08 08 08 by jizhen1947


									08 08 08

To: Housing Alliance Board, Staff and Friends
Fr: Liz Hersh
Re: Provisions of the newly enacted federal Housing and Economic
Recovery Act of 2008

You don’t get this from me very often. You MUST READ the key provisions
of the Housing and Economic Recovery of 2008 (The ACT).
It is an extremely significant piece of housing legislation. There is a lot more to
this bill than what has been reported in the popular media. And it is GOOD! Much
of this is going to help us provide homes within reach of people with low incomes.
There are opportunities here.

There are several provisions designed to address current problems in the equity
market and the compatibility of Low Income Housing Tax Credits with other HUD
programs; it targets some Section 8 and Public Housing Reforms. It establishes
the National Housing Trust Fund, provides for mortgage foreclosure relief (HOPE
for Homeowners), modernizes FHA provisions, strengthens oversight of the
GSE’s and refocuses their lending on lower-income communities, including
developing mortgage products for manufactured homes.

The law itself is over 700 pages! The Housing Alliance WILL conduct a briefing
on the ACT. But I do not yet know the date. (I had hoped for Sept. 16, but that
won’t work).

Here, and on our website, are highlights provided by national advocates. I have
tried to cull through everything I can find and provide you with information that is
brief but highlights those aspects that are most relevant to our mission.

In addition, there are several important advocacy opportunities. For example,
HUD must determine the formula for distributing the Neighborhood Stabilization
Funds and the National Housing Trust Fund. They must also decide which state
entity is going to administer the national trust fund.

Tax Credit Developers - You need to do 2 things, if you have not done so
1) Go to the PHFA briefing on August 12 at the Radisson. Many of the new
   provisions of the “Housing Act” were made effective on July 30. You need to
   know how PHFA is implementing them in this tax credit round. (See attached
   email from Holly Glauser-Abel, in case you did not already get it).

2) Print out and read the attached summary by Buzz Roberts at LISC. Your
   lawyers and accountants will read all the detail, but this is an excellent
   summary of relevant and significant changes that will have an impact on your
   developments right away. Among the highlights are:
             i. A range of housing tax credits are now exempt from the
                Alternative Minimum Tax (AMT) designed to bolster the equity
                market right away
            ii. The recapture bond requirement is repealed
           iii. More LIHTC and bond authority are available

The majority of the provisions take effect October 1, 2008.

Here are other highlights from the National Low Income Housing Coalition.
Again, look for the notice of a Housing Alliance briefing on this ACT in

National Housing Trust Fund Established
Bottom Line – Funds will be available starting in 2010. Given current projections,
PA would get an estimated $6M in the first year (could be more depending on the
market and formula adopted by HUD. HUD has to decide WHICH state agency
should be responsible for administering the funds.)

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

This is the first new federal housing production program since the HOME
program was created in 1990 and the first new production program specifically
targeted to extremely low income households since the Section 8 program was
created in 1974.

Funds for the Housing Trust Fund will come from annual contributions made by
Fannie Mae and Freddie Mac. The amount will be based on a percentage of
each company’s annual new business. Using the formula in the bill, the amount
in 2007 would have been $557 million. Because their new business is increasing,
the amount in 2008 is expected to be higher. However, 25% of the funds each
year must first go to a reserve fund at the Treasury to offset scoring problems.

The remaining 75% of the funds will be divided between the Housing Trust Fund,
which gets 65%, and a new Capital Magnet Fund that gets 35%. For the first
three years, a percentage of the funds (100% in FY09, 50% in FY10, and 25% in
FY11) will be diverted to a reserve fund to cover losses that the FHA might incur
refinancing troubled mortgages through the new HOPE for Homeowners program
(see article below). Based on the projected amount the formula will produce in
calendar year 2008, approximately $300 million would have been available for
the housing trust fund this year had it been in place with no diversions for the
HOPE for Homeowners reserve fund. Funds not needed to cover FHA losses
eventually will revert to the Housing Trust Fund and the Capital Magnet Fund.

Given the recent instability of Fannie Mae and Freddie Mac, concerns have been
raised about whether any funds will be available for new programs. The new
regulator has the authority to suspend contributions under certain circumstances
related the fiscal distress of the GSEs. However, no money will be available for
the Housing Trust Fund until FY10, by which time Freddie Mac’s and Fannie
Mae’s fiscal conditions are expected to be much improved.

Now that it has achieved this important and long-sought milestone, the National
Housing Trust Fund Campaign will turn its attention to the next two steps towards
achieving its goal of 1.5 million homes in 10 years. The first is implementation of
the program—working with HUD to create an effective and timely fund
distribution system. The second is to identify and advocate for additional sources
of dedicated revenue. The bill specifically provides that Congress may “transfer,
appropriate, or credit” other funds to the Housing Trust Fund.

