Affordable Housing Finance

HOUSING POLICY

Washington Update

More LIHTC Guidance Issued

AFFORDABLE HOUSING FINANCE • October 2009

Treasury extends credit exchange disbursement deadline

BY BARRY G. JACOBS

The Treasury Department and Department of Housing and Urban Development (HUD) have issued additional guidance on the low-income housing tax credit (LIHTC) exchange program and Tax Credit Assistance Program (TCAP), with Treasury solving one major problem for credit swap participants by extending the disbursement deadline.

The American Recovery and Reinvestment Act (ARRA), which created the two programs, says all credit exchange funds not used to make subawards to projects before Jan. 1, 2011, must be returned to the Treasury.

In its original program guidance, Treasury said all funds not also disbursed by that date had to be returned—a deadline criticized by program participants as unrealistic, as well as unnecessary.

In response, the department has issued regulations providing that funds not used to make subawards by Dec. 31, 2010, must be returned to the Treasury by Jan. 1, 2011. However, if a subaward is made by Dec. 31, 2010, funds can be disbursed as late as Dec. 31, 2011, as long as the subawardee has paid or incurred at least 30 percent of the total adjusted basis in land and depreciable property for the project by the end of 2010.

Treasury has also revised its frequently asked questions (FAQs) on the credit exchange program, dropping the ban on the use of program funds to buy land for a project. Instead, the guidance now says that funds can be used to pay for project costs “to the same extent as equity raised” from tax credits.

In addition, the revised FAQs provide a cure period for program violations that would otherwise require the recapture of credit swap funds. Specifically, agencies may work with subawardees to put in place a plan, with milestones and schedules, to remedy an event of noncompliance. If the problem isn’t resolved within the prescribed cure period, the penalty amount would be due within a reasonable period of time, such as 90 days, from the end of that period.

Treasury has also modified the requirement for state agencies to pay the recapture penalty, dropping the repayment obligation if the agency is unable to recover the funds from a party that is liable for the violation.

According to the revised FAQs, credit exchange projects, like LIHTC projects, are subject to a 15-year compliance period and an extended low-income use agreement. In addition, state agencies cannot provide credit exchange funds to projects in which they own more than a de minimis interest.

The FAQs also clarify the guidance on fees that agencies can charge to subawardees. While application fees are prohibited, “reasonable fees” to reimburse an agency for asset management and compliance monitoring responsibilities are permissible.

HUD has taken a different position on fees in its TCAP guidance, drawing a distinction between asset management fees, which are allowable, and compliance monitoring fees, which aren’t.

According to the guidance, ARRA doesn’t authorize grantee agencies to use TCAP funds for program administration or to cover its administrative costs by charging fees to TCAP projects. For purposes of these restrictions, HUD considers compliance monitoring to be an administrative function.

However, the guidance says the project owner may be required to absorb the cost of providing information necessary for compliance monitoring, such as documentation of affirmative marketing activities and outreach to demonstrate compliance with the Fair Housing Act.

Senate passes fiscal 2010 HUD appropriations bill

The Senate has passed its version of the fiscal 2010 HUD appropriations bill (H.R. 3288), making no changes in the major funding provisions approved by the Appropriations Committee, but offering some relief for public housing authorities (PHAs) facing shortfalls in Sec. 8 voucher funds.

The Senate approved an amendment by HUD appropriations subcommittee Chair Patty Murray (D-Wash.) to use $200 million of the $4 billion advance appropriation for fiscal 2010 in the 2009 appropriations bill for adjustments to PHA allocations in order to prevent the termination of assistance to families with vouchers.

In addition to differences over funding levels, the major issue to be resolved between the House and the Senate is the immediate fate of the Obama administration’s proposed Choice Neighborhoods initiative.

Choice Neighborhoods is a plan to expand on and replace the HOPE VI program for the revitalization of distressed public housing. The goal is to revitalize neighborhoods through the rehab, preservation, and transformation of distressed public and privately owned assisted housing, and the administration included $250 million for the program in its fiscal 2010 budget.

The House declined to fund the program because authorizing legislation hasn’t been enacted, deciding instead to provide $250 million for HOPE VI. The Senate, on the other hand, approved the requested $250 million for Choice Neighborhoods, including at least $165 million for PHAs, and no money for HOPE VI. Program funds could be used for resident and community services, community development and affordable housing needs in the community, and the conversion of vacant or foreclosed properties to affordable housing.

House passes bill to raise FHA mortgage limits

The House has passed legislation (H.R. 3527) to raise Federal Housing Administration (FHA) multifamily mortgage limits in projects with elevators and in a new category of extremely high-cost areas to be designated by HUD.

The elevator limits could be as high as 150 percent of the limits for non-elevator buildings. Under current law, specific dollar limits are established for both elevator and non-elevator properties, and the differential is not nearly that large.

As an example, the current Sec. 221(d)(4) non-elevator two-bedroom loan limit is $62,026, meaning the elevator limit under the House-passed legislation could be as high as $93,039. By comparison, the actual two-bedroom mortgage limit for elevator buildings is $68,070.

The bill would also allow HUD to increase the current high-cost multifamily mortgage limits by up to 50 percent in extremely high-cost areas. The legislation doesn’t provide any criteria for the designation of such areas.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.