The Department of Housing and Urban Development (HUD) has issued proposed regulations for the affordable housing trust fund created by the Housing and Economic Recovery Act of 2008 (HERA), linking the regulations to the existing HOME program regulations to simplify program administration and create what the department calls a menu of production programs that state and local governments can use to meet affordable housing needs.

According to HUD, many HOME requirements are also applicable to the trust fund, and the states, which will receive funding allocations from the trust fund, are already HOME-participating jurisdictions.

The department is also proposing to target all funds during the first year of the trust fund operation to families at the lowest part of the income spectrum.

HERA requires at least 80 percent of annual trust fund grants to be used for rental housing, with at least 75 percent of that amount to be used for families with incomes no higher than 30 percent of the area median income (AMI) or the poverty line, whichever is greater. The remaining 25 percent can go to families with incomes up to 50 percent of the AMI.

However, HUD is proposing tighter income-targeting requirements for the first trust fund grants, with all rental housing and homeownership funds going to extremely low-income or povertylevel families. The 75 percent requirement would apply in subsequent years unless HUD sets a higher level.

Trust fund money could be used for rental housing production, preservation, rehabilitation, and operating costs, and for acquisition, construction, reconstruction, and rehabilitation of housing for first-time home buyers. To focus the trust fund on affordable housing production, HUD is proposing to limit operating cost assistance to 20 percent of a jurisdiction's annual grant, though there would be no specific cap on aid to individual projects. However, operating cost assistance could not be provided to units with Sec. 8 project-based vouchers.

Grantees would have to set per-unit limits on trust fund assistance, with adjustments for bedroom size and project location, and they would have to limit trust fund aid to the amount necessary for project feasibility.

The statute provides for the use of trust fund assistance for rental housing with other program subsidies, such as Sec. 8 or low-income housing tax credits. Though the law is silent on public housing, the regulations would prohibit the use of trust fund money for public housing, though it could be used for nonpublic housing units in mixed-finance projects.

Trust fund-assisted housing would have to remain affordable for at least 30 years. For rental housing, rent plus any tenant-paid utilities generally couldn't exceed 30 percent of the greater of 30 percent of the AMI or the poverty line, with adjustments for bedroom size. However, if project-based assistance is provided under another federal or state program, the rents would be based on the requirements of that program.

To ensure that ownership housing is affordable, the value couldn't exceed 95 percent of the median single-family purchase price in the area, and resales would be limited to income-eligible families during the affordability period.

Housing committees will have different look in new Congress

The key housing committees will have a different look in the 112th Congress, with election defeats and retirements removing a number of familiar faces and the voters handing control of the House to the Republicans and reducing the Democratic majority in the Senate.

On the House side, more than a dozen Democrats who served on the Financial Services Committee in the 111th Congress won't be back, including Paul Kanjorski of Pennsylvania, chairman of the subcommittee on capital markets and government- sponsored enterprises (GSEs), who lost his reelection bid.

In addition, the committee under prospective chairman Spencer Bachus (R-Ala.) isn't likely to be nearly as active in housing legislation as it has been with Barney Frank (D-Mass.) in charge. Instead, the top priority figures to be reform of the secondary mortgage market and the restructuring or replacement of Fannie Mae and Freddie Mac.

Since the GOP made deficit reduction and controls on federal spending a major campaign issue, housing programs could also be in for a tough time in the appropriations process. If the Republicans follow the recent practice of both parties in giving funding priority to the renewal of expiring Sec. 8 contracts, other HUD programs could be squeezed.

While the Democrats held the Senate, the Republicans picked up six seats and narrowly missed unseating HUD appropriations subcommittee chair Patty Murray (D-Wash.).

In addition, Banking Committee Chairman Christopher Dodd (D-Conn.) is retiring, with Tim Johnson (D-S.D.) expected to take over the committee. The panel under Dodd focused primarily on financial reform, rather than housing, and it's unclear what direction Johnson will take.

Public housing capital fund financing regulations issued

Public housing authorities (PHAs) will now be able to use their annual capital fund grants to support financing activities, including housing development and modernization and payment of debt service, under final regulations issued by HUD.

The use of public housing capital and operating funds for financing activities was authorized by the Quality Housing and Work Responsibility Act of 1998, but the regulations are limited to capital funds. HUD is continuing to study operating fund financing.

PHAs must receive HUD approval to pledge their capital funds for financing transactions. Public housing developed under a capital fund financing program will be subject to public housing terms and conditions for 40 years, while modernized public housing will be subject to a 20-year use restriction.

PHAs can generally pledge up to 33 percent of their annual capital grants for debt service payments. However, PHAs receiving replacement housing factor (RHF) grants can pledge up to 100 percent of those amounts, as long as the pledge extends to their formula grant and doesn't cover more than 50 percent of the RHF and formula grant.

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.