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NAHRO Resource Center for HERA: The Housing and Economic Recovery Act of 2008

NAHRO's Ongoing Coverage of HERA:

New NSP Resources Available; Amendment Deadline Approaching    (November 15, 2008)

HUD Announces Neighborhood Stabilization Program Training Course (October 6, 2008)

HUD Unveils Neighborhood Stabilization Program Implementation Notice (October 2, 2008)

HUD Unveils Neighborhood Stabilization Program Formula Allocations

Details of Draft Implementation Notice for Emergency CDBG Neighborhood Stabilization Funding (September 25, 2008)

NAHRO Makes Recommendations on Emergency CDBG Funding (September 15, 2008)

More Details on H.R. 3221, the Housing and Economic Recovery Act of 2008

Emergency CDBG Funding for Neighborhood Stabilization: An Overview (August 5, 2008)

The New GSE Affordable Housing Programs: An Overview (July 31, 2008)

NAHRO Press Statement on H.R. 3221

Major Housing Legislation Poised to Become Law (July 28, 2008)

Additional Resources and Coverage

New NSP Resources Available; Amendment Deadline Approaching

The 308 local governments and states eligible to receive direct Neighborhood Stabilization Program (NSP) allocations have been working to finalize substantial amendments to their action plans. With amendments due to HUD no later than Dec. 1, all plans are expected to have been placed online by Nov. 15 in order to achieve compliance with the 15-day public comment requirement outlined under the NSP Federal Register Notice. The NSP was created by the Housing and Economic Recovery Act (HERA) of 2008, which provided $3.92 billion in emergency Community Development Block Grant (CDBG) funding to support state and local efforts to stabilize neighborhoods with high numbers of vacant and foreclosed-upon homes.

HUD’s NSP website (www.hud.gov/nsp) now includes PDF versions of the PowerPoint presentations delivered by HUD staff during various NSP information sessions. These presentations include HUD’s general overview of the NSP, overviews of NSP relocation and environmental requirements, and an introduction to HUD’s Disaster Recovery Grant Reporting system, which will be used by NSP grantees instead of IDIS for drawing down NSP funds and reporting accomplishments.

The general NSP overview presentation posted to HUD’s website is the same presentation delivered by Steve Johnson (Director of the Entitlement Communities Division in HUD’s Office of Community, Planning, and Development) during NAHRO’s recent National Conference in San Antonio. HUD has also added a list of state NSP contacts to its website along with a newly updated page providing information and resources related to real property acquisition and relocation in connection with the NSP. HUD also continues to update its NSP Frequently Asked Questions resource, which can also be accessed through the HUD NSP website.

During NAHRO’s National Conference, several NAHRO members indicated that NSP requirements governing the use of program income could present grantees with difficulties in the future when NSP-assisted properties are resold to private individuals. NAHRO anticipates that other programmatic challenges will arise over time and that certain issues may require action on the part of HUD or Congress in order to ensure that NSP grantees are able to use their funding successfully. If you have suggestions for NSP provisions that may need to be reexamined and addressed going forward, please contact Jeff Falcusan at jfalcusan@nahro.org (ext. 7212).

NAHRO will continue to provide updates on the NSP as additional information becomes available. Please continue to visit NAHRO’s online HERA Resource Center at www.nahro.org/legislative/hr3221.cfm for the latest information.

HUD Announces Neighborhood Stabilization Program Training Course

HUD has announced the dates and locations for the Neighborhood Stabilization Program (NSP) training course. The training course, described by HUD as “a basic primer” for NSP grantees, will provide background information required to plan for and implement the NSP. Dates and locations are as follows:

NSP training course locations and dates are as follows:

Los Angeles, CA (October 10)
Columbus, OH (October 14)
Orlando, FL (October 16)

The NSP was created by the recently enacted Housing and Economic Recovery Act of 2008 (HERA), which provided $3.92 billion in emergency Community Development Block Grant funding to support state and local efforts to stabilize neighborhoods with high numbers of vacant and foreclosed upon residential properties. NAHRO’s complete coverage of HERA, including our coverage of HUD’s implementation of the NSP, is available through our online HERA Resource Center.

According to HUD, the training course is open only “to direct public agency recipients who are listed on the HUD website as receiving an NSP grant.” Developers, nonprofits, potential state recipients and any other representatives of entities that will not directly receive an NSP formula allocation from HUD are not eligible to attend and will be denied registration. HUD will allow each NSP recipient to register up to 5 attendees.

As NAHRO has previously reported, HUD released the final notice for the NSP on October 2. The notice was officially published in today’s edition of the Federal Register and includes the complete list of direct NSP formula grantees. NSP formula allocations may also be accessed directly through HUD’s NSP website.

HUD’s NSP training course will cover the following key elements of the NSP program:

Required elements of the Action Plan amendment;
Process for citizen participation;
Eligible uses of NSP funds, including land banking and acquisition/rehabilitation;
Using NSP with CDBG and other HUD funds;
Rules related to unit purchase price;
Rules related to appraised value and sales price; and
Required reporting to HUD using the Disaster Recovery Grant Reporting System.

For complete training course details, including directions for registering online, visit HUD’s Community Planning and Development Training Institute website.

For more information, contact Jeff Falcusan, Policy Advisor for Housing and Community Development (ext. 7212).

HUD Unveils Neighborhood Stabilization Program Implementation Notice

HUD has posted the Federal Register notice for the Neighborhood Stabilization Program (NSP). NSP is the name HUD has chosen for the program established by Title III of Division B of the recently enacted Housing and Economic Recovery Act of 2008 (HERA). Title III of Division B of HERA provided $3.92 billion in emergency Community Development Block Grant (CDBG) funding to support state and local efforts to stabilize neighborhoods with high numbers of vacant and foreclosed-upon homes. (Click here for NAHRO’s earlier coverage of HERA’s emergency CDBG neighborhood stabilization provisions.)

The NSP Federal Register notice summarizes “the allocation formula and allocation amounts, the list of grantees, alternative requirements, and the waivers of regulations granted to grantees.” (As NAHRO previously reported, HUD posted NSP formula allocations on September 26.) The NSP notice and NSP formula allocations are available online through HUD’s NSP website. Click here to download the notice directly in PDF format.

As NAHRO reported last week, HUD officials transmitted a draft version of the implementation notice to members of the relevant Congressional oversight committees and their staff earlier this month. NAHRO provided a summary of the draft notice in a September 25 Direct News piece, with the same summary later made available through our online HERA Resource Center.

HUD’s Formula Design Leaves Many CDBG Entitlements without NSP Funding

Because of statutory language included in HERA, HUD faced certain constraints in designing the NSP allocation formula. For example, HERA’s requirement that each state receive at least 0.5 percent of the total NSP appropriation meant that it would be difficult for the NSP formula distribution to approximate the regular CDBG program’s 70/30 split between local government entitlement communities and state programs. However, in addition to statutory requirements imposed by HERA upon the NSP formula design, HUD made certain choices in devising the formula that significantly reduced the number of local governments eligible to receive direct NSP allocations. (HUD explains the NSP formula methodology in detail here.)

While 1,201 state and local governments received regular CDBG formula allocations for FY 2008, just 308 grantees are positioned to receive direct NSP allocations. After accounting for the 51 state programs (including Puerto Rico) and insular areas, just 253 (22 percent) of the 1146 local governments that are regular CDBG entitlement communities are eligible to receive a direct NSP allocation.

The small number of NSP grantees can be attributed primarily to two determinations made by HUD in designing the NSP formula. First, HUD’s Office of General Counsel interpreted HERA’s requirement that each state receive 0.5 percent of the total NSP appropriation to mean that each state government must receive no less 0.5 percent of the $3.92 billion in NSP funding, or $19.6 million. An alternative approach would have been to interpret the 0.5 percent minimum funding requirement as applying to the total amount of NSP funding delivered to a state as a whole, i.e. the sum of a state program’s allocation and the allocations of all eligible entitlement communities within that state.

The second important determination made by HUD involves the imposition of a minimum NSP allocation threshold of $2 million for entitlement communities. The $2 million threshold has no basis in HERA. Nevertheless, HUD presents two justifications for the threshold in the NSP notice. First, HUD states its belief that due to the differences between the NSP and the regular CDBG program “grantees must receive a minimum amount of $2 million to have adequate staffing to properly administer the program effectively.” Second, HUD argues that a smaller number of grantees will make it easier for the Department to conduct monitoring, ensure compliance, and ‘reduce the risk for fraud, waste, and abuse.”

Formula Design
HUD used a two-stop process to determine NSP formula allocations. First, HUD calculated “statewide allocations” for each state and Puerto Rico a formula that allocated 70 percent of funds based on the number and percent of foreclosures, 15 percent for subprime loans, 10 percent of loans in default (delinquent 90 days or longer), and 5 percent for loans delinquent 60 to 90 days. The primary source of data for the formula was the Mortgage Bankers Association national Delinquency Survey.

For foreclosures, HUD used the sum of all foreclosure starts for all of 2007 and the first half of 2008 as opposed to an alternative measure that would have captured only properties currently in foreclosure. In a recent letter to HUD Community Planning and Development Assistant Secretary Susan Peppler, NAHRO argued against formula factors that are overly dependent upon point-in-time measures since such factors would be less successful in capturing the true extent of a crisis that has peaked at different times in different parts of the country.

After determining each statewide allocation, HUD then employed the following process to make substate allocations:

Each state government was allocated $19.6 million regardless of the state’s formula-based statewide allocation.
If a state’s statewide allocation was less than $19.6 million, then no further action was required for that state.
If a state’s statewide allocation was more than $19.6 million, then HUD used a separate substate allocation formula to allocate the amount of the statewide allocation in excess of $19.6 million “to FY 2008 CDBG entitlement cities, urban counties, and non-entitlement balance of state proportional to relative need.”
Local government substate allocations of less than $2 million were then rolled up into the state government grant along with the substate grant amount for the non-entitlement balance of state.

HUD’s NSP formula methodology “provides state governments with proportionally more funding than their estimated need.” HUD therefore encourages state governments to “use their best judgment to serve both those areas not receiving a direct grant and those areas that do receive a direct grant, making sure that the total of all funds in the state are going proportionally more to those places” with the greatest needs as defined under HERA. HERA directs NSP grantees to give "priority emphasis" to those cities, urban areas, and rural areas that demonstrate the following:

The greatest percentage of home foreclosures;
The highest percentage of homes financed by a subprime mortgage related loan; and
The highest likelihood, as determined by the grantee, of facing a significant rise in the rate of home foreclosures.

