In an age of increasing belt-tightening, state housing agencies are being relied upon even more to assist developers and deliver housing for low- and moderate-income families.

Seven agency executives from across the country share their best moves, their biggest concerns, and the latest in their low-income housing tax credit (LIHTC) programs.

Together, they paint a portrait of what's ahead for housing agencies in 2012.

  • 1. How is your agency encouraging affordable housing production in these tough times?

Auger: Through our application process, Florida Housing is encouraging production of new affordable rental units only in the areas of the state where there is a clear need. In locations where vacancies in LIHTC units have been higher recently, due to the impact of the housing bubble burst (in some parts of Florida, many for-sale homes have been turned into rentals; this has driven down market-rate apartment rents, which, in turn, has provided prospective affordable renters with other housing options for a time), we have focused on preserving existing affordable transactions—particularly those with large amounts of project-based rental assistance. Additionally, in the recent past, we've used HOME rental funds as gap financing to assist with our Multifamily Mortgage Revenue Bond (MMRB) program.

Dewey: We are continuing to stay the course by providing mortgage capital for rental housing and home purchase under the terms and conditions that enable market access and sustain long-term affordability. In our multifamily loan programs, we are continuing to provide long-term financing with favorable debt-service coverage and providing needed gap financing with our internally generated “REACH” subsidy funds. In our home purchase programs, we continue to provide down-payment assistance loans to our borrowers that help overcome the primary barrier to entering the market. Due to our homeowner education requirements and proactive self-servicing of the loans we originate, our portfolio continues to outperform the conventional market.


  • Ohio Housing Finance Agency (OHFA) is providing additional gap financing to encourage more multifamily bond projects.
  • By funding innovative and replicable housing initiatives through OHFA's Housing Investment Fund program. This program is funded with OHFA's reserves.
  • OHFA is putting a greater focus on underwriting and market analysis in order to maximize scarce resources. The greater focus on underwriting and market analysis will ensure scarce resources are being strategically deployed.
  • OHFA is encouraging collaboration with local governments, other state agencies, and local Rural Development and Department of Housing and Urban Development (HUD) offices.
  • OHFA is structuring Tax Credit Assistance Program (TCAP) resources so they can be recycled in the future. The agency is expecting $70 million to be recycled over next five years.

Godfrey: Even in a small state like ours, housing market strength varies significantly from neighborhood to neighborhood. We are being very careful about where new homes are built so that neighborhoods are revitalized, not undermined. We have also focused heavily on reducing the cost of producing new homes.

Herman: We have been providing down-payment assistance to first-time home buyers to encourage their purchase of homes, and we have encouraged them to buy foreclosed homes to help reduce the inventory of houses on the market. So far, we have financed the purchase of more than 500 foreclosed homes this year.

We have also made various adjustments to our tax credit and bond programs to respond to a very fluid equity marketplace.

Pavao: The California Tax Credit Allocation Committee (TCAC) has been creatively using American Recovery and Reinvestment Act (ARRA) funding to help previously stalled projects through to completion. To date, TCAC has disbursed about 75 percent of its ARRA funding to 138 funded projects, including over 82 percent of its HUD TCAP funding. TCAC's disbursement method has been flexible and helpful during construction, and TCAP funds used for bridge financing are now converting to permanent loans.

With its 9 percent tax credits, TCAC has been emphasizing leveraging other public funding sources to development as many projects and units as possible. The result is that for 2011, TCAC is reserving 9 percent credits for 101 projects, a 34 percent increase over 2010. Units to be produced by these projects are also up year-over-year by approximately 40 percent, funding 5,964 units this year over 4,245 last year.

Finally, TCAC has also worked to encourage tax-exempt bond and 4 percent tax credit projects in California. The volume of 4 percent projects and units receiving reservations in 2011 is returning to pre-recession levels.

Tingerthal: We are seeing very strong demand for LIHTCs for both new construction and preservation. We have increased marketing and utilization of our amortizing first mortgage product to support that demand, and, with increased tax credit pricing, we have been able to stretch our deferred loan resources further than in the last few years. We are also developing a conduit lending program to encourage the use of tax-exempt bonding authority for multifamily production.

  • 2. What's your biggest concern going into the new year?

Auger: Our largest concern is the developers' ability to place-in-service as many developments as possible prior to the expiration of the 9 percent present value rate for competitive housing credits as provided by the Housing and Economic Recovery Act of 2008. We are particularly concerned about this dynamic with regard to high-rise developments in our larger urban cities.

