Congress appeared headed for adjournment for the November elections without taking final action on a tax extender bill that includes a number of critical housing-related provisions, including funding for the national affordable housing trust fund and a refundable low-income housing tax credit for 2010.
Those provisions were stripped out of an earlier, House-passed bill (H.R. 4213) because of Republican objections to the cost of the legislation, which was subsequently reduced to an extension of unemployment benefits.
Senate Finance Committee chairman Max Baucus (D-Mont.) has reintroduced his version of the extender bill with the key housing provisions (S. 3793), though housing advocates may have to wait for a post-election lame duck session to push for enactment.
The Baucus bill, like the earlier legislation, includes $1.07 billion for the housing trust fund, with $1 billion for formula grants to the states and $65 million for Sec. 8 project-based assistance to be used in housing financed through the trust fund grants.
The refundable housing tax credit would effectively be a one-year extension of the Tax Credit Exchange Program, with Treasury funds channeled through the states to low-income housing projects having trouble raising tax credit equity.
The Baucus bill would extend eligibility for the refundable credit, as well as the credit exchange program to Gulf Opportunity (GO) Zone, Hurricane Ike, and Midwest disaster area tax credits. Funds from the refundable tax credit would have to be used for the financing of low-income housing by Jan. 1, 2012.
The legislation would also extend to Jan. 1, 2013, the deadline for placing in service buildings assisted by tax credits in the GO Zones for Hurricanes Katrina, Rita, and Wilma. In addition, the increase in the rehabilitation tax credit percentages for GO Zone projects would be extended for a year.
The bill also includes an extension through 2010 for the New Markets Tax Credit (NMTC) program, with a $5 billion investment allocation, along with an NMTC exemption from the alternative minimum tax for investments made between March 15, 2010, and Jan. 1, 2012.
As a revenue-raising measure, the Baucus legislation includes a provision taxing income from carried interests in investment partnerships, including real estate partnerships, as ordinary income. The provision is aimed at income received in exchange for services performed in connection with certain assets, including real estate. Currently, such income is taxed at capital gains rates if the underlying partnership income is capital gain.
Under the bill, 75 percent of carried interest income that doesn't represent a return on invested capital would be taxed as ordinary income. This percentage would be reduced to 50 percent for income from the disposition of partnership assets held for at least five years and from the disposition of partnership interests held for at least five years, to the extent that the income is attributable to assets held for five years.
Goals set for Fannie, Freddie
The Federal Housing Finance Agency (FHFA) has established affordable housing goals for Fannie Mae and Freddie Mac for 2010 and 2011 that add a market-based alternative to the traditional percentage-of-business benchmarks.
The FHFA regulations, which implement provisions of the Housing and Economic Recovery Act of 2008 (HERA), include three single-family goals and one subgoal, and one multifamily goal and one subgoal. HERA transferred responsibility for the housing goals from the Department of Housing and Urban Development (HUD) to the FHFA.
Under the previous system, goals were established as a percentage of the units financed by mortgages purchased by the two government-sponsored enterprises (GSEs). In addition, dollar goals were set for multifamily financing.
Under the new goals, the GSEs can satisfy their affordable housing obligations either by meeting prospective percentage- of-business targets or by purchasing mortgages equal to the share of the market qualifying for a particular goal.
The new multifamily housing goals are expressed in numbers of units, rather than dollars, and there are no marketshare alternatives.
For Fannie Mae, the annual goal is the financing of at least 177,750 rental units affordable to low-income families, with a subgoal of at least 42,750 affordable very low-income units. For Freddie Mac, the goal is at least 161,250 low-income units, and the subgoal is at least 21,000 very low-income units.
Generally, only mortgages meeting certain criteria will be taken into account for purposes of the goals calculations. For the single-family goals, for example, only conventional, conforming loans on owneroccupied housing will be considered.
However, mortgages with unacceptable terms and conditions, such as excessive fees, will be included in the total number of single-family mortgages purchased, but won't count as goal-qualifying loans, regardless of the income of the homeowner or the location of the property. Accordingly, GSEs will be penalized under the goals calculations for purchasing such mortgages.
HUD drops escrow requirement for tax credit proceeds
HUD has issued final regulations for FHA-financed projects with low-income housing, historic rehabilitation, or New Markets credits that eliminate the escrowing of tax credit proceeds to guarantee project completion.
HUD has generally required developers financing projects with an FHA mortgage to escrow sufficient cash to cover the difference between the mortgage funds and the amount needed to ensure completion.
However, in order to facilitate FHA financing of housing tax credit projects, the HERA legislation barred HUD from requiring such an escrow or other forms of security, such as letters of credit.
While HERA applies only to housing credits, the regulations also cover projects with historic tax credits or NMTCs. They will also allow mortgage funds to be disbursed before NMTC proceeds. The latter provision already applied to housing and historic rehab tax credits.
Although the regulations bar HUD from requiring the escrowing of tax credit proceeds to ensure completion of a project or to pay the initial service charge, carrying charges, and legal and organizational expenses, the department can still require an escrow for other purposes, such as working capital.
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.