A November 4, 2013 Federal Register Notice announces HUD’s renewed intent to create a Small Multifamily Building Risk Share Initiative. NLIHC is concerned about HUD’s intent to “remove affordability restrictions” through this initiative.The notice is primarily oriented to Community Development Financial Institutions (CDFI) or other mission-driven entity that might want to apply to be eligible to participate. Comments are due by January 3, 2014. After the close of the comment period, HUD will issue a final notice. Congress has yet to approve the proposed amendment.Section 542(b) of the Housing and Community Development Act of 1992 allows HUD to enter into affordable multifamily housing reinsurance agreements with Fannie Mae, Freddie Mac, and other Qualified Participating Entities (QPEs). A QPE and/or its approved lender may originate and underwrite affordable multifamily loans. If there is a default, the QPE must pay all costs associated with loan disposition, but may seek reimbursement from HUD of up to 50% of the loss. Currently, only Fannie and Freddie have active risk-sharing programs with HUD. The Small Multifamily Initiative is intended to encourage eligible CDFIs to lend to multifamily developments with 5 to 49 units. The maximum loan amount for the Small Multifamily Initiative would be $3 million. Loan proceeds could be used for refinancing or substantial rehabilitation.The notice states that a forthcoming 2012 Rental Housing Finance Survey indicates that there are approximately 587,000 small multifamily rental properties (5-49 units) in the U.S, making up more than one-third of all rental units. The survey suggests that 58% of the landlords for this stock are individuals, households, and estates. The survey also claims that small multifamily properties tend to be older, located in low income neighborhoods, have lower median rents, and higher shares of affordable units compared to larger multifamily properties. Section 542(b)(9) requires projects to meet the Low Income Housing Tax Credit (LIHTC) rent and income requirements, defining “qualified affordable housing” as housing that is “occupied by families and bears rents not greater than the gross rent for rent-restricted units as determined under section 42(g) of title 26.” The Administration’s budget proposals for FY13 and FY14 sought an amendment to Section 542(b) that would exempt loans to small multifamily properties from the Section 542(b)(9) affordability obligations if the loans are provided by entities with demonstrated experience in making loans for low and moderate income multifamily housing. The introduction to the notice declares that the intent of the amendment is to “remove affordability restrictions currently required.”Although a parenthetical clause in the notice obliquely defines affordable housing as “generally consistent” with the requirements of the LIHTC program, the notice does not explicitly require compliance with LIHTC rent caps and affordability period requirements. Instead, projects assisted through the Small Multifamily Initiative would merely be required to have LIHTC unit composition: 20% or more units that are rent-restricted for households with incomes below 50% of the area median income (AMI); or, 40% or more units that are rent-restricted for households with incomes below 60% AMI. The notice clearly states that only the “initial” occupants are required to be income eligible. The notice does not specifically require LIHTC rent caps (either 30% of 50% AMI or 30% of 60% AMI), nor does it require LIHTC’s minimum 15-year affordability period.At a March 21, 2012 HUD roundtable about the proposal, NLIHC raised concerns about rents and ongoing affordability. HUD staff responded that they anticipated that CDFIs and other mission-driven entities such as state housing finance agencies would adhere to the LIHTC ongoing income and rent restrictions. View the November 4 Federal Register Notice at: http://1.usa.gov/16PESRt