Historic Housing Bill Passed By Congress

House and Senate Pass Housing Bill that Includes Housing Trust Fund

After months of negotiations among Congressional Democrats and Republicans and the Bush Administration, the House of Representatives passed H.R. 3221 (American Housing Rescue and Foreclosure Prevention Act of 2008) on July 23 by a vote of 272-152. The Senate approved the House-passed bill on July 26 by a vote of 72-13. HR 3321 is the most far reaching federal housing bill in many years and is expected to be signed into law as early as the week of July 28.

President Bush has stated that he will sign the bill. Among the bill's numerous provisions is the establishment of a Housing Trust Fund. This is a major victory for low income housing advocates and the lowest income people in our country with the most serious needs.

The Housing Trust Fund features include:

• It is a permanent program with a dedicated source of funding not subject to the annual appropriations process.
• At least 90% of the funds must be used for the production, preservation, rehabilitation, or operation of rental housing. Up to 10% can be used for the following homeownership activities for first-time homebuyers: production, preservation, and rehabilitation; down payment assistance, closing cost assistance, and assistance for interest rate buy-downs.
• At least 75% of the funds for rental housing must benefit extremely low income households and all funds must benefit very low income households.

This is the first new federal housing production program since the HOME program was created in 1990 and the first new production program specifically targeted to extremely low income households since the Section 8 program was created in 1974. Funds for the Housing Trust Fund will come from annual contributions made by Fannie Mae and Freddie Mac.

The amount will be based on a percentage of each company's annual new business. 25% of the funds each year must first go to a reserve fund at the Treasury to offset scoring problems with the remaining 75% of the funds divided between the Housing Trust Fund which gets 65% and a new Capital Magnet Fund that gets 35%. For the first three years, a percentage of the funds will be diverted to a reserve fund to cover losses that the FHA might incur refinancing troubled mortgages through the new HOPE for Homeowners program.

Based on the projected amount the formula will produce in calendar year 2008 approximately $300 million would have been available for the housing trust fund this year had it been in place with no diversions for the HOPE for Homeowners reserve fund. Funds not needed to cover FHA losses eventually will revert to the Housing Trust Fund and the Capital Magnet Fund. Given the recent instability of Fannie Mae and Freddie Mac, concerns have been raised about whether any funds will be available for new programs. The new regulator has the authority to suspend contributions under certain circumstances related the fiscal distress of the GSEs. However, money will be available for the Housing Trust Fund by FY10 by which time Freddie Mac's and Fannie Mae's fiscal conditions are expected to be much improved.

HR 3221 Addresses Reform of GSEs and The Foreclosure Crisis

The mounting distress in the U.S. housing market, particularly the recent drop in stock value for Fannie Mae and Freddie Mac, forced Congress to finally act and the President to agree on the housing package. On July 23, the Bush Administration issued a Statement of Administration Policy advocating for expeditious passage of the legislation. The White House had earlier suggested it would veto any version of the bill containing nearly $4 billion in Community Development Block Grant Funding for neighborhood stabilization for areas blighted by foreclosure but later agreed not to stop the bill once the provisions sought by the Administration to protect Freddie and Fannie from financial losses were included.

House Financial Services Committee Chair Barney Frank (D-MA), who led the passage of the bill in the House said, "The bill does represent a mutually reinforcing set of approaches that will begin to diminish the [housing] problem. This will begin to lay the groundwork for a turnaround in the housing market and hopefully in the broader economy as well." The bill's Senate champion, Banking Committee Chairman Christopher Dodd (D-CT) said, "Today...we sent a message to American families that help is on the way. In addition to providing urgently needed relief to homeowners on the brink of losing their homes, this legislation will address our broader economic problems by helping to reform our housing sector and provide reassurances to our financial markets."

The bill will take effect October 1, 2008. Of the many provisions designed to address the housing crises, several are of particular interest to low income housing advocates. The following sections of the bill are summarized here:

• Reform of Fannie Mae and Freddie Mac
• Stabilizing neighborhoods hurt by the foreclosure crisis
• Low income housing tax credits and tax-exempt bonds
• Public housing

Reform of Fannie Mae and Freddie Mac

HR 3221 establishes the Federal Housing Finance Agency (FHFA) to oversee and regulate Freddie Mac, Fannie Mae, and the Federal Home Loan Banks (GSEs). The FHFA replaces the Office of Federal Housing Enterprise Oversight and HUD as Freddie's and Fannie's regulator and replaces the Federal Housing Finance Board as the regulator for the Federal Home Loan Banks (FHLBs).