Why Are So Few CDBG Entitlement Community Funded?
Under the NSP formula structure, there are several scenarios under which a regular CDBG entitlement community may find itself ineligible for a direct NSP allocation. NAHRO examines three of these scenarios below:

Scenario 1: The NSP formula structure devised by HUD denies a direct NSP allocation to any CDBG entitlement community located within states with statewide allocations of less than $19.6 million. If HUD determined that a particular state’s statewide allocation fell short of the $19.6 million requirement, then HUD set the state program allocation for that state at $19.6 million in order to meet the 0.5 percent requirement as interpreted by HUD’s Office of General Counsel. As a result, no regular CDBG entitlement communities within that state would receive a direct allocation since the state-level grantee’s allocation of $19.6 million exceeds the entire state’s level of need as determined by HUD. In other words, no additional funding in excess of $19.6 million is available to distribute via the substate allocation formula to other grantees within the state.

Put yet another way, HUD did not need to employ the substate allocation formula for the state, and no potential NSP formula allocation was ever computed for the regular CDBG entitlement communities within that state. This was true regardless of whatever neighborhood stabilization needs exist within the state’s individual entitlement communities. Note also that because the substate allocation formula is not employed for the state, the $2 million threshold was irrelevant under this scenario.

Nineteen state governments are eligible for exactly $19.6 million under the NSP allocation formula and will be the only direct NSP formula grantees within their respective states. The states are:

Alaska
Arkansas
Delaware
Hawaii
Idaho
Maine
Montana
North Dakota
Nebraska
New Hampshire
New Mexico
Oregon
Puerto Rico
Rhode Island
South Dakota
Utah
Vermont
West Virginia
Wyoming

Scenario 2: In order to receive direct NSP allocations, regular CDBG entitlement communities must first be located within states with statewide allocations in excess of $21.6 million. In other words, after accounting for the automatic $19.6 million allocation to the state government, there must be at least $2 million left over for distribution through the substate allocation formula in order for any entitlement community within the state to have a chance to clear the $2 million threshold. Even then, there is still no guarantee that any entitlement communities within a state meeting this precondition will receive direct NSP allocations.

Assuming that a state’s statewide allocation exceeded $21.6 million, an existing CDBG entitlement community must have qualified for at least $2 million in NSP funding through the substate allocation formula to avoid having its allocation rolled up into the state government grant. Recall that each state’s non-entitlement balances were also allocated funding through the substate allocation formula, with those amounts added on to the state government’s grant. This mechanism, which remained in effect regardless of whether the $19.6 million baseline allocation to the state government already exceeded the nonentitlement balances’ relative share of statewide need, further reduced the funding available for allocation to local government entitlements.

For at least one state (Kansas), there was simply not enough funding available for distribution through the substate allocation formula for the state’s existing CDBG entitlement communities to qualify for direct NSP allocations. For other states, too many entitlement communities were “competing” - with each other and with their respective states’ nonentitlement balances - for too little funding through the substate allocation formula for any one entitlement to clear the $2 million hurdle.

Four state governments are eligible to receive more than $19.6 million under the NSP allocation formula structure but will be the only NSP grantees within their respective states. Although these states’ statewide allocations exceeded $19.6 million, no local government grantees within these states met the $2 million threshold when the substate allocation formula was applied. The states (and their state government NSP allocations) are:

Connecticut ($25.04 million)
Iowa ($21.61 million)
Kansas ($20.97 million)
Washington ($28.16 million)

The results produced by the HUD NSP formula structure for the states mentioned under Scenario 1 and Scenario 2 demonstrate how closely a regular CDBG entitlement community’s NSP funding prospects were tied to the overall foreclosure rate within its respective state. In general, an existing entitlement communities in a larger state with a large number of recent foreclosure starts is much more favorably positioned to receive a direct NSP allocation under the formula structure devised by HUD, if for no other reason than the fact that such a state’s statewide allocation would be much more likely to exceed the $19.6 million threshold by a significant amount, thus resulting in a more substantial amount of funding available for distribution through the substate allocation formula.

Scenario 3: Finally, many existing CDBG entitlement cities and urban counties simply fell short of the $2 billion threshold even as other entitlements within the same state qualified for a direct allocation through the substate formula. For example, Michigan, a state particularly hard hit by the foreclosure crisis, has 46 entitlement communities under the regular CDBG program but just 22 NSP grantees in addition to the state government.

Summary of NSP Notice

The final version of the NSP notice is nearly identical to the draft circulated on the Hill. One notable difference is the final notice’s expanded description of the requirements governing program income generated through NSP-funded activities. (See pages 42-43 of the final notice for these changes.)

This summary of the NSP notice is an updated version of NAHRO’s early review of the draft notice.

HUD Administration
HUD’s Office of Block Grant Assistance within the Office of Community Planning and Development will administer the NSP.

Additional Guidance
HUD will issue separate guidance targeting state grantee administrators. This additional guidance will compare NSP requirements with the rules governing administration of the State CDBG program.

Reallocation of Formula Funding
Those local governments, states, and insular areas receiving funding through the NSP will have until December 1 to submit a substantially complete application for their allocations. If a local government grantee fails to meet that deadline or submits an application that requests less than the total allocation amount, HUD will reallocate all or part of the allocation to the state in which the local government is located. If a state or insular area fails to meet the December 1 deadline or submits an application that requests less than the total allocation amount, HUD will reallocate the unclaimed portion of the allocation to the 10 neediest states as determined by the original formula calculation.

Program Performance and Reporting Requirements
HERA includes language allowing the HUD Secretary to specify alternative requirements to any provision under the CDBG program statute, excepting provisions related to fair housing, nondiscrimination, labor standards, and the environment.

In order to expedite the distribution of grant allocations, HUD will treat each grantee’s use of NSP funding as a substantial amendment to the grantee’s current approved consolidated plan and annual action plan.

HUD will waive the consolidated plan regulations requiring certification of consistency with the consolidated plan. HUD will also waive certain consolidated plan regulations to the extent necessary to allow grantees to use HUD’s Disaster Recovery Grant Reporting System (DRGR) as an alternative to the Integrated Disbursement Information System (IDIS) for drawing down funds and reporting accomplishments.

Waivers, alternative requirements, and statutory changes associated with NSP implementation will not apply to the use of regular CDBG formula funding, even if regular CDBG funds are used in conjunction with NSP funds for a particular project.

Definitions
The final notice provides definitions for terms used in HERA that are not used or are used differently in the regular CDBG program. Key definitions include the following:

Abandoned home: Under the NSP, an abandoned home is one that has been vacant for at least 90 days, during which time no tax or mortgage payments have been made. Furthermore, mortgage or tax proceedings must have been initiated in order for the property to be considered abandoned.

Foreclosed property: A property will be considered “foreclosed upon” under the NSP when the mortgage or tax foreclosure has been completed in accordance with state or local law. In general, HUD will not consider a foreclosure to be finalized until the title has been transferred from the former homeowner in a manner that complies with state or local law.

Use of funds: HERA requires that grantees “use” NSP funds within 18 months of receipt. In its letter to Assistant Secretary Peppler, NAHRO recommended that HUD require that grantees commit (rather than fully expend) funding within 18 months.

HUD has decided that funds will be considered “used” when they are obligated by a state, local government, or subrecipient for a specific NSP activity. For funds to be considered obligated, a grantee or its subrecipient must initiate a transaction that creates a requirement for the grantee or subrecipient to remit payment in the present or future.

The receipt of funds occurs - and the 18 month “use period” begins - when HUD signs the NSP grant agreement. The receipt of reallocated funds occurs when HUD signs the state’s related amendment. All NSP grantees must expend an amount equal to or greater than their initial allocation within four years of receipt. For grantees that fail to meet the four-year deadline, HUD will recapture and reallocate funds not expended.

Current market appraised value: HERA includes a requirement that “any purchase of a foreclosed upon home or residential property…shall be at a discount from the current appraised value of the home or property, taking into account its current condition, and such discount shall ensure that purchasers are paying below-market value for the home or property.” NAHRO’s letter to HUD requested clear guidance on the definition of current market appraised value.

The current market appraised value of a property under the NSP is to be established by an appraisal conforming to the requirements of the Uniform Relocation Act at 49 CFR 24.103. An appraisal may not be more than 60 days old at the time that a grantee, subrecipient, developer or individual homebuyer makes an offer for a home under the NSP.

Discount: Under the NSP, each purchase of a foreclosed upon home or residential property must be at a discount of at least five percent from the current market appraised value. For purchase transactions in the aggregate, an individual NSP grantee’s average purchase discount for all properties purchased with NSP funds during the eighteen month use period shall be at least fifteen percent.

Grantees can reduce the average aggregate purchase discount requirement to ten percent by determining the maximum reasonable discount for each purchase transaction. These determinations must be made through the use of a methodology that results in a discount equivalent to the total carrying costs that would be incurred by the seller if the property were not purchased with NSP funds.

Subrecipient: Subrecipient has the same meaning under the NSP as under the regular CDBG program and includes any nonprofit organization awarded funds by a state.

Revenue: Revenue, as generated using NSP funds, has the same meaning as program income under the regular CDBG program, with a few exceptions.

Consideration of Capacity and Options for Cooperation
The NSP notice encourages local governments to carefully consider their administrative capacity to use NSP funds before submitting their application to HUD. A jurisdiction that believes it will be unable to use all of the funds for which it is eligible will be encouraged to consider applying for less than the full amount so that its state will have immediate access to the unrequested portion.

HUD will allow for a joint NSP program between an NSP-eligible entitlement community and its state. Similarly, for units of local government that wish to collaborate, any two or more contiguous and NSP-eligible entitlement communities in the same metropolitan area may make a joint request to HUD to implement a joint NSP program. No prior joint agreement with an urban county under the regular CDBG program is required in the event that one more of the NSP grantees is a county.

The state will administer combined NSP funding for a joint program between a local government and a state. For joint programs between or among local governments, the joint applicants must specify which jurisdiction will be responsible for receiving the combined grant and administering the program.

Existing cooperation agreements between a local government and an urban county governing regular FY 2008 CDBG funding will also cover NSP funding. Such cooperation agreements will continue to cover the use NSP funds for the duration of the NSP grant cycle.

HUD will also provide for a jurisdiction’s ability to enter into a subrecipient agreement with another jurisdiction or nonprofit entity to administer the NSP grant. Multiple jurisdictions would be allowed to enter into such agreements with the same subrecipient, if they so choose.

Expanded Abilities for States
Due to language included in HERA, and in a departure from the regular CDBG program, a state may distribute NSP grant funds to any jurisdiction within the state that is among those with the greatest need, including any jurisdiction that is an entitlement community under the regular CDBG program and any jurisdiction that is a direct recipient of NSP funding.

In another departure from the regular CDBG program, states will be allowed to use NSP funds directly for projects. States may opt to use their own employees to conduct NSP activities, or they may choose to procure contractors or private developers. States may also choose to provide loans and grants through nonprofit subrecipients, including local development authorities and public housing authorities.

