Federal Housing News
September 15, 2014
NATIONAL HOUSING TRUST FUND
New Cosponsor to H.R. 1213
On September 9, Representative G. K. Butterfield (D-NC) cosponsored H.R. 1213, a bill to modify the mortgage interest deduction and direct the majority of the resulting revenue into the National Housing Trust Fund. This brings to 14 the number of cosponsors of H.R. 1213.
The Common Sense Housing Investment Act, introduced on March 15, 2013 by Representative Keith Ellison (D-MN), represents the United for Homes campaign’s proposal to modify the mortgage interest deduction by reducing the size of a mortgage eligible for a tax break to $500,000, and converting the deduction to a 15% non-refundable tax credit. The revenue generated as a result, more than $200 billion over 10 years, would be directed to the National Housing Trust Fund. Mr. Ellison’s bill would also funnel a portion of the funds into the public housing, Section 8, and Low Income Housing Tax Credit programs.
More information about the United for Homes campaign is at www.unitedforhomes.org.
CBO Scores Senate Housing Finance Reform Bill
On September 3, the Congressional Budget Office (CBO) released a cost estimate (“score”) of S. 1217, the housing finance reform bill sponsored by Senate Committee on Banking, Housing, and Urban Affairs Chair Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID). The bill was voted out of the Banking Committee on May 15 by a bipartisan vote of 13 to 9 (see Memo, 5/16). However, lack of support from some Committee Democrats, who had concerns about access and affordability issues within the single family marketplace, has kept the bill from being taken up on the Senate floor.
The bill, the Housing Finance Reform and Taxpayer Protection Act of 2013, would provide for a 10 basis point fee applied to federally guaranteed securities. The fee revenue would fund the National Housing Trust Fund (NHTF), the Capital Magnet Fund (CMF), and a new Market Access Fund (MAF), with 75% of the fee revenue targeted to the NHTF. Various sources have estimates the fee would eventually generate $5 billion a year after a five-year phase-in.
Assumptions made by the CBO in the report, however, result in an estimate of only $7.3 billion for the NHTF, CMF, and MAF between 2019 and 2024, a sharp decrease from the amount anticipated to go into the NHTF during these years.
The CBO score of the bill assumes a steep drop in market share for the bill’s successor to Fannie Mae and Freddie Mac, the Federal Mortgage Insurance Corporation (FMIC). According to the CBO report, in 2013 the value of mortgages guaranteed by Fannie Mae and Freddie Mac, along with the Federal Housing Administration (FHA), was about $1.7 billion, or about 80% of total mortgage originations.
“Under S. 1217, CBO estimates that FMIC would guarantee about 30% of the total mortgage market over the 2020-2024 period. The remaining mortgage market would be supported mostly by private firms that carry no federal guarantee (60% of the total), while about 10% would be guaranteed by FHA, the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS),” the report says.
assumes that borrowers would be more likely to secure non-FMIC insured loans
because interest rates for FMIC-guaranteed loans would be higher, due to cash
reserve requirements for FMIC imposed by S. 1217 and the 10 basis point fee on
private entities to fund the affordable housing programs. The assumption that
the GSEs’ market share would drop so precipitously within the next five years
results in the low amount the report predicts would go to the three affordable
housing programs, including the NHTF.
Continuing Resolution Would Fund Programs Through December 11
On September 9, House Committee on Appropriations Chair Harold Rogers (R-KY) introduced H. J. Res. 124, a continuing resolution (CR) to keep government programs funded at FY14 levels through the first ten weeks of FY15 until December 11. Absent any enacted FY15 appropriations bills, Congress must pass a CR before October 1, the start of the next fiscal year, to avoid a government shutdown. Passage of Mr. Rogers’s CR likely will occur during the week of September 15 in both the House and Senate.
Congress is expected to return to work after the November elections and decide the course of funding for FY15 beyond December 11. What Congress will do largely depends on the outcome of November’s elections, and whether Democrats retain their majority position in the Senate.
