The National Housing Trust Fund Proposed Regulations Housing Trust Fund Project Center for Community Change

The National Housing Trust Fund The National Housing Trust Fund (NHTFund) was created as part of the Housing and Economic Recovery Act of This is the first new federal housing production program since the HOME program was created in This is the first new production program specifically targeted to extremely low income households since the Section 8 program was created in 1974.

Funding for the NHTFund The Act provides for the NHTFund to be funded with proceeds from Fannie Mae and Freddie Mac— which were subsequently placed into conservatorship. A campaign is currently underway to capitalize the NHTFund with $1 billion and $65 million for accompanying project-based vouchers. On May 28, the U.S. House of Representatives passed legislation that includes the requested $1.065 billion. The $1.065 billion request is included in the “tax extender bill” before the Senate and, if passed, will then return to the House for approval.

NHTFund Implementation The National Housing Trust Fund is administered by the US Department of HUD. Although not funded, HUD is proceeding to ensure the program is ready for implementation. HUD issued a proposed rule on December 4, 2009 establishing the formula for distribution of NHTF dollars. The comment period for these rules closed on February 2, Estimated amounts for each state can be found on the NHTF sections of our website, and on the NLIHC website.

NHTFund Program Rules On October 29, 2010, HUD issued proposed rules to define and implement the NHTFund. Comments are due by December 28, HUD has proposed to codify the HTF regulations within the HOME regulations in a new subpart N to 24CFR part 92 to simplify and streamline program requirements.

The Structure of the NHTFund The NHTFund operates as a block grant program, with broad flexibility provided to states to determine how best to spend the funds within a core set of federal requirements. States must elect to participate. The Governor of a state (or territory and the Mayor of DC) is to designate an entity to receive NHTF funds, the “grantee,” including: The state housing authority or state housing finance agency; Housing or community development agencies; Tribally designated housing entities; or Any other qualified state entity. The state may also identify sub-grantees which must be a state agency or local government. Grantees must annually review the performance of sub-grantees. Funds must be used or committed within 2 years of the formula allocation. For Transit-Oriented Design projects, additional funds must be committed to an affordable housing project within 36 months from the acquisition of property.

Distribution of National Housing Trust Fund Dollars Funds are allocated to states to distribute. The proposed rule would amend the regulations governing Consolidated Plans by adding specific Allocation Plan requirements to the rules relating to Annual, Strategic, and Action Plans that are specific to the NHTFund. Any sub-grantee must also have an approved ConPlan and must distribute funds according to an assessment of priority housing needs. The Allocation Plan must detail: How NHTFund dollars will be distributed to meet priority housing needs; Application requirements; Criteria for awarding applications; and The maximum per unit subsidy limit.

Priority factors for distributing the funds must include: Geographic diversity Obligating funds in a timely manner For rental housing, the extent to which rents are affordable to ELI families For rental projects, the duration of affordability Merits of meeting priority housing needs Extent to which the applicant makes use of non- federal funding sources. The Action Plan must require applicants to describe the eligible activities to be undertaken with NHTF dollars and provide for performance goals and benchmarks. Grantees must include a projection of the number of units they expect to support. The regulations direct states to follow the citizen participation requirements in the Con Plan rules.

Use of Funds Funds must be used for the production, preservation, rehabilitation of affordable rental housing and affordable housing for first-time homebuyers, including: Acquisition Relocation Construction, rehabilitation and demolition Onsite community facilities, utility connections, and improvements Refinancing of debt on rental rehab projects Related soft costs (including those incurred before NHTFund dollars are committed to the project) Operating assistance (not to exceed 20% of the annual grant) NHTF-assisted housing must be permanent or transitional housing.

Acquisition of vacant land or demolition is eligible only with respect to a particular housing project intended to provide affordable housing. Local government may purchase improved or unimproved land for use for NHTF-assisted units to be part of a transit-oriented development. Funds may be used to purchase and/or rehabilitate a manufactured housing unit, or purchase the land upon which the housing is located. Funds may be used to assist one or more housing units in a multi-unit project, but only to assist the NHTF-eligible costs.

Operating costs include: insurance, utilities, taxes, maintenance or a reserve fund. Operating assistance is the difference between a per unit share of operating costs and the monthly rent. Operating cost assistance may be provided to a project for up to 2 years from one NHTFund grant and may be renewed over the affordability term. An operating cost assistance reserve may be established for what is needed over a 5 year period. Operating Costs

Eligible Recipients Nonprofit and for-profit organizations and agencies are eligible to receive funds from grantees. To be eligible to receive NHTFund funds, a recipient must also: Assure that it will comply with program requirements during the entire affordability period; Demonstrate the ability and financial capacity to carry out the project; Demonstrate its familiarity with requirements of other federal, state or local programs that are accessed for assistance; and Have the experience and capacity to: Own, construct, or rehabilitate and manage and operate the development, Design, construct or rehabilitate and market housing for homeownership, Provide forms of assistance, including down payments, closing costs, or interest rate buy-downs for purchasers.

Restrictions on Funds Funds must be used for the production, preservation, rehabilitation of affordable rental housing and affordable housing for first-time homebuyers. Not more than 10% of the annual grant can be used for homeownership activities. Not more than 10% of the annual allocation (plus up to 10% of the income generated by the program) may be used by the State administering agency for administrative costs, including counseling. Not more than 20% may be used for operating cost assistance of NHTF-assisted rental housing. NHTF-assisted housing must be permanent or transitional housing. NHTF funds may not be used for public housing.

