NCSHA Washington Report | June 26, 2020
State housing finance agencies, which emerged in the 1960s and came of age in the ’70s, moved to the center of the affordable housing system in the ’80s — where they’ve remained ever since.
The Reagan Administration’s efforts to reduce federal domestic spending led to sharp reductions in funding for housing. Congress cut HUD’s annual “budget authority” by nearly 80 percent between 1981 and 1989, although annual “outlays” — actual spending to honor prior congressional commitments — rose more than 65 percent. In any event, the federal government largely left the business of funding new housing development through HUD.
The states responded. By the end of the decade, more than 200 state HFA programs were in operation, according to one analysis, which concluded:
“The enduring legacy of this period of state activism may be a permanently enlarged role for the states in targeting housing programs for their own particular needs and priorities; innovation in response to those needs; and coordinating many resources and diverse players in the housing arena.”
The most important state resource was the ability to issue tax-exempt housing bonds, which enabled HFAs to become a primary source for low-cost mortgage financing during an era of high interest rates. In the 20 years before 1980, the agencies had issued a total of $10 billion in Mortgage Revenue Bonds (MRBs); they issued $53 billion during the next 10 years.
John Wagner of Kutak Rock recalls the advent of computerized cash flow modeling and adaptation of private mortgage pool insurance originally developed for taxable mortgage pass-through bonds in helping fuel this explosive growth. Not that it was always easy. The ’80s, Howard Zucker of Hawkins Delafield & Wood observed, were also “a decade of constant legislative attacks on housing finance.”
The terrain was a series of tax bills Congress passed that limited the eligible buyers, their incomes, and the price of homes they could buy with MRBs; curtailed HFA profits from bond proceeds; and imposed an annual cap on the amount of mortgage revenue, multifamily, and other “private activity” tax-exempt bonds. HFAs mobilized as never before through NCSHA to preserve MRBs, the foundation of the state HFA operating model, overcoming several near and actual temporary terminations of the program.
One of those tax bills, the Tax Reform Act of 1986, also replaced several tax shelters for commercial real estate investment with a groundbreaking one for affordable housing: the Low Income Housing Tax Credit. Reflecting both the “new federalism” in ascendance and the maturation of a new delivery system, Congress put the states in charge of administering the credit.
The scholar Peter Dreier observed that, while in 1970 there were 300,000 more low-cost rental apartments than there were low-income renters, by 1985 the latter exceeded the former by 3.3 million units. The decade that saw states fill the void in affordable housing from federal retrenchment also revealed a dimension of housing needs that would consume state HFAs from then on.
Stockton Williams | Executive Director
Washington Report is off next week in observance of Independence Day and will return July 10.
NCSHA COVID-19 Resources and Updates
In This Issue
- House Democrats’ Infrastructure Bill Includes Housing Credit and Private Activity Bond Expansion, Neighborhood Homes Credit, Housing Funding
- Senators Wyden and Cantwell Introduce New Housing Credit Legislation
- Garamendi Introduces Legislation to Reauthorize the HOME Investment Partnerships Program
- Senators Portman, Cardin, Others Introduce Neighborhood Homes Investment Act
- NCSHA Joins Other Housing Groups in Request for HOME Funding to Meet Needs During Pandemic
- NCSHA Joins NHC, Others on Letter to FHA and FHFA on Forbearance
- House Preparing to Consider Resolution to Rescind OCC’s CRA Final Rule
- House Appropriations Committee Schedules Markups
- CFPB Proposes to Remove DTI Limit, Implement Price Thresholds for QM Loans
- CFPB Publishes Interim Final Rule Allowing COVID-19 Forbearance Options
- HUD Report Shows Decline in Worst Case Housing Needs Despite Serious Supply Shortfall
- Looking Ahead
House Democrats’ Infrastructure Bill Includes Housing Credit and Private Activity Bond Expansion, Neighborhood Homes Credit, Housing Funding
This week, House Democratic leaders released their new $1.5 trillion infrastructure legislation, the Moving Forward Act (H.R. 2). The bill would invest substantially in roads, bridges, schools, broadband access, and housing. As NCSHA’s summary explains in more detail, the bill would increase the amount of Housing Credit and Private Activity Bond authority provided to states annually, make a number of changes to the Housing Credit and Bond programs; provide additional funding for HUD programs, including HOME; establish a new state-administered single-family housing tax credit; and make a number of other changes. The House is likely to pass the bill with only slight changes before it recesses July 3. More information is available in NCSHA’s blog.
