Housing Briefs - September 28, 2009

State Updates

State Affordable Housing Budget Uncertain

The Commonwealth’s FY 2010 affordable housing budget is still unclear. In June, the Legislature appropriated $65.3 million for Public Housing Operating Subsidies, $32.5 million (including $2.5 million from MassHousing) for the Massachusetts Rental Voucher Program (MRVP), $5 million for Residential Assistance for Families in Transition (RAFT), and eliminated funds for the SoftSecond Loan Program.

The Governor vetoed $2.8 million from Public Housing Operating Subsidies and $1.94 million from RAFT. At the same time, he filed a supplemental budget request for an additional $2.3 million for MRVP and $500,000 for SoftSecond. In late July, the Legislature appropriated $1 million for public housing and $1 million for RAFT instead of overriding the original veto and the Governor vetoed that funding as well.

Insufficient resources for affordable housing have had a profound impact on the Commonwealth’s ability to maintain housing stability and prevent homelessness. At the same time, revenues continue to plunge and the Legislature has not considered the Governor’s supplemental budget request or veto overrides. The Administration may consider 9C budget cuts in mid-October. Any further cuts to affordable housing programs will aggravate housing instability and homelessness.

Please contact your legislators and Governor Patrick to indicate your support for investing in affordable housing and homelessness prevention. The current situation is bleak, but it could be much worse if housing advocates do not emphasize the social and economic impacts of housing instability.

New “Lobbyist” Registration Provisions Scheduled to Take Effect on September 29th

Provisions of Ch. 28 of the Acts of 2009 that broaden the definition of “lobbying” go into effect on Tuesday, September 29th. Nonprofit staff and board members have been analyzing the bill to determine what activities require registering as a lobbyist.

The Secretary of State’s website now contains the new law, FAQs and a flow chart to help determine if someone’s activities require them to register as a “lobbyist”. It appears from the flow chart that a person that engages in “executive or legislative lobbying” activities for 25 hours in a six-month reporting period and receives greater than $2,500 in “lobbying fees” during the period is required to register as a lobbyist with the Secretary of State. They must also pay a $100 fee, participate in a lobbyist training, and complete online public disclosure forms twice a year.

There is a lack of clarity about what activities constitute “strategizing, planning, and research, if performed in connection with, or for use in, an actual communication with a government employee” and are considered “lobbying”. The Massachusetts Nonprofit Network, numerous trade associations, environmental organizations, philanthropic foundations, and others have requested that the legislature delay the effective date until 2010 to allow sufficient time to understand who is covered by the new law.

Attorney General Certifies Initiative Petition to Repeal Ch. 40B Comprehensive Permit Law

The Attorney General has certified an Initiative Petition to Repeal Chapter 40B, which allows the petitioners to proceed with signature gathering. Those in favor of repeal must gather 66,593 signatures by late November 2009 for the petition to take the next step towards appearing on the November 2010 ballot.

Ch. 40B is a critical tool to expand housing opportunities for families, seniors and persons with disabilities earning low and moderate incomes. Please read any petition very carefully before signing. Please visit www.40bfacts.org for more information about the importance of the state’s housing law.

Chapter 40B Hearing Held; Dozens Support Comprehensive Permit Law

On September 15, the Joint Committee on Housing held a hearing on numerous bills that would alter Ch. 40B.

Secretary Bialecki and Undersecretary Brooks testified in strong support of Chapter 40B and in opposition to any statutory changes, and outlined numerous recent regulatory reforms. In addition, representatives from the Town of Barnstable, Andover Community Trust, Tufts University’s Department of Urban and Environmental Policy and Planning, Falmouth Housing Authority, the Town of Sudbury, Habitat for Humanity, the Planning Office of Urban Affairs for the Archdiocese of Boston, Jewish Community Housing for the Elderly, Mass. Regional Nonprofit Housing Association, HAP Housing, Neighborhood of Affordable Housing, the Treehouse Foundation, the Wayland Nike Missile Site Reuse Committee, the Massachusetts Homebuilders Association, the Greater Boston Real Estate Board, Sawyer Hill EcoVillage, Mass. Association of CDCs, and many others testified in favor of maintaining a strong Comprehensive Permit Law.