Citizen Participation
HUD will not require that NSP grantees follow their regular citizen participation plan for the substantial amendment covering the use of NSP funding. Grantees must still make program information available in the appropriate languages for the geographic area served by the jurisdiction, and proposed action plan amendments must be published in the normal manner and made available online for at least 15 days of public comment.

Affordability
HERA requires the HUD Secretary to ensure "to the maximum extent practicable and for the longest feasible term" that homes and residential properties purchased, redeveloped, and sold using NSP funds remain affordable. Each grantee must therefore define “affordable rents” and identify the continued affordability standards it will apply for its NSP-funded activities.

Grantees adopting the HOME program standards for affordability will be considered by HUD to be in minimal compliance with the affordability requirements outlined under HERA. In the case of previously HOME-assisted properties for which affordability restrictions were terminated through foreclosure or transfer in lieu of foreclosure, the draft notice states that grantees will be required to reinstate the HOME affordability restrictions for the remaining period of HOME affordability or the continuing affordability requirements as outlined by the notice, whichever is greater.

Homebuyer Counseling
NSP-assisted homebuyers will be required to complete at least 8 hours of homebuyer counseling from a HUD-approved housing counseling agency before obtaining a mortgage loan. HUD will apparently discourage grantees from providing or permitting homebuyers to obtain subprime mortgages when such mortgages are not appropriate for the assisted homebuyer.

Pre-award Costs
HUD will allow jurisdictions receiving direct NSP allocations to incur pre-award costs in the same way that new grantees may incur such costs under the regular CDBG program. Eligible pre-award costs are those necessary to develop the substantial amendment to the action plan and undertake required administrative actions associated with receiving NSP funding.

Income Requirements and National Objectives
HERA requires that all funds and resulting revenues associated with the NSP be used with respect to individuals and families at or below 120 percent of area median income. Additionally, at least 25 percent of all such funding must be used to purchase and redevelop abandoned or foreclosed homes or residential properties that will used to house individuals or families at or below 50 percent of area median income (AMI).

Because HERA supersedes existing CDBG income-targeting requirements, the CDBG program’s low- and moderate-income benefit national objective is the only national objective relevant to the NSP. Grantees will, therefore, not be permitted to qualify activities under the NSP by seeking to satisfy the “slums and blight” or “urgent community development needs” objectives.

To prevent confusion, HUD will refer to households whose incomes fall between 80 percent and 120 percent of AMI as “middle income” (MI). Aggregated groups (households, jobs for persons, clients, etc.) whose incomes do not exceed 120 percent of AMI will be referred to as “low-, moderate-, and middle-income” (LMM).

To satisfy the modified low- and moderate-income objective under the NSP, an activity must:

Provide or improve permanent residential structures to be occupied by a household whose income is at or below 120 percent of AMI,
Serve an area in which at least 51 percent of the residents have incomes at or below 120 percent of AMI,
Create or retain jobs for persons whose household incomes are at or below 120 percent of AMI, or
Serve a limited clientele whose incomes are at or below 120 percent of AMI.

Other than the change in the applicable income level, the area benefit, housing, jobs, and limited clientele benefit requirements as defined under the regular CDBG program remain unchanged.

In their initial substantial amendment to the action plan, each grantee must budget for the use of at least 25 percent of its NSP grant allocation for activities that will provide housing for individual households whose incomes do not exceed 50 percent of AMI.

Administration and Planning Costs
HUD will allow NSP grantees to use up to 10 percent of their NSP grantee and up to 10 percent of associated program income for administration and planning activities. This limitation applies to the grant as a whole.

NAHRO had recommended an administrative and planning allowance of up to 20 percent. HERA did not provide for any administrative and planning funding under the NSP.

Eligible Activities
HERA specified just five broad eligible uses for NSP funds:

Establish financing mechanisms for the purchase and redevelopment of foreclosed upon homes, and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shred-equity loans for low- and moderate-income homebuyers;
Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties;
Establish land banks for homes that have been foreclosed upon,
Demolish blighted structures; and
Redevelop demolished or vacant properties.

In its letter to HUD, NAHRO recommended that HUD consider expanding the number of eligible uses for this funding to include “soft costs” such as appraisals, architect and engineer fees, and environmental reviews. NAHRO also suggested that HUD consider allowing the use of funding for direct homeowner assistance to eligible individuals and families as well as activities supporting mixed-use and economic development projects that complement housing-focused activities funded through the NSP.

HUD will allow NSP grantees to fund costs, such as reasonable developer’s fees, related to NSP-assisted housing rehabilitation and construction activities. HUD will allow NSP funds to be used to redevelop acquired property for non-residential uses, including public parks, commercial uses, or mixed residential and commercial use. New construction of housing will be an eligible use of NSP funds for projects involving the redevelopment of demolished or vacant properties.

In general, all NSP eligible activities must constitute an eligible use as defined by HERA and be eligible activities under the regular CDBG program. The following eligible CDBG activities are eligible NSP activities:

Activity delivery costs for eligible activities as defined in 24 CFR 570.206.
Acquisition, disposition, relocation, and as defined under 24 CFR 570.201(a), (b), and (i).
Direct homeownership assistance as defined under 24 CFR 570.201(n), but modified to allow for the provision of assistance to households whose incomes do not exceed 120 percent of area median income.
Eligible rehabilitation and preservation activities for homes and other residential properties as defined under 24 CFR 570.202.
Clearance for blighted structures as defined under 24 CFR 570.201 (d).
Public facilities and improvements as defined under 24 CFR 570.201(c).
Public services for housing counseling (but only to the extent that beneficiaries are prospective purchasers or tenants of properties redeveloped using NSP funds) as defined under 24 CFR 570.201(e).
Construction, reconstruction, rehabilitation or installation of commercial and industrial buildings as defined under 24 CFR 570.203(a).
Community based development organizations as defined under 24 CFR 570.204.

NSP grantees will be able to request exceptions from HUD for activities not specifically listed in the notice if the grantee believes an activity is necessary for a NSP-funded program to succeed. HUD may provide written permission allowing the grantee to use NSP funds for such an activity if HUD determines that the activity is in compliance with HERA. Under no circumstances, however, will HUD allow grantees to use NSP funds for foreclosure prevention activities, for the demolition of structures that are not blighted, or for the purchase of residential properties and homes that do not meet the definitions of “abandoned” or “foreclosed upon” as provided for in the notice.

Other Highlights

The following provisions are also included in the final notice:

The maximum sales price for a residential property under the NSP will be the aggregated cost of acquiring, rehabilitating, and redeveloping the property. Grantees will not be allowed to include costs associated with boarding up, lawn mowing, or maintaining a property in static condition in determining the sales price.
HUD will waive the one-for-one replacement requirements for low- and moderate-income dwelling units demolished or converted in connection with NSP-funded activities.
HERA includes a provision preventing the use of the emergency CDBG funding in conjunction with projects that involve property taken through eminent domain "for economic development that primarily benefits any private entity." Because of this provision, and because HERA requires that any purchase of a home or residential property with NSP funds be at a discount, HUD will advise grantees contemplating the use of NSP funds in conjunction with acquisitions involving eminent domain to consult appropriate legal counsel before taking action.
The regular CDBG performance measurement requirements will not apply to NSP funding. HUD intends to configure DRGR performance measures to fit NSP activities and will provide additional guidance on NSP performance measurement going forward.
HUD is currently making improvements to the DRGR system. Until these improvements are completed, NSP grantees will use the Voice Response System to access their lines of credit.
NSP funds may be used to acquire and redevelop FHA foreclosed properties, and HUD will encourage grantees to consider using NSP funds for this purpose.

HUD Unveils Neighborhood Stabilization Program Formula Allocations

HUD has posted formula allocations for $3.9 billion in emergency Community Development Block Grant (CDBG) neighborhood stabilization funding provided under the Housing and Economic Recovery Act of 2008.

Click here to view state-by-state allocations for the Neighborhood Stabilization Program.

Details of Draft Implementation Notice for Emergency CDBG Neighborhood Stabilization Funding

The Housing and Economic Recovery Act of 2008 (HERA), signed into law on July 30, appropriated $3.92 billion in emergency Community Development Block Grant (CDBG) funding to support state and local efforts to stabilize neighborhoods with high numbers of vacant and foreclosed-upon homes. HERA included language requiring HUD to establish the formula for allocating the neighborhood stabilization funding "not later than 60 days after the date of enactment." HERA included language requiring HUD to establish the formula for allocating the neighborhood stabilization funding "not later than 60 days after the date of enactment."

HUD is expected to announce formula allocations and publish the implementation notice in the Federal Register on Monday, September 29. NAHRO has also learned that at least one HUD field office has informed CDBG grantees that the names of neighborhood stabilization grantees and their corresponding allocations are now scheduled to be available after 10:00 A.M. EDT on Friday, September 26.

In related news, HUD has announced the “Summit on Housing: Partnering for Responsible Policy.” The summit is scheduled for October 7-8 in Washington, DC, and will feature an update from HUD on new programs created by HERA. The summit will also coincide with the first of several planned HUD “Q&A sessions” for those local government program directors and staff who will be responsible for administering the new CDBG neighborhood stabilization grant funds.

Highlights of Draft Implementation Notice
Formula Allocations Still Pending

The final version of the implementation notice is expected to be nearly identical to the draft circulated on the Hill. NAHRO can confirm the following details regarding the draft notice:

Program Name
HERA provides the emergency CDBG funding under the title of “Emergency Assistance for Redevelopment of Abandoned and Foreclosed Homes.” HUD will refer to these resources and their accompanying implementation rules as the “Neighborhood Stabilization Program” (NSP). HUD’s Office of Block Grant Assistance, within the Office of Community Planning and Development, will administer the NSP.

Formula Allocations and Reallocation of Funds
It is NAHRO’s understanding that NSP formula allocations have not yet been circulated. The final version of the notice published in the Federal Register will include an attachment describing the NSP allocation formula in detail. This attachment will list those communities that will receive funding along with their respective allocations. HUD officials have confirmed to NAHRO that not all CDBG entitlement communities will receive NSP funding.

Those local governments, states, and insular areas receiving funding through the NSP will have until December 1 to submit a substantially complete application for their allocations. If a local government grantee fails to meet that deadline or submits an application that requests less than the total allocation amount, HUD will reallocate all or part of the allocation to the state in which the local government is located. If a state or insular area fails to meet the December 1 deadline or submits an application that requests less than the total allocation amount, HUD will reallocate the unclaimed portion of the allocation to the 10 neediest states as determined by the original formula calculation.

Definitions
The final notice will provide definitions for terms used in HERA that are not used or are used differently in the regular CDBG program. Key definitions include the following:

Use of funds: HERA requires that grantees “use” NSP funds within 18 months of receipt. In a recent letter to the Assistant Secretary for Community Planning and Development, NAHRO recommended that HUD require that grantees commit (rather than fully expend) funding within 18 months.

