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Tuesday, May 10, 2016

The National Housing Trust Fund and Latest Federal Housing Policy Trends

I was at the Housing California Conference last month and attended the session titled "Federal Housing Policy in a Presidential Election Year" with panelists Peter Lawrence from Novogradac and Linda Couch from the National Low Income Housing Coalition. Below are some noteworthy trends and developments.

The National Housing Trust Fund

The National Housing Trust Fund (HTF) has released its first allocation of $174 million. Each state will receive $3 million plus an additional amount based on need. Funds will be distributed to states this summer. At least 80% of each grant must be used to produce rental housing affordable to Extremely Low Income and Very Low Income households.

The HTF regulations are largely modeled after the HOME program, but with deeper affordability targets. In fact, all of the HTF allocation must assist Extremely Low Income Households earning less than 30% of Area Median Income until the HTF balance reaches $1 billion. After the HTF balance exceeds $1 billion, 75% of the HTF allocation must assist Extremely Low Income Households. Because projects serving this income level will have limited revenue, the program allows HTF to fund operating reserves when project-based Section 8 subsidy is not available. Initial commitments for reserves will be allowed to subsidize operations for up to five years at a time, although they can be renewed with subsequent grants to each State. It is yet to be determined how compatible this arrangement will be with debt underwriting standards. Hopefully norms and agreements can be established similar to underwriting of Section 8 Project-Based subsidies. The amount of funding for operating reserves allowed will be determined by each State. Providing flexibility for operating reserves will be key to making the program work for Extremely Low Income households.

The National Housing Trust was established under the Housing and Economic Recovery Act of 2008 and is funded by new business value from Fannie Mae and Freddie Mac transactions. Now that those institutions have rebounded from the recession, funds are available for allocation for the first time. More information about the National Housing Trust Fund and the Interim Rule is available on HUD's HTF website. A list of the allocation amounts by state are found here. While $174 million is a drop in the bucket to address the nationwide need, creation of the HTF is an exciting development in that it creates a structure for future investments of a much more significant scale.

Proposed Section 202 Changes

The "PRAC" operating subsidies for Section 202 projects do not currently allow for capitalization with new financing. The President's 2016 budget proposes moving PRACs to a Section 8 structure that can support refinancing of existing 202 projects and take on debt.

HR 3700

Also named the "Housing Opportunities Through Modernization Act (HOTMA)", the House passed this bill unanimously. It would increase flexibility for housing authorities to project base a larger portion of their Section 8 vouchers, and allow more project based vouchers per property, while requiring more project based Section 8 to assist homeless households.

Low Income Housing Tax Credit Expansion

Senator Cantwell supported legislation that successfully set the 9% tax credit factor permanently. She is now co-sponsoring legislation with Senator Schumer that would increase the allocation of 9% tax credits by 50%. The bill would also allow use of income averages to meet affordability targets, set the 4% tax credit factor permanently, and provide a 50% basis boost for Extremely Low Income projects.