Income Targeting At least 75% of the grant amount provided to rental housing must be used to benefit ELI families (defined as 30% of the area median income) or households with incomes below the federal poverty line. The 75% requirement will also apply to homeownership projects. For the first year of NHTFund implementation, 100% of NHTFund assisted units – both rental and homeownership -- are to benefit ELI families.

Permitted Rent Levels Maximum rents (including utilities) are set at the greater of 30% of area median income or 30% of the poverty line (as determined by HUD annually). The Brooke amendment does not apply (i.e. providing that a household pay no more than 30% of its income for housing costs). However, if the unit receives a federal or state project- based rental subsidy, the maximum rent is the rent allowable under the program. Grantees must annually review and approve rents proposed by owners of the units.

Homeowner Restrictions Homes must be purchased by income-eligible first time homebuyers who have received homeownership counseling (cannot have owned a home within the last 3 years and must maintain the home as his/her primary residence). Grantees must define resale restrictions (HOME or newly- adopted) that provide a fair return in the ConPlan. A grantee may use the right of first refusal or other purchase options to maintain affordability. The total amount of assistance may not exceed the per unit subsidy (although some costs may be charged to administrative costs).

Affordability Periods The minimum term of affordability for both rental and homeownership units is 30 years. Longer affordability periods may be established by grantees. Affordability must be imposed by deed restriction, covenants or other use restrictions, and recorded. A grantee cannot provide NHTFund funds to a project that has already received assistance during the affordability term after one year from the time the project is completed. The cumulative amount provided cannot exceed the maximum subsidy amount.*

Fixed and Floating Units The rule establishes a concept of “fixed” and “floating” NHTFund units. At the time the funds are committed to a project, the written agreement between the grantee and recipient must define how units are designated (and units must be so identified by the time the project is completed): Fixed units must remain the same throughout the affordability period. Floating units can be changed to ensure that the total number of affordable units remains the same and any substituted units must be comparable.

Tenant Protections NHTFund assistance must comply with laws relating to tenant protections and tenant rights to participate in decision making regarding their homes. The rule enumerates an extensive list of tenant protections, including (among others): A lease that does not include delineated prohibited items, Right to terminate with good cause, Articulated policy of tenant selection (allowing, if practical for preferences for those with disabilities), and Prohibitions on mandatory supportive services and discrimination based on source of income. The rules make applicable fair housing laws and laws regarding accessibility in federal assisted housing, among others.

Property Standards The rules require that assisted projects (including new construction, rehabilitation, gut rehabilitation and manufactured housing) meet applicable standards set forth in state and local codes, ordinances, and zoning requirements. Requirements are also established for NHTF-assisted units to comply with specified standards related to lead-based paint, accessibility, fair housing, energy and water efficiency, disaster mitigation, and environmental review, among others.

Administrative Costs Reasonable administrative and planning costs of the NHTF program. General management, oversight, and coordination. Staff and overhead. Public information. Fair housing. Indirect costs. Preparation of the consolidated plan. Other Federal requirements. Any administrative costs permitted by sub-grantees count toward the state cap.

Reporting Requirements The NHTFund consists of the HTF Treasury account established for each grantee and a HTFund local account which includes deposits, program income, and any repayments. The local account must be interest-bearing. Grantees must report on the receipt and use of all funds in HUD’s computerized disbursement and information system. Program income must be treated as HTF funds. Funds must be repaid for any housing that does not meet the affordability requirements. Grantees are responsible for managing the program, ensuring funds are used in accordance with all program requirements and written agreements, and taking appropriate action when performance problems arise.

Performance Reports Each grantee must develop and maintain a system to track the use of funds. Each grantee must submit annual performance and management reports. These reports must describe: The program’s accomplishments The extent to which the grantee complied with its allocation plan and requirements. HUD is to make these reports publicly available.

The NHTFund and State/Local Housing Trust Funds There is no requirement or suggestion that a relationship should exist between the NHTFund and other htfunds. The designation of the state grantee is likely to be influenced by the NHTFund being inserted in the HOME regulations. The allowance for sub-grantees could support matching funds for local housing trust funds (if jurisdictions have an approved ConPlan). The emphasis on making use of non-federal sources of funds and the challenge of meeting the ELI goals could support an emphasis on combining an effective existing housing trust fund to supplement the NHTFund. State advocates should monitor and expose any supplantation of federal NHTFund funds for existing state housing trust fund revenues.

Five Issues Critical to the HTFProject 1. Viability of income targeting restrictions 2. Restrictions on operating costs 3. Rent levels 4. Length of affordability 5. Subgrantees

Our Next Steps Send questions to Michael Anderson of the HTFund Project/CCC at: -- we will post a running Q&A on our website Submit any insight or perspective you’d like to share to inform our comments to Michael. Depending on how much interest and feedback we receive on the issues, we will host an open discussion of key elements on a second call; We are developing a list of questions to clarify with HUD as part of its webinar in early December, and are happy to include questions you identify; We will post and send out a draft of our comments by Tuesday, Dec 7 th – feel free to use them as a model for your own comments. We will accept institutional/organizational sign-ons to our comments through Wednesday, Dec 15 th. Endorsements should be sent to

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