The FHFA will be headed by a director appointed by the President and confirmed by the Senate for a five-year term. The legislation also provides for three deputy directors appointed by the director: the Deputy Director for Housing and Mission Goals, the Deputy Director for Federal Home Loan Bank Regulation, and the Deputy Director for Enterprise Regulation. The new regulator has enhanced authority to raise capital standards, ensure internal controls, and enforce these new standards and take prompt corrective action. The new regulator will oversee, and could directly restrict, executive compensation at Fannie Mae and Freddie Mac.

The bill sets the GSE loan limits at $417,000 for single family homes, with a maximum in high cost areas of $625,500. These limits will take effect at the beginning of the 2009. The current maximum loan limit is $729,750 in high-cost areas, a temporary increase until the end of 2008.

The bill also changes Freddie Mac's and Fannie Mae's housing goals and, for the first time, establishes housing goals for the Federal Home Loan Banks. Currently, Freddie and Fannie are required to meet three annual percentage-of-business goals: a low and moderate income goal, an underserved geographic areas goal and a special affordable housing goal.

The bill replaces these goals with four single-family goals and a multifamily goal and makes the goals applicable to the FHLBs. Generally, these goals target Freddie's, Fannie's and the FHLBs' mortgage purchases more toward lower income families and lower income neighborhoods than under current law. In addition to the housing goals, the bill creates a duty to serve certain underserved markets. Under this provision, Freddie Mac and Fannie Mae (and not the FHLBs) are required to provide leadership in developing mortgage products to meet the needs of very low, low and moderate income families in connection with the purchase of manufactured housing, to preserve housing affordable to very low, low and moderate income families and to address the needs of very low, low and moderate income families in rural areas.

The bill brings the definition of low and very low income families in line with the definitions used in other housing programs, focusing the GSEs activities more on those at 50% of area median income and below. The bill also expands public access to Freddie Mac and Fannie Mae's mortgage purchase data and expands the data collected to align with data reported by financial intuitions under the Home Mortgage Disclosure Act.

The provisions added in the last week at the behest of Treasury Secretary Henry Paulson pertain to restoring market confidence in Fannie Mae and Freddie Mac. As this bill moved through Congress, market confidence in Freddie Mac and Fannie Mae began to deteriorate. To restore this confidence, the bill temporarily increases Freddie's and Fannie's current line of credit with the federal government and gives the Treasury Department standby authority to invest in these companies. These provisions expire on December 31, 2009. To protect taxpayers if the federal government exercises these authorities, the bill requires that taxpayers should be first in line to be paid back, before other shareholders; restricts dividends for shareholders and compensation for the executives of the GSE's until taxpayers are fully reimbursed; and strengthens oversight by requiring the Federal Reserve to consult with the new regulator on issues concerning the safety and soundness of the GSEs and use of the standby authority.

Stabilizing Neighborhoods Hurt by the Foreclosure Crisis

HR 3221 appropriates a one-time $3.9 billion in emergency assistance to states and units of general local government. The funds will be allocated based on a formula established by the Secretary of HUD no later than 60 days after enactment, but no state will receive less than 0.5% of these funds ($19.5 million). The formula is designed to ensure that the funds go to areas most in need. Criteria for the formula include the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage related loans, and the number and percentage of homes in default or delinquency in each state or locality.

All of these funds must be used to assist individuals and families whose incomes does not exceed 120% of area median income, and not less than 25% of the funds must be used for the purchase of abandoned or foreclosed residential properties that will be used to house individuals or families whose incomes do not exceed 50% of area median income. The HUD Secretary must ensure, to the maximum extent practicable and for the longest feasible term, that the sale, rental, or redevelopment of abandoned and foreclosed upon homes and residential properties under this section remain affordable these families.

These funds will be used to purchase and redevelop abandoned and foreclosed homes and residential properties and must be used within 18 months of receipt. Properties purchased with these funds must be purchased at a discount from the current market appraised value of the property and all purchased property must be rehabilitated to the extent necessary to comply with applicable laws, codes, and other requirements relating to housing safety, quality, and habitability. Rehabilitation may include improvements to increase the energy efficiency or conservation of such homes and properties or provide a renewable energy source or sources for such homes and properties. The funds may also be used to establish land banks and demolish blighted structures.

For five years, state and local governments may reinvest the profits from the sale, rental, redevelopment, rehabilitation of any property into additional activities consistent with this legislation. After five years, all profits will be returned to the Treasury.