Dewey: We have never experienced a time when there were such high degrees of uncertainty relative both to ongoing federal subsidy support for affordable housing programs and conditions in the housing and private capital markets. More so than ever, affordable housing production in 2012 will depend on federal and international macroeconomic actions.

Garver: It's a tie between 1) a reduction of federal resources such as HOME, Community Development Block Grant, and public housing authority funding and a potential reduction of local resources such as the Ohio Housing Trust Fund and 2) Potential changes to the tax code that would impact tax-exempt bonds and/or the LIHTC program.

Godfrey: Political opinion is shifting away from active government leadership to a laissez faire approach that allows market forces to become determinative of people's lives. In many ways, this is reducing funding for good homes.

Herman: We are worried about the possibility of Congress increasing revenues through changes in the tax laws that drive the mortgage revenue bond and housing tax credit programs. The housing credit program, for example, is the largest and most successful production program in history. Should Congress eliminate it without a replacement, there are no alternatives to provide affordable rental housing for the people we serve. Additionally, tax-exempt bonds with 4 percent credits help meet workforce housing needs in many places.

We are also worried that single-family mortgage revenue bonds are still not providing interest rates that are competitive or lower than the conventional market.

Pavao: In California, our system is heavily dependent upon project sponsors leveraging other public funding resources. Recent changes to state law have created great uncertainty regarding the future availability of local redevelopment agency financing for tax credit projects. This may result in TCAC delivering much more credit per project, thereby concentrating credits in fewer deals. While 2011 saw a dramatic increase in 9 percent project volume, California may lose those gains in 2012 if the credits leverage fewer other public funds next year.

Also, TCAC is engaged in a concerted effort to assure that project development costs are reasonable. Along with our sister state housing agencies, TCAC will commission a study in 2012 not only comparing affordable and market rate development costs, but evaluating cost variations among similar affordable projects, and examining the cost effect of TCAC's various scoring factors encouraging energy-efficient design and infill development.

Tingerthal: The demand for affordable rental housing continues to increase while the resources to meet this demand are shrinking significantly. With vacancy rates at 2.4 percent in the Twin Cities area and stagnant or falling income among low-income households, we see the demand continuing to grow. We also see a growing need for owners to invest in existing affordable housing, increasing the competition for resources between preservation and new production. We see increasing challenges in being able to address policy goals, such as transit-oriented development and energy-efficient design, which may require a higher up-front investment, but will result in long-term savings for both tenants and owners. In the face of pressures to hold down the total development costs of tax credit projects, these important investments may face criticism.

  • 3. What will be the biggest changes in your 2012 qualified allocation plan (QAP)?

Auger: We've made many changes this year, but some of the biggest would be 1) the increase to our preservation set-aside; 2) a stronger emphasis on developer experience; and 3) a focus on funding transit-oriented developments.

Dewey: There are two significant changes this year. We plan to create a pool of credits with eligibility restricted to new construction developments located in certain localities in the northern Virginia region. The primary purpose is to increase the number of affordable units in an area experiencing the largest rate of employment growth and highest costs. Another significant change is also being made with respect to the Local Housing Authority (LHA) pool. Currently, LHAs are eligible to compete in the LHA pool, the geographic pool, and the at-large pool. The change would restrict housing authorities to competing only in their pool. The LHA pool size would be increased such that credit volume would approximate the average tax credit award volume to housing authorities in recent years.

Garver: Major changes to the 2012 QAP include:

  • Substantial updates to market study requirements, including the requirement that applicants must commission a study no later than 30 days prior to application deadline.
  • A complete revision of the underwriting standards and process.
  • An increase in the amount of credits for new construction projects while still maintaining a significant amount of credits for preservation projects.
  • Revision to the selection process to provide more clarity to applicants regarding the agency's decision-making process. Some of the elements considered in this process are project functionality; strength of the development team; collaboration with local planning efforts; market criteria; need for rehabilitation; and achievement of minimum policy targets such as senior and family housing, Community Housing Development Organizations ownership, regional distribution of projects, and locations in new markets.

Godfrey: There will be no major changes, but we did make adjustments to reflect new rental assistance available under the HUD Sec. 811 program. We will continue to emphasize our two major goals: rebuilding hard-hit communities and increasing affordable housing opportunities in communities that traditionally have not offered many.

Herman: We are implementing new development cost limits based on bedroom size and geographic location in our multifamily programs to contain development costs. While we believe our limits are reasonable, changes of this nature are tough to implement, and not all of our stakeholders were satisfied with the final outcome.

Pavao: California is unlikely to see extraordinary changes to its QAP for 2012. Proposals may include a system whereby projects costing much more that regional averages for similar projects would be considered for an award of credit on an exception basis. Sponsors and local officials would be required to publicly explain why the project merits consideration in spite of its costs. California may also strengthen independent audit requirements associated with final cost certifications.