The receipt of funds occurs (and the 18 month “use period” begins) when HUD signs the NSP grant agreement. The receipt of reallocated funds occurs when HUD signs the state’s related amendment. All NSP grantees must expend an amount equal to or greater than their initial allocation within four years of receipt. For grantees that fail to meet the four-year deadline, HUD will recapture and reallocate funds not expended.

The current market appraised value of a property under the NSP is to be established by an appraisal conforming with the requirements of the Uniform Relocation Act at 49 CFR 24.103. An appraisal may not be more than 60 days old at the time that a grantee, subrecipient, developer or individual homebuyer makes an offer for a home under the NSP.

Subrecipient: Subrecipient has the same meaning under the NSP as under the regular CDBG program and includes any nonprofit organization awarded funds by a state.

Revenue: Revenue, as generated using NSP funds, has the same meaning as program income under the regular CDBG program, with a few exceptions.

Consideration of Capacity and Options for Cooperation
The NSP notice is expected to encourage local governments to carefully consider their administrative capacity to use NSP funds before submitting their application to HUD. A jurisdiction that believes it will be unable to use all of the funds for which it is eligible will be encouraged to consider applying for less than the full amount so that its state will have immediate access to the unrequested portion.

To satisfy the modified low- and moderate-income objective under the NSP, an activity must:

Provide or improve permanent residential structures to be occupied by a household whose income is at or below 120 percent of AMI,
Serve an area in which at least 51 percent of the residents have incomes at or below 120 percent of AMI,
Create or retain jobs for persons whose household incomes are at or below 120 percent of AMI, or
Serve a limited clientele whose incomes are at or below 120 percent of AMI.

Other than the change in the applicable income level, the area benefit, housing, jobs, and limited clientele benefit requirements as defined under the regular CDBG program remain unchanged.

Administration and Planning Costs
HUD will apparently allow NSP grantees to use up to 10 percent of their NSP grantee and up to 10 percent of associated program income for administration and planning activities. This limitation applies to the grant as a whole.

NAHRO had recommended an administrative and planning allowance of up to 20 percent. HERA did not provide for any administrative and planning funding under the NSP.

Eligible Activities
HERA specified just five broad eligible uses for NSP funds:

Establish financing mechanisms for the purchase and redevelopment of foreclosed upon homes, and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shred-equity loans for low- and moderate-income homebuyers;
Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties;
Establish land banks for homes that have been foreclosed upon,
Demolish blighted structures; and
Redevelop demolished or vacant properties.

Activity delivery costs for eligible activities as defined in 24 CFR 570.206.
Acquisition, disposition, relocation, and as defined under 24 CFR 570.201(a), (b), and (i).
Direct homeownership assistance as defined under 24 CFR 570.201(n), but modified to allow for the provision of assistance to households whose incomes do not exceed 120 percent of area median income.
Eligible rehabilitation and preservation activities for homes and other residential properties as defined under 24 CFR 570.202.
Clearance for blighted structures as defined under 24 CFR 570.201 (d).
Public facilities and improvements as defined under 24 CFR 570.201(c).
Public services for housing counseling (but only to the extent that beneficiaries are prospective purchasers or tenants of properties redeveloped using NSP funds) as defined under 24 CFR 570.201(e).
Construction, reconstruction, rehabilitation or installation of commercial and industrial buildings as defined under 24 CFR 570.203(a).
Community based development organizations as defined under 24 CFR 570.204.

Other Highlights

The following provisions are also expected to be part of the final implementation notice:

The maximum sales price for a residential property under the NSP will be the aggregated cost of acquiring, rehabilitating, and redeveloping the property. Grantees will not be allowed to include costs associated with boarding up, lawn mowing, or maintaining a property in static condition in determining the sales price.
HUD will waive the one-for-one replacement requirements for low- and moderate-income dwelling units demolished or converted in connection with NSP-funded activities.
HERA includes a provision preventing the use of the emergency CDBG funding in conjunction with projects that involve property taken through eminent domain "for economic development that primarily benefits any private entity." Because of this provision, and because HERA requires that any purchase of a home or residential property with NSP funds be at a discount, HUD will advise grantees contemplating the use of NSP funds in conjunction with acquisitions involving eminent domain to consult appropriate legal counsel before taking action.
The regular CDBG performance measurement requirements will not apply to NSP funding. HUD intends to configure DRGR performance measures to fit NSP activities and will provide additional guidance on NSP performance measurement going forward.
HUD is currently making improvements to the DRGR system. Until these improvements are completed, NSP grantees will use the Voice Response System to access their lines of credit.
NSP funds may be used to acquire and redevelop FHA foreclosed properties, and HUD will encourage grantees to consider using NSP funds for this purpose.

NAHRO will provide an updated version of this Direct News alert upon publication of the final implementation notice in the Federal Register.

HUD Announces Housing Policy Summit
Agenda Includes Focus on Neighborhood Stabilization

In a recent message to public interest groups, HUD Secretary Steve Preston announced the “Summit on Housing: Partnering for Responsible Policy.” The summit, scheduled for October 7-8 in Washington, DC, will feature an update from HUD on new programs created by the Housing and Economic Recovery Act of 2008 (HERA), including the implementation of the NSP. The summit will also highlight successful public-private partnerships and state and local policies and programs focused on foreclosure prevention.

In his message announcing the event, Secretary Preston wrote:

“We believe that addressing the critical issues of the Nation’s housing market will take partnerships across federal, state, and local governments and across the private, non-profit and foundation sectors. Our purpose for the summit is to bring together the thought leaders of our country to strengthen existing and create new partnerships for the path forward.”

According to Secretary Preston, the summit is intended for “representatives from government agencies at the federal, state and local level, non-profit organizations, foundations and the banking and housing industries.”

Summit Highlights

The first day of the summit will feature an address from Assistant Secretary for Community Planning and Development Susan Peppler “introducing” the NSP allocation formula and implementation notice. A plenary on “Neighborhood Stabilization Program Highlights” will follow Assistant Secretary Peppler’s remarks. Assistant Secretary Peppler is also scheduled to serve as the featured speaker during an October 27 session on the NSP during NAHRO’s upcoming National Conference in San Antonio, TX.

Day 2 of the summit will feature an address by Assistant Secretary for Housing-Federal Housing Commissioner Brian Montgomery. Commissioner Montgomery, who oversees the Federal Housing Administration’s (FHA’s) insurance portfolio, will discuss the Hope for Homeowners initiative, a new program authorized under HERA that would permit the FHA to provide up to $300 billion in new guarantees to help at-risk borrowers keep their homes.

HUD’s housing policy summit will also feature breakout sessions focused on hot-button housing issues, including NSP administration, local and market-driven solutions to the foreclosure crisis, and federal programs for foreclosure prevention and loss mitigation.

Neighborhood Stabilization Implementation Q&A Sessions

Following the summit’s conclusion at 12:30 p.m. on October 8, HUD will host an afternoon NSP “Implementation Q&A” session for mid-Atlantic local government program directors and staff. This Q&A session will be the first of five such sessions to be held across the country in October, although HUD officials inform NAHRO that the Washington, DC session will be an abbreviated version that is less comprehensive and designed with elected officials in mind.

According to a HUD official, sessions will also take place in Los Angeles and Columbus, OH, with another session tentatively planned for Florida. HUD may later schedule additional sessions if necessary. The complete schedule of sessions is expected to be available by the time HUD has published the NSP implementation notice in the Federal Register on September 29.

For more information on the summit, including the agenda and instructions for registering and securing hotel accommodations, visit HUD’s summit website at http://www.hcdi.com/housing_summit/index.html.

Visit NAHRO’s online Resource Center for HERA at http://www.nahro.org/legislative/hr3221.cfm for our ongoing coverage of HUD’s implementation of the Neighborhood Stabilization Program.

If you have additional questions, please contact Jeff Falcusan, Policy Advisor for Housing and Community Development (ext. 7212).

NAHRO Makes Recommendations on Emergency CDBG Funding

NAHRO has communicated recommendations to HUD regarding the implementation of emergency CDBG funding provided under the recently-enacted Housing and Economic Recovery Act of 2008 (HERA). The legislation requires that HUD announce the formula to be used for allocating the emergency funding no later than September 28. A notice providing guidance on program implementation is expected to be published around the same time. NAHRO’s recommendations were transmitted in the form of a letter to HUD Assistant Secretary for Community Planning and Development Susan Peppler. View the letter here.

As NAHRO has previously reported, HERA (H.R. 3221) was signed into law on July 30 and includes a number of provisions reflecting key NAHRO priorities. One such provision is the appropriation of $3.9 billion in emergency funding to support state and local efforts to stabilize those neighborhoods hardest hit by the nation’s ongoing foreclosure crisis. HERA includes what is known as a “rule of construction” requiring the $3.9 billion in funding to be treated as CDBG funding, although the bill provides for several exceptions.

HERA specifies only three formula factors: for each state or unit of general local government, the number and percentage of: 1) home foreclosures; 2) homes financed by a subprime mortgage related loan; and 3) homes in default or delinquency. The legislation does not specify how much weight HUD is to give each formula factor. The legislation also requires that each state receive at least 0.5 percent of the total CDBG emergency funding, although it is unclear whether this requirement is meant to apply to each individual state grantee or to the total amount of funding delivered to each state, i.e. the sum of the state grantee’s allocation and the allocations of all entitlement communities within that state.

In its letter to Assistant Secretary Peppler, NAHRO expresses its support for a formula allocation that preserves as much as possible the regular CDBG program’s 70/30 split between direct entitlements and state programs. NAHRO’s letter also argues that formula factors that are overly dependent upon point-in-time measures may fail to capture the true extent of the challenges posed by the foreclosure crisis in many states and communities, since the crisis may peak at different times in different parts of the country. NAHRO has also recommended that HUD consider incorporating longitudinal indicators in order to address this concern.

The emergency CDBG funds will be in the hands of state and local governments by the end of October, and all funds must be used for activities related to the purchase and redevelopment of abandoned and foreclosed properties. HERA requires that grantees use those funds within 18 months of receipt. Given the challenges associated with acquiring abandoned or foreclosed-upon properties in a timely manner, NAHRO’s letter recommends that HUD require that grantees commit (rather than fully expend) funding within 18 months.

The legislation lists just five eligible uses for the emergency CDBG funding: 1) The establishment of financing mechanisms for the purchase and redevelopment of foreclosed upon homes and residential properties; 2) The purchase and rehabilitation of abandoned or foreclosed upon homes and residential properties in order to sell, rent or redevelop them; 3) The establishment of land banks for homes that have been foreclosed upon, 4) The demolition of blighted structures; and 5) The redevelopment of demolished or vacant properties. The legislation does not preclude the possibility of other eligible uses for the funding. With this in mind, NAHRO has recommended that HUD maximize flexibility by enumerating additional eligible activities and allowing grantees to use funds for soft costs.

