HUD Publishes Interim Rule for Governing Housing Trust Fund

In late 2014, Federal Housing Finance Agency (FHFA) Director Melvin L. Watt instructed Fannie Mae and Freddie Mac to begin setting aside and allocating funds for the Housing Trust Fund (HTF) and the Capital Magnet Fund. The Housing & Economic Recovery Act of 2008 mandated that HUD administer the HTF. Fannie Mae and Freddie Mac began setting aside payments on Jan. 1, 2015.

HUD estimates that $120 million will be allocated to the Housing Trust Fund in 2016, while $64 million will be allocated to the Capital Magnet Fund. The Housing Trust Fund dollars will be used to provide grants to states to increase and preserve the supply of affordable rental housing and homeownership opportunities for extremely low- and very-low income families. Funds will be distributed by formula to states or state-designated entities to be used primarily for the construction, preservation, and rehabilitation of affordable rental housing.

In anticipation of the funding, HUD recently released an interim rule to govern the implementation of the Housing Trust Fund. This rule establishes the regulations that will govern HTF and the formula that will determine how HTF funds are distributed among eligible grantees, as well has how grantees can use HTF dollars, including:

• In order to be eligible for HTF grants, each state/grantee would be required to identify the agency to allocate the funds and develop a consolidated allocation plan. States would be given significant discretion over how HTF funds are to be used to meet local housing needs.
• In years where less than $1 billion is available through HTF, the rule would require that each grantee’s HTF funding is used to support extremely low-income families, or those earning 30 percent or less of area median income (AMI). In funding years where more than $1 billion is available, at least 75 percent of each grantee’s HTF funding would be required to support extremely low-income families, while the remainder could be used to support very low-income families, or those earning 50 percent or less of AMI.
• At least 80 percent of the HTF funds would be required to be used for rental housing, and no more than 10 percent to support sustainable homeownership for first-time homebuyers. The rule specifies that up to 10 percent could be used to cover administrative costs.
• Grantees would be able to use HTF funds for several types of assistance including grants, equity investments, loans, advances, interest subsidies, deferred payment loans, and other assistance approved by HUD.
• Specific project costs eligible for HTF support would include hard development costs, certain soft costs like architectural and engineering fees, acquisition costs, refinancing costs, relocation costs, and certain operating costs.
• The proposal stipulates that HTF funding shouldn’t be used for public housing, unless through the rehabilitation of existing public housing through HUD’s Rental Assistance Demonstration (RAD) or the Choice Neighborhoods Initiative (CNI). But HTF funds would be able to leveraged in the use of other federal subsidies such as Low-Income Housing Tax Credits (LIHTC) or Project-Based Rental Assistance contracts.