NLIHC’s budget chart is at http://nlihc.org/sites/default/files/FY15_Budget_Chart_HUD_USDA.pdf
Multifamily Notice Adds Appeal Process When Owner Obstructs Tenant Participation
HUD’s Office of Multifamily Housing Programs revised the Notice pertaining to owner compliance with the tenant participation requirements at HUD-assisted private multifamily properties. Notice H 2014-12 repeats text from earlier Notices and adds a procedure for tenants to appeal a decision by the local HUD office that an owner did not violate the tenant participation regulations or other program obligations.
Notice H 2014-12 augments previous Notices H 2012-21 and H 2011-29 (see Memo 10/26/12) that states that a tenant or tenant organization may file a written complaint with the local HUD office. The Notices also describe the penalties that may be levied if owners or managers violate the tenant participation requirements found in Part 245 of the regulations. The earlier Notices did not have a tenant appeal process sought by the National Alliance of HUD Tenants (NAHT), which worked to convince HUD to issue the original Notice H 2011-29 on October 13, 2011.
Section F of the older Notices is improved by the addition of a tenant appeals process. The local HUD Hub or Program Center is required to ask tenants and the owner or management agent to voluntarily meet with HUD in an attempt to address tenant complaints. If all parties agree on a solution addressing the complaints, a conciliation agreement will be drafted and HUD will approve it if it protects the public interest. If either party breaks the agreement, HUD can reopen the case and pursue enforcement action.
If conciliation is not reached, the local HUD office will conduct an investigation. If the Hub or Program Center concludes that there was a violation of Part 245, HUD will notify the owner, describe the violations, and direct the owner to correct violations within 30 days.
If the Hub or Program Center concludes that there was no violation of Part 245, a determination of “no reasonable cause” will be issued and the case closed. A tenant or tenant organization can request reconsideration of the case by the HUD headquarters’ Office of Asset Management (OAM). The parties will be asked to submit additional evidence. If OAM concludes that the case should be reopened it goes back to the local Hub or Program Center for further investigation and attempts at conciliation. If the re-investigation leads to a conclusion that a violation has occurred or is about to occur, HUD will pursue enforcement activities as outlined in the latest Notice and its predecessors.
Residents and advocates will find the Notice informative because it continues to present the Part 245 regulations in an easy to read format, elaborating on the rights of tenants to organize and the types of protected organizing activities. It also identifies specific actions by owners and managers that are impediments to the right to organize, as listed in Chapter 4 of HUD Handbook 4381.5 (REV-2).
Part 245 pertains to tenants at properties assisted with Project-Based Section 8, Section 202, Section 811, and a variety of other older programs. Part 245 does not pertain to public housing or Housing Choice Vouchers.
Notice H 2014-12 is at http://portal.hud.gov/hudportal/documents/huddoc?id=14-12hsgn.pdf
Multifamily Memo Delegates Authority to Waive Five Preservation Provisions to Local HUD Offices
In order to preserve existing HUD-assisted housing, authority to approve waivers of five provisions in the Section 8 Renewal Policy Guide is being delegated to local Hub Directors. According to a memorandum dated August 28 from Benjamin Metcalf, Deputy Assistant Secretary for Multifamily Housing Programs, Hub Directors must determine that a requested waiver is appropriate by assessing documentation submitted by project owners.
Four of the Renewal Guide provisions that may be waived by the Hub Director are in Chapter 15, pertaining to nonprofit Section 8 project preservation. They are:
1. The prohibition of a for-profit organization using the preservation features in Chapter 15 may be waived if a for-profit has a strong history of providing affordable housing and has the experience to own and maintain the property.
2. If a project’s underwriting requires market rents in a Rent Comparability Study greater than rents at rent-restricted units (such as those assisted with Low Income Housing Tax Credits) in order to ensure long-term preservation, the Hub Director may waive the requirement to lower the comparable market rents in the Rent Comparability Study.
3. For substantial rehabilitation projects that have a construction loan, the effective date of post-rehabilitation rent levels may be the date of closing, rather than the date rehabilitation is completed, if the lender requires full debt service payment at closing.