Senators Wyden and Cantwell Introduce New Housing Credit Legislation
On June 25, Senate Finance Committee Ranking Member Ron Wyden (D-OR) and Senator Maria Cantwell (D-WA) introduced standalone Senate companion legislation to the Housing Credit provisions included in the Moving Forward Act (H.R. 2), the infrastructure legislation House leaders released earlier this week. The bill, the Emergency Affordable Housing Act of 2020 (S. 4078), is intended to preserve and expand affordable housing during the COVID-19 pandemic and economic crisis. It would significantly expand the Housing Credit volume cap, set a minimum 4 percent Credit rate for bond-financed properties, provide more resources to properties serving extremely low-income families, close the qualified contract loophole, and make other critical changes. NCSHA worked closely with Senator Wyden’s and Senator Cantwell’s staffs and with their counterparts on the House Ways and Means Committee on crafting the legislation. For more information, see NCSHA’s blog or contact Jennifer Schwartz. Both a one-page and a more detailed summary also are available.
Garamendi Introduces Legislation to Reauthorize the HOME Investment Partnerships Program
On June 25, Representative John Garamendi (D-CA) introduced the HOME Investment Partnerships Reauthorization Act of 2020 (H.R. 7312). This bill would reauthorize the HOME program, increase the authorized funding levels from 2021–2025, and make minor technical corrections. The HOME program has not been reauthorized since 1992. H.R. 7312 sets an authorized funding level of $5 billion for 2021 and increases that amount by five percent a year until 2025. However, appropriators have no obligation to fund programs at their authorized levels and often — as has been the case with HOME since 1995 — fund programs even if their authorizations have lapsed. The bill does not include substantive programmatic changes, including those NCSHA would like to see to simplify program administration. NCSHA is exploring other opportunities to make statutory modifications to HOME. If you have proposals we should consider, please contact Jennifer Schwartz.
Senators Portman, Cardin, Others Introduce Neighborhood Homes Investment Act
On Thursday, Senators Rob Portman (R-OH) and Ben Cardin (D-MD) — joined by Senators Chris Coons (D-DE), Todd Young (R-IN), Tim Scott (R-SC), and Sherrod Brown (D-OH) — introduced the Neighborhood Homes Investment Act (S. 4073). It is the companion legislation to H.R. 3316 and would establish a new state-administered federal tax credit to stimulate private investment to build or rehabilitate single-family homes in distressed communities for owner occupants.
NCSHA Joins Other Housing Groups in Request for HOME Funding to Meet Needs During Pandemic
This week, 180 national, state, and local organizations, including NCSHA, sent a letter to House and Senate Transportation, Housing, and Urban Development Appropriations Subcommittee leaders urging them to provide at least $14 billion for the HOME program in the next COVID-19 relief package to meet immediate needs arising from the pandemic. In particular, this funding could be used to address increased operating costs related to health and safety actions, food services for residents, and personal protective equipment for staff. Funding also could be used to address financing gaps, rental assistance, and other needs.
NCSHA Joins NHC, Others on Letter to FHA and FHFA on Forbearance
This week, NCSHA joined a broad coalition of 36 affordable housing advocates, associations, and industry stakeholders on a letter addressed to HUD Secretary Carson and FHFA Director Calabria, and additionally sent to Treasury Secretary Mnuchin, National Economic Council Director Lawrence Kudlow, and the leadership of the Senate Banking, Housing, and Urban Affairs Committee and the House Financial Services Committee. The letter urged that FHA rescind and revise its 20 percent indemnification requirement for validly underwritten loans that go into forbearance post-closing but before the loans are insured. The letter also asked that FHFA rescind and revise the loan level price adjustments (of 500 or 700 basis points) for early payment forbearance loans it previously announced for loans sold to Fannie Mae and Freddie Mac, as they are contributing to marketwide credit overlays.