Generally the funds would be treated as community development block grant funds (CDBG), making all the requirements of that program, that are not inconsistent with the provisions of this legislation, applicable to these funds, but the HUD Secretary may alter any CDBG requirements, except for those related to fair housing, nondiscrimination, labor standards and the environment, for the purpose of expediting the use of such funds.

No state or unit of general local government may use any amounts to fund any project that seeks to use the power of eminent domain, unless eminent domain is employed only for a public use that is an economic development use that does not primarily benefit private entities.

The bill also includes other provisions to stabilize neighborhoods with:

• Housing Counseling - This bill provides $260 million for housing counseling services. Not less than $27 million must be provided to counseling organizations that target loss mitigation counseling services to minority and low-income homeowners or provide such services in neighborhoods with high concentrations of minority and low-income homeowners. In addition, $30 million must be used by the Neighborhood Reinvestment Corporation (NRC) to make grants to counseling intermediaries approved by HUD or the NRC to hire attorneys to assist homeowners who have legal issues directly related to the homeowner's foreclosure, delinquency or short sale.
• Hope for Homeowners Program - The bill establishes a "Hope for Homeowners" program that provides authority for the Federal Housing Administration (FHA) to refinance up $300 billion in mortgages of at-risk borrowers living in their homes who can afford to make a reduced loan payment. To be eligible, the borrower cannot have intentionally defaulted on the mortgage being refinanced, must have a ratio of mortgage debt to income of greater than 31% and the mortgage being refinanced must have been originated on or before January 1, 2008. The new mortgage must be affordable to the borrower and cannot exceed 90% of the appraised value of the property. The Hope program will begin October 1, 2008 and terminate September 30, 2011.
• Homeless Assistance - Also in the area of foreclosure interventions, the bill increases the authorization level for McKinney-Vento homeless assistance programs by $30 million. These grant funds will be used to provide emergency assistance for homeless children and youths and their families who have become homeless due to foreclosures, whether they were renting or owning their homes. The grants would be made by HUD to state educational agencies that would then make sub-grants to local educational entities.
• Protections for renters who are service members - The bill authorizes the Department of Defense to reimburse military service members' moving expenses if they were renting a home and were forced to move because of a foreclosure.

Low Income Housing Tax Credits and Tax-Exempt Bonds.

HR 3221 contains several provisions related to the coordination of HUD's and Rural Housing Service's programs' coordination with the low income housing tax credit and changes to the low income housing tax credit program itself. The bill will temporarily increase, by 10%, the amount of low income housing tax credits to states for 2008 and 2009. The bill also includes an additional $11 billion in tax-exempt mortgage revenue bond authority for the next two years.

The bill allows LIHTCs to reduce an investor tax liability under the alternative minimum tax, allowing these investors to benefit from the LIHTC. This is expected to increase the pool of LIHTC investors and, hopefully, cash going into the development of LIHTC projects.

Rental income to LIHTC-funded developments is also addressed by the bill. LIHTC rents are capped at 30% of 60% of area median income. But, HUD-determined area median incomes might go down or up significantly, potentially impacting rental income to the project and resident rents. The bill will protect rental income to a LIHTC property by not allowing area median income declines for LIHTC properties. This provision is intended to de-couple the determination of AMIs for the purposes of LIHTC properties from AMI determination for HUD programs.

The bill improves how Section 8 housing choice vouchers can be project-based into LIHTC and other properties. The bill increases the maximum initial Section 8 voucher contract term from 10 years to 15 years and allows PHAs to pre-commit to unlimited renewals of these project-based vouchers. The bill allows project-based voucher rents in LIHTC buildings up to the normally allowed maximum voucher rent, even if this rent exceeds the maximum rent allowed under the LIHTC program, and authorizes project-based vouchers in cooperatives and buildings with elevators.

Processing of new Section 202 supportive housing for the elderly capital grants, that also use other, non-HUD resources, would be delegated to state or local housing agencies. The bill also extends the time period for completing Shelter Plus Care projects that also have LIHTC financing.

The bill directs the HUD Secretary to implement administrative and procedural changes to expedite the approval process for, and environmental reviews of, projects that have both HUD and LIHTC assistance. The Rural Housing Secretary is also directed to take such actions in order to facilitate the timely approval of requests to transfer ownership or control, for the purposes of preservation, of multifamily projects in conjunction with LIHTCs.

Several provisions would also facilitate the use of LIHTCs with Federal Housing Administration-insured multifamily loans. The bill eliminates the need for subsidy layering reviews of FHA-financed projects that have gone through LIHTC subsidy layering reviews and permits HUD to rely on tax credit allocating agency compliance monitoring for the purpose of periodic inspections of FHA-insured multifamily properties. The bill also requires HUD to establish a pilot program for a streamlined review of FHA multifamily mortgage insurance loan approvals, through the appointment of a chief underwriter at FHA.