The Committee is currently studying the various proposals before making a recommendation regarding whether to make legislative adjustments to Ch. 40B.

Administration Releases South Coast Rail Plan

The Patrick/Murray Administration has released its South Coast Rail Corridor Plan. The plan integrates housing, economic development, transportation and environmental planning for the region and presents concept plans for 11 stations between Boston and New Bedford/Fall River.

It would direct state investments to support sustainable development along the corridor and prioritize affordable housing around transit stations. The next stage in the process is for EOT and MBTA to satisfy federal and state environmental review and determine one of three alternative routes.

Attorney General Coakley Announces Grant Opportunities Made Available From Freemont Settlement

The Attorney General’s Office is offering two new grant programs made possible by the settlement with Freemont Investment and Loan Corporation, arising out of an action claiming unfair and deceptive lending.

The Financial Literacy Education Grant will support direct consumer outreach, education and related services to help homeowners recognize and avoid predatory lending practices and avoid mortgage foreclosure. Funding will also support borrower protection services, including legal representation by qualified legal services organizations, of individuals who are at risk to losing their homes due to fraud, misrepresentation or other unfair, deceptive or predatory lending practices.

The Attorney General’s Office is also launching an Abandoned Property Rehabilitation Grant Program. The grant program will assist community development organizations and non-profit housing groups to rehabilitate abandoned properties and create more safe and affordable housing. Up to ten applicants will receive up to $150,000 in one time, non-renewable grants.

August Foreclosures and Petitions Down; Housing Sales and Home Prices Improve

On September 22, Banker and Tradesman reported August foreclosure deed recordings fell 4.4% compared to July (658 compared to 688) and that petition filings dropped by 17.4% (2,396 compared to 2,899). Year-to-date, foreclosure deeds (6,076) are down 31% from the same period in 2008 (8,811). Auction announcements are also down, with August announcements (1,370) down 32% from July (2,014) and year-to-date announcements down 22% compared to the same period a year ago.

The Massachusetts Housing Partnership’s Foreclosure Monitor, reports that RealtyTrac ranked Massachusetts 16th in the nation in foreclosure activity in August.

The Monitor also reported signs of recovery in the housing market, as the median sale price for single family homes rose 11.8% in July 2009, compared to a year earlier, bringing it to March 2003 price levels. The Massachusetts Association of Realtors estimated that time needed to absorb unsold inventory also dropped to 6.4 months in July, down from 8.5 months a year earlier and 16.5 months this past February.

Massachusetts Building Permits Continue to Fall

According to U.S. Census Bureau estimates released on September 17, building permits were issued for a total of 524 units in Massachusetts in July, bringing the year-to-date total to 3,804 units. These figures represent a 42% drop from the same period in 2008 (6,573 units) and a 72% drop from 2005 when 9,601 units had been permitted through July. Declines in permits for multifamily structures (5+ units) played a big role in this year’s decline, falling by 61% from 2008 levels. Nationwide, units permitted year-to-date dropped 45% percent compared to a year earlier.

Incomes Flat, Rental Vacancies Down, and Overcrowding Up in Massachusetts in 2008

On September 21 and 23, the Census Bureau released American Community Survey (ACS) data on economic, housing, and other characteristics of the nation, states, metropolitan areas and larger communities. The Bureau found no statistically significant change in incomes in Massachusetts between 2007and 2008, though the smaller sample sizes used for state level data may have played a role.

It did find a statistically significant decline in Massachusetts rental vacancy rates between 2007 and 2008 (falling from 6.2% to 5.3%) It also found a rise in severe overcrowding, with the percentage of households estimated to be living in units with more than 1.5 persons per room increasing from 0.2% to 0.9% (1.1% in the Boston metropolitan area). For renters, the rate of severe overcrowding was 1.7%. Median home values fell from $395,600 to $353,600 between 2006 and 2008.

The percentage of renters paying 35% or more of income toward their gross rent (about 40%) remained unchanged between 2006 and 2008, as did the estimated number of renter households paying 50% of more of income towards gross rent (about 204,000 in 2008, plus or minus 8,200). This contrasts with a national trend toward increasing cost burdens for renters, as detailed in a National Low Income Housing Coalition analysis of the 2008 ACS data.