The following are a section-by-section analysis of the Housing Trust Fund and
Capital Magnet Fund provisions.

Housing Trust Fund

         For the purposes of federal civil rights laws, the Housing Trust Fund is
          considered federal financial assistance. All activities carried out must
          comply with federal laws on tenant protection and tenant participation,
          laws requiring public participation, and fair housing and laws related to
          accessibility for people with disabilities.
         It will be administered by HUD, which will provide grants to states,
          which will designate a state housing finance agency, housing and
          community development entity, a tribal designated housing entity, or
          any other qualified agency to receive the grants.
         The HUD Secretary is to establish a distribution formula to the states
          within 12 months of enactment of the bill.
         Each year that the state receives a grant, it must establish a plan to
          distribute the funds and allow public comments on the plan. The plan
          must detail the eligible uses including the required income targeting.
         Eligible recipients of grants from the states are organizations and
          agencies (for-profit and non-profit) that demonstrate 1) the experience
          and capacity to produce the kind of housing the program calls for, 2)
      the financial capacity to undertake the eligible activity, and 3) familiarity
      with federal, state, and local housing programs.
     Prohibited uses are political activities, lobbying, counseling, traveling
      and administrative expenses, or endorsements of a particular
      candidate or party.
     Recipients must conduct and submit periodic financial and project
      reports, and conform to audit and record retention requirements.
     States must submit an annual report describing the activities for which
      they used the funding.
     States must spend the allotted amount in two years or the funds are
      returned to HUD.

Capital Magnet Fund
     Establishes a Capital Magnet Fund (CMF), which will be an account
      within the Community Development Financial Institutions (CDFI) Fund
      at the Department of Treasury, which is also allowed to receive
      additional funding from other sources.
     Eligible recipients are Treasury-certified Community Development
      Financial Institution or non-profits that have at least one of their
      purposes the development or management of affordable housing.
     Eligible recipients can apply for a competitive grant through the
      Treasury to help develop, preserve, purchase, and rehabilitate
      affordable housing for mostly extremely low, very low, and low income
      families. Grant funds may also be used for economic development or
      community service facilities in conjunction with affordable housing to
      help stabilize a low-income or rural area.
     The CMF may also be used to provide loan loss reserves, to capitalize
      a revolving loan fund or an affordable housing fund, or for risk-sharing
     Applications for the competitive grants are required to include a
      detailed description of the types of affordable housing, economic, and
      community revitalization projects the institution would use the grant for,
      and the anticipated time frame they intend to use it.
     No institution can be awarded more than 15% of all Capital Magnet
      funds available for grants in that year.
     The Secretary is encouraged to fund activities in rural or underserved
      metropolitan areas.
     Among the criteria in determining which areas should be served are:
          o the percentage of low income families or the extent of poverty
          o the rate of unemployment or underemployment
          o the extent of blight and disinvestment
          o projects targeting extremely low, very low , and low income
              families in an area of economic distress
          o or any other criteria chosen by the Secretary
     Institutions receiving grants must spend the funds within two years
      from the date of receiving them.
         Prohibited uses are political activities, advocacy, lobbying, counseling
          services, travel expenses, and endorsements of a particular candidate
          or party.
       Each grantee must track its funds by issuing periodic financial and
          project reporting, and audit requirements. If the Secretary is not
          satisfied with the compliance, the grantee may receive fewer funds,
          have to pay the Treasury back, or have their grant terminated.
The Secretary must submit a periodic report to the Senate Committee on
Banking, Housing, and Urban Affairs and the House Committee on Financial
Services describing the activities these funds are being used for.

Reform of Housing GSEs - Fannie Mae and Freddie Mac
The ACT establishes the Federal Housing Finance Agency (FHFA) to oversee
and regulate Freddie Mac, Fannie Mae, and the Federal Home Loan Banks
(GSEs). The FHFA replaces the Office of Federal Housing Enterprise Oversight
(OFHEO) and HUD as Freddie’s and Fannie’s regulator and replaces the Federal
Housing Finance Board as the regulator for the Federal Home Loan Banks

The FHFA will be headed by a director appointed by the President and confirmed
by the Senate for a five-year term. The legislation also provides for three deputy
directors appointed by the director: the Deputy Director for Housing and Mission
Goals, the Deputy Director for Federal Home Loan Bank Regulation, and the
Deputy Director for Enterprise Regulation. The new regulator has enhanced
authority to raise capital standards, ensure internal controls, and enforce these
new standards and take prompt corrective action. The new regulator will oversee,
and could directly restrict, executive compensation at Fannie Mae and Freddie
        The bill sets the GSE loan limits at $417,000 for single family homes,
           with a maximum in high cost areas of $625,500. These limits will take
           effect at the beginning of the 2009. The current maximum loan limit is

29,750 in high-cost areas, a temporary increase until the end of 2008.