The bill also establishes a new data collection component to be implemented by state LIHTC allocating agencies. At least annually, these agencies must provide the HUD Secretary with data on the race, ethnicity, family composition, age, income, use of HUD rental assistance or similar assistance, disability status and monthly rental payments of households residing in each LIHTC property. The bill authorizes $2.5 million for these efforts in FY09 and for $900,000 for each of the subsequent four years.

The bill also includes provisions that should help the LIHTC serve lower income households. The bill will allow states to boost the value of LIHTC in properties by 30%. At their discretion, state LIHTC allocating agencies can boost allocations if necessary in order for the project to be financially feasible. And, the bill clarifies the treatment of federal grants. The eligible basis of a building shall not include any costs financed with the proceeds of a federally funded grant, according to the bill. So, federal grants like operating subsidies can go into a project without their value counting against the value of LIHTCs in the property, potentially allowing lower income people into the LIHTC units.

The bill repeals the prohibition on using tax-exempt housing bonds in Section 8 moderate rehabilitation properties and treats single room occupancy (SRO) units as residential units for purposes of participating in the LIHTC program. And, the bill repeals the "10-year rule" that holds that existing property is not eligible to be redeveloped with LIHTCs if it has been transferred within the previous ten year period.

The bill also excludes a military service member's basic allowance for housing for the purpose of determining eligibility for LIHTC units under certain limited circumstances for "qualified buildings." Qualified buildings are defined by the bill as being located in any county (or adjacent county) with a military installation that had an increase in service members by at least 20% as of June 1, 2008 when compared to December 31, 2005.

Public Housing

HR 3221 includes the amended text of S 809, a bill that greatly diminishes the public housing agency annual plan requirements for PHAs that administer fewer than 550 combined units of public housing and vouchers. The original bill, introduced in March 2007, would have applied to PHAs with 500 public housing units and any number of voucher units. NLIHC opposed this bill because it would have significantly weakened the participation of residents and others in the planning processes of the PHA and the accountability of the PHA to its community.

Under the provision included in HR 3221, these PHAs will be exempted from including in their annual PHA plan components: assessment of housing needs; PHA poverty deconcentration and other policies that govern eligibility, selection and admissions (including preferences and waiting list procedures; financial resources; rent determination policies; PHA operation and management; PHA grievance procedures; demolition and/or disposition plans; whether there are developments designated as housing for the elderly, families with disabilities or elderly families and families with disabilities; both mandatory and voluntary conversion of public housing to tenant-based assistance; homeownership programs administered by the PHA; safety and crime prevention measures; policies and rules regarding pet ownership in public housing; recent results of PHA's fiscal year audit; and asset management. These exempted PHAs would have to provide a civil rights certification. These PHAs would also have to establish resident advisory boards (RABs) and respond to the recommendations of the RABs at the required annual public hearing.

The bill also includes language from HR 6276, a bill that requires FEMA to be responsible for funding the repair of public housing damaged in disasters by striking a section of law that allows HUD to pay for such repairs. This settles a debate between FEMA and HUD as to which agency is financially responsible for such repairs. The bill was originally sponsored by Representative Don Cazayoux (D-LA).

In a provision that applies to all HUD housing programs, the bill provides that deferred veterans lump sum benefits are excluded from the income of assisted households in a manner similar to the way in which back Social Security/SSI benefits are treated.

Thanks to the National Low Income Housing Coalition (NLIHC) and the National Housing Trust Fund Campaign for the incredible amount of effort and coordination they provided in passage of HR 3221. This report on HR 3221 was provided by their Memo To Members of July 25, 2008.

----UPDATED NEWS----

(From William J. Pavão, Executive Director of the California Tax Credit Allocation Committee)

President Bush has signed H.R. 3221 into law, changing several provisions of the federal Low Income Housing Tax Credit (LIHTC) program. The California Tax Credit Allocation Committee (TCAC) staff is preparing information regarding these changes, and will address several of them with stakeholders as we learn more about them and propose complementary programmatic changes. With this memorandum, staff is advising stakeholders about five (5) federal changes that require the California Tax Credit Allocation Committee (TCAC) to promptly decide an appropriate policy immediately. The specific changes are summarized below, along with staff's intentions and proposed recommendations to the Committee at its August 20, 2008 meeting.

Please download the memorandum here.