There is reason to be concerned about the fate of the damaged HUD-assisted housing in the Gulf Coast region. 

The House has passed a bill (H.R. 4939) providing an additional $19.2 billion for hurricane recovery; but it fails to provide adequate resources for the repair of public and HUD-assisted housing. The Senate Appropriations supplemental bill is better, but still does not go far enough. The Senate Bill provides $27.1 billion in additional recovery aid.

The Senate bill contains a number of provisions absent from the House bill, including:

• $1 billion in overall CDBG funds to be spent on housing repair;

• Language stating that HUD has "the burden" of ensuring the rehab of the affordable housing stock, including HUD-assisted housing; and

• $202 million in rental assistance, including $100 million in project-based assistance to support the construction of previously assisted HUD housing.

Still, more needs to be done to save damaged affordable housing in the Gulf:

• Using Section 318 of the 2006 HUD Appropriations Act, HUD should make explicit its intent to transfer project-based assistance from buildings damaged beyond repair to properties in good physical condition;
• Congress should provide adequate insurance gap financing so that property owners have access to the capital needed to make substantial repairs.

Click here for more information on what the National Housing Trust views as top policy priorities for preserving Katrina damaged housing.

Stay tuned…

A hearing on H.R. 5039, the "Saving America's Rural Housing Act of 2006", has been scheduled for today, April 25, at 2:00.  The hearing will be held by the House Financial Services Subcommittee on Housing and Community Opportunity. If enacted, H.R. 5039 would make significant changes to the Section 515 program, including permitting many owners to prepay their mortgages and providing resources necessary to help save the remainder of the Section 515 stock.  

Click here to read a summary of the legislation prepared by the National Housing Trust.  The Housing Assistance Council has prepared a statement on the legislation with proposed changes, which can be viewed by clicking here. 

On September 30, 2006, legislative authority for HUD’s Mark-to-Market (M2M) mortgage restructuring program expires. Without action by Congress to extend the program, units with HUD-approved rents that exceed comparable market rents face an uncertain fate.  We expect HUD to announce its position on extending the program very soon. The National Housing Trust has joined more than a dozen housing groups in signing a letter supporting reauthorization (click here to view the letter).

Currently, an estimated 92,000 units in more than 1,000 FHA-insured properties have above-market rents.*  Most of these properties have contracts expiring after M2M will sunset. The problem: even if HUD’s ability to restructure these properties’ loans to supportable levels is not extended, HUD is obligated by law to lower above-market Section 8 rents. If this comes to pass, many property owners won’t have sufficient revenue to cover operating costs and mortgage payments after their rental assistance is cut. The result: loss of affordable housing because of property deterioration and foreclosures. 

The M2M program’s reauthorization is essential for continued housing preservation.  According to HUD’s Office of Affordable Housing Preservation (OAHP), 220,000 affordable housing units have been preserved since the program was first authorized in 1997 and rent reductions have resulted in $1.9 billion (net present value) in savings to HUD.  In all, more than 2,800 properties have completed the M2M process as of February 15, 2006. Fifty percent of these properties have benefited from a full mortgage restructuring, or the reduction of mortgage debt to allow for positive cash flows after reduced rent payments.  HUD’s Office of Affordable Housing Preservation reports that there are 309 properties in the M2M pipeline, of which 285 are targeted for full mortgage restructurings. 

In 2001, the Government Accountability Office (GAO) conducted an analysis to determine if the M2M program should be extended past an earlier expiration date (click here for the report).  Their conclusion: extending the program was more advantageous to the federal government than ending it. The reasons: cost savings in the Section 8 program, minimized loss claims on the FHA insurance fund, and preservation of the affordable housing stock.

Legislation extending the program has yet to be introduced.  HUD is urging owners and Section 8 contract administrators to determine which properties would benefit from the program and get them into the M2M process before the September 30, 2006 cut-off date.

The National Housing Trust will continue to track this issue and raise awareness about the need to continue this important program. 

* Based on NHT's analysis of HUD data. Above-market status was determined by the FMR ratio (the ratio of the contract's rent gross amount to the FMR gross amount).  For the purposes of this analysis, a contract with an FMR ratio greater than 105 was considered to have contract rents above-market.   

Take one look at Eastland Woods and you see why the soon-to-expire “debt restructuring” element of HUD’s Mark-to-Market (M2M) program is critical to saving affordable housing (see related article in this issue). For twenty years, 100 low-income families have lived in Eastland Woods’ three- and four-bedroom single family detached homes located in a Akron, Ohio suburb. But with an expiring Section 8 contract, a pending reduction in HUD rent subsidies, substantial rehabilitation needs, and an owner interested in “getting out”, these families faced a serious risk of losing their homes. 

Recognizing the importance of holding onto homes like this- a rarity in the assisted housing stock- the Ohio Capital Corporation for Housing (OCCH) and the Akron Metropolitan Housing Authority (AMHA) developed a plan that preserved the affordability of these units for the long-term and positioned them for the future.  In the end, it was the combination of a mortgage restructuring under the Mark-to-Market program, $2,000,000 investment by AMHA, and supportive HUD and Mark-to-Market administrative offices that proved crucial to making the deal work. 

OCCH took the lead in crafting a funding package, which proved to be a considerable challenge.  The property was a prime candidate for conversion to homeownership.  The owner had wanted to sell the property for some time, but OCCH was unable to put together a deal that met the owner’s asking price with enough money left to cover the desired $38,000 per unit rehabilitation budget; a rehab funding level designed to ensure the homes are a community asset for the long term. Still, they were far apart in asking price.  When AMHA came on the scene willing to make a significant investment in the property, the dynamics suddenly changed.

