When Federal Housing Finance Agency director Mel Watt told Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) to start setting aside money for the National Housing Trust Fund (NHTF), conservatives were outraged that he had made such a controversial decision just ahead of the holidays to avoid criticism.

“The Obama regime has quietly ordered Fannie Mae and Freddie Mac to start donating hundreds of millions of dollars a year to a permanent affordable-housing slush fund for Democratic activist groups,” IBD writes in a recent editorial.

Fannie Mae: NHTF isn’t new, it’s just been on hold since 2008

Ironically, the IBD editorial highlights one of the major problems holding back GSE reform right now, but it’s not Watt so much as Congress that is really preventing progress. The NHTF, what IBD and others are calling a liberal slush fund, was originally authorized by the Housing Economic Recovery Act (HERA) to develop low cost rental properties through HUD grants. HERA, signed into law by President Bush before he left office, requires Fannie Mae and Freddie Mac to make payments to the Fund but also gave the FHFA director the discretion to put those payments on hold if the GSEs were undercapitalized.

Whether Fannie Mae and Freddie Mac should be sending part of their fees to subsidize affordable rental properties is a debate worth having, but if Watt believes that the GSEs are no longer in danger of collapse (and based on the large dividend payments they’ve been making to Treasury, that seems like a good assessment) making payments to the NHTF is nothing more than following the law as written. The timing of the announcement may have been cynical, but the decision itself isn’t surprising.

Focus should be on Congress in this case

The deeper problem is that, even though no one is really happy with Fannie Mae and Freddie Mac, Congress hasn’t made any legislative progress in defining what should come next. Like IBD, Representative Jeb Hensarling wants the government out of the mortgage market almost entirely; Senator Elizabeth Warren wants much stronger affordable housing initiatives, and bipartisan bills like the Crapo-Johnson reform from last year aren’t getting any traction.

Ultimately, it’s not up to Watt to decide on the overall direction of national housing policy, as he has said repeatedly at Senate hearings and other venues. HERA may be a bad law, and the NHTF may be an ineffective way to promote affordable housing, but it seems like the criticism should really fall on Congress for not giving us better legislation.

Fannie Mae: IBD Slams FHFA Director Watt, Gets It Wrong