Housing Trust Fund Projects Slated for 2017
Created in 2008 by the Housing and Economic Recovery Act (HERA), the national Housing Trust Fund (HTF) was to be funded with contributions by Freddie Mac and Fannie Mae. At nearly the same time, however, these companies were placed into conservatorship at the height of the financial crisis, and their contributions were suspended until 2016 when the HTF received funding for the first time.
The HTF is funded exclusively through the states (along with Washington DC, Puerto Rico, and the territories) with most states designating their housing finance agency as the administering authority for these funds. HUD has spent much of 2016 developing national guidance and accepting submissions from the states of their “allocation plans.” Grants to states started to roll out in the late summer and early fall, and most states will actually begin awarding funds to specific developments in their 2017 application cycles.
While HTF is a “new” program and there will be significant variation from state to state, HTF’s regulations are substantially parallel to the HOME program in many important respects, and most states are expected to award funds in concert with their standing application and award processes for either HOME or the Low Income Housing Tax Credit.
Whether you’re a developer (including a CHDO) considering applying for this new funding source, a local CDBG entitlement or HOME PJ being asked to fund a project that is also seeking HTF funding, or a state agency employee thinking about how HTF will work, there some simple starting points that can help make sense of it all.
HTF is a lot like HOME, except when it isn’t. While things are always more complicated than they seem, the biggest differences between HTF and HOME relate to income/rent targeting and the period of affordability. Any year in which less than $1B in HTF funding is available nationally, 100% of HTF funding must be invested in units that are income and rent restricted to “extremely low income” households at or below 30% of the area median income. In practice, this means that there will be significant use of HTF for special needs housing, and owners with experience serving this tenant base will have a leg up on the competition.
Another key difference is that HTF requires a 30-year period of affordability, while HOME only requires (at most) 15 years for rehabilitation projects and 20 years for new construction. This added period of affordability will create underwriting concerns as deals must demonstrate a longer period of economic viability, and State’s may require first mortgages with longer terms to avoid balloon payments during the affordability period.
There are other subtle differences. For example, Davis Bacon does not apply to the HTF. Neither does NEPA, but HUD has imposed substantially similar environmental requirements via regulation. In practice, however, if you know how to use HOME in a project, HTF will end up looking pretty familiar.
As is always the case, especially so now with a new administration coming to Washington, who knows what the future holds, but for now 2017 will include the first wave of HTF projects. The more we, as an industry, make sure the roll out is smooth, includes well-planned deals serving demonstrable local needs, and follows the rules, we will help demonstrate to the new Congress and new administration that the HTF is worth supporting as we all seek approaches to deal with the ongoing challenges in our national and local housing markets.