Find Homeowner Assistance Fund Programs by State: Read More

Treasury Department Boosts Affordable Housing with Fiscal Recovery Funds

Published on July 27, 2022 by Jennifer Schwartz
Treasury Department Boosts Affordable Housing with Fiscal Recovery Funds

The Treasury Department today announced new guidance that will significantly increase the ability of state, local, and tribal governments to use Coronavirus State and Local Fiscal Recovery Funds to directly support the development of affordable housing and help lower housing costs.

“Treasury’s announcement will quickly unlock significant amounts of financing, encourage states and cities to invest additional funds, and establish new sources of long-term capital for affordable construction around the country,” said NCSHA Executive Director Stockton Williams. “We are grateful to the Biden-Harris Administration for this significant action in its continuing efforts to address the housing affordability crisis.”

The new guidance, which is effective immediately, allows states and localities to use recovery funds to make long-term loans to affordable housing developments, as long as units are targeted to tenants earning 65 percent of area median income or lower for a minimum of 20 years.

Previously, states and localities had been unable to optimize recovery funds for housing financing, dramatically undercutting their effectiveness. State housing finance agencies and members of Congress worked closely with Treasury officials to optimize the uses of recovery funds to support affordable housing construction at a time when it is more needed than ever.

The bipartisan leadership of Senators Leahy (D-VT) and Collins (R-ME) and Representatives Adams (D-NC) and Rouzer (R-NC) was also instrumental in the development of Treasury’s policy. NCSHA commends them for their sponsorship of the LIFELINE Act, which led to this game-changing announcement.

Treasury’s January 2022 final rule allowed the use of recovery funds to finance the “cost of the loan” but not the full principal amount. This requirement forced states and local governments to find other resources that could be blended with recovery funds if used for loans with maturities beyond 2026, adding complexity and transactional costs to the deal. Furthermore, many grantees do not have another source of funds available to them to blend with recovery funds, making its use as a loan impossible in those instances.

Recovery funds can now be used to fund the full principal amount of loans that finance long-term affordable housing investments. To support homeownership, recovery fund recipients can also offer down payment assistance, including contributions to a homeowner’s equity at origination or establishing a post-closing mortgage reserve account.

To take advantage of the new flexibility in the use of recovery funds with the Housing Credit, developments will be required to waive their right to a qualified contract, consistent with the Senate version of the LIFELINE Act.

The guidance further clarifies that repayment of long-term loans can be reinvested into future affordable housing uses consistent with the final rule. Specifically, the rule clarifies that affordable housing loans are considered expended at the point of disbursement to the borrower, and repayment of such loans is not subject to program income rules.

The new Treasury guidance also expands the list of presumptively eligible uses of funds to clarify that affordable housing that meets core requirements of HOME, the National Housing Trust Fund, the Housing Credit, public housing capital funds, Section 202, Section 811, project-based rental assistance, and USDA multifamily preservation are considered eligible uses of recovery funds. The four core requirements include resident income restrictions, affordability and related covenant requirements, tenant protections, and housing quality standards.

To encourage state and local governments to utilize these increased flexibilities for affordable housing, Treasury and the Department of Housing and Urban Development have jointly published a How-To Guide to provide examples of how these flexibilities can help facilitate affordable housing development using multiple sources of federal funding.

Treasury also plans to conduct a series of webinars and briefings with entities involved in the development and preservation of affordable housing to further encourage use of fiscal recovery funds to expand the housing supply.