The deal would never have happened, though, without HUD’s ability to change the terms on a portion of the development’s original mortgage loan. The key: HUD restructured $4 million of its original loan, converting it to a long-term 1% loan payable from a portion of annual cash flow. A $2.4 million tax exempt first trust, 4% low income housing tax credits, AHMA’s $2 million loan – also repayable from cash flow – and deferred developer fees make up the bulk of the remaining sources.

In the end, all parties recognized the need to save this valuable resource and acted to save these homes for the long-term.  Without the opportunity to restructure the mortgage under the Mark-to-Market program, mandatory rent cuts would have meant less money to cover operation costs and debt service payments.  Instead, the preservation of this property provides families the opportunity to live in beautifully renovated homes with trees and a backyard in a mixed-income community. 

Tell us how the proposed FY 2007 HUD budget affects housing programs for lower income senior citizens?    The Administration’s proposal cuts $190 million from the overall Section 202 Supportive Housing Program for the Elderly; a 26% drop from last year. Money for new construction is down even more, 31%, which HUD expects will fund only 2,700 new units; an average of 54 units per state. Funding to provide more housing under the Section 811 program for people with disabilities, many of whom are seniors, is targeted for a 50% cut. We’re urging Congress to reject these damaging proposals.  

Can you help quantify the need for additional lower cost senior housing?   There are nine low-income seniors on the waiting list for each of the 300,000 Section 202 units located in over 6,000 developments throughout the country. Harvard’s State of the Nation’s Housing report found 8 million of the nation’s 21 million elderly households have incomes under $10,500 annually. The affordable housing crisis for seniors will worsen inevitably because our aging population is growing so rapidly. A Congressionally established commission on seniors estimated that an additional 730,000 rent-assisted units will be needed for seniors age 65 and older by 2020.

What are the opportunities and challenges in preserving Section 202 elderly properties?   Residents are living longer and staying longer in 202 properties than anyone envisioned at the start of the program. The average age of residents today is 78. But until fairly recently, 202 developments weren’t designed or funded to provide the supportive services needed, let alone the enhanced services that now constitute assisted living, the next step in the senior housing continuum.

The Section 202 program, established in 1959 to serve the elderly and handicapped, is one of America ’s oldest federal housing programs. Much of the inventory – all sponsored by nonprofit organizations – was built decades go and needs an infusion of new funds to replace aging systems that are deteriorating. Many of the early properties were designed with very small efficiency units that simply aren’t marketable in some areas today; converting them into one-bedroom units makes sense but is costly and difficult to get approved.

What’s being done to preserve these properties?  HUD got the ball rolling in 1999, issuing a notice addressing the topic of Section 202 refinancing. Legislative initiatives enacted by Congress in 2000 and 2002 provided the tools needed for nonprofits to rehabilitate and modernize their properties by prepaying and refinancing HUD’s original loans. Additional HUD notices in 2002 (Notice 2002-16) and 2004 (Notice 04-21) provided expanded guidance and guidelines.

The bottom line: nonprofit owners now have a new array of options for improving Section 202 properties while maintaining their affordability. They can use money in existing project accounts in more creative ways. They can use a variety of financing approaches. They can even restructure ownership to take advantage of low income housing tax credits, so long as a nonprofit serves as the ownership’s general partner.

I’m convinced that FHA Commissioner Brian Montgomery’s strong and continuing pronouncements that preservation is the Administration’s top priority are making a real impact. HUD’s field offices are getting the message and beginning to use their authority effectively to make these next generation deals work.

With these changes, more and more sponsors are looking at refinancing their mortgages to rehab their properties, add supportive services and, increasingly, add assisted living options. As they do this, we’re seeing something new in the field: some of the larger nonprofit organizations that have sponsored senior housing over the years are purchasing and rehabilitating Section 202 properties operated by smaller nonprofit organizations.  Many original 202 sponsors were often faith-based or local groups that built a single development in their community. The complexity of managing these properties and navigating through the new refinancing options can be daunting for smaller owners.

What more is needed?   There’s a lot more to do. A quick laundry list:

• A speedy approval process for converting obsolete older efficiencies into one-bedroom units;

• An easier way to provide enhanced services to allow seniors to age in place;

• More flexibility in how nonprofits may use their funds to fulfill their senior housing missions, including making downpayments to purchase other properties and provide services or gap financing for other properties they own; and

• A legislative fix to provide a special project-based voucher program for the oldest Section 202 units. This is a new initiative we are about to launch.

Tell us about the American Association for Homes and Services for the Aging: its mission and focus.  AAHSA members serve two million people every day through mission-driven, not-for-profit organizations dedicated to providing the services people need, when they need them, in the place they call home. Our members offer the continuum of aging services: adult day services, home health, community services, senior housing, assisted living residences, continuing care retirement communities, and nursing homes. Our commitment is to create the future of aging services through quality people can trust.

The National Housing Trust Community Development Fund (NHTCDF)- a certified Community Development Financial Institution based in Washington, DC- provides predevelopment and bridge loans to developers engaged in the acquisition and rehabilitation of affordable multifamily housing.  We are searching for a loan officer to operate the fund.

Applicants should mail a cover letter (including salary expectations) and resume to:  National Housing Trust, Attn: Loan Officer Position, 1101 30th Street, NW, Suite 400, Washington, DC 20007; or fax to: 202-833-1031.