HERA does not provide for administrative costs, meaning that it will be left to HUD to determine how much, if any, of the funds may be used for planning and administration expenses related to the emergency CDBG funding. The regular CDBG program’s 20 percent cap on administrative costs does not derive from statute or regulation but results instead from longstanding language included in the annual HUD appropriations bill. In its letter to HUD, NAHRO recommends that grantees be allowed to use up to 20 percent of their emergency CDBG allocation for planning and administrative costs.

NAHRO’s letter also calls upon HUD to provide clear guidance regarding the legislation’s requirement that “any purchase of a foreclosed upon home or residential property…shall be at a discount from the current appraised value of the home or property, taking into account its current condition, and such discount shall ensure that purchasers are paying below-market value for the home or property.” NAHRO also requests that HUD clarify how the concept of area benefit will apply to the emergency CDBG funding, given that HERA requires all such funds to be used “with respect to individuals and families at or below 120 percent of area median income,” while 25 percent of the funds must be used to purchase and redevelop properties that will be used to house individuals or families at or below 50 percent of area median income.

NAHRO’s HERA Resource Center: For a complete summary of HERA’s emergency CDBG funding, visit NAHRO’s online resource center at www.nahro.org/legislative/hr3221.cfm.

More Details on H.R. 3221, the Housing and Economic Recovery Act of 2008

The President signed H.R. 3221, the Housing and Economic Recovery Act of 2008, into law on July 30. As NAHRO has recently reported, this sweeping housing legislation includes numerous provisions reflecting important NAHRO legislative priorities, including nearly $4 billion in emergency Community Development Block Grant program funding for neighborhood stabilization and a new Government Sponsored Enterprise-funded affordable housing production program.

In this Direct News, NAHRO will summarize other notable affordable housing- and community development-focused provisions of H.R. 3221, including reforms to the Low Income Housing Tax Credit (LIHTC) program and a provision - included as a direct result of ongoing NAHRO advocacy - clearing the way for local housing agencies to access FEMA funds for the permanent repair and reconstruction of disaster-damaged public housing units.

Public Housing Disaster Relief

H.R. 3221 includes the Public Housing Disaster Relief Act of 2008, previously a stand-alone measure (H.R. 6276) passed by the House on June 18. This provision is intended to eliminate FEMA's justification for denying local housing agencies access to Stafford Act funding for the permanent repair and reconstruction of public housing units damaged or destroyed during natural disasters and other emergencies. The provision's enactment is the culmination of a three-year NAHRO campaign to raise awareness around an outdated HUD-FEMA Memorandum of Understanding (MOU) that prevented local housing agencies from accessing needed resources following the 2005 hurricane season.

The MOU, issued in 2001 and updated in 2003, has effectively prevented local housing agencies from accessing FEMA Stafford Act funding to reconstruct public housing by virtue of their eligibility to receive funding through HUD's emergency capital fund reserve established under section 9(k) of the U.S. Housing Act of 1937. Congress has barred HUD from funding the 9(k) reserve in every fiscal year since FY 2000, including in FY 2005 when Katrina and Rita made landfall. Nevertheless, FEMA has taken the position that public housing units' statutory eligibility for 9(k) funding makes them ineligible to receive FEMA funding under Section 406 of the Stafford Act. Section 406 governs the availability of Stafford Act funding for the repair, restoration, reconstruction, or replacement of public facilities.

While Congress has continued to separately appropriate funds for what is known as the emergency capital needs set-aside, this funding is distinct from the 9(k) reserve and has proven insufficient to address the extensive costs associated with repairing or rebuilding public housing units in the aftermath of a major disaster. For example, only $29 million in emergency capital needs funding was available in 2005, and Congress provided just $18.5 million for the program for FY 2008. HUD's FY 2009 budget requests no disaster funding.

During a June 4 hearing examining the roles and responsibilities of HUD and FEMA in responding to the ongoing affordable needs of the Gulf Coast region, a FEMA official argued that public housing developments would only qualify for FEMA Section 406 assistance "if such assistance did not fall under another agency's purview." Because section 9(k) authorizes HUD to award grants to public housing in response to natural disasters, FEMA believes it cannot provide Section 406 funding for this same purpose since doing so would, in its view, constitute what is known as an illegal "augmentation of appropriations."

The Public Housing Disaster Relief Act of 2008 repeals section 9(k) of the U.S. Housing Act of 1937. Repealing section 9(k) is intended to deprive FEMA of the excuse it has used to avoid paying for the permanent repair and reconstruction of disaster-damaged public housing developments.

Fore more information on the Public Housing Disaster Relief Act of 2008 and NAHRO's ongoing advocacy in this area, see the following:

Small Agency Paperwork Reduction Act

The housing bill includes, with minor modifications, the Small Public Housing Authorities Paperwork Reduction Act originally filed as S. 809 by Senator John Sununu (R-N.H.). Under this provision, public housing agencies operating 550 or fewer combined public housing units and Section 8 vouchers are exempt from filing the annual public housing agency plan under section 5A of the U.S. Housing Act of 1937, unless the agency is designated as troubled or has a failing Section 8 Management Assessment score during the prior 12 months.

Nothing in the act exempts the public housing agency from the requirement to establish a resident advisory board and to consult with such board at an annual public hearing concerning any changes to agency goals, objectives and policies. Notwithstanding its exemption from filing an annual plan and conducting a hearing on that plan, each agency must conduct an annual public hearing to discuss any changes to the goals, objectives and policies of the agency and to invite public comment regarding such changes.

The agency must publish public notice of the hearing at least 45 days in advance thereof and the notice must inform the public that materials relevant to changes to be discussed at the hearing are available to the public at the agency's principal office during normal business hours. Agencies are still required to file a civil rights certification with HUD annually. The legislation does not affect requirements relating to five-year plans, and does not contain language requiring the issuance of implementing regulations by HUD.

NAHRO strongly supported Senator Sununu's bill and encouraged its members to contact their Senators to urge their support for the bill's inclusion under H.R. 3221.

Low Income Housing Tax Credit (LIHTC) Reform

H.R. 3221 makes several significant reforms to the LIHTC program. Most of these reforms were previously included under stand-alone pieces of legislation, the provisions of which were eventually incorporated into the omnibus housing recovery bill. One such standalone bill was Senator Maria Cantwell's Affordable Housing Investment Act of 2008 (S. 2666), a bill that NAHRO previously endorsed.

H.R. 3221 makes the following changes related to the LIHTC program:

Provides a $0.20 per capita increase (to $2.20 / resident) to the LIHTC ceiling for 2008 and 2009, with a 10 percent increase to the small state minimum.
Provides for a 9 percent credit percentage for buildings placed in service before December 31, 2013.
Provides that below-market federal loans are no longer considered "federally subsidized" for the purpose of calculating eligibility for the 9 percent credit.
Permits allocating agencies to designate a building for a 30-percent basis boost if the enhanced credit is required to make the building financially feasible.
Increases the minimum rehabilitation requirement that must be met in order for the acquisition credit to apply to rehabilitation expenditures in addition to acquisition expenditures.
Increases the cap on the amount of community service facility expenditures that may be included in eligible basis.
Eliminates the previously required reduction in eligible basis resulting from federally funded grants made during the compliance period. This provision also clarifies that no basis reduction will result from loans (regardless of interest rate) made to owners of qualified low-income housing projects from the proceeds of federally funded grants.
Redefines the "related party" threshold to 50 percent level of ownership (up from 10 percent) and creates a new exception for the 10-year acquisition rule in the case of any federally- or state-assisted building.
Repeals the prohibition on the use of tax credits with properties receiving Section 8 Moderate Rehabilitation assistance.
Extends the carryover allocation rule from 6 to 12 months.
Repeals the recapture bond posting requirement and provides for no recapture on disposition if the building continues in qualified use.
Directs state allocating agencies to use allocation criteria related to energy efficiency and the historic nature of the project.
Waives the student rule for students in foster care.
For rural projects, applies the income-targeting rules by reference to the greater of the otherwise applicable area median gross income standard or the national nonmetropolitan median gross income.
Permits that projects targeted to people with special needs, people who are members of a specified group under a federal or state program, or people who are involved in artistic and literary activities do not violate the general public use requirement.
Directs the Government Accountability Office to submit a report to Congress analyzing the changes to the LIHTC made by the legislation. The report is to include an analysis of the distribution of credit allocations before and after the effective date of the modifications permitted by H.R. 3221.
Provides that under certain circumstances the military's basic housing allowance shall be excluded when determining income eligibility.
Conforms the LIHTC and tax-exempt bond "next available unit" rules.
Conforms the LIHTC and tax-exempt bond rules with regard to students and Single Room Occupancy dwellings.
Establishes a hold harmless policy for LIHTC and tax-exempt bond financed projects located in areas that experienced a reduction in area median gross income resulting from a change in HUD's methodology for calculating area median gross income.
Provides an exemption from the annual income recertification requirement for LIHTC- and tax-exempt bond-financed projects that are entirely low-income use. HUD rules regarding annual recertification will still apply to some projects.
Permits the use of 9 and 4 percent credits to offset Alternative Minimum Tax liability.

Project-Based Assistance

H.R. 3221 includes a number of provisions designed to facilitate the use of Section 8 project-based vouchers in LIHTC projects. Many of these provisions were previously supported by NAHRO as part of the House-passed version of the Section Eight Voucher Reform Act of 2007 (H.R. 1851) and the Senate's companion bill (S. 2684).

These provisions accomplish the following::

Alter the measure (25 percent) on income-mixing from "building" to "project." The term "project" means a single building, multiple contiguous buildings, or multiple buildings on contiguous parcels of land.
Increase the maximum initial voucher contract term from 10 to 15 years, to be consistent with the holding period under the Low-Income Housing Tax Credit (LIHTC) program, thus improving coordination with the LIHTC program and ensuring longer-term affordability.
Clarify that housing agencies and owners may commit in advance to extensions of the initial contract term.
Allow project-based vouchers to be used in co-ops and elevator buildings. (Current regulations do not permit project-based vouchers in co-ops.)
Except for cases requiring lower rent limits established under the low-income housing tax credit (LIHTC) program, allow rent for a Section 8 project-based voucher unit using LIHTCs to be established at the higher Section 8 program rent up to 110 percent of FMR. The contract could provide that the maximum rent permitted for a dwelling unit shall not be less than the initial rent for the dwelling unit under the initial housing assistance payments contract covering the unit. (This provision would overturn HUD's existing practice of requiring Housing Agencies to lower contract rents below their initial level when the Fair Market Rents are lowered by 5 percent or more where the lowered rent is less than a tax credit developments initial rent level.)
Remove the requirement for a subsidy layering review by HUD, if a PHA enters into a HAP contract for an existing structure, or if a subsidy layering review has been conducted by the applicable state or local agency.
Enable PHAs to enter into a HAP contract for an existing structure without undertaking an environmental review, unless it is otherwise required by statute or regulation.
Allow the "rent reasonableness" requirements for units in a project using LIHTCs or funds under HOME Investment Partnerships to be met, if rents for units in the private unassisted local market are equal to or less than the rent for other comparable units receiving such tax credits or assistance in the project for unassisted households. However, the rent for such a unit would not be considered reasonable if it exceeds 1) the greater of the rents charged for other comparable units receiving such tax credits or assistance in the project that are not occupied by families assisted with tenant-based assistance, or 2) the payment standard established by the PHA for a unit of the size involved.
Require each State agency administering tax credits under section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42) to provide the Secretary of HUD at least annually, information concerning the race, ethnicity, family composition, age, income, use of rental assistance under the Section 8 Project-Based Voucher Assistance program or other similar assistance, disability status, and monthly rental payments of households residing in each property receiving such credits through such agency. To the extent feasible, State agencies would be required to collect such information through existing reporting processes and in a manner that minimizes burdens on property owners. The Secretary of HUD would be required to compile and make this information publicly available at least annually. H.R. 3221 authorizes appropriations of $2.5 million for FY 2009 and $900,000 annually for FYs 2010 through 2013 for these purposes.

