New Law Creates Housing Trust Fund, Provides New Tools
By Caitlin Jones & A. J. Johnson
5 min read
In addition to amendments pertaining to low-income housing and historic tax credits and tax-exempt housing bonds, the newly enacted housing law contains a number of other provisions affecting affordable housing.
These include provisions to create a new national housing trust fund, reform and strengthen oversight and regulation of government-sponsored enterprises, provide funds for state and local governments to purchase foreclosed properties, amend various federal housing programs, revise federally insured or guaranteed home loan programs, and establish a new tax credit for first-time home buyers.
Housing Trust Fund
The new Housing and Economic Recovery Act of 2008 authorizes a new national “Housing Trust Fund” to be established by the U.S. Department of Housing and Urban Development (HUD). The Trust Fund will allocate grants by needs-based formula to states to finance eligible rental housing and homeownership activities targeted to income-eligible households. All funds will have to assist very low-income households (50% or less of area median income), and 75% benefit extremely low-income households (30% or less of AMI).
Eligible uses of funds will be for production, preservation, and rehabilitation or rental housing; for rental housing operating costs; for production, preservation, or rehabilitation of owner-occupied housing; and various types of financial assistance for homebuyers.
Fannie Mae and Freddie Mac will be required to contribute funds annually to capitalize the new Housing Trust Fund and a separate new Capital Magnet Fund. All or a portion of their contributions the first three years, however, will be diverted to a separate new program that will enable qualified homeowners at risk of foreclosure to refinance to new FHA-insured mortgages.
The Capital Magnet Fund, to be administered by the U.S. Treasury’s Community Development Financial Institutions Fund, will offer competitive grants designed to attract private capital and increase investment for: (1) the development, preservation, rehabilitation, or purchase of affordable housing for primarily extremely low-income, very low-income, and low-income households; and (2) economic development activities or community services facilities that, together with affordable housing activities, stabilize or revitalize a low-income area or underserved rural areas, such as day care centers, workforce development centers, and health care clinics.
GSE Reform
The law creates a new and stronger federal overseer and regulator for the government-sponsored enterprises – Fannie Mae, Freddie Mac, and the Federal Home Loan Banks – called the Federal Housing Finance Agency (FHFA). The former Office of Federal Housing Enterprise Oversight within the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Finance Board are abolished. Among other requirements, GSEs will need to get FHFA approval of any new product before offering it.
In addition, the law establishes a new Federal Housing Oversight Board made up of the Secretaries of HUD and the U.S. Treasury, the director of FHFA, and the chairman of the U.S. Securities and Exchange Commission.
The Act requires FHFA to establish new annual housing goals for the GSEs to be fully effective starting in 2010 – four for single-family mortgage purchases and one for multifamily mortgage purchases. The new goals will promote financing for owner-occupied or multifamily rental housing for low-income and very low-income households. The new law also requires GSEs to report on their purchases of loans for small low-income rental housing projects, and requires them to serve underserved markets by developing loan products and flexible underwriting guidelines to facilitate a secondary market for mortgages on manufactured homes, rural housing, and preservation of existing housing for very low-income, low-income, and moderate-income families. Among the projects falling under the affordable housing preservation mandate are those assisted or subsidized under eight specific federal housing programs mentioned in the statute, including HUD Section 8 and the low-income housing tax credit, plus projects assisted under “comparable” state and local affordable housing programs.
Foreclosure Properties Funding
The law authorizes appropriation of $4 billion for federal grants to states and localities to provide support for various activities designed to help stabilize neighborhoods jeopardized by larger numbers of abandoned or foreclosed homes.
The grant funds, to be treated as if they are federal Community Development Block Grant monies, will be allocated under a funding formula to be developed by HUD, taking into account certain factors, to states and localities with the greatest need. States and localities will be required to give priority to areas that have the greatest percentages of home foreclosures and of subprime mortgages, and that are likely to see a significant rise in foreclosures.
The funds can be used for a variety of eligible purposes. These include to buy and renovate abandoned and foreclosed homes to resell, rent, or redevelop; to create funding pools to facilitate the purchase and redevelopment of foreclosed homes; to redevelop demolished or vacant properties; to demolish blighted structures; or to establish land banks for foreclosed homes. All funds must benefit households earning 120% or less of AMI.
Other Provisions
Other provisions in the new law:
- Bar HUD from increasing premiums for FHA multifamily mortgage insurance until 10/1/09.
- Establish a refundable new federal income tax credit of up to $7,500 for first-time home purchases after 4/8/08 and before 7/1/09 by income-eligible buyers. The tax credit phases out for individual taxpayers with incomes above $75,000 ($150,000 for joint returns), and must be repaid within 15 years.
- Raise FHA single-family loan limits and the Fannie Mae and Freddie Mac single-family conforming limits, including for high-cost areas.
- Revise and modernizes rules for the FHA single-family mortgage insurance program, including changes to the FHA reverse mortgage program.
- Enhance certain housing benefits for military veterans under programs administered by the U.S. Department of Veterans Affairs.
- Permit Treasury-certified community development institutions to become members of a Federal Home Loan Bank.
- Modernize certain tax rules for real estate investment trusts.