Tingerthal: (Note: We forward-select, so our 2012 QAP has already been established.) In 2012, we added a priority for developments that demonstrated financial readiness to proceed, with no request for deferred loan funding. We were pleased with the results of this change and expect to continue that priority in the 2013 QAP. We will continue to fine-tune our priorities that support foreclosure remediation, developments with good access to transit, economic integration and the inclusion of units that serve households that have suffered long term homelessness. Preservation of existing affordable housing has long been a priority for Minnesota and, during 2012, we will be taking a comprehensive look at how we can best use our limited resources to encourage owners to make capital investments in these properties.

  • 4. Do you expect the LIHTC market to be better, worse, or about the same next year? Why?

Auger: With the dramatic changes we've seen in the last few years, I'm not sure any prediction from me would be worth much! What I will say is that we've been pleased with the renewed investor interest we have seen lately, and we expect that interest to continue as Florida's overall economy steadily recovers and grows.

Dewey: With respect to investor interest and credit prices, we expect the LIHTC market to be very good. We are not aware of any deals which will not move forward due to lack of investor interest, and we have every reason to believe that the market in 2012 will be as strong as it is currently. Virginia enjoys the benefit of having a significant Community Reinvestment Act (CRA) footprint, as well as a number of investors with a strong need for CRA credit. Furthermore, the northern Virginia region currently has relatively low unemployment and a high demand for affordable rental housing, creating good economic conditions for such housing, irrespective of CRA concerns.

Garver: OHFA expects the LIHTC market to be the same or slightly better next year based on the underwriting of deals in-house now. Ohio is fortunate to have a large and active investor base. However, it is hard to predict how the LIHTC market will be in the next year since the investor base is still mostly financial institutions, and the market is tied to the success of these organizations. The LIHTC market depends on the health of the economy.

Godfrey: I expect the rally in investment prices to level off. We have achieved about as much rebound as possible given the economic challenges that continue to face our country.

Herman: We expect it will be about the same next year. We have good market demand, there will not be an over-abundance of new developments, and we have excellent nonprofit and for-profit developers that have good credibility and relationships with tax credit investors.

Pavao: I expect credit pricing to settle down a bit but remain high in California.

Tingerthal: We expect the tax credit market to be the same or better next year. We continue to see increases in tax credit pricing, the return of previous syndicators to the market and new syndicators entering the market and expressing interest in proposed Minnesota projects. Smaller projects and projects outside the Twin Cities metro area have not seen the same increases in pricing, and we will continue to work with our partners to encourage investors to take a hard look at these projects.

  • 5. LIHTC prices have changed dramatically in the past two years. How is your agency handling the pricing swings? (What are you doing in situations where developers are receiving higher credit pricing than originally expected?)

Auger: The most recent housing credit application cycle (awarded in February 2010) allowed for Tax Credit Exchange Program funds to be used as gap financing that was sized based on the housing credit equity provided. Entering our current application cycle, the higher credit pricing is seen as a necessity to offer an economically viable transaction. This cycle, gap financing is not likely to be available from the state or most local governments, which creates a need for the higher pricing. If the pricing continues to increase, the other resources that will be reduced would include deferred developer fee and/or hard-pay debt.

Dewey: The most significant increase in credit pricing occurred after the reservation applications were received in March 2011. We underwrote certain deals, when we believed appropriate, using a higher credit price than was submitted in the application. We anticipate using a similar approach in underwriting the allocation applications later this year.

Garver: For the 2011 awards announced early this year, OHFA cut all awards by 5 percent in anticipation of the increase in equity prices. It is hard for housing finance agencies (HFAs) to handle the price swings because the tax credits are typically the first source committed to the deal. Constant communication with developers and investors is required. HFAs are looking for tighter disclosures regarding increases in sources or the addition of new sources.

Godfrey: We continue to adjust allocations throughout the development process to assure that only the minimally reasonable amount of public subsidy is used.

Herman: Before equity closing, we adjust the amount of credit authority allocated to qualified projects downward if the pricing from their investor improves. We responded with additional credit when there was the rapid and dramatic decline in pricing. We hope not to be faced with that again. If we are, we will assess the situation and do the right thing, but this is difficult when all of the credit authority has been allocated.

Pavao: TCAC's final tie-breaker scoring factors in other public funding relative to project costs. This year, projects have realized better credit pricing than anticipated and have occasionally asked TCAC if they may reduce their public funds by the additional equity amount. TCAC has permitted sponsors to reduce public funds and requested credit proportionately in such cases. Alternatively, some sponsors have reduced their conventional permanent debt and reduced rents.

