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Biden’s not-so-radical plan to boost affordable housing

The policy changes tweak & expand existing programs, restart lapsed HUD-Treasury initiative

HW+ Sandra Thompson + Joe Biden
President Joe Biden and Sandra Thompson

The Biden administration, in announcements from a suite of federal agencies, signaled Wednesday that it is making a significant effort to address the lack of supply of affordable housing in America.

The announcements spanned three different federal agencies in addition to the government sponsored enterprises. The agencies will boost funding for existing programs geared toward producing, financing and rehabilitating affordable housing.

The efforts will produce 100,000 additional affordable homes for homeowners and renters over the next three years, the White House said, with an emphasis on the lower and middle segments of the market.

The Federal Housing Finance Agency announced that the government sponsored enterprises will increase the amount of low income housing tax credit investments from $500 million each to $825 million each. It will also increase the targeted rural portion of those investments from 40% to 50%.

​​​​​”The severe shortage of affordable housing in America requires coordinated government action. As part of the federal government’s response, FHFA is instructing Fannie Mae and Freddie Mac to boost the housing supply in communities across the country by significantly increasing their Low-Income Housing Tax Credit investments and by expanding opportunities for local families to access affordable homeownership and rental housing,” said Sandra Thompson, acting director of the FHFA.

The LIHTC program funds more units than any other federal housing program, and relies on funding through the federal tax code, rather than the congressional budget. Since 1987, it has created 37,727 unique properties and an estimated 2.3 million units, according to the Urban Institute. Nevertheless, units created under the program are not permanently affordable, and it has not been as effective at serving lowest-income households, affordable housing advocates say. LIHTC developments also sometimes face local opposition to multifamily rental housing, as well as regulatory and zoning restrictions.

An FHFA spokesperson said that the GSEs’ LIHTC investments serve populations with incomes ranging from 30% of area median income to market rate.

On the heels of its announcement that it would coordinate with HUD on fair housing enforcement, the FHFA will also be looking into exclusionary zoning. Thompson said Wednesday that FHFA will begin to study the “interaction between exclusionary zoning” and the GSEs.

In a prepared statement announcing the policy initiatives, Marcia Fudge, secretary of the Department of Housing and Urban Development, said that today’s actions are a “significant down payment toward” Biden’s promise to expand the supply of affordable rental housing.

“These actions will expand access to critical capital for state housing finance agencies, empower local communities to build more affordable housing using the historic investments contained in the American Rescue Plan, and advance equitable housing policies such as inclusionary zoning practices,” said Fudge.

Of most consequence to real estate developers of income-limited subsidized housing, the U.S. Treasury and HUD also announced the reignition of its risk-based sharing program. The program, which lapsed in 2019, provides low-cost financing to housing finance agencies to finance affordable subsidized housing.

In a statement, the National Association of Local Housing Finance Agencies applauded the move, and said that the risk-sharing program is estimated to help finance 20,000 such units over the next two years.

The Biden administration also said that it is seriously concerned about investors purchasing single-family housing, calling attention to industry reports that, in some markets, investors purchased as many as one in every four single-family homes in the second quarter of 2021.

The immediate changes to keep investors from purchasing single-family homes, however, are mostly minor tweaks to existing programs rather than major new policy innovations.

Some HUD-owned and GSE-backed properties will now have a slightly expanded period for mission-driven organizations to purchase properties in foreclosure without competing with investor bids. HUD will also consider setting a target of selling half of FHA-insured foreclosed properties to government entities, nonprofits and owner occupant buyers, rather than investors.

For an upcoming bulk sale of more than 1,700 FHA-insured mortgages this fall, HUD will weigh selling half to nonprofit and community organizations that commit to fixing up and selling the related properties to owner occupants. In the past, HUD has earmarked 10% of such sales to nonprofits and community groups. HUD will also be stepping up its outreach to non-profits by, in part, conducting a virtual education seminar for its fall single-family note sale.

HUD and the GSEs have about 12,000 single-family real estate owned homes that would potentially be eligible for such sales. In 2020, Fannie Mae conducted the sale of 479 single-family real estate owned properties “to or through nonprofits and community-based buyers,” its annual housing report shows.

The Biden administration also said it intended to increase the available supply of manufactured housing by expanding financing through Freddie Mac.

In a selling guide bulletin, Freddie Mac said it would make a number of changes to programs geared toward low-income borrowers and mortgages for manufactured homes. Starting Nov. 15, it will increase the loan-to-value limit from 95% to 105% for its Home Possible mortgage program, which targets very-low income to low-income borrowers. Freddie Mac will also no longer restrict its purchase of manufactured home mortgages to units in planned unit development or condominium projects.

Freddie Mac and Fannie Mae both provide financing for manufactured housing, although it is limited to that which is considered real property, meaning the homeowner owns the land and the mobile home sits on a foundation. 

GSE financing for manufactured housing excludes chattel loans, however, which finance 42% of manufactured housing, the Consumer Financial Protection Bureau found. Chattel loans are used to purchase movable items — such as a car or a trailer home. Occupants typically rent the land beneath the manufactured home and may be subject to rental increases with changes in ownership.

In May 2021, the CFPB found that such loans have much higher interest rates and fewer protections than mortgages.

The announcements to expand and revamp existing affordable housing programs are the latest step to further the Biden administration’s agenda of narrowing the racial homeownership gap. In August, the FHFA proposed a rule to significantly raise the benchmarks for the GSEs’ affordable loan purchases from 2022 to 2024.

The agency also recently changed Fannie Mae’s underwriting process to include on-time rental payments in an effort to lower barriers for renters to purchase homes. The FHFA will also require the GSEs to submit quarterly reports on its fair lending activities.

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