Federal officials are indefinitely extending the Housing Finance Agency Risk-Sharing Initiative that was reinstated three years ago.
Offered through the Department of Housing and Urban Development (HUD) and the Treasury Department’s Federal Financing Bank (FFB), the program has helped enable access to nearly $2 billion in financing for the development or rehabilitation of almost 12,000 affordable rental homes.
The extension positions the program to create or preserve another 38,000 affordable rental homes over the next 10 years, estimate officials.
“We know that the supply of affordable rental homes has not kept pace with increasing demand,” said Adrianne Todman, HUD deputy secretary. “This action will continue our partnership with Treasury and very importantly state and local housing finance agencies and create stability for a production program with demonstrated results.”
The initiative allows eligible housing finance agencies (HFAs) to enter into contracts with HUD through which the Federal Housing Administration (FHA) insures multifamily mortgages originated by an HFA that are used to finance the construction or rehabilitation of affordable housing properties.
HUD and the HFA share the risk of any potential loss resulting from a default of the insured mortgage. With the FHA insurance credit enhancement in place, the FFB will purchase the mortgage, enabling the HFA to recoup its capital and make other investments in its communities.
So far, 23 states have participated in the program, which was scheduled to end later this year. By extending the initiative, officials hope to see additional HFAs take part.
Several industry associations applauded the administration for extending the program. According to National Housing Conference president and CEO David M. Dworkin, the program has closed or committed $4.9 billion for 42,000 since its inception in 2015.
“With the program’s reinstatement in 2021 and now indefinite extension, it will ensure continued access to funds for HFAs to facilitate the creation of new affordable housing units,” he said.
The National Council of State Housing Agencies agreed, saying, “At a time when affordable housing is scarce for so many people who need it so much, extending the FFB program ensures HFAs will continue to have an important and effective way of helping to build and maintain apartments for low- and moderate-income families.”
Sarah Brundage, president and CEO of the National Association of Affordable Housing Lenders, also supported the move.
“Today’s action solidified an efficient and effective tool to boost housing supply—and we need to protect and strengthen every tool in our toolbox,” she said. “Next, we look forward to continuing to work with the administration on expanding and strengthening the program, notably expanding the program to qualified Community Development Financial Institutions as lenders.”
However, the Mortgage Bankers Association opposes the extension.
“While we agree with the administration that there is a desperate need for more affordable housing supply, extending the FHA-FFB Risk Sharing program is unnecessary, as it undermines the successful FHA Multifamily Accelerated Processing (MAP) program and creates unfair competition with the private sector. HUD MAP lenders currently follow a nearly 1,000-page underwriting and requirement guidebook, must adhere to Davis-Bacon split-wage requirements, and must comply with stringent environmental standards. FFB program participants do not follow the same requirements, which could lead to less safe housing choices for those most in need,” said president and CEO Bob Broeksmit.
The MBA called on the administration to direct HUD to take action on making its existing programs more useful and attractive for lenders and borrowers.
“Reducing or eliminating more than 20 unnecessary and duplicative fees, increasing statutory loan limits, lowering multifamily mortgage insurance premiums and excessive escrow account requirements, and increasing the wind/named storm insurance deductibles would have more impact in developing more affordable rental housing.”
The Biden-Harris administration also announced several additional moves to boost housing supply, including:
· Releasing a $225 million funding opportunity to support manufactured housing communities. HUD announced that the application for Preservation and Reinvestment Initiative for Community Enhancement (PRICE) grants has opened. This marks the first time the federal government has made grant funding available specifically for investments in manufactured housing communities, including resident-owned communities. A portion of funds are dedicated to supporting tribes and tribal nonprofit organizations;
· Making the HOME program easier to use. In the coming weeks, HUD expects to publish a proposed rule to streamline and modernize the regulations for the HOME Investment Partnerships program, the nation’s largest annual block grant to support housing supply; and
· Providing new funding for senior housing. HUD recently announced the availability of $115 million in grant funding for an estimated 1,100 units for low-income seniors through the Section 202 Supportive Housing for the Elderly program. The funding includes $35 million to create intergenerational housing units with features to meet the needs of seniors who are raising children younger than 18. This builds off of over $161 million in Section 202 grant awards HUD announced in October, which will support nearly 1,300 units for eligible households.
Supporters estimate the credit could produce 500,000 homes over 10 years and generate about $100 billion in development and 785,714 jobs in construction and related industries.
Roberts expects many of the same investors, financial partners, and developers active in the LIHTC market to utilize the new credit.
He also thinks there’s room in the market and enough investor appetite for the proposed credit. Many affordable housing leaders are focused on the Affordable Housing Credit Improvement Act of 2019, which would expand the LIHTC.
The NHIA isn’t expected to rehab individual houses on a one-off basis. Instead, it’s aimed at working on a neighborhood basis.
Eligible neighborhoods must meet all three of the following tests:
- Elevated poverty rates: 130% of the metro rate (130% of the state rate in nonmetro areas);
- Lower incomes: up to 80% of the metro median (80% of the state median in non-metro areas); and
- Modest home values: below the metro median (below the state median in non-metro areas).
About 22% of all census tracts and 24% of non-metro tracts meet these three tests. In addition, states could use up to 20% of the tax credits for non-metro tracts with median incomes below the state median and help long-standing homeowners in gentrifying lower-income neighborhoods to substantially rehabilitate and remain in their homes. The homes must be occupied by residents earning no more than 140% of the area median income.
Roberts notes that the proposal has earned support from a variety of organizations, including Enterprise Community Partners, Habitat for Humanity, Local Initiatives Support Corp., Mortgage Bankers Association, National Association of Realtors, National Council of State Housing Agencies, National Housing Conference, and National NeighborWorks Association.
The two lead sponsors are from Buffalo, N.Y., and Erie, Pa., two hard-scrabble communities that have lost many traditional jobs and seen some of their neighborhoods struggle over the years.
“Too many of America’s neighborhoods of single-family residences are falling into disrepair, and the incentive to invest in these communities is nonexistent. I am excited to offer this solution because it will do so much for so many communities, like Erie, throughout our country,” said Kelly in a statement.