4. A pre-MAHRAA contract may be terminated early in order to take advantage of preservation tools if the owner is willing to renew the contract for 20 years, renew the contract for the remaining balance on the contract being terminated, and sign the “Rider to Original Section 8 Housing Assistance Payments Contract.” (MAHRAA is the Multifamily Assisted Housing Reform and Affordability Act of 1997 that authorized the Mark-to-Market program and renewal of expiring Section 8 contracts.)
The fifth provision that may be waived is in Chapter 3. A Section 8 contract at a property that had a Real Estate Assessment Center (REAC) physical inspection score of 60 or less may be renewed under Mark-Up-to-Market if the property is transferred to a new owner and/or rehabilitation will correct the deficiencies identified in the REAC inspection. Mark-Up-to-Market allows rents to owners to increase to market-rate.
The Section 8 Renewal Policy Guide is at http://portal.hud.gov/hudportal/documents/huddoc?id=Sec_8_Renewal_Policy_Guide.pdf. Chapter 15 starts on page 197.
More information about the Project-based Section 8 program, Mark-to-Market, and Mark-Up-to-Market is on page 139 of NLIHC’s 2014 Advocates’ Guide, http://nlihc.org/sites/default/files/2014AG-139.pdf
USDA’s Rural Development Restrains Use of Incentives To Avoid Prepayment
The U.S. Department of Agriculture’s (USDA) Rural Development (RD) mission area issued an Unnumbered Letter that places restraints on the use of three types of incentives used to avoid prepayment of mortgages at Section 515 multifamily properties. The Unnumbered Letter notes that funds for RD’s Section 521 Rental Assistance (RA) program have been constrained by the FY13 budget rescission and FY14 appropriation. With less RA funding, it is difficult for RD to offer RA as an incentive to multifamily property owners to renew Section 515 contracts. If owners exit the Section 515 program they may raise rents to market levels, which many residents could not afford.
RA is designed to make housing financed by RD’s Section 515 program affordable to very low income households, those with income at or below 50% of area median income. RA is similar to HUD’s Section 8 project-based rental assistance program.
Due to the limited availability of RA, RD’s Office of Multi-Family Housing is placing restrictions on the use of three of the six incentives available to encourage Section 515 owners to remain in the program. If owners seek incentives to not prepay, the Unnumbered Letter requires state RD offices to provide the national office with a justification for using one of the three newly restrained incentives. The justification must explain why RA is needed to retain the project, and why the affordable housing is important to the community.
The three incentives subject to the Unnumbered Letter are:
1. An offer of additional rental assistance or an increase in rental assistance.
2. An offer to make an equity loan.
3. An offer of rental assistance to protect tenants who are rent-burdened, paying more than 30% of their income on rent and utilities, or who will become rent-burdened as a result of any rent increase due to the owner’s acceptance of another incentive offer, such as an equity loan that raises the cost of debt service.
The Unnumbered Letter states that an equity loan should only be offered when it is financially feasible without additional RA.
The other three incentives not subject to the Unnumbered Letter’s limitations are:
1. An offer to allow the owner an increase in annual return on equity.
2. Properties with HUD project-based Section 8 may receive rents greater than otherwise considered necessary by RD in order to defray the cost of long-term repair and maintenance.
3. Properties with Section 8 assistance may receive an interest credit subsidy on a loan in order to lower the interest rate. Other RD interest credit programs may also be offered.
The Unnumbered Letter is at
More information about Section 515 and RA is on page 152 of NLIHC’s 2014 Advocates’ Guide, http://nlihc.org/sites/default/files/2014AG-152.pdf
RD SUSPENDS RURAL IN CHARACTER ELIGIBILITY CHANGES. In response to public concerns about changes in eligibility for rural housing programs based on determinations that some places are no longer “rural in character,” USDA has suspended use of this factor to alter a community’s rural status. No changes will be made until October 2015 at the earliest, and a new procedure will provide a 90-day public comment period on proposed modifications. This issue is not related to eligibility changes based on population growth (see HAC News, 2/5/14).
