1.TAX REFORM: Two words that strike fear in the low-income housing tax credit (LIHTC) industry. The LIHTC has been the nation's most successful affordable housing development tool, spurring the creation of about 2.4 million rental homes since 1987. It has enjoyed strong bipartisan support over the years, but with a big federal deficit and a rancorous Congress, everything is on the table, including the possible elimination or reduction of the LIHTC program. There are no sacred cows.
The elimination of tax expenditures was floated by the cochairs of the National Commission on Fiscal Responsibility and Reform, better known as the Deficit Commission, two years ago. Their draft plan did not specifically name LIHTCs or bonds, but addressed all tax programs in general. This proposal by Erskine Bowles, chief of staff to President Clinton, and Alan Simpson, former Republican senator from Wyoming, did not go anywhere at the time, but the possibility of the LIHTC getting lumped in with larger tax reform efforts still looms.
During a real estate policy forum at the recent Republican National Convention, Sen. Johnny Isakson (R-Ga.) said he thought the best approach to tax reform would be to put the entire tax code on the table to look at all the enhancements, credits, deductions, and expenditures and see if they are justified.
“I fully understand the value of the low- and moderateincome housing tax credit,” he said. “That is a tremendous program that attracted capital to a place capital wasn't flowing. Good projects were built, and that has a good public purpose. The mortgage interest deduction on the first mortgage on a single-family loan is critical, but we have to make sure that we examine everybody and everything, and the most important thing we can do is simplify our code, raise aspirations and expectations, and get people investing and spending money again.”
2.LIHTC LIMBO: There are several unresolved issues with the housing credit program that need to be addressed. A key one is the fate of the fixed 9 percent credit rate. Sens. Olympia Snowe (R-Maine) and Maria Cantwell (D-Wash.) are calling for the fixed rate to be extended past the current placed-in-service deadline of Dec. 30, 2013, and included an amendment to a package of tax extenders in August. Its outcome remained undecided at press time.
There are a number of other proposals out there as well, including a bill that would allow formerly homeless full-time students to be eligible for a LIHTC apartment and another aimed at encouraging more seniors apartments to be developed.
In addition, federal housing officials have floated the idea of an “income-averaging” option that allows properties to serve households whose average income is no greater than 60 percent of the area median income and with no individual household above 80 percent.
3.KILLING HUD?: Public and affordable housing barely gets talked about during the long election campaign.
However, the Department of Housing and Urban Development (HUD) did get a rare mention by Republican presidential nominee Mitt Romney this spring. Speaking at a private fundraising event in Florida, Romney revealed that he was thinking about eliminating or combining federal agencies.
“Things like Housing and Urban Development, which my dad was head of, that might not be around later,” he said in comments heard by reporters outside the event.
Romney's father, George, headed HUD from 1969 to 1973.
Housing advocates dismissed the comments as “campaign rhetoric” while stressing the importance of the agency for America's families, seniors, veterans, and the homeless. HUD officials declined to comment at the time.
The elimination of HUD is unlikely, but budget cuts are real. Funding for a number of programs, including public housing and rental assistance, could be reined in.
Perhaps, President Barack Obama's biggest move at HUD was his first, selecting Shaun Donovan, former head of the New York City Department of Housing Preservation and Development, to be secretary and bringing in other leaders with deep housing experience. That hasn't always been the case, with former mayors and other political appointees holding the post in the past.
The administration and direction of HUD can't help but be a top issue for the industry in the next term.
4.HOME UNDER FIRE: The HOME Investment Partnerships Program is in the crosshairs of a budget-cutting Congress.
The program has been around for more than 20 years and has helped produce 1 million affordable housing units. It has been a critical gap financing tool for many LIHTC developments. However, it has come under fire since the Washington Post reported last year that nearly 700 projects awarded $400 million had been idling for years. HUD came out against the articles, saying the HOME program works, and problem projects are a small fraction of the overall activity.
Still, the report was damning and placed the program under the microscope.
The HOME budget looks to be significantly smaller than it was a few years ago. The Obama administration's fiscal 2013 budget proposal seeks $1 billion for the program, similar to 2012 but down from $1.6 billion in fiscal 2011.
Protecting and restoring HOME is critical for the affordable housing industry.
5.BIPARTISANSHIP: Extreme partisanship has commandeered Congress.
Finding common ground needs to be a priority during the next session, stress housing officials and advocates.
“My biggest political fear is that partisanship closes off a deliberative and transparent process for deficit reduction, tax reform, and housing finance reform,” says Gerald Hunter, president and executive director of the Idaho Housing and Finance Association. “Clearly, tough political choices will need to be made in 2013, but I think housing will come out OK if those choices reflect informed and reasoned positions. Making contentious, last-minute, broad partisan swings at cutting the deficit, for example, will not produce the most productive outcomes. Housing has been a historically bipartisan issue. It needs to remain such, because the risks to the industry and the nation's economy are substantial if policymakers are not cautious. Let's be careful to not ”˜throw the baby out with the bath water,' as the old proverb cautions.”
