The popular Affordable Housing Program (AHP) grant may soon become more flexible for developers to use.

Several proposed changes, which would make the AHP program a better source of gap financing as well as more compatible with the low-income housing tax credit program, are expected to be finalized between October and November, according to the Federal Housing Finance Board (FHFB).

One revision will allow Federal Home Loan Banks (FHLBanks), which administer the AHP program, to rely on monitoring by state housing finance agencies if a project is being financed by tax credits. Tax credit projects generally meet the AHP requirement of setting aside at least 20 percent of the housing for households earning 50 percent or less of the area median income.

AHP projects financed by other federal, state, or local funds could also be monitored by their respective agencies.

“We support the increased flexibility in the requirements for monitoring progress towards use of AHP subsidies,” said Dean Schultz, president and CEO of the FHLBank of San Francisco, in a letter to the FHFB.

Before, FHLBanks could adjust incomes by family size at their own discretion, but a proposed rule will make that adjustment mandatory. Under the proposed rules, FHLBanks would be prohibited from requiring that AHP projects be located in their districts and will be allowed to award additional points to projects that provide housing for families displaced from federally declared disaster areas.

Other proposed rules will help smaller projects and projects serving special needs populations compete better for the AHP grants.

Each year since 1989, FHLBanks have contributed 10 percent of their annual net income to the AHP. In 2005, they awarded $280 million to affordable housing projects.

For more information, read the Dec. 28, 2005, publication of the Federal Register.

Developers give AHP tips

Two developers who recently won $1 million each in AHP grants from the FHLBank of San Francisco (the biggest award possible) shared with AFFORDABLE HOUSING FINANCE their financing strategies.

Manuel Bernal, vice president of the National Farmworkers Service Center, Inc., in Los Angeles, was awarded an AHP grant for the 150-unit Communidad 16 de Septiembre, 1965, project in Bakersfield, Calif.

Named after the first grape boycott led by civil rights and labor leader Caesar Chavez, the development is expected to be completed by the end of summer. The $22.3 million project received $14.7 million in tax credit equity from Enterprise Community Investment, Inc.

“We got $600,000 in AHP funding before the credits,” said Bernal. “But we [had] cost overruns after construction so we got another $400,000 in AHP.

“It’s key to design the project around a commitment to service people as opposed to going after funding and putting in services to meet funding requirements,” said Bernal. “A big chunk of scoring points is based on pooling support services.”

The AHP program is very competitive, with a demand-to-supply ratio of 3-to-1. Banks that could act as project sponsors get a lot of inquiries, so Bernal recommends that applicants start forming relationships with their project sponsor at least three months before deadline.

Integrating AHP funds with tax credits is seamless, Bernal said, because the tax credit requirements are more involved and the AHP program doesn’t trigger additional requirements.

The AHP program works especially well as gap financing now, said Brian Swanton, president and CEO of Community Services of Arizona, Inc. He received an AHP grant for the preservation of the $39 million, 523-unit Park Lee near central Phoenix, the nonprofit’s largest project ever.

“What’s nice about AHP is that it can cover predevelopment or gap financing,” he said. “But it’s harder at the front end without other layers of financing lined up” because these projects can’t compete as well in terms of project readiness, he added.

“We sought tax-exempt bonds first,” said Swanton. That key financing source, along with 4 percent tax credits, convinced the FHLBank to fund his project.