Tingerthal: We review each tax credit pricing situation on a case-by-case basis. If Minnesota Housing has committed deferred loan funding to a transaction, improved tax credit pricing may allow for the reduction of deferred loan resources, thus freeing them up to support additional affordable projects. We may also consider the inclusion of additional energy efficiency and sustainability features with some of the additional resources, and/or the resources may be used to establish agency-held reserves for the project.

  • 6. What have you liked most about recent LIHTC deals? On the flip side, what's concerned you most about recent LIHTC deals?

Auger: There has been a strong movement toward engineering features and amenities that improve the long-term viability of a development, lowering operating expenses for the development and utility costs to the tenant. There has also been a trend toward locating developments where transportation costs are also lowered for the benefit of the tenants. A negative aspect, though, is the rising costs of well-located developments.

Dewey: We are pleased that when investors are presented with potential LIHTC investments, the deals in Virginia are viewed favorably for both CRA and economic circumstances. What concerns us is the legislative debate currently under way regarding the federal budget deficit and the need to reduce spending levels, including tax expenditures such as the LIHTC program. We will continue to look more closely at the cost of the LIHTC developments in Virginia.

Garver: Likes: There has been an overall increase in the quality of site selection and design; an increase in projects that contribute to redevelopment and revitalization efforts; and an expansion in the number of permanent supportive-housing projects throughout the state.

Dislikes: Higher project costs and larger requests for gap financing; a reduction in the number of applications for rural areas; and a greater demand for credits than supply of credits.

Godfrey: With high demand for housing credits, the public benefit received per public subsidy dollar invested continues to grow. With the construction industry hard hit, it is especially rewarding to create good jobs as well as good homes.

Herman: Strong investment interest has validated that Washington deals are well conceived and backed by strong sponsors. By implementing development cost limits, we have demonstrated our concern for high development costs for tax credit projects in recent years. Beyond that, we have not had any major concerns about recent deals. We would like to see better pricing for our rural deals because we don't believe they are as risky as investors think but we can't control that side of the equation.

Pavao: In California, recent 9 percent deals have had tremendous local support, including financial support. Some of this year's projects have had a greater neighborhood revitalizing affect than past projects. This year's projects have generally had greater energy efficiency than in the past and are almost all developing to the LEED for Homes or equivalent standard.

TCAC continues to see general improvements to the resident services proposed in the competitive 9 percent projects, and we continue to see greater numbers of infill projects and projects housing special-needs populations.

Of concern are a small set of very small projects seeking very small credit reservations. These projects tend to be cost-inefficient.

Tingerthal: We have seen more proposals this year that are financially ready to proceed, with more sources of funding committed and external resources being brought in to leverage the tax credits. Developers have been sharpening their pencils and reducing the need for scarce deferred loan dollars, while still maintaining the agency's high standards for sustainability and addressing the agency's funding priorities.

In a time of scarce resources, we have not been able to support the development of as many new units of supportive housing, since these developments generally require some combination of rental assistance, operating subsidies and funding for social services. Minnesota continues to have a strategic goal of ending long-term homelessness, but meeting that goal is tougher as resources have diminished.

  • 7. What are the prospects for 4 percent tax credit and bond deals in 2012?

Auger: Without an extension of Treasury's New Issue Bond Program (NIBP), Florida Housing expects a significant decrease in the number of closings for these transactions in 2012.

Dewey: We have received 15 tax-exempt bond and tax credit applications thus far in 2011, a significant increase from the previous few years. We expect a similar volume in 2012.

Garver: Prospects for 4 percent tax credits and bond deals in 2012 will not be as good as the current market due to the potential lack of gap financing and no new sources like the Neighborhood Stabilization Program. In Ohio, it is very difficult to make a new construction project work as a bond deal. Almost all bond deals are preservation projects.

Godfrey: Political uncertainty in Washington will dampen market forces for much of 2012, preventing the maximum returns on these critical programs.

Herman: We think they are good. In our larger markets, rents are going up and vacancies are going down. We have already seen an increase in applications and we completed several financings for bond/4 percent deals in 2011. Due to the rental markets getting tighter, we think the trend will continue. These financing structures also benefit independent senior housing with some services.

Pavao: Like most states, California saw a severe decline in 4 percent application volume in 2009 and 2010. California went from 122 projects receiving 4 percent awards in 2008, to 64 projects in 2009 and a mere 49 projects in 2010. This year, TCAC has funded 76 projects to date and has over 30 applications pending. So, 4 percent application volume is returning to pre-recession levels.