Additional Mortgage Revenue Bond Authority

The bill includes $11 billion in new mortgage revenue bond authority and would allow these tax-exempt bonds to be used to refinance subprime loans, mortgages for first-time homebuyers, and multifamily rental housing. NAHRO's 2008 Legislative and Regulatory Agenda called for "new resources to help families in need and to strengthen at-risk communities, including…additional mortgage revenue bond authority to refinance untenable mortgages."

Community Development Investment Authority for Depository Institutions

H.R. 3221 also includes language making it easier for national banks and state member banks to receive Community Reinvestment Act community development credit for investments in mixed-income projects and distressed and rural areas that do not meet the existing definition of low- and moderate-income communities. The provision is similar, although not as expansive, as a stand-alone measure (H.R. 1066, the Depository Institution Community Development Investments Enhancement Act) passed by the House in February 2007. NAHRO had previously endorsed H.R 1066.

FHLB Letters of Credit

H.R. 3221 includes a provision, previously a stand-alone bill (H.R. 2091) allowing Federal Home Loan Banks (FHLBs) to support member banks' letters of credit for tax-exempt bonds. The provision, which expires at the end of 2010, amends Section 149 of the Internal Revenue Code to add FHLBs to the list of Government Sponsored Enterprises that can credit enhance tax-exempt municipal, industrial development and other private activity bonds. FHLBs were previously limited to offering letters of credit for tax-exempt housing bonds and for taxable municipal, industrial development, and other private activity bonds. NAHRO previously endorsed H.R. 2091.

Related resource: Federal Home Loan Bank of Pittsburgh press release

For more information on this Direct News, contact Jeff Falcusan, NAHRO Policy Advisor for Housing and Community Development (ext. 7212).

Emergency CDBG Funding for Neighborhood Stabilization: An Overview

August 5, 2008

The President signed H.R. 3221, the Housing and Economic Recovery Act of 2008, into law on July 30. This sweeping housing legislation includes numerous provisions reflecting important NAHRO legislative priorities, including major Low-Income Housing Tax Credit program reform, a provision clearing the way for local housing agencies to access FEMA funds for the permanent repair and reconstruction of disaster-damaged public housing units, and a new Government Sponsored Enterprise-funded affordable housing production program.

In a victory for NAHRO and its partners in the Save America's Neighborhoods Campaign, H.R. 3221 also includes $3.9 billion in special Community Development Block Grant (CDBG) funding to support state and local efforts to stabilize neighborhoods with high numbers of vacant and foreclosed-upon homes. This Direct News provides a summary of H.R. 3221's "Emergency Assistance for the Redevelopment of Abandoned and Foreclosed Homes."

Background

NAHRO's 2008 Legislative Agenda included a commitment to securing "new resources to help families in need and to strengthen at-risk communities, including emergency CDBG funding." Over the past several months, as the Congress worked to develop legislation responding to the nation's ongoing home mortgage and foreclosure crisis, NAHRO has been a consistent voice in favor of the provision of emergency CDBG funding to stabilize the nation's hardest-hit neighborhoods. The links below provide examples of NAHRO's advocacy in this area, both on our own and in partnership with other national organizations:

NAHRO letter to Members of Congress expressing support for "at least $4 billion in emergency neighborhood stabilization funding" (June 2008)
Joint sign-on letter to Members of Congress expressing support for neighborhood stabilization funding (June 2008)
Joint sign-on letter to House Speaker Pelosi expressing support for neighborhood stabilization funding (June 2008)
NAHRO Action Alert: Support Emergency CDBG Funding to Address Foreclosure Crisis (April 2008)

H.R. 3221's Emergency CDBG Funding for the Redevelopment of Abandoned and Foreclosed Homes

H.R. 3221 appropriates $4 billion in Fiscal Year 2008 funding "for assistance to states and units of general local government....for the redevelopment of abandoned and foreclosed upon homes and residential properties." The bill sets aside $80 million of the $4 billion for housing counseling, meaning that a total of $3.92 billion is available to support state and local governments' eligible neighborhood stabilization activities. While the bill provides for a number of exceptions, H.R. 3221 includes a "rule of construction" provision making clear that the $3.92 billion in funding, as well as any resulting revenues generated, "shall be treated as though such funds were community development block grants under Title I of the Housing and Community Development Act of 1974."

Distribution of Funding

H.R. 3221 directs HUD to establish the formula for allocating the emergency CDBG assistance "not later than 60 days after the date of enactment." HUD will therefore have until September 28 to meet this deadline. In devising the formula, HUD is to ensure that the special CDBG funds "are allocated to states and units of general local government with the greatest need." From the date the formula is finalized, the Department will have up to 30 days to distribute allocations.

H.R. 3221 specifies the following formula factors:

The number and percentage of home foreclosures in each state or unit of general local government;
The number and percentage of homes financed by a subprime mortgage related loan in each state or unit of general local government; and
The number and percentage of homes in default or delinquency in each state or unit of general local government.

The legislation does not specify how much weight HUD is to give each formula factor.

H.R. 3221 includes a provision requiring that each state receive at least 0.5 percent of the total amount of available emergency CDBG funding. Because the legislation does not specify which units of local government are eligible to receive allocations, the "rule of construction" provision could be interpreted to mean that all existing CDBG entitlement communities are in line for direct formula allocations. It should be noted, however, that the legislation includes language allowing the Secretary of HUD to specify alternative requirements to any provision under the CDBG program statute, excepting provisions related to fair housing, nondiscrimination, labor standards, and the environment. It remains to be seen to what extent HUD will avail itself of this flexibility.

It has come to NAHRO's attention that other organizations have produced and circulated estimated state allocations (as well as a limited number of estimated allocations for local governments) for the emergency CDBG program outlined under H.R. 3221. These estimates were prepared as part of the extensive advocacy campaign aimed at ensuring the final housing rescue bill included neighborhood stabilization funding. Because H.R. 3221 provides HUD with broad flexibility with regard to the allocation formula's design, state and local governments should approach these unofficial estimates with caution.

Eligible Uses and Restrictions

H.R. 3221 requires states and local governments receiving neighborhood stabilization funding to use those funds within 18 months of receipt. Grantees are not required to provide a match for these special CDBG funds. In administering emergency CDBG funding, states and local governments are to give "priority emphasis" to "areas with the greatest need," including those cities, urban areas, and rural areas that demonstrate the following:

The greatest percentage of home foreclosures;
The highest percentage of homes financed by a subprime mortgage related loan; and
The highest likelihood, as determined by the grantee, of facing a significant rise in the rate of home foreclosures.

Grantees must use all of their emergency CDBG allocation for activities related to the purchase and redevelopment of abandoned and foreclosed properties. H.R. 3221 includes a short list of eligible activities. Under the legislation, grantees may use their emergency CDBG allocations to:

Establish financing mechanisms for the purchase and redevelopment of foreclosed upon homes, and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shred-equity loans for low- and moderate-income homebuyers;
Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties;
Establish land banks for homes that have been foreclosed upon,
Demolish blighted structures; and
Redevelop demolished or vacant properties.

The legislation places specific limitations on the use of the emergency CDBG funding. Any purchase of a foreclosed home or residential property must be discounted below current market appraised value. For any abandoned or foreclosed home or residential property sold to an individual as a primary residence after being purchased or redeveloped using emergency CDBG funding, the sale must be in an amount equal to or less than the cost to acquire and redevelop or rehabilitate the home or property. Foreclosed upon homes or residential properties may only be rehabilitated to the extent necessary to achieve compliance with applicable laws and codes relating to housing safety, quality, and habitability. (Funds may be used to make improvements to increase the energy efficiency or conservation of energy of homes and properties, or to provide a renewable energy source.)

For a period of five years following the legislation's enactment, any revenues generated through the sale, rental, redevelopment, or rehabilitation of vacant or foreclosed homes or residential properties that exceed the costs associated with acquiring and redeveloping those properties (including "reasonable development fees") must be reinvested by grantees "in accordance with, and in furtherance of" the objectives of H.R. 3221's emergency CDBG program. Upon the expiration of this five-year period, these excess revenues must be returned to the Treasury unless the HUD Secretary approves a request to use such funds for purposes allowed under H.R. 3221.

H.R. 3221 does not provide for administrative costs meaning that it will be left to HUD to determine how much, if any, of the funds may be used for planning and administration related to the emergency CDBG funding. The regular CDBG program's 20 percent cap on administrative costs does not derive from the Housing and Community Development Act of 1974 but results instead from longstanding language included in the annual HUD appropriations bill. In a recent conference call with NAHRO staff, HUD officials acknowledged that many states and local governments face fiscal challenges and would benefit from the ability to use some of the emergency CDBG funding to pay for planning and administrative costs related to neighborhood stabilization activities. This acknowledgement, however, should not be read as a guarantee that HUD will ultimately decide to allow for an administrative allowance as part of the emergency CDBG funding.

H.R. 3221 includes a provision preventing the use of the emergency CDBG funding in conjunction with projects that involve property taken through eminent domain "for economic development that primarily benefits any private entity." This language is an outgrowth of the so-called "Bond Amendment" that has became a regular feature of HUD appropriation legislation in the years since the U.S. Supreme Court's decision in Kelo v. City of New London.

Income and Affordability Requirements

All of the emergency CDBG funds and resulting revenues associated with H.R. 3221 must be used "with respect to" individuals and families at or below 120 percent of area median income. Additionally, at least 25 percent of all such funding must be used to purchase and redevelop abandoned or foreclosed homes or residential properties that will used to house individuals or families at or below 50 percent of area median income.