DHCD Schedules Outreach Meetings for HUD Consolidated Plan

DHCD will hold five outreach meetings from September 29th to October 8th to determine what the Commonwealth’s housing and community development priorities should be for the next five years. The feedback will be used to complete the Commonwealth’s Consolidated Plan for the Department of Housing and Urban Development.

Federal Updates

Senate Passes HUD Appropriations Bill; Continuing Resolution Likely

The Senate approved its FY2010 Appropriations bill (H.R. 3288) for T-HUD (Transportation, Housing and Urban Development and Related Agencies) on September 17.

The bill includes language allowing up to $200 million to be used to address the Section 8 voucher funding shortfall discussed below (the House bill does not). Neither bill provides sufficient funding to fully cover FY2010 costs. Unlike the House, the Senate bill provided no funds for HOPE VI, funding the Choice Neighborhoods Initiative (CNI) instead ($250 million). However, funds will be available for HOPE VI until legislation creating the CNI program is passed.

The Senate also provides slightly more funding than the House for the new Energy Innovation Fund, but does not fund the Brownfields program. It generally provides slightly less funding for most other programs than the House and eliminates most of the boost for Section 202 and 811 included in the House Bill. The Senate bill also maintains the current community service requirement for public housing residents (the House bill deleted it).

A National Low Income Housing Coalition budget chart provides details on the funding levels in both bills. It appears unlikely that conferees will reach agreement before the start of the new fiscal year on October 1 and therefore a Continuing Resolution is likely this week.

Section 8 Voucher Program Faces Funding Shortfall

Inadequate funding for voucher renewals in calendar year 2009 combined with falling tenant incomes have led to a shortfall in the Section 8 housing choice voucher program. The difficulty stems in part from the fact that HUD did not notify housing agencies of their calendar year 2009 funding allocations until May, leaving the agencies with less time to adjust their budgets.

A policy paper issued on September 14 by the Center on Budget and Policy Priorities (CBPP) reports that about 400 public housing agencies (including 21 in Massachusetts) do not have sufficient reserves to cover the shortfall. CBPP estimates that those agencies need $130 million in new funds to avoid cutting assistance (re-issuing fewer vouchers, raising tenant rents, cutting rents to owners or terminating vouchers). It notes that additional funds for 2009 will become available on October 1 in the FY2010 HUD appropriations bill, but that Congress needs to authorize the use of some of the funds to help the agencies facing shortfalls. As noted above, the Senate appropriations bill includes that authorization.

House Committee Holds Hearings on Financial Regulatory Reform

The House Financial Services Committee held hearings on September 23 regarding the Administration’s proposals for reforming the financial regulatory system. Chairman Barney Frank emphasized his expectation that the House and Senate will act on legislation this year, with House consideration in November.

Much of the discussion at the hearings focused on systemic risk, too big to fail (TBTF) institutions, and the proposed Consumer Financial Protection Agency (CPFA). Treasury Secretary Geithner testified at the morning hearing and faced questions about the proposal to increase capital requirements for the largest financial institutions and whether creating a list of such institutions creates an implicit government guarantee that would advantage them relative to smaller competitors. Secretary Geithner indicated an openness to dropping the proposed requirement that financial institutions offer a “plain vanilla” option for mortgages (e.g. 30 year fixed rate) and other financial products.

The heads of the major bank regulatory agencies – the FDIC, the Office of the Comptroller (OCC) and the Office of Thrift Supervision (OTS) - testified at the afternoon hearing. As observers expected, OCC and OTS opposed the proposal that their agencies be replaced with a single new regulatory agency and all three opposed moving their consumer protection responsibilities to the proposed new CFPA. The Committee has scheduled additional hearings this week on the proposals.

Tax Credit Exchange Guidance Updated

On August 31, effective immediately, the Treasury Department issued an interim final rule on the Housing Tax Credit Exchange Program (“1602”) that extends the deadline for disbursing funds by a year (to December 31, 2011) for projects that are at least 30% complete by December 31, 2010. Funds must still be awarded by the end of 2010. CHAPA wishes to thank Congressman Frank and Secretary Geithner for this important change.

