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North Carolina Affordable Housing Conference

North Carolina Affordable Housing Conference. Industry Update: Housing Legislation. David Gasson Boston Capital Corporation Linda Couch National Low Income Housing Coalition Chris Estes North Carolina Housing Coalition Bob Kucab North Carolina Housing Finance Agency. Overview.

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North Carolina Affordable Housing Conference

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  1. North Carolina Affordable Housing Conference Industry Update: Housing Legislation David Gasson Boston Capital Corporation Linda Couch National Low Income Housing Coalition Chris Estes North Carolina Housing Coalition Bob Kucab North Carolina Housing Finance Agency

  2. Overview • Olympian Effort (Team Work) • LIHTC Modernization • Temporary Cap Increase • Effective Dates • Key Tax Provisions • Federal Grants/Subsidies/Loans • Key Bond Provisions • Misc. Provisions • Funds for abandoned and foreclosed properties • National Housing Trust Fund • Other federal housing legislation

  3. Industry Effort • It all started with the Chairmen. • Organizations worked together on elements they had been working on for years (best practices, program deficiencies, etc..). • Greater efficiency (fewer obstacles) between tax and HUD programs will create more housing at little additional cost to Treasury.

  4. Legislative Vehicles The Seeds • Senate – S. 2666 The Affordable Housing Investment Act of 2008(Sens. Cantwell, Smith, Kerry) • House – H.R. 5720 The Housing Assistance Tax Act of 2008(Chairman Rangel) • H.R. 3221 – The Foreclosure Prevention Act of 2008 The Fruit • The Housing and Economic Recovery Act of 2008

  5. The Housing and Economic Recovery Act of 2008 • Temporary Increase in Housing Credits • For 2008 and 2009, states LIHTC allocation is increased by $0.20 per capita—to $2.20. In 2010, the per capita amount will return to its regularly determined amount: $2.00 plus the inflation increase already built into Section 42. • The small state minimum (which is $2,325,000 for 2008) is similarly temporarily increased by ten percent for 2008 and 2009.

  6. The Housing and Economic Recovery Act of 2008 • Effective Dates • Unless otherwise noted, provisions will generally apply to buildings placed in service after date of enactment (when the president signed the bill). • The result is that projects that previously received Housing Credit allocations or bond financing but had yet to be placed in service as of July 30, 2008 may be able to take advantage of many of the Act’s provisions. • State Housing Credit agencies will need to adopt procedures to deal with potential additional Housing Credit allocations, even for projects that previously received Housing Credit allocations.

  7. The Housing and Economic Recovery Act of 2008 Key Tax Provisions • AMT Relief (Alternative Minimum Tax) • Housing Credits and rehabilitation credits (under Section 47 of the Code) may be used to offset the Alternative Minimum Tax for individuals and corporations (institutional investors)—effective for buildings placed in service and for rehabilitation expenditures incurred after December 31, 2007. • Interest on Multifamily Housing Bonds, mortgage revenue bonds, and veterans’ mortgage bonds is exempt from AMT—effective for bonds issued after enactment.

  8. The Housing and Economic Recovery Act of 2008 • Recapture Bonds • The requirement that a bond be posted upon the disposition of a Housing Credit building or interest therein in order to avoid Housing Credit recapture is repealed. • Recapture bonds are replaced with an extended period for the statute of limitations—three years following a recapture event. • The recapture bond repeal is effective for dispositions after enactment and for dispositions before enactment if the taxpayer elects the application of the new provisions. • The result is that outstanding bonds may be retired if the taxpayer elects application of these provisions.

  9. The Housing and Economic Recovery Act of 2008 • Fixed 9% Credit Rate • The Act temporarily provides a credit percentage of “not less than 9%,” effective for buildings placed in service after enactment and before December 31, 2013. • Fixing the credit rate at 9% could result in approximately 14% more Housing Credits per dollar of qualified basis than the current floating rate of 7.93% for July 2008 produces. • Questions remain as to if this provision would permit owners who had previously “locked in” the Housing Credit rate and whose buildings are placed in service after enactment could take advantage of this provision. However, to the extent that the new computation (qualified basis times credit rate) would result in more Housing Credits than previously allocated, the Housing Credit agency would have to provide an additional allocation. • The 9% credit rate applies to non-federally subsidized new construction and substantial rehabilitation buildings There is no change for the 4% credit for bond financed projects and acquisition of existing buildings: the credit rate will continue to float as under current law.