H.R. 3221 includes language creating a general affordability requirement for those homes and residential properties purchased, redeveloped, and sold using the emergency CDBG funds. The legislation requires the HUD Secretary to ensure "to the maximum extent practicable and for the longest feasible term" that these homes and residential properties remain affordable to individuals and families meeting the income requirements mentioned above.

Additional Provisions

H.R. 3221 requires that the Comptroller General of the United States, in consultation with the HUD Secretary, conduct periodic audits to ensure that the emergency CDBG funds are being used in a manner consistent with the purposes laid out by the legislation.

None of the emergency CDBG funds may be distributed to an organization that has been, or employs an individual who has been indicted for a violation under federal law relating to an election for federal office.

Unresolved Issues

In a recent email communication to HUD field office staff, a senior HUD official wrote that "there are numerous considerations that must be worked out in implementing this law" and that "grantees will have many questions regarding the timing and implementation of this funding." The HUD Reform Act and the Administrative Procedures Act limit the Department's ability to discuss internal legal interpretations, but the HUD official indicates that the Department has "already initiated the work of fleshing out the legislation" and will provide additional information as soon as possible.

As mentioned above, HUD officials recently conducted a conference call with NAHRO staff to discuss the emergency CDBG funding. Although HUD is currently limited in terms of its ability to discuss program implementation, the following concerns and unresolved issues were raised:

Eligible activities: While the legislation lists just five eligible activities, it does not preclude the possibility of other eligible uses for the funding. In implementing the legislation, HUD may choose to enumerate additional eligible activities.
State shares: Although the legislation requires each state to receive at 0.5 percent of the total CDBG emergency funding, it is unclear whether this requirement is meant to apply to each individual state grantee or to the total amount of funding delivered to each state, i.e. the sum of the state grantee's allocation and the allocations of all entitlement communities within that state. Confusion around this issue means it is also unclear how the regular CDBG program's 70/30 funding split between entitlements and states will apply to the emergency CDBG funding.
Method of implementation: HUD may choose to forego the rulemaking process and instead implement the legislation through a notice.
Planning and reporting requirements: HUD may choose to truncate the public comment period and is undecided as to how to apply Consolidated Planning requirements to the emergency CDBG funding. It is also possible that grantees may not use the Integrated Disbursement Information System (IDIS) for drawing down funds and reporting accomplishments, with HUD considering its Disaster Recovery Grant Reporting System (DRGR) as a possible alternative.
Timeliness: Under H.R. 3221, states and local governments receiving emergency CDBG funding are required to "use such amounts....not later than 18 months after the receipt of such amounts." Is unclear at this point whether "use" in this context means that all funds must be expended within 18 months, or if grantees will have 18 months to commit funding.

NAHRO will continue to update members on the implementation of the emergency CDBG funding as further details become available. For more information on this Direct News, contact Jeff Falcusan, NAHRO Policy Advisor for Housing and Community Development (ext. 7212).

The New GSE Affordable Housing Programs: An Overview

July 31, 2008

Congress has passed and the President has signed H.R. 3221, the Housing and Economic Recovery Act of 2008. This omnibus housing rescue bill, signed into law on July 30, includes numerous provisions reflecting important NAHRO legislative priorities, including special CDBG funding for neighborhood stabilization, major Low-Income Housing Tax Credit (LIHTC) program reform, and a provision clearing the way for local housing agencies to access FEMA funds for the permanent repair and reconstruction of public housing units following natural disasters and other emergencies.

Click here for NAHRO's earlier overview of H.R. 3221. NAHRO's press release on the bill is available here.

In a significant development for NAHRO's membership, H.R. 3221 also includes two new Government Sponsored Enterprise-financed initiatives designed to support the production, preservation, and rehabilitation of affordable rental and homeowner housing, as well as related economic development activities. NAHRO has long called for the inclusion of such initiatives as part of Government Sponsored Enterprise (GSE) regulatory reform legislation. This Direct News provides a summary of the Housing Trust Fund and Capital Magnet Fund programs created by H.R. 3221.

Background: Pushing for the creation of a new and permanent federal affordable housing production program has been a cornerstone of NAHRO's advocacy over the past decade. NAHRO's 2008 Legislative Agenda called for a new production program that provides local communities and agencies direct access to federal funds with minimal federal regulation.

Beginning in 2005, NAHRO consistently called upon the Congress to include a formula-driven affordable housing production program in the final version of GSE regulatory reform legislation. In all of its advocacy work around this issue area, NAHRO has worked to ensure that resources made available through any new affordable housing production program are accessible to local housing and community development agencies, including PHAs. NAHRO has also continued to argue that any new production program should prioritize an expansion of our nation's affordable rental housing inventory.

In addition to emphasizing the importance of including an affordable housing fund as part of GSE reform legislation, NAHRO has also been an active supporter of National Affordable Housing Trust Fund legislation. Examples of NAHRO's advocacy in the area of affordable housing production can be found by reviewing our earlier coverage of GSE reform and National Affordable Housing Trust Fund legislation:

House Passes Major Housing Legislation (May 2008)
Progress on GSE, FHA Reform (March 2008)
Affordable Housing Trust Fund Introduced in Senate (January 2008)
New GSE Bill Includes Affordable Housing Block Grant Program (December 2007)
House Committee Approves Affordable Housing Trust Fund (July 2007)
National Affordable Housing Trust Fund Bill Introduced (June 2007)
GSE Reform Bill with Affordable Housing Fund Passes House (May 2007)
GSE Reform Bill Heads to House Floor, Includes Affordable Housing Fund (May 2007)
Affordable Housing Fund Clears Committee (March 2007)
Chairman-Designate Frank Outlines Housing Agenda (Dec. 2006)
Fate of Affordable Housing Fund Uncertain (Nov. 2006)
GSE Bill Passes House, Includes Affordable Housing Fund (Oct. 2005)

The New GSE Affordable Housing Programs: Under H.R. 3221, the new GSE-funded affordable housing programs will be capitalized through mandatory annual contributions by Fannie Mae and Freddie Mac, with each GSE contributing an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of its respective total new business purchases. The law allows the director of the new GSE regulatory agency to temporarily suspend the mandatory contributions if the allocations would contribute to or cause the financial instability or undercapitalization of the GSEs.

Twenty five percent of the mandatory contributions would be deposited into the HOPE Reserve Fund, a Treasury Department account dedicated to retiring any debt associated with a new "HOPE for Homeowners" FHA refinancing program created under H.R. 3221. The remaining 75 percent of the GSEs' contributions would be applied toward the new affordable housing programs, with 65 percent of the available combined contributions allocated to the Housing Trust Fund, and the remaining 35 percent directed toward the new Capital Magnet Fund, to be operated as a special account within the Department of Treasury's Community Development Financial Institutions Fund.

For the first three years, a portion of the GSEs' mandatory contributions (minus the required contribution to the HOPE Reserve Fund) would be diverted to cover credit subsidy costs associated with the "Hope for Homeowners" program, a new initiative that would permit the Federal Housing Administration to provide up to $300 billion in new guarantees to help at-risk borrowers keep their homes. For 2009, 100 percent of the mandatory contributions will go toward covering costs. The funds to be diverted for 2010 and 2011 will equal 50 percent and 25 percent of the GSEs' mandatory contributions, respectively, meaning that 2010 will be the first year in which new resources are available through the Housing Trust Fund and Capital Magnet Fund programs.

A Congressional Budget Office report estimates that GSE contributions to the Housing Trust Fund and Capital Magnet Fund will total $5.8 billion over the period from 2010 to 2018. If this estimate proves to be accurate, an average of $419 million would be available for distribution through the Housing Trust Fund each year for that nine-year period, with an average of $226 million available for the Capital Magnet Fund.

It should be noted that H.R. 3221 includes a provision preventing the use of Housing Trust Fund and Capital Magnet Fund dollars in conjunction with projects that involve property taken by eminent domain "for economic development that primarily benefits any private entity." This language is an outgrowth of the so-called "Bond Amendment" that has became a regular feature of the HUD appropriation legislation in the years since the U.S. Supreme Court's decision in Kelo v. City of New London.

The Housing Trust Fund: H.R. 3221's Housing Trust Fund will provide grant funding to support state and local efforts to develop, rehabilitate, and preserve affordable rental and homeowner housing. Beginning in 2010, resources contributed to the Housing Trust Fund by the GSEs will be distributed to states on a formula basis. In addition to GSE contributions, H.R. 3221 includes language contemplating the possible availability of additional resources for the program. Specifically, the legislation refers to "any amounts as are or may be appropriated, transferred, or credited" to the program "under any provisions of law," thus creating the potential for Congress to identify and provide new resources for the Housing Trust Fund in the future.

HUD will administer the new program and will have 12 months from the date of enactment of H.R. 3221 to devise the Housing Trust Fund formula. Formula factors specified in the bill include the following:

The relative shortage of standard rental units affordable and available to extremely low-income renter households (H.R. 3221 requires that HUD's formula "give priority emphasis and consideration" to this factor.);
The relative shortage of standard rental units both affordable and available to very low-income renter households;
The number of extremely low-income renter households living with either incomplete kitchen or plumbing facilities, more than one person per room, or paying more than 50 percent of income for housing costs; and
The number of very low-income renter households paying more than 50 percent of income on rent.

Each state's grant will be adjusted to account for the state's relative cost of construction, which is defined as the cost of construction or building rehabilitation in the state relative to the national cost of construction or building rehabilitation. Each state is guaranteed to receive at least $3 million per year under the program.

States may designate a state housing finance agency, housing and community development entity, tribally designated housing entity, or any other qualified instrumentality of the state to receive grant funds under the program. All states and state designated entities will be required to establish annual allocation plans, based on priority housing needs, outlining a state's plans for distributing grant amounts and measuring performance.

States or their designated entities will solicit applications from and make awards to eligible recipients. Eligible recipients will in turn carry out eligible activities. As defined by H.R. 3221, eligible recipients include organizations, agencies, or other entities (including non-profits and for-profits) that demonstrate the following:

Experience and capacity to conduct an eligible activity under the program, as evidenced by the ability to own, construct or rehabilitate, manage, and operate an affordable multifamily rental housing development; design, construct or rehabilitate, and market affordable housing for homeownership; or provide forms of assistance, such as down payments, closing costs, or interest rate buy-downs for purchasers;
The ability and financial capacity to undertake and manage the eligible activity;
Familiarity with the requirements of any other federal, state, or local housing program that will be used in conjunction with Housing Trust Fund grant amounts to ensure program compliance; and
Proof of assurances to the state or designated entity that the recipient will comply with program requirements throughout the grant term.

Eligible activities under the Housing Trust Fund program include the production, preservation, and rehabilitation of rental housing, including associated operating costs; and the production, preservation, and rehabilitation of homeowner housing, including the provision of downpayment, closing cost, and interest rate buy-down assistance. Homeowner activities may only assist first-time homebuyers, and assisted homebuyers must complete a pre-purchase counseling program offered by a qualified housing counseling organization.