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

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

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

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

Neighborhood Stabilization
Stabilizing Neighborhoods Hurt by the ACT appropriates a one-time $3.9 billion
in emergency assistance to states and units of general local government. The
funds will be allocated based on a formula established by the Secretary of HUD
no later than 60 days after enactment, but no state will receive less than 0.5% of
these funds ($19.5 million). The formula is designed to ensure that the funds go
to areas most in need. Criteria for the formula include the number and
percentage of home foreclosures, the number and percentage of homes financed
by a subprime mortgage related loans, and the number and percentage of homes
in default or delinquency in each state or locality. DCED estimates that PA
should get over $100M dollars.
All of these funds must be used to assist individuals and families whose incomes
does not exceed 120% of area median income, and not less than 25% of the
funds must be used for the purchase of abandoned or foreclosed residential
properties that will be used to house individuals or families whose incomes do
not exceed 50% of area median income. The HUD Secretary must ensure, to the
maximum extent practicable and for the longest feasible term, that the sale,
rental, or redevelopment of abandoned and foreclosed upon homes and
residential properties under this section remain affordable these families.

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

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

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

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

Housing Counseling
    $260 million for housing counseling
    Not less than $27 million must be provided to counseling organizations
     that target loss mitigation counseling services to minority and low-income
     homeowners or provide such services in neighborhoods with high
     concentrations of minority and low-income homeowners.
    $30 million must be used by the Neighborhood Reinvestment Corporation
     (NRC) to make grants to counseling intermediaries approved by HUD or
       the NRC to hire attorneys to assist homeowners who have legal issues
       directly related to the homeowner’s foreclosure, delinquency or short sale.

Hope for Homeowners Program
The bill also establishes a “Hope for Homeowners” program that provides
authority for the Federal Housing Administration (FHA) to refinance up $300
billion in mortgages of at-risk borrowers living in their homes who can afford to
make a reduced loan payment. To be eligible, the borrower cannot have
intentionally defaulted on the mortgage being refinanced, must have a ratio of
mortgage debt to income of greater than 31% and the mortgage being refinanced
must have been originated on or before January 1, 2008. The new mortgage
must be affordable to the borrower and cannot exceed 90% of the appraised
value of the property. The Hope program will begin October 1, 2008 and
terminate September 30, 2011.

Homeless Assistance
The ACT increases the authorization level for McKinney-Vento homeless
assistance programs by $30 million. These grant funds will be used to provide
emergency assistance for homeless children and youths and their families who
have become homeless due to foreclosures, whether they were renting or
owning their homes. The grants would be made by HUD to state educational
agencies that would then make sub-grants to local educational entities.

Service Members and Veterans
The bill authorizes the Department of Defense to reimburse military service
members’ moving expenses if they were renting a home and were forced to
move because of a foreclosure.

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

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

The ACT allows LIHTCs to reduce an investor tax liability under the alternative
minimum tax, allowing these investors to benefit from the LIHTC. This is
expected to increase the pool of LIHTC investors and, hopefully, cash going into
the development of LIHTC projects.
Rental income to LIHTC-funded developments is also addressed by the ACT.
LIHTC rents are capped at 30% of 60% of area median income. But, HUD-
determined area median incomes might go down or up significantly, potentially
impacting rental income to the project and resident rents. The bill will protect
rental income to a LIHTC property by not allowing area median income declines
for LIHTC properties. This provision is intended to de-couple the determination of
AMIs for the purposes of LIHTC properties from AMI determination for HUD

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

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

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

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

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

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

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

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

Public Housing
For those of you who want to know MORE about the Public Housing and
Section 8 provisions, attached is a memo by Barbara Sard. NAHRO also
has done a summary, which I have if you want it. Otherwise, here are some

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

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

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

I hope this is helpful. Thanks to the National Low Income Housing
Coalition, Center for Budget and Policy Priorities and the National
Association of Community Economic Development Associations for their
help as advocates for this legislation and for providing information to us
about it.


Elizabeth G. Hersh
Executive Director
Housing Alliance of Pennsylvania
2 South Easton Road
Glenside, PA 19038
215 576 7044 office phone
267 446 3302 cell phone
215 886 8638 fax

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