  10. The Housing and Economic Recovery Act of 2008 • Federal Grants/Subsidies/Loans • The Act eliminates the concept of “below market federal loans.” The result is that new construction and substantial rehabilitation expenditures will qualify for 9% credits even if the project receives a below market federal loan, i.e., a loan from federally appropriated funds with an interest rate below the “applicable federal rate.” • Example: Projects financed with HOPE VI and HOME loans will qualify for 9% credits even if the interest rate on the loan is below the applicable federal rate. • Tax-exempt bond financed projects will still be considered federally subsidized and therefore will only be eligible for the 4% credit. • The provision prohibiting the 30 percent basis boost for below market HOME loans receiving 9% credits has been repealed.

  11. The Housing and Economic Recovery Act of 2008 • Grants/Subsidies/Loans con’t • Rental, operating, and interest reduction payments are not considered federal grants requiring a basis reduction. The House Committee Report (which accompanied the passage of HR 3221 in May 2008) and the JCT Explanation direct Treasury to amend its regulations so that a specified list of federal assistance programs and other ongoing payments used to enable the property to be rented to low-income tenants will not be considered federal grants. • The JCT Explanation further clarifies that loans made from the proceeds of federal grants do not require a basis reduction regardless of the interest rate on the loan.

  12. The Housing and Economic Recovery Act of 2008 • Basis Boost • Any building designated by the Housing Credit agency as needing an increase in credit for financial feasibility may have its eligible basis increased by the agency by up to 30% by treating such a building as being located in a difficult development area (“DDA”). This provision does not apply to bond financed projects. • Housing Credit agencies must set standards for determining which areas shall be treated as DDAs and which projects shall receive additional credits as part of the agency’s Qualified Allocation Plan (“QAP”). • The minimum rehabilitation threshold (necessary to qualify for Housing Credits) is doubled to be the greater of $6000 per low income unit (to be adjusted for inflation) or 20% of the adjusted basis—effective for Housing Credit allocations made and bonds “allocated” after enactment. • The allowable basis for “community service facilities” located in qualified census tracts is increased to 25% of the first $15 million of eligible basis plus 10% of additional basis.

  13. The Housing and Economic Recovery Act of 2008 • Area Median Income Rules • Income determinations for Multifamily Housing Bond and Housing Credit projects may not decrease for any year after 2008. • For “HUD Hold Harmless” projects, median incomes may be increased by the change in AMI from the prior year. • HUD Hold Harmless projects are those whose incomes levels were determined in 2007 or 2008 and whose levels were not decreased after the change in income determination methodology (the “American Community Survey” or “ACS”) adopted by HUD in 2006.

  14. The Housing and Economic Recovery Act of 2008 • Misc Tax Provisions • Allows for use of LIHTC’s in properties that were assisted under the Sect. 8 Mod Rehab program. • The period for satisfying the carryover allocation “10 percent” test is lengthened to one year after the date of the carryover allocation. • The 10 percent related party rule for acquisition credits is changed to 50 percent. • Ten year rule does not apply to projects substantially assisted, financed, or operated under HUD or RHS housing programs or similar state housing programs. • Income recertification's will not be required for 100% low income projects utilizing housing bond’s or housing credit’s. • QAPs must take into account the energy efficiency and historic nature of projects—effective for allocations after 2008.

  15. The Housing and Economic Recovery Act of 2008 • Misc Tax Provisions – Continued • Income limits for rural projects (as defined in Section 520 of the Housing Act of 1949) will be measured by reference to the greater of area median income or the national non-metro median income. This provision does not apply to bond financed projects. Effective for income determinations made after enactment. • Treatment of basic military housing allowances for purposes of income eligibility rules. The basic housing allowance is not included in income for LIHTC income eligibility purposes for qualified buildings. Qualified buildings are defined as buildings: • Located in any county which contains a qualified military installation to which the number of members of the armed forces assigned to units based out of such installation has increased by 20% or more as of 6-1-2008 over the personnel level on 12-31-2005; and • Any county adjacent to such county described in above • Effective for income determinations after the date of enactment and before 1-1-2012.