At least 75 percent of each state's grant amount must be used to benefit extremely low-income families (below 30 percent of area median income) or, particularly in rural areas, families with incomes at or below the poverty line. No more than 25 percent of grant funds can be used for activities benefiting very low-income families (30 to 50 percent of area median income), and no more than 10 percent of a state's annual allocation can be used for homeowner activities.

Ineligible activities under the Housing Trust Fund include political activities, advocacy, lobbying, counseling services, travel expenses, and tax advice or the preparation of tax returns. In general, grant amounts may not be used for the administrative or outreach costs of the states, state designated agencies, or eligible recipients, although H.R. 3221 does provide an exception to this prohibition. States and state designated agencies may use up to 10 percent of their annual allocation to cover administrative costs directly associated with carrying out the Housing Trust Fund program, including related homeownership counseling.

Each state or state designated entity must develop and maintain a system for tracking the use of Housing Trust Fund grant amounts by recipients in order to ensure appropriate administration and regulatory compliance. States and state designated entities will also be required to submit an annual report to HUD describing funded activities and detailing progress made toward the performance goals outlined in the required allocation plan.

Finally, it should be noted that H.R. 3221's Housing Trust Fund is distinct from the proposed National Affordable Housing Trust Fund. H.R. 3221 does, however, include a provision that would transfer the mandatory GSE contributions to the National Affordable Housing Trust Fund should legislation enacting that program be signed into law in the future.

The House passed H.R. 2895, the National Affordable Housing Trust Fund Act of 2007, on Oct. 10, 2007. The Senate Banking Committee has not acted on National Affordable Housing Trust Fund legislation during the 110th Congress. Under H.R. 2895, trust fund dollars would be allocated according to a formula to be developed by HUD, with 60 percent of funds going to participating local jurisdictions and the remaining 40 percent allocated to states, federally recognized Indian Tribes, and insular areas. This 60/40 split reflects NAHRO's preferred model for distributing funding under any new affordable housing production program. NAHRO has previously endorsed H.R. 2895.

The Capital Magnet Fund: Unlike the Housing Trust Fund, the Capital Magnet Fund will be administered by the Treasury Department. This new competitive grant program is intended to "attract private capital for and increase investment in" certain affordable housing and complementary economic development activities. Like the Housing Trust Fund, H.R. 3221 includes language creating the possibility of additional resources for the program in the future, including appropriated funds.

Eligible grantees under the program include Treasury-certified community development financial institutions and nonprofit organizations having as a principal purpose the development or management of affordable housing. Eligible activities under the program include the development, preservation, rehabilitation and purchase of affordable housing primarily for extremely low-, very low-, and low-income families; as well as economic development activities or community service facilities, such as daycare centers, workforce development centers, and health care clinics.

Economic development activities and community service facilities must be part of a concerted strategy, in conjunction with affordable housing activities, to "stabilize or revitalize a low-income area or underserved rural area." H.R. 3221 also outlines the following "eligible uses" of funds to support eligible activities:

Providing loan loss reserves;
Capitalizing a revolving loan fund;
Capitalizing an affordable housing fund;
Capitalizing a fund to support eligible economic development activities and community service facilities; and
Providing risk-sharing loans.

A potential grantee may apply for up to 15 percent of the aggregate funds available for distribution through the Capital Magnet Fund in any given year. The legislation directs the Secretary of the Treasury to fund activities "in geographically diverse areas of economic distress." Grantees should look to leverage other sources of funding in a way that results in the aggregate costs of a funded project to total at least times the grant amount.

Applications for Capital Magnet Fund grants must include detailed descriptions of the following:

The types of affordable housing, economic, and community revitalization projects that support or sustain residents of an affordable housing project;
The types, sources, and amounts of other funding; and
The expected time frame of the project for which grant funding is sought.

H.R. 3221 requires the promulgation of regulations outlining the selection criteria for grant awards under the Capital Magnet Fund program. These regulations are to specify that funds be fairly distributed to urban, suburban, and rural areas, and that an application be prioritized for selection if it demonstrates an ability to leverage a grant award effectively, demonstrates local affordable housing needs, and reflects an ability to undertake and complete funded activities in a timely manner.

As with the Housing Trust Fund, Capital Magnet Fund grants may not be used to fund political activities, advocacy, lobbying, counseling services, travel expenses, and tax advice or the preparation of tax returns. The grant tracking requirements for the program also mirror those of the Housing Trust Fund.

In the coming days, NAHRO will distribute additional Direct News pieces summarizing other provisions of H.R. 3221, including:

Special CDBG funding for neighborhood stabilization
LIHTC reform
Provisions designed to facilitate the use of project-based vouchers in LIHTC projects
Public housing disaster relief
New and expanded Mortgage Revenue Bond authority

For more information on this Direct News, contact Jeff Falcusan, NAHRO Policy Advisor for Housing and Community Development (ext. 7212).

Major Housing Legislation Poised to Become Law

July 28, 2008

Congress has finally finished its work on a massive housing rescue package, and the President is expected to sign the bill (H.R. 3221) into law early this week. The omnibus housing bill, known in its final form as the Housing and Economic Rescue Act of 2008, incorporates several stand-alone measures reflecting major NAHRO legislative priorities, including a permanent GSE-financed affordable housing fund production program and special Community Development Block Grant (CDBG) funding to support state and local efforts to stabilize neighborhoods with high numbers of vacant and foreclosed homes.

In the coming days, NAHRO will provide detailed summaries of several of the bill's major components. Highlights of H.R. 3221 include:

A Permanent GSE-financed Housing Trust Fund: The omnibus housing rescue bill includes a permanent GSE-financed affordable housing fund that would, beginning in 2010, provide states with formula-based allocations to support the production, rehabilitation, and preservation of affordable housing. The creation of a new affordable housing production program is a longstanding NAHRO priority. The legislation also creates a Capital Magnet Fund to support economic development programs that complement the production of new affordable units.

Under H.R. 3221, the new GSE-funded affordable housing programs would be capitalized through mandatory annual contributions by Fannie Mae and Freddie Mac, with these contributions equaling 4.2 basis points for each dollar of unpaid principal balance of each GSE's total new business purchases. Each year, 65 percent of the total set-aside would be allocated to the "Housing Trust Fund," with the remaining 35 percent directed toward a Capital Magnet Fund, to be operated as a special account within the Department of Treasury's Community Development Financial Institutions Fund. The Capital Magnet Fund would make competitive grants to support the development, perseveration, rehabilitation and purchase of affordable housing primarily for extremely low-, very low-, and low-income families, as well as economic development activities or community service facilities.

For the first three years, a portion of the GSEs' mandatory contributions would be diverted to cover credit subsidy costs associated with the "Hope for Homeowners" program, a new initiative that would permit the FHA to provide up to $300 billion in new guarantees to help at-risk borrowers keep their homes. Contributions to the affordable housing programs would be suspended during years in which they would contribute to or cause the financial instability or undercapitalization of the GSEs.

Neighborhood Stabilization Funding: H.R. 3221 includes $3.9 billion in special CDBG funding to support state and local efforts to purchase, rehabilitate, and resell or rent foreclosed and vacant homes. These special CDBG dollars will be distributed according to a formula, to be developed by HUD, that incorporates three formula factors specified by the legislation: the number and percentage of home foreclosures, the number and percentage of homes financed by a subprime mortgage related loan, and the number and percentage of homes in default or delinquency in each state or unit of general local government. HUD will have just 60 days after the legislation's enactment to establish the formula.

Once the formula is established, HUD will be required to allocate the funding within 30 days. States and local governments will then have up to 18 months to expend the funding. Eligible activities include the following:

Establishing financing mechanisms for the purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers;
Purchasing and rehabilitating homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties;
Establishing land banks for homes that have been foreclosed upon;
Demolishing blighted structures; and
Redeveloping demolished or vacant properties.

Public Housing Disaster Relief: This provision was previously a stand-alone House-passed measure known as the Public Housing Disaster Relief Act of 2008. That legislation (H.R. 6276) was intended to undercut FEMA's justification for denying local housing agencies access to Stafford Act funding for the permanent repair and reconstruction of public housing units damaged or destroyed during natural disasters and other emergencies.

As incorporated under H.R. 3221, this provision eliminates section 9(k) of the U.S. Housing Act of 1937, as amended by the Quality Housing and Work Responsibility Act of 1998. As NAHRO has reported on several occasions, an existing Memorandum of Understanding between HUD and FEMA has prevented local housing agencies from accessing FEMA funding to repair or reconstruct public housing by virtue of these agencies' eligibility to receive funding through HUD's emergency capital fund reserve, as authorized under section 9(k).

Although Congress has barred HUD from funding the 9(k) reserve in every fiscal year since FY 2000, including FY 2005 when Hurricanes Katrina and Rita made landfall, FEMA has nevertheless taken the position that public housing units' statutory eligibility for 9(k) funding makes them ineligible to receive funding under Section 406 of the Stafford Act for permanent repairs and reconstruction. After nearly three years of NAHRO advocacy on this issue, a June joint hearing of the House Financial Services and Homeland Security Committees quickly led to House passage of H.R. 6276.

Other Provisions: H.R. 3221 includes a number of other important provisions reflecting NAHRO positions, including:

Major reforms to the LIHTC program, many of which were previously endorsed by NAHRO;
$10 billion in new Mortgage Revenue Bond authority and the ability to use these tax-exempt bonds to refinance subprime loans, mortgages for first-time homebuyers, and multifamily rental housing;
Sen. John Sununu's (R-N.H.) Small Public Housing Authorities Paperwork Reduction Act, which waives the PHA plan requirement for non-troubled agencies with 500 or fewer combined public housing and Section 8 voucher units;
A provision, supported by NAHRO, changing the tax code to add the Federal Home Loan Banks to the list of GSEs that are able to credit enhance tax-exempt municipal, industrial development and other private activity bonds;
Several provisions designed to facilitate the use of project-based vouchers in LIHTC projects; and
Provisions supported by NAHRO making it easier for certain national and state banks to make community development investments in areas designated for redevelopment by state and local governments, as well as in areas affected by natural disasters.

Additional Resources and Coverage:

From the Affordable Housing Tax Credit Coalition: Summary of H.R. 3221's Housing Bond and Housing Credit Provisions (Word document)
From HUD.gov: Housing and Economic Recovery Act of 2008 FAQ
From CNNMoney.com: Foreclosure Crisis: The $4 Billion Fix

Contact:

For questions and information pertaining to H.R. 3221, please contact Jeff Falcusan, NAHRO's Policy Advisor for Housing and Community Development, at jfalcusan@nahro.org or 877-866-2476 ext. 7212.