NLIHC submitted comments expressing concerns about HUD’s intent to remove affordability restrictions for the proposed Small Multifamily Risk Sharing Initiative (see Memo, 11/8/13).
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 proposed Small Family Risk Sharing Initiative would create a subset within the Section 542(b) program that is intended to encourage Community Development Financial Institutions (CDFIs) to participate in the program and provide refinancing and/or rehabilitation financing to private, small multifamily properties with at least 5 units but with no more than 49 units. The Administration’s FY14 Budget proposed exempting CDFI-assisted small multifamily properties from the current Section 542(b) requirement to comply with the income and rent restrictions of the Low Income Housing Tax Credit (LIHTC) program.
Although Congress has not taken up the Administration’s proposed statutory amendment, HUD published a notice in the November 4, 2013 Federal Register proposing provisions to implement the Small Multifamily Risk Sharing Initiative. The notice’s introduction mentions the Administration’s intent to change Section 542(b) by removing the existing affordability restrictions for small multifamily properties.
The proposed notice would merely require assisted properties to have the LIHTC program’s 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. As drafted, only “initial” occupants would be required to be income eligible. Also, the proposed notice does not require the LIHTC rent caps or any affordability period.
NLIHC’s comment letter stated that, in the absence of Congressional approval, the final Notice should adhere to the existing LIHTC affordability provisions by:
- Specifically stating that tenants in the 20/50 or 40/60 units must not pay rents greater than the current LIHTC rent caps, which are 30% x 50% AMI or 30% x 60% AMI.
- Specifically stating that turnover tenants, those that move in after an initial tenant has moved out, must also meet the LIHTC income eligibility requirements and must not pay more than the LIHTC rent caps.
- Specifically requiring a modest affordability period, such as the LIHTC minimum of 15 years, or the HOME program’s variable affordability periods based on the amount of assistance.
These affordability features are necessary to ensure that lower income households truly benefit from the Initiative over a reasonable period of time.
The introduction to the notice claims that removing the LIHTC income limits and rent caps is necessary to reduce the burden on owners who need access to capital in order to preserve their properties. NLIHC’s letter warns that exemption from affordability provisions sets a dangerous precedent.
NLIHC notes that owners of small multifamily properties chose to invest in those properties. The ostensible purpose of the 542(b) program is to enable these investors to preserve their investments by obtaining capital that the market is unwilling to make available but for the federal risk sharing. In return for federal assistance that preserves their investment, the small multifamily owner should welcome the public purpose of modest affordability requirements. NLIHC concludes that as a pilot project HUD should first determine the extent to which affordability restrictions are truly a barrier to participation by a significant number of owners before completely jettisoning affordability requirements.
NLIHC’s comment letter is attached.