Smaller Profits Mean Fewer AHP Dollars

By Donna Kimura

Several Federal Home Loan Banks (FHLBanks) are trying to stretch their limited Affordable Housing Program (AHP) dollars in the midst of a tough economy.

Five of the district banks report having fewer AHP funds in 2009, a trend that could continue into next year.

Created 20 years ago, the program has been a reliable and critical source of gap financing for affordable housing developers.

AHP is one of the largest private sources of grant funds for affordable housing in the country. The program has provided more than $3 billion to projects, helping to build more than 623,000 housing units, including 391,000 units for very low-income residents.

The banks set aside 10 percent of their annual net income to fund the AHP. As a result, the level of program funding can fluctuate. If bank profits are down, there is less money available for affordable housing developments.

Nine of the 12 district banks recently participated in a survey by Affordable Housing Finance.

Looked at together, the surveys show a nearly 23 percent drop in AHP funds from last year. Not all individual banks, however, report a decline. A few districts, including Cincinnati and Indianapolis, say they have more or a similar amount for affordable housing.

FHLBank of Atlanta

The bank has incorporated new scoring incentives this year for applicants that demonstrate having secured funding that will leverage the AHP dollars.

It also added a scoring incentive that rewards projects that are part of a coordinated and structured foreclosure recovery initiative. This reflects the FHLBank of Atlanta’s “approach to positioning AHP as part of the array of solutions to the current and more challenging affordable housing, community development issues in the bank’s district,” said Sharon Cook, senior marketing communications manager. “We will continue that philosophy into 2010.”

In 2008, the FHLBank of Atlanta awarded about $46.3 million in AHP grants to 89 projects with 4,514 units through the competitive cycle. Another $17.7 million went to the first-time home buyer component of AHP.

The bank was working on its 2009 awards at the time of the survey.

FHLBank of Cincinnati

In 2008, the FHLBank of Cincinnati awarded $25.6 million in AHP funds through 81 grants. It received 234 applications.

This year, the bank expects to award a similar amount, about $25 million. Officials reported receiving 178 applications this year. About $13.2 million in grants had been awarded as of July 31.

The drop in applications is attributed to nonprofit organizations taking advantage of new Neighborhood Stabilization Funds.

In 2010, officials will be watching for any changes that result from the American Recovery and Reinvestment Act (ARRA) that included several provisions aimed at helping spur the development affordable housing projects during the economic downturn.

“As a consequence of ARRA, state housing finance agencies are modifying LIHTC (low-income housing tax credit) underwriting standards to reflect increased reserves, fees, expenses, etc., thereby increasing project total development costs,” said Carol Peterson, senior vice president of housing and community investment. “FHLBanks will likely accommodate those changes when evaluating AHP applications.”

FHLBank of Des Moines

The bank has added additional points for rural and Native American rental projects.

It expects to award nearly $13 million in AHP grants this year, according to Vice President Curt Heidt. No awards had been made as of July 31.

In 2008, the FHLBank of Des Moines awarded $17.7 million through 54 grants. The 2008 awards included funds from 2006 restated earnings.

FHLBank of Indianapolis

The bank had a record year for AHP funding in 2009. The competitive AHP allocation increased from $9.6 million in 2008 to about $14.2 million this year.

Member institutions have continued to borrow during these difficult time, and bank failures have been minimal in the district, reported officials.

FHLBank of Indianapolis expects to award about 30 AHP grants this year. It had awarded 16 as of the end of July.

Developers are eligible for larger awards since a recent change to increase the maximum award amount from $500,000 to $750,000.

In addition to the competitive grants, officials expect to disburse $7.6 million through homeownership initiative grants this year.

The bank recently introduced two new homeownership initiatives to support the federal government’s response to foreclosures. Neighborhood Stabilization Assistance leverages state and local Neighborhood Stabilization Program funding, and the Refinance Assistance Program will support state or federal refinance or loan modification efforts in which its members participate, said Mary Beth Wott, vice president, community investment officer.

FHLBank of New York

The bank awarded $39 million in AHP funds to 92 projects last year. It expects to award about $35 million this year.

Officials awarded $16 million to 39 projects in August.

The bank is seeing an increase in requests, with 260 applications this year compared to 216 last year.

Grants averaged about $425,000 last year. “The average grant in 2008 was larger than in the past as other funding sources of affordable housing have diminished due to current economic conditions, and developers of affordable housing have looked to the AHP for larger grant amounts,” said Joseph Gallo, director of community investment.

FHLBank of Pittsburgh

The bank recently approved $3.5 million in AHP grants to help finance 17 projects.

There were eight projects in Pennsylvania, three each in Delaware and West Virginia, and one each in Louisiana, New York, and Virginia.

The amount available for AHP this year is a steep drop from $23 million in 2008.

To stretch the program dollars, the maximum subsidy amount has been reduced from $650,000 to $250,000 to permit more projects to receive a grant.

Because of the reduction in the amount of funding available, officials are concerned that AHP will become less significant as a funder of affordable housing, at least in the short term.

The number of applications decreased to 62 this year from 192 last year, according to John Bendel, director of community investment.

When asked about potential changes in 2010, FHLBank of Pittsburgh officials said the online application is being revised to be more user-friendly and to permit funding requests and compliance to be done online.

FHLBank of San Francisco

While several banks reduced the size of their maximum award, FHLBank of San Francisco increased the amount that can be awarded per project from $1 million to $1.5 million. It also increased the total amount of funding that an applicant can request in a single competitive round from $5 million to $6.5 million.

Officials want to provide enough funding to allow the most solid projects to pencil out and did not want to spread the grant dollars too thin, explained officials.

The bank awarded nearly $80 million in 165 grants last year.

Officials did not indicate how much they expected to give for the year. As of July 31, they had awarded 42 grants worth about $30.3 million in subsidies.

“We’ve simplified our application preparation, scoring, and compliance processes with regards to the points we award in the empowerment category,” said Jim Yacenda, vice president, community investment officer. “We are hopeful that a more favorable environment for development will return soon.”

FHLBank of Seattle

In 2009, 32 applications had been submitted, requesting about $7.6 million in AHP subsidy. That’s about three times more than the $2.6 million available this year.

The applications were evenly split between rural and urban projects.

Fourteen of the projects propose owner-occupied housing, and 18 propose rental housing. There was at least one application submitted from each of the eight states in the Seattle bank’s district, report officials.

The bank awarded $4.4 million in 13 grants last year.