  16. The Housing and Economic Recovery Act of 2008 Key Bond Provisions • Bond Recycling • The Act allows bonds to be reused for another project without having to use up additional volume cap if certain tests are met. • Multifamily Housing Bonds may be refunded, with the proceeds used to finance a second project (with no new tax-exempt volume cap required) on a one-time basis if • the refunding bond (i.e., a new bond issuance) is issued within six months of the repayment of a loan made with the original (“refunded”) bonds, • the refunding bond is issued within four years of the refunded bond’s original issuance, • the maturity of the refunding bond is not later than 34 years after the original refunded bond was issued, and • the TEFRA approval process is followed for the refunding bond. • The refunding bond does NOT generate “automatic” Housing Credits. Accordingly, this program will be feasible only if the Housing Credit agency is willing to allocate new 4% credits in connection with the refunding bond or in those areas where “80/20” deals are feasible without Housing Credits (e.g., New York City). • Effective for repayments of refunded bonds made after enactment.

  17. The Housing and Economic Recovery Act of 2008 • Housing Bond and Housing Credit Coordination Several provisions were adopted that make the Multifamily Housing Bond rules match the Housing Credit rules: • The “next available unit” rule, which requires that the next available unit be rented to an income eligible tenant if a low-income tenant’s income goes over the applicable income threshold, will be applied on a building basis (not a project-wide basis) for Housing Bond / Credit projects. • The Housing Credit student rules are applied to Housing Bond projects. • Housing Credit single room occupancy rules are applied to Multifamily Housing Bond projects. • New rules are effective for determinations after enactment with respect to Multifamily Housing Bonds issued before and after enactment.

  18. The Housing and Economic Recovery Act of 2008 • Bond Volume Cap Increase • The tax-exempt volume cap for Multifamily Housing Bonds and mortgage revenue bonds for homeownership is increased by $11 billion nationally for 2008 under the Act. • States share in this increase on a per capita basis. • Authority to issue bonds may be carried forward through 2010. • Bonds may be used to refinance subprime loans.

  19. The Housing and Economic Recovery Act of 2008 • Section 47 Rehab Credits • Increase from 35% to 50% the percentage of property that may be leased to a tax-exempt entity in a disqualified lease.

  20. The Housing and Economic Recovery Act of 2008 • GAO Study • The Government Accountability Office (GAO) must submit a report to Congress by 12/31/2012 regarding the implementation of the changes made by the Act. • The study must include an analysis of distribution of credit allocations before and after the enactment of Act.

  21. Improvements to Project-Basing Vouchers • Increases maximum initial voucher contract term from 10 to 15 years to match the LIHTC compliance period • Allows public housing authorities to pre-commit to unlimited renewals of project-based vouchers • Measures 25% limit on share of units project-based by “project” rather than by current practice of by “building” • P-B voucher rents can exceed LIHTC rents • Allows P-B vouchers in coops and elevator buildings

  22. Emergency Assistance for Redevelopment • $3.9 billion in emergency CDBG funds to states and local governments - $57.7 million to NC (NC and Charlotte) • HUD distribution formula based on: • # and % of foreclosures • # and % of subprime loans • # and % of homes in default or delinquency • Funds can be used to: • Purchase and redevelop abandoned and foreclosed properties • Establish land banks • Demolish blighted structures • All funds must assist households below 120% area median income • At least 25% of funds must assist households below 50% of area median income – all housing • Applications by 12/1; Governments have 18 months to spend funds • For five years, state and local governments may reinvest profits from sale / rental • After five years, all profits are returned to Treasury

  23. National Housing Trust Fund • Dedicated funding to produce, preserve, rehabilitate and operate predominantly extremely low income housing • First new federal housing production program targeted to ELI since 1974 • Eight years of advocacy and education • More than 5600 endorser organizations – massive grassroots effort • Modeled on almost 600 state and local housing trust funds

