National Housing Trust Fund

A Thumb-Nail Sketch

August 1, 2008 (modified 8/18)

A national Housing Trust Fund was created and an initial dedicated source of money for it was established on July 30, 2008 when the President signed into law, the Housing and Economic Recovery Act of 2008 (also known as HR 3221).[1]

This sketch points out the key features of the Housing Trust Fund, but not every little detail – only features likely to be important to low income advocates.

WHAT IS A “HOUSING TRUST FUND”?

A national Housing Trust Fund is program for collecting and distributing “dedicated” funds that are not at risk of cuts each year due to the politics of the congressional appropriations process.

A National Housing Trust Fund Is Created

  • HUD (US Department of Housing and Urban Development) must create and manage a “Housing Trust Fund”.
  • The first “dedicated” (not appropriated) money will come from a very small amount of money from Fannie Mae and Freddie Mac (see next page).
  • In the future, Congress can identify and transfer money from other sources into the Housing Trust Fund.

[Section 1338(a)(1)&(h)]

  • The purpose of the Housing Trust Fund is to increase and preserve the supply of rental housing and to increase homeownership – all for extremely low income and very low income families.

[Section 1338(a)(1)(A)&(B)]

TARGETING THE MONEY TO EXTREMELY LOW INCOME PEOPLE

  • At least 75% of the money used for rental housing must benefit extremely low income people. [Extremely low income is less than 30% of the area median income, or the national poverty level, whichever is higher.]
  • No more than 25% of the money used for rental housing must benefit very low income people. [Very low income is between 30% and 50% of the area median income.]

[Section 1338(c)(7)(A)]

[Definitions at Section 1338(f)(1)&(6)]

  • Money used for homeownership (see “Eligible Activities” below) must benefit extremely low and very low income people. [For rural homeownership, “very low income” can mean the national poverty level.]

[Section 1338(c)(7)(B)(i)(I)]

[Definition at Section 1338(f)(5)]

PRIORITY FOR RENTAL HOUSING

No more than 10% can be for homeowner activities.

[Section 1338(c)(10)(A)]

TENANT PROTECTIONS

All projects assisted, in whole or in part, must comply with:

  • Laws relating to tenant protections and tenant rights to participate in decision making regarding their residences.
  • Laws requiring public participation, including laws relating to the Consolidated Plan, Qualified Allocation Plan, and Public Housing Agency Plan.
  • Laws pertaining to fair housing and to accessibility to federally assisted housing, including Section 504 of the Rehabilitation Act of 1973.

[Section 1338(c)(8)]

CIVIL RIGHTS LAWS

Because the new law declares that all assistance provided from the Housing Trust Fund is “federal financial assistance”, all federal civil rights laws apply to its use. [Section 1338(a)(2)]

ELIGIBLE ACTIVITIES

Rental Housing

  • Housing Trust Fund money can be used to produce, preserve, or rehab rental housing.
  • Housing Trust Fund money can be used for operating costs for rental housing.

[Section 1338(c)(7)(A)]

Homeownership

Housing Trust Fund money can be used to:

  • Produce, preserve, or rehab housing.
  • Provide assistance with downpayments, closing costs, or

interest rate buy-downs. [Section 1338(c)(7)(B)]

Eligible homeowners must:

  • Be extremely low or very low income. [Section 1338(c)(7)(B)(i)(I)]
  • Be first-time homebuyers. [Section 1338(c)(7)(B)(i)(II)]

(The HOME Program definition is used – meaning someone who has not owned a home for three years, except for: “displaced homemakers” or single parents who owned a home with a spouse; or, owners whose homes were not fixed to a permanent foundation, or were not in compliance with building codes and could not be brought into compliance.)

  • Complete a financial counseling program. [Section 1338(c)(7)(B)(iv)]

The assisted home must:

  • Have an initial purchase price that is less than 95% of the median purchase price for the area (same as the HOME Program). [Section 1338(c)(7)(B)(ii)]
  • Have resale restrictions that ensure that the house can only be purchased by, and will remain affordable to, low income households; or, that the Housing Trust Fund investment will be recaptured (same as the HOME Program).

[Section 1338(c)(7)(B)(iii)]

INELIGIBLE ACTIVITIES

  • Housing Trust Fund money can not be used for project administration or outreach costs, but states can use up to 10% of their money for overall program administration costs (including home ownership counseling).