Tingerthal: We expect an increase in the use of tax-exempt bonds with 4 percent tax credits in the coming year as we increase our outreach for preservation opportunities and as we introduce our new conduit lending program. Although current pricing makes it difficult to make these deals work, we are considering several strategies that will help tap into this underutilized resource.

8. What major trends do you see occurring for state HFAs in 2012?

Auger: On a bigger-picture level, I think we'll to continue to be strong advocates for what our programs have accomplished, and I think we'll need to be creative as we face a very difficult market in which to issue tax-exempt bonds.

As to our rental programs, specifically, we are seeing the role of asset management taking a higher priority in everyone's decision processes, including front-end application structuring and portfolio oversight. HFA resources are being directed into establishing comprehensive, flexible databases that can be easily accessed and analyzed. Tracking performance of developments on many levels, understanding sensitivity levels of multiple variables, and redirecting resources around concentration concerns are just some of the goals to providing a strong performing portfolio of affordable housing around the state, in a fair and transparent manner.

Dewey: In 2012, state HFAs will again have to pursue flexible strategies for accessing capital markets given an interest rate environment that continues to challenge spread lenders. In the multifamily market, HFAs will continue to rely on flexible underwriting standards, timely origination services, and the provision of long-term financing to offset rate differentials with other lenders. HFAs will also be working to constrain development costs in the LIHTC program in order to maximize the number of units brought to market and assure Congress that the program is continuing to address subsidy needs in a cost-effective manner. In the single-family market, state HFAs will continue to underpin local home purchase markets by providing down-payment assistance necessary to enable first-time buyers to enter the market.


  • A focus on conserving and recycling resources.
  • The need to be strategic in workforce planning.
  • A push to serve growing rental demands for seniors, extremely low-income households and persons with special needs.
  • A renewed focus on evaluating and controlling total development costs.
  • The search for new opportunities to fill market needs such as construction or permanent lending.

Godfrey: HFAs will have less non-credit subsidies to offer, requiring more housing credits per transaction. Investor concerns about markets will require larger reserves. This will offset the recent growth in yields so that the number of homes produced may drop.

Herman: I think more agencies will be implementing development cost controls in their tax credit programs for the same reasons we did. In the single-family arena, I think more agencies will be looking at conventional programs like To Be Announced (TBA) programs rather than issuing bonds. If we can't compete with the conventional market, we can take advantage of the low rates and offer down-payment assistance programs to help borrower purchase their first home.

Pavao: In California, both 9 percent project quality and 4 percent volume should remain strong. Local government financing in 2012 remains uncertain at this time.

Tingerthal: We expect that 2012 will continue to present a great deal of uncertainty for the housing finance market in general, and particularly for HFAs. The scheduled end of the NIBP is expected to diminish the ability of HFAs to provide efficiently priced long-term financing. We are hopeful that an alternative to NIBP will come into play that will continue to allow for the provision of affordable, long-term, fixed-rate financing for affordable housing. With the imperative for debt reduction at the federal level, we expect that Congress will examine all possibilities, including tax reform, which could threaten the LIHTC and tax-exempt bonds”“two of the primary financing tools administered by HFAs. In addition, virtually every financing tool provided through HUD, including the HOME program, is slated for reductions in funding. These factors, combined with the continued uncertainty about the future of Fannie Mae and Freddie Mac, make it very difficult for HFAs to develop long-term plans.

  • 9. What's the best move your agency has made in the last 12 months?

Auger: Our best move was being able to direct limited funding resources into areas of the state that have an established need for affordable housing; also, redirecting potential allocations away from areas that demonstrate a lack of need is proving itself beneficial. This has been a multi-pronged effort in identifying weak rental housing markets, analyzing rental housing markets to show the need, and identifying factors that encourage economically viable transactions.

Dewey: Virginia Housing Development Authority (VHDA) implemented a multifamily technology solution that consolidated existing Development, Construction Management, Asset Management and Tax Credit Allocation systems within VHDA to improve overall reporting capability and compliance monitoring within the multifamily division. This project allowed for the elimination of seven separate systems. Capabilities previously absent are now easily accessible, enabling users to:

  • Manage all properties in a central database
  • Understand pipeline activity across the organization
  • Validate information captured during each stage of a new deal
  • Synchronize underwriting spreadsheets with the database
  • Rank and pool eligible properties for annual tax credit allocation cycles
  • Approve budget and draw requests during the construction phase
  • Track submission of monthly financials by owners and property managers
  • Analyze the portfolio for potential risks
  • Evaluate bond allocations in real-time
  • Access executive dashboards to understand portfolio trends