February 16, 2011

NCSHA recently updated its Recommended Practices in Housing Credit Allocation and Underwriting. Informed by the experience of state Housing Credit Allocating Agencies and Housing Credit industry participants, they make notable modifications to previous recommended practices in: per unit cost limits, verification of expenditures, operating expenses, market analysis, development and management experience, and application procedures.

They also address the following issue areas: developer fees, operating and replacement reserve standards, debt coverage ratios, rehabilitation scope of work, extended use agreement provisions, and appraisal requirements. In addition, the new Recommended Practices include six new practices related to: the 30 percent basis boost authorized by the Housing and Economic Recovery Act of 2008, rural housing needs, supportive housing needs, green building and sustainable development, asset management procedures related to American Recovery and Reinvestment Act (ARRA)-assisted developments, and post-15 year compliance issues.

NCSHA unveiled the Recommended Practices at its 2011 HFA Institute held in January. Several speakers complimented the changes and explained how they would improve administration of the program, such as new cost certification letters, suggestions for improving market studies, and new recommended practices to facilitate rural development, supportive housing, and sustainable development.

A hallmark of the Credit program’s success has been Congress’ recognition that each state is better able than the federal government to address the low-income housing needs unique to its citizens and that the market discipline and experience of the private sector can significantly strengthen the program. This delegation of authority to the states to administer a major federal tax program is unique and unprecedented. In making it, Congress recognized the value of decentralized decision making concerning each state’s low-income housing needs, but also imposed a uniform set of procedures each state must follow in determining the developments to which they allocate Housing Credits.

As Congress expected, during their nearly 25 years of Housing Credit administration, the states have developed a variety of allocating and underwriting practices appropriate to meet specific state low-income housing needs. NCSHA’s recommended practices in Housing Credit administration, developed over the life of the program by the state administrators themselves, have allowed states to achieve program excellence while maintaining the flexibility they need to best meet their unique and diverse affordable housing needs. The NCSHA Board of Directors has previously adopted three principal sets of recommended practices in Housing Credit allocation and underwriting for voluntary adoption by state Allocating Agencies—one in 1993, one in 1998 and one in 2003.

Since then the program has confronted significant challenges, including one of the largest economic downturns in recent times and the resulting significant disruption of the Housing Credit equity market. State administration of the program has experienced considerable change as well due to new statutory and regulatory requirements impacting the Allocating Agencies and ever-increasing affordable housing needs. Accordingly, the states have continued to make advances in program administration and have, with each passing year, learned more about the long-term performance of Credit properties and the financial and physical challenges they confront over time.