Without overstating Congress’ engagement with the housing dilemmas facing very poor families and seniors, it is fair to say some good news is emerging in Washington.

Our lead story in last month’s newsletter centered on the need for “Mark to Market” program extension. Mark to Market is set to sunset on October 1, 2006. According to HUD, 220,000 affordable housing units have been preserved since Mark to Market was authorized in 1997 and rent reductions have resulted in $1.9 billion (net present value) in savings to HUD. We estimate that 92,000 units may be at risk if Mark to Market is not extended.

Senator Wayne Allard (R-CO), Chair of the Senate Subcommittee on Housing and Transportation, has agreed to hold a hearing June 14^th on extending the program. Legislation will likely be introduced prior to the hearing. NHT has sent a letter in support of the extension legislation.

Efforts are also underway to provide better protections to rural tenants who could be displaced when owners prepay their Section 515 loans. Just this morning, the House Subcommittee on Housing and Community Opportunity adopted amendments to H.R. 5039, the 'Saving America's Rural Housing Act', that  improve the bill's tenant protection voucher program. For more on this, check out the ‘News from DC’ section of this newsletter.

Stay tuned…

Amendments to Rural Housing Bill Adopted. Today, May 23, the House Subcommittee on Housing and Community Opportunity adopted amendments to H.R. 5039, the 'Saving America's Rural Housing Act', that improve the bill's tenant protection voucher program. An amendment proposed by Rep. Geoff Davis (R-KY) authorizing $74 million to be spent on tenant protection vouchers was adopted. Also adopted was an amendment by Rep. Barney Frank (D-MA) that makes enactment of the legislation contingent on Congress actually appropriating these funds. 

These vouchers will be provided to families displaced when a Section 515 loan is prepaid and affordability requirements are ended. H.R. 5039 would end prepayment restrictions for pre-1989 financed developments. Prior to today, the legislation did not specify a particular amount of funds to be spent on providing vouchers. Without these changes, the bill would potentially leave thousands of families unprotected from higher rents. These concerns were raised with Rep. Frank by the National Housing Trust, the National Low Income Housing Coalition, the National Housing Law Project, and other housing organizations. Click here for a letter to Rep. Frank summarizing these concerns.

President's 2007 Budget Cuts Subsidies for Nearly 5,000 Presently Subsidized Units. The Administration's 2007 budget includes a proposal to prohibit HUD from replacing lost subsidized units with "tenant-protection" vouchers on a one-for-one basis; a policy shift that could result in 5,000 less vouchers issued. The proposed change would issue these vouchers only to replace assisted units that were occupied directly prior to being “lost,” reducing the supply by more than 20% in 2007 alone. This change will hurt a community’s ability to ensure it does not suffer a net reduction of housing resources due to lost project-based subsidized housing.  The National Housing Trust has signed on to a letter to House and Senate Appropriators urging that this policy shift be rejected. Click here for the letter.

Housing Groups Submit Comments on Mark to Market Rule. The National Housing Trust and National Low Income Housing Coalition, on behalf the Preservation Working Group, recently submitted comments to HUD on a proposed rule that would revise procedures for the Mark to Market program. The comments focus on ensuring effective tenant participation in the endorsement process for Section 8 property sales or transfers. Click here to read the full text of the comments.

USDA’s Section 515 Rural Rental Housing program has produced more than half a million homes for low income families since its start in 1963. These communities are now facing the same pressures their more urban counterparts have over the last decade: aging facilities and owners who want to prepay their mortgages and convert the housing to market rate, displacing current residents. Preserving rural rental housing has become more and more urgent.

With this in mind, the National Housing Trust held its third annual roundtable discussion on preservation at the National Council of State Housing Agencies Spring Training. This year's focus was rural preservation issues and was held in partnership with the Housing Assistance Council. More than 30 representatives from 16 state housing finance agencies gathered in Indianapolis to confront the challenges they face and share their successes in preserving existing affordable rural rental housing.

Participants compared rural incentives in their current tax credit qualified action plans (QAP). Forty-four states include either a set-aside or points for rural housing (both new construction and rehabilitation) in their current QAPs. Four states provide specific tax credit incentives for rural preservation. Click here for a table prepared by the National Housing Trust summarizing these incentives.  

Barriers: Major transaction barriers to rural preservation development include low rents, lack of capacity, and high operating costs.

• Some- not all -state housing agencies experienced difficult relationships with their respective state Rural Development offices which administer the 515 program.

• Many states identified the lack of local capacity as another barrier to rural preservation. One of the participants suggested pairing local non-profits with national non-profits to preserve rural housing portfolios.

Strategies: States varied in their strategies for preserving existing affordable rural housing.

• Most states found that rural preservation deals are resourced with HOME or the state's 9% preservation set-aside. More states use rural set-asides for new construction than for preservation.