[Section 1338(c)(10)(D)(ii)&(iii)]

  • Counseling services, advocacy, travel expenses, and preparing or providing advice on tax returns are not eligible uses.
  • Political activities and lobbying are, obviously, not eligible uses.

[Section 1338(c)(10)(D)(i))]

DISTRIBUTING THE MONEY

HUD will distribute the money to states.

[Section 1338(a)(1)]

Small states will get a minimum of $3 million.

[Section 1338(c)(4)(C)]

States choose an entity (such as a housing finance agency or housing department) to receive and administer the money.

[Section 1338(c)(2)]

  • These state entities can provide Housing Trust Fund money to “recipients” such as nonprofits, for-profits, or agencies.

[Section 1338(c)(9)]

  • Recipients must demonstrate that they have the financial capacity and experience to carry out eligible activities (see “eligible activities” section below).

[Section 1338(c)(9)(A)-(D)]

It will be important for advocates to work at the state level to make sure that the Governor chooses the state entity that advocates think is the best for making the Housing Trust Fund work for extremely low income people.

ALLOCATION PLAN REQUIRED

Each year the state must prepare an “Allocation Plan” that shows how it will distribute the money that year, based on “priority housing needs”.

(NOTE: This is not the “Qualified Allocation Plan associated with the Low Income Housing Tax Credit program.)

[Section 1338(c)(5)(A)(i)&(ii)]

Public Participation

When coming up with an Allocation Plan, the state must:

  • Notify the public that an Allocation Plan will be drafted.
  • Provide the public an opportunity to make comments about the plan.
  • Consider public comments.
  • Make the completed Allocation Plan available to the public.

[Section 1338(c)(5)(B)]

Required Contents of the Allocation Plan

The Allocation Plan must spell out the state’s process for seeking applications and then awarding Housing Trust Fund money.

HUD will come up with regulations which, according to the new law, will require state funding priorities to be based on six features:

  1. Geographic diversity.
  2. Ability of a recipient to undertake activities in a timely manner.
  3. The extent to which rents in a rental project are “affordable”, especially for extremely low income people. (Affordable is not defined.)
  4. The extent of the duration for which rents will remain affordable.
  5. The extent to which other funding sources will be used.
  6. The “merits” (not defined) of a proposed activity.

[Section 1338(g)(2)(D)]

Advocates Must Monitor the State

Each year it will be important for advocates to work at the state level to:

  • Make sure that the state agency responsible for drafting the Housing Trust Fund Allocation Plan writes it to meet genuine, high-priority housing needs of extremely low income people.
  • Ensure that the Allocation Plan complies with the regulations, particularly regarding affordability for extremely low income people.
  • Ensure that the public participation obligations are truly met, and that the state doesn’t just “go through the motions”.

ACCOUNTABILITY

State Level

Each state must submit an annual report to HUD that:

  • Describes activities assisted that year with Housing Trust Fund dollars.
  • Demonstrates that the state complied with its annual Allocation Plan.

This report must be available to the public.

[Section 1338(e)(2)(A)]

Local Level

States must have a system ensuring that each “recipient” uses funds in compliance with the law, regulations, and other requirements the state might add.

States must require recipients to keep records and provide periodic financial and project reporting.

[Section 1338(e)(1)(A)]

(A “recipient” is a person or entity that receives Housing Trust Fund money from the state.)

[Section 1338(f)(2)]

A FORMULA WILL DECIDE HOW MUCH MONEY EACH STATE GETS

HUD will create a formula, based on needs, for getting money to each state.

[Section 1338(c)(3)(A)]

There are five factors in the formula (each state is compared to the entire nation):

[Section 1338(c)(3)(B)]

  1. The shortage of standard rental units that are both affordable and available to extremely low income renter households. [See definition after #5] This factor must be given priority [Section 1338(c)(3)(C)].
  1. The shortage of standard rental units that are both affordable and available to very low income renter households. [See definition after #5]
  1. The number of extremely low income renter households:
  2. Paying more than 50% of their income for housing; or,
  3. Living in overcrowded housing (more than one person per room); or,
  4. Living in a place without complete plumbing or kitchen facilities.
  1. The number of very low income renter households paying more than 50% of their income on rent.
  1. The cost of construction.