On September 14, the Treasury Department updated its Frequently Asked Questions on the program. The updates confirm the new deadline for disbursing funds (12/31/2011) and address several questions about recapture and the treatment of projects that fall out of compliance. The new guidance explicitly gives states discretion in selecting mechanisms to enforce recapture, and clarifies that states do not have to place liens on properties for that purpose (if states choose to use liens, the liens do not have to be first liens).

The guidance does not require states to pay the recapture penalty if the state has been unable to collect it after taking all appropriate actions. It also allows states to establish cure periods for projects that fall out of compliance and a plan with milestones and schedules to remedy the noncompliance. Penalty payments would be due within a “reasonable period, such as 90 days” from the closing of the cure period established in the plan.

The updated FAQ document also states that the projects that receive exchange funds are subject to the same “placed in service” rules as regular tax credit projects and that receipt of exchange funds does not change the placed in service date for stalled projects. It caps the ownership interest that State agencies can have in a project at one percent. It also clarifies the rules regarding exchange funds provided as loans, stating that loans cannot be repayable at any time during the 15-year compliance period (except in the event of recapture for non-compliance). This ensures that the loans will be treated as grants for income tax purposes.

The updated FAQs also address a number of program administration questions. The guidance reiterates that the only fees state credit agencies can applicants are “reasonable” fees for compliance monitoring (i.e., application fees are not permissible). The Treasury Department also clarifies that buildings receiving exchange funds are subject to a 15-year compliance period, that there must be an extended use agreement between the allocating agency and the taxpayer, and that exchange projects are subject to the same federal cross-cutting requirements as regular LIHTC projects.

HUD Issues Updated Guidance on the Tax Credit Assistance Program (TCAP)

HUD issued guidance this month on three topics related to state housing credit agency and grant recipient responsibilities under TCAP. Guidance issued on environmental review on September 4 discusses ways to expedite new reviews for previously reviewed projects. Guidance on tracking job creation issued on September 21 details how jobs are to be counted and reported. Guidance on fees and asset management issued on September 18 discusses which costs must be borne by state credit allocating agencies and which by the project owner. It details the types of development and construction review and oversight activities states can include in the asset management fees they charge to owners.

HUD Seeks Comments on Ending Income Limits “Hold Harmless” Policy

HUD is seeking comments on whether it should end its current practice of holding income limits harmless (not reducing them) when area incomes decline. As noted in a Federal Register notice published on September 14, this practice was initially adopted in part to protect housing developments with rent levels pegged to the HUD income limits from rent cuts. Legislation enacted in 2008 made this hold-harmless practice mandatory for tax-credit and bond-financed projects, creating an opportunity for HUD to revisit the practice as it affects other programs including public housing and housing choice vouchers. Comments are due October 14.

North Carolina Extends Fair Housing Laws to the Development of Affordable Housing

A new state law (SB 810) in North Carolina, signed on August 28th, makes it a violation of fair housing law to discriminate in land-use or permitting decisions based on the fact that a development or proposed development contains affordable housing units for families or individuals with incomes below 80% of area median.

North Carolina is the first state in the country to specifically make affordable housing a protected class under fair housing law. Under the new law, a local government will be found to have intentionally discriminated if it “was motivated in full, or in any part at all, by the fact that a development or proposed development contains affordable housing units” unless the land use or permitting decision is “based on considerations of limiting high concentrations of affordable housing”. If a local government’s action has an unintended discriminatory effect, the locality must prove the action “was motivated and justified by a legitimate, bona fide governmental interest."

Reports Issued on the Future of Fannie Mae and Freddie Mac

Several reports were issued this month on whether and how the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, should continue in the long run.

The Housing and Economic Recovery Act (HERA) of 2008 currently requires the entities to reduce their portfolios by 10% a year starting in 2010 and the Treasury Department’s authorization under HERA to assist the entities through unlimited purchases of GSE obligations expires on December 31 (Federal Reserve assistance can continue).