• Indeed, not that many rural preservation proposals apply for 9% tax credits because the developments often are too small to make the projects carry the soft costs associated with a tax credit transaction.

• Where developers used tax credits, states endeavor to umbrella a number of rural properties together in one transaction. Two states treated several rural properties owned by the same entity as one scattered site development. The New Mexico agency was able to "round up" five scattered site Section 515 properties and bundle them together in one bond issue. The consolidation of the properties dramatically reduced the transaction costs and ultimately led to preservation of a valuable Section 515 portfolio. Pennsylvania is facing a similar situation and has determined it will try to use the "New Mexico model".

Despite challenges, affordable rural housing is being preserved. Clover Patch Apartments in St. Charles, Minnesota, a Section 515 property saved from market-rate conversion, is a case in point. 

Clover Patch was transferred to a non-profit after the owner decided to prepay the mortgage.  But the deal almost did not take place; it was quite a challenge for U.S. Rural Development to find a non-profit willing to take ownership. The reason: non-profits cannot currently receive administrative fees from Rural Development.  This makes it challenging for smaller non-profits to get involved. The good news: H.R. 5039, the ‘Saving America’s Rural Housing Act’, currently being considered by Congress, makes it possible for non-profits to earn fees in such transactions. If we want to encourage non-profits to take on rural preservation, we must make it economically feasible for them to do so.

Clover Patch was eventually saved because a local non-profit, Three Rivers Community Action, and the Minnesota Housing Finance Agency developed a successful strategy to raise sufficient rehabilitation funds and overcome the financial obstacles. But the difficulties Three Rivers encountered in saving Clover Patch underscores the challenges of revitalizing Section 515 properties and the need to make saving rural housing much easier, simpler, and more rewarding.

Clover Patch Apartments was built in 1980 and financed through USDA’s Section 515 program. In 2001, the owner applied to prepay the loan. By this point the 20-year low income use restriction period imposed on post-1979 Section 515 properties had expired. As a result, the owner could convert the property to market rate making Clover Patch’s tenants vulnerable to substantial rent increases.

After reviewing the owner’s application for prepayment, USDA’s Rural Development determined the loss of this affordable housing would adversely affect housing opportunities for minorities in the region. This was significant because it meant the owner had to market the property to a non-profit or public agency that would maintain affordability. 

However, the search for a qualified purchaser was not easy, in part because non-profits cannot currently be reimbursed for organization costs or earn a developer fee under Rural Development loan programs. H.R. 5039 addresses just this issue, among others, allowing non-profits to cover their costs the same way profit-motivated sponsors can.

Without the ability to earn a developer fee, only one group stepped up to the plate: Three Rivers Community Action. Three Rivers decided to divide the financing into two parts, Rural Development transferred the existing mortgage to Three Rivers and provided a new loan to cover the gap between the owner’s equity and the outstanding loan.  Rural Development also increased the number of units receiving USDA project based Rental Assistance from 18 to all of the property’s 32 units.  

Three Rivers then found the funding for rehabilitation and organization costs to undertake the transaction. Minnesota Housing Finance Agency provided a $350,000 deferred loan from its Preservation Affordable Rental Investment Fund Program, a statewide program that provides low interest-deferred loans to help cover the costs of preserving permanent affordable rental housing with long term project based federal subsidies that are in jeopardy of being converted to market-rate apartments.  The Greater Minnesota Housing Fund provided a deferred loan in the amount of $120,000.  An additional $50,000 contribution from First Homes, a local affordable housing foundation initiative, rounded out the financing mix.

Yashonia Mallory, president of the Galen Terrace Tenant Association, leaned into her task at last week’s groundbreaking celebrating the start of renovations at the 84 unit community located in Washington, D.C. She was joined by co-developers NHT/Enterprise Preservation Corporation and Somerset Development – who fronted the cash and worked closely with the group in crafting the redevelopment plan - and a community of lenders and supporters.

D.C.’s tenant first right of refusal legislation and the residents’ determination to save their homes opened the door to preserving this Section 8 property. But the assistance of many others was needed to make it happen. The Fannie Mae Foundation played a key role by providing funding to NHT/Enterprise to preserve properties like this in D.C. Direct funders include: Enterprise Community Investments, Inc., MMA Financial, DC Housing Finance Agency, DC Department of Housing and Community Development, Adams National Bank, the Federal Home Loan Bank of Atlanta, and Enterprise Community Partners, Inc. 

Seriously run-down, Galen is getting a full-scale rehabilitation designed to make sure it remains top quality affordable housing for the long term. A newly built community center will include an office, computer center and space for other resident programs and activities. The residents are receiving a portion of the developer’s fee and ongoing cash flow to fund these programs.