dollars in mortgage loans, predate the government's takeover of the two entities in 2008.

Urbanists' frustrations with Fannie and Freddie stem from a key fact: both mortgage guarantors will not deal in home loans for properties with more than 20 percent of space set aside for non-residential use. Plans for walkable, mixed-use complexes that combine housing, retail, and office space, therefore, are often out of luck.

"Every Main Street in America violates Fannie Mae's and Freddie Mac's
rigid standards," CNU President John Norquist said in a statement yesterday reiterating his group's support for housing finance reform.

Citing "plenty of mixed-use streets" in major cities where Fannie and Freddie have played no role in development, Norquist added: "These neighborhoods often have
impressive purchasing power, transit-service and the potential to be
sites of new opportunity and green redevelopment, but this flawed
government-subsidized lending approach works to keep them locked in a
pattern of disinvestment."

Norquist and fellow urbanists have reason to hold out hope for government housing support to take on a more pro-urban cast in the coming years. The Obama administration's new inter-agency sustainable communities task force plans to spend some of its initial $150 million allocation on encouraging the issuance of "location-efficient" mortgages that take lower transportation costs into account, rewarding borrowers who move to more walkable or transit-rich areas.

But where Fannie and Freddie is concerned, Congress has shown little appetite to make the difficult choices necessary to phase in a new framework for what's known as the "secondary mortgage market."
Treasury Secretary Tim Geithner followed Frank's comments by admitting to PBS that restructuring the mortgage giants probably would not occur this year, calling it "a complicated thing to get right."

And even as Frank predicted that lawmakers would work this year on a new face to replace Fannie and Freddie, he did not address the charges of anti-urban bias long leveled by Norquist's CNU. Less than one year ago, however, Frank publicly questioned Fannie and Freddie's decision to tighten their rules on lending for all-residential condo developments.