NATIONAL OFFICE AGREEMENT REQUIRED FOR SOME RD PREPAYMENT INCENTIVES. An Unnumbered Letter dated July 11, 2014 requires RD state offices to obtain advance approval before offering additional Rental Assistance or equity loans to Section 515 borrowers who want to prepay their loans. The UL says it is “an interim step” while regulatory changes are developed. Contact Tiffany Tietz, RD, 616-942-4111 ext. 126.
NEW GUIDELINES APPLY TO EXTENSIONS AND DEOBLIGATIONS OF UNUSED SECTION 515, 514, AND 516 FUNDS. An Unnumbered Letter dated July 30, 2014 provides timeframes and processes for USDA staff. Limited extensions may be permitted. Contact Mirna Reyes-Bible, 202-720-1753 (Section 514/516) or Melinda Price, 614-255-2403 (Section 515).
ONLINE HOMEOWNERSHIP EDUCATION PROVIDER APPROVED FOR SECTION 502 BORROWERS. An Unnumbered Letter dated August 22, 2014 announces the agency has approved Framework to provide online education, which can be used only when other formats are not available. Contact Shantelle Gordon, RD.
RD ADDRESSES THERMAL STANDARDS FOR MANUFACTURED HOUSING. The HUD Code specifies minimum thermal standards for each state, while RD applies them by county. Administrative Notice (AN) 4772 (Aug. 4, 2014) lists the standards for specified counties. Contact William Downs, RD, 202-720-1499.
GUIDANCE PROVIDED FOR RURAL MULTIFAMILY DESIGN/BUILD AND CONSTRUCTION MANAGEMENT PROPOSALS. AN 4770 (July 11, 2014) requires National Office approval to use Section 514 or 515 loans for design/build or construction management arrangements. Contact Sherry Engel, RD, 715-345-7677, or William Downs, RD, 202-720-1499.
REMINDER ISSUED ABOUT SECTION 515 BORROWERS WHO RECEIVED LITIGATION DAMAGES. An Unnumbered Letter dated June 24, 2014 instructs RD staff about servicing the accounts of borrowers who received damages payments pursuant to the May 21, 2007 agreement that settled a lawsuit against USDA regarding prepayments. Those owners cannot prepay their loans (unless USDA determines a property is no longer needed) and cannot receive incentives to discourage prepayment. Contact Tiffany Tietz, RD, 616-942-4111 ext. 126.
FHFA PROPOSES NEW HOUSING GOALS FOR FANNIE MAE AND FREDDIE MAC. Comments are due October 28 on possible changes to be in effect from 2015 through 2017, including a new subgoal for financing small multifamily rental properties (5-50 units). No rural subgoal is proposed. Contact Dr. Nayantara Hensel, FHFA, 202-649-3122.
CHANGES TO HMDA REGULATIONS SUGGESTED. Comment by October 29 on a Consumer Financial Protection Bureau proposal to implement a portion of the Dodd-Frank Act. Lenders subject to the Home Mortgage Disclosure Act would have several new reporting requirements, some existing requirements would be clarified, and some institutional and transactional coverage would be changed. Contact CFPB’s Office of Regulations, 202-435-7700.
NEW REPORT COVERS CHALLENGES OF HOUSING SENIORS. Housing America’s Older Adults – Meeting the Needs of an Aging Population, published by Harvard’s Joint Center for Housing Studies, analyzes the ability of the existing U.S. housing stock to meet growing needs for affordability, accessibility, social connectivity, and supportive services.
DROP IN HOMELESS VETERANS ESTIMATED. HUD, VA, and the U.S. Interagency Council on Homelessness (USICH) estimate that as of January 2014 veterans’ homelessness nationwide had declined by 33% since 2010.
SHORTAGE OF AFFORDABLE RENTALS REMAINS. A new Housing Spotlight report from the National Low Income Housing Coalition shows that nationwide there are only 31 affordable and available units for every 100 extremely low-income renters (with incomes at or below 30% of area median) and only 16 for every 100 deeply low-income renters (below 15% of area median). The report provides data for states and for 50 large metro areas.