Definitions:

  • “Shortage” for extremely low income renters is the gap between:
  • The number of extremely low income renter households, and
  • The number of units that:
  • Have complete plumbing and kitchen facilities; and,
  • Have rent that is 30% or less of 30% of the area median income; and,
  • Are occupied by extremely low income people, or that are vacant.
  • The definition of shortage for very low income renters is the same, except uses rent that is 30% or less of 50% of the area median income.

[Section 1338(f)(3) & (4)]

Use It Or Lose It

Housing Trust Fund money must be “committed” or used within two years of a state getting the money from HUD. If it isn’t, HUD recaptures the money and must reallocate the recaptured money with the next year.

[Section 1338(c)(10)(B)]

Where Does The First Dedicated Source of Money Come From?

Each fiscal year, Fannie Mae and Freddie Mac (the “GSEs”) must set aside an amount equal to 4.2 “basis points” for each dollar of the unpaid principle balance of their total new business purchases.

(A basis point is 0.01%, or 1/100 of 1%, or 0.0001: so 0.042% in this case).

[Section 1337(a)(1)(A) and (a)(2)(A) ]

  • First, from this amount 25% is taken off the top and put in a reserve fund for a different program, the HOPE program, designed to help homeowners at risk of foreclosure refinance their mortgages for more affordable fixed-rate mortgages. [Section 1337(e)]
  • Then 65% of the remainder (after 25% has been taken from the gross amount) from each GSE must be transferred to HUD for the Housing Trust Fund.

[Section 1337(a)(1)(B)(i) and (a)(2)(B)(i)]

  • And 35% of the remainder from each GSE must be transferred to the Capital Magnet Fund. This money will be run by the Treasury Dept. and awarded on a competitive basis to “Community Development Financial Institutions” (CDFIs) to provide housing, economic development, and community facilities benefitting people with incomes below 80% of the area median income. [Section 1337(a)(1)(B)(ii) and (a)(2)(B)(ii)]
  • (The FHA Director can temporarily suspend transfers from a GSE to the Housing Trust Fund {or Capital Magnet Fund} if there is a finding that a transfer would cause financial instability or cause a GSE to be undercapitalized.) [Section 1337(b)]
  • (Housing Trust Fund dollars can’t be used in conjunction with property taken by eminent domain, unless activity is for public use – and “public use” does not include economic development that primarily benefits a private entity.) [Section 1337(f)]

DIVERSION OF THE MONEY FOR THE FIRST THREE YEARS

For the first three years, the GSE money for the Housing Trust Fund and the Capital Magnet Fund will go to pay for a new foreclosure prevention program (called the HOPE for Homeowners Program).

  • 100% will be diverted in calendar year 2009.
  • 50% will be diverted in 2010.
  • 25% will be diverted in 2011.

[Section 1338(b)(1)]

MISCELLANEOUS PROVISIONS

Use of Repayments

If Housing Trust Fund money is provided as a loan, then any repayments must be used as if it is “new” Housing Trust Fund money and comply with all of the rules of the Housing Trust Fund program. Other “investments” of Housing Trust Fund money must be treated the same way. [Section 1338(c)(10)(C)]

Failure to Comply

If HUD determines that a state has failed to comply with any part of this law, HUD must:

  • Require repayment;
  • Reduce the amount of funds by the amount that is not in compliance;
  • Limit funds to activities or recipients not affected by noncompliance; or,
  • Terminate funding to the state.

[Section 1338(e)(2)(B)]

If HUD or a state determines that a recipient has failed to comply with the law, regulations, and other requirements the state might add, within one year the state must require repayment of the misused amounts and return of any other unused or uncommitted funds.

[Section 1338(e)(1)(B)]

If a state fails to take this action, HUD will reduce the state’s allocation next year by the amount of reimbursement or return the state failed to obtain.

[Section 1338(d)]

1

[1]Location of Housing Trust Fund portion of HR 3221: Division A, Title I, Subtitle B, Section 1131 “Affordable Housing Programs”, amends 12 USC 1301 et seq. (The Federal Housing Enterprises Financial Safety and Soundness Act of 1992) by inserting Section 1337-1339.