6.WHO WILL BE THE LEADERS?: As key housing supporters including Sen. Snowe and Rep. Barney Frank leave Congress, who will fill their shoes as housing's leaders on the Hill? They've been huge supporters throughout their careers, and now new champions will need to emerge.
7.FORECLOSURE FIXES: In the past four years, more than 3.7 million homes have been lost to foreclosure, according to CoreLogic, a real estate research firm.
The administration's foreclosure programs are providing relief for homeowners as we continue to recover from the housing crisis. More than 1.2 million homeowner assistance actions have taken place through the Making Home Affordable Program, while the FHA has offered more than 1.4 million loss mitigation and early delinquency interventions, according to HUD's August Housing Scorecard. Also as of July, more than 1 million homeowners have received a permanent HAMP modification, saving more than $500 on their monthly mortgage payments.
Romney has criticized the Obama administration's handling of the housing crisis, saying the president “rolled out an alphabet soup of more than 10 housing finance programs rather than offering a real solution” and slowed the housing market recovery and the nation's economic recovery by focusing on a “government-centric approach.”
A year ago, Romney also told the Las Vegas Review- Journal's editorial board that he thought letting the foreclosure process “run its course and hit the bottom” was one way to improve the housing crisis.
In Romney's housing platform, the candidate puts forth a plan to end the housing crisis:
- ”¢ Responsibly sell the 200,000 vacant foreclosed homes owned by the government;
- ”¢ Facilitate foreclosure alternatives for those who cannot afford to pay their mortgage;
- ”¢ Replace complex rules with smart regulation to hold banks accountable, restore a functioning marketplace, and restart lending to creditworthy borrowers; and
- ”¢ Protect taxpayers from additional risk in the future by reforming Fannie Mae and Freddie Mac.
8.GSE REFORM: While industry watchers generally agree Democrats are more likely than Republicans to support a spin-off of the government-sponsored enterprises' (GSEs) critical multifamily finance operations—and green-light some form of taxpayerbacked credit enhancement—they're not holding their breath anticipating the 113th Congress to take meaningful action on GSE reform.
When GSE legislation is addressed, Michael Berman, executive vice president at Walker & Dunlop and past chairman of the Mortgage Bankers Association, says he expects the “fragile” residential sector to dominate the near-term focus, rather than multifamily operations that continue generating federal revenues. “So as desirable as a multifamily spin-off of some sort may be, it seems unlikely in the near term.”
National Multi Housing Council President Doug Bibby notes that the Joint Legislative Program of the NMHC and National Apartment Association isn't advocating any specific structure underlying the ultimate fates of the GSE multifamily divisions—but does continue lobbying for some “separate solution” from single-family activities. He's also concerned about any near-term efforts to eliminate explicit federal backing of GSEs' multifamily securities issues—for fear of “spooking” the investor marketplace.
Berman supports the notion that credit and interest rate risk in the multifamily sector ultimately needs to be transferred to the private sector. And he further recommends that at least the senior-most apartment-backed mortgage securities classes be credit-enhanced by a clearly stated federal guarantee, in order to maintain liquidity throughout economic and real estate cycles.
But he suspects the laissez faire-leaning likes of Financial Services Committee Vice Chairman Jeb Hensarling (R-Texas) and Capital Markets Subcommittee Chairman Scott Garrett (R-N.J.) are unlikely to support public guarantees. Nor in turn would a full Republican-controlled House.
Eliminating the government guarantee portends to constrict the supply of rental housing, Berman laments. “And that's bad news from a public policy perspective.”
9.HOMELESSNESS WATCH: On a single night in January 2011, there were 636,017 homeless people in America, a decline of 2.1 percent from the prior year. Homelessness among veterans and the street homeless declined by double digits, according to the annual count.
But this progress may only be short-lived, as more veterans return from Iraq and Afghanistan and struggling families that have been barely holding on during the recession run out of their savings.
Ending homelessness was a strong area for President George W. Bush, and that's continued under Obama.
“We know that Congress can take on tough challenges, despite growing partisanship, because they have done so on the issues of homelessness among veterans,” says Nan Roman, president and CEO of the National Alliance to End Homelessness. “There has been tremendous bipartisan political will to solve this problem, and the prospects for doing so during the next Congress are good. We need to build on this bipartisan foundation to create similar political will to solve the housing problems of other vulnerable people: elderly people, those with disabilities, families with children, and people who are homeless.”
10.NATIONAL HOUSING TRUST FUND: After being established by the Housing and Economic Recovery Act of 2008, the trust fund has existed in name only.
Contributions from Fannie Mae and Freddie Mac were initially expected to fund the program. However, their financial troubles killed that plan. Finding a source that can win bipartisan support will be a challenge.
One new idea is to use the savings generated by a reform of the mortgage interest deduction.
Freelancer Brad Berton also contributed to this report.