House Preparing to Consider Resolution to Rescind OCC’s CRA Final Rule
The House of Representatives is poised to consider early next week a Joint Resolution (H.J.Res. 90) to overturn the Office of the Comptroller of the Currency’s recent rule amending its Community Reinvestment Act regulations. The House Rules Committee on Wednesday approved a set of rules for debating and voting on the resolution, usually the final step before legislation is considered on the House floor. The resolution seeks to reverse the rule through the Congressional Review Act, which allows Congress to reject implementation of any regulation promulgated by the executive branch if a majority in each chamber votes to do so and the president signs it into law.
House Appropriations Committee Schedules Markups
The House Appropriations Committee has scheduled a series of markups to advance Fiscal Year 2021 appropriations bills this summer. The Agriculture Subcommittee will mark up its bill July 6 and the Transportation-HUD Subcommittee will mark up its bill July 8. While exact dates for full committee action on these bills are not yet final, the committee is likely to consider them the week of July 13. Bill text will be available approximately 24 hours before the subcommittee markups.
CFPB Proposes to Remove DTI Limit, Implement Price Thresholds for QM Loans
The Consumer Financial Protection Bureau on Monday released a proposed rule amending its Ability-to-Repay/Qualified Mortgage (ATR/QM) underwriting guidelines. The proposal rescinds the 43 percent debt-to-income (DTI) ratio limit loans must meet to qualify as Qualified Mortgages (QMs) and creates a new price-based threshold for QM loans. Specifically, the rule adjusts the definition of QM so that most first mortgages must have an annual percentage rate (APR) less than two percent over the average prior offered rate (APOR) to qualify. The APR limit is increased for smaller loans and is set at less than 3.5 percent over APOR for second lines.
The proposed rule is being released in response to the upcoming January expiration of the “GSE Patch,” a provision of the ATR/QM rule that automatically qualifies as QMs all loans approved through either Fannie Mae’s or Freddie Mac’s underwriting systems, regardless of whether they meet the 43 percent DTI limit. CFPB also has released a second proposed rule to extend the GSE Patch until it has finalized its proposed changes to the CFPB rule, a timeline it thinks will take until at least April 1, 2021. CFPB will be accepting comments on both proposed rules for 60 days after they are published in the Federal Register. NCSHA will be submitting comments on behalf of state HFAs. If you have input for NCSHA to consider, email Rosemarie Sabatino by August 7.
CFPB Publishes Interim Final Rule Allowing COVID-19 Forbearance Options
On Tuesday, the Consumer Financial Protection Bureau issued an interim final rule to amend Regulation X to temporarily permit mortgage loan servicers to offer certain loss mitigation options based on evaluations of incomplete loss mitigation applications. It seeks to align the regulations with the CARES Act and COVID-19-related partial claim/payment deferral options allowed by FHA and FHFA. The interim final rule becomes effective July 1, although comments on it may be sent to CFPB no later than 45 days after publication in the Federal Register, which is expected shortly.
HUD Report Shows Decline in Worst Case Housing Needs Despite Serious Supply Shortfall
According to HUD’s recent publication, Worst Case Housing Needs: 2019 Report to Congress, the number of renters with “worst case housing needs” declined 7 percent from 8.3 million in 2015 to 7.7 million in 2017. HUD defines worst case housing needs as renter households with incomes that are no more than 50 percent of area median income who do not receive government housing assistance and spend more than half of their incomes on rent, live in severely inadequate conditions, or both. The report, released last week, also says the unmet need for adequate and safe affordable housing still greatly outstrips the availability of such housing stock.
Legislative and Regulatory Activities
- June 30 | Comment Deadline | GASB Exposure Draft on Notes to Financial Statements
- July 6, 6:00 p.m. | House Appropriations Agriculture–FDA Subcommittee Markup
- July 8, 11:00 a.m. | House Appropriations Transportation–HUD Subcommittee Markup
- Week of July 13 | House Appropriations Committee Markup of Agriculture and HUD Subcommittee Bills
- August 7 | Comments Due to NCSHA | CFPB Proposed Rules to Amend Ability-to-Repay/Qualified Mortgage Underwriting Guidelines and to Extend the GSE Patch
NCSHA, State HFA, and Industry Events
- July 1 | Entry Deadline | NCSHA’s 2020 Awards for Program Excellence
- October 24 – 27 | NCSHA’s 2020 Conference & Showcase | New Orleans
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