  24. National Housing Trust Fund • Funded by streaming percentage of Fannie/Freddie new annual business into HTF (approximately $557 million in 2007) • Additional sources can be added • Used to pay for FHA foreclosure prevention program in first year • First money available in 2010

  25. National Housing Trust Fund • HUD to develop distribution formula based on: • Shortage of extremely low income rental units (priority for this factor) • Shortage of very low income rental units • Substandard, overcrowded housing • % paying more than 50% toward housing • Minimum state allocation: $3 million

  26. National Housing Trust Fund • At least 75% of funds must benefit ELI or families at or below the poverty line • All funds must benefit below 50% AMI • Up to 10% can be used for homeownership for principal residences of first-time homebuyers

  27. National Housing Trust Fund • States will develop allocation plans • Provisions for public notice, hearings, consideration of comments on state plan • 71% of ELI renters and 64% of ELI owners pay more than half of their incomes toward housing nationally • In NC, 71% of ELI renters and 63% of ELI owners do

  28. Next Steps for NHTF • Determine course of Fannie and Freddie and connection to NHTF’s funding source • Development of HUD regulations • Identify new funding sources • WWPD?? • Work with state partners to ensure proper administration of NHTF • www.nhtf.org

  29. Capital Magnet Fund • More new resources • For CDFIS or a “nonprofit organization having as one of its principal purposes the development or management of affordable housing” • Housing or econ. dev. or community service facilities connected to housing “primarily” benefiting ELI, VLI, and LI families • 25% under 50% AMI must be for housing • Can be used to capitalize an affordable housing fund

  30. Other Federal Housing Action • The Bailout Bill: NHTF, renters • FY09 funding for federal housing programs • Section 8 Voucher Reform Act and new vouchers • Public housing issues: HOPE VI, demolition/disposition, PHA Plans, Moving to Work • Project-based Section 8 preservation • McKinney-Vento homeless programs reauthorization • Section 202 and 811 bills

  31. Your Voice • Advocates matter – you have the power of reality • It has been a busy 110th Congress but there is much to be done • Housing staff are answering their phones – is it you that is calling?

  32. Keep Things in Perspective • There is no where in the country where someone can work full time at minimum wage and afford the fair market rent for a one bedroom apartment. • In FY08: • $123.2 billion on mortgage interest deduction, property tax deduction and exclusion of capital gains • $40.4 billion for HUD In FY06: • Top income quintile ($158K avg income) = $94B or 81% of federal housing dollars

  33. NC General Assembly • Increase to $10 M Recurring and $7 M nonrecurring for Housing 400 Program plus $1M Operating Subsidy at NC HHS • $3M Recurring for Home Protection Program – statewide coverage • Renewal of NC State Housing Tax Credit

  34. NC General Assembly • Property Tax Valuation change for LIHTC properties to income approach • Tax Refund for Owners selling MH parks to tenants or nonprofits. • $600,000 from Commissioner of Banks Office for Housing Counseling • $200,000 for Legal Services Partners

  35. NC General Assembly • Prohibition of Yield Spread Premiums on Sub Prime Loans Prohibits Yield Spread Premiums on subprime loans and will reduce steering in subprime loans. • Regulate Mortgage Servicers Gives the Commissioner of Banks Regulatory Authority over mortgage servicers operating in North Carolina, and will hopefully lead to a reduction in abusive practices by servicing companies. • Emergency Foreclosure Process Creates an alternative foreclosure process for select subprime loans designed to help ensure that homeowners and mortgage servicers make all efforts to avoid foreclosure prior to a foreclosure hearing.

  36. NC Housing Finance Agency • Federal Housing Bill • LIHTC Changes • Bond Provisions • Housing Counseling • National HTF & Capital Magnet Fund • State Housing Tax Credit Extension • NC Housing Trust Fund • Housing 400 Initiative • Home Protection Program

  37. That’s All Folks David GassonDgasson@bostoncapital.com Bob Kucab arkucab@nchfa.com Chris Estes cestes@nchousing.orgLinda Couch linda@nlihc.org

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