A Congressional Research Service report outlines a range of options, including ending conservatorship and returning them to their prior status (with or without additional regulations or government guarantees), replacing them with multiple smaller entities or a government agency, and making them entirely private. It points out that many of the functions of the GSE are now performed by the private market as well (mortgage securitization, bringing more uniformity to mortgage interest rates nationwide).

A Government Accountability Office (GAO) report examines the above options in more detail and looks at how each option might affect the ability of the GSEs to carry out three main goals (safe and sound operations, providing mortgage liquidity and stability and supporting affordable housing). It finds that GSE past performance in meeting the three main goals has been “mixed”.

It indicates that while the GSEs play a crucial role in affordable multifamily finance, their impact on creating more homeownership opportunities for targeted groups has been limited and that prior to 2005 (and subprime lending) conventional conforming private market lenders served more of the affordable housing market. It finds that it will be difficult to meet affordable housing goals, and especially multifamily goals, under all of the options for continuing or replacing the GSEs without allowing mortgages to be held in portfolio.

The Mortgage Bankers Association (MBA) also issued “Recommendations for the Future Governmental Role in the Core Secondary Mortgage Market” this month. They recommend limiting that role to providing liquidity and acting as a backstop in times of “extreme duress”.

Toward that end, they propose a new line of mortgage-backed securities with two components. The first would be a loan-level guarantee provided by a government-chartered, privately-owned mortgage credit-guarantor entity (MCGE), using Fannie and Freddie’s “infrastructure” as a foundation. The second would be a security-level “wrap” guaranteed by the federal government (Ginnie Mae offers a model) that is focused on the credit risk of the mortgage securities and was supported by insurance premiums. These securities would be available for 30-year fixed rate home mortgages and conventional and affordable multifamily loans.

Recent Research

Federal Reserve Bank of Boston Issues Two Studies of Small Multifamily Housing

The Federal Reserve Bank of Boston’s latest issue of Community Developments features two studies of small multifamily properties and the challenges their owners face. Both note their important role in providing affordable rental housing.

“The Myth of the Irresponsible Investor: Analysis of Southern New England’s Small Multifamily Properties” finds that 2-4 unit properties made up 22% of total purchases between early 2005 and early 2009 in low and moderate income communities and that investor-owners accounted for 25% of the purchasers of such properties.

A review of mortgage records showed that the investor-owners had stronger financial profiles, with more equity in their properties, much less use of subprime loans, and were slower to go into foreclosure than owner-occupants. “Challenges of the Small Rental Property Sector” focuses on properties with 9 or fewer units and calls for the adoption of public policies to promote the retention of this stock and to promote ownership by “good actors” and discourage ownership by “bad actors.”

GAO Urges Improvements to Fair Lending Enforcement Efforts

A recent study by the Government Accountability Office (GAO) has found significant room for improvement in federal monitoring of fair lending compliance. It found that violations by independent lenders may go undetected, that various regulatory agencies use inconsistent criteria to identify potential violators, and that Home Mortgage Disclosure Act (HMDA) data does not include information on a number of variables (such a borrower credit risk information) that would be helpful. It includes a range of suggestions for improvements.

Upcoming CHAPA Events

CHAPA Breakfast Forum - October 9, 2009

CHAPA will hold a breakfast forum on new innovations and models in supportive housing on October 9 at 9:30 am at Nixon Peabody, 100 Summer Street, Downtown Boston. Supportive housing has been shown to be a cost-effective way to provide both housing and support services to low and moderate income residents. In recent years, a number of successful models have been developed that provide permanent housing to families, people with disabilities, and elders and that tailor a range of services based on individual needs. Recent attention to the issue of homelessness as well as new state and federal policy initiatives have sparked renewed interest.

Speakers will provide an overview of the different types of supportive housing; key ingredients for successful development, management, and service coordination; and new legislative and funding initiatives at the state and federal levels.

CHAPA Annual Dinner - October 22, 2009

CHAPA's 42nd Annual Dinner will be held at the Boston Convention Center starting at 5:30 pm. The keynote address will be given by Shaun Donovan, Secretary, United States Department of Housing and Urban Development.

For more information and registration for both of these events, please visit CHAPA's Events Calendar.