Veto Threat Clouds HUD Funding Proposal

BY BARRY G. JACOBS

AFFORDABLE HOUSING FINANCE • NOVEMBER 2007

The Department of Housing and Urban Development (HUD), like the rest of the federal government, has started fiscal 2008 without a regular appropriations bill in place and an uncertain funding outlook as a Democratic majority in Congress seeking more money for domestic programs confronts a Republican White House determined to hold the line on spending.

Both houses have approved HUD funding bills with increases in major programs, but President Bush has threatened to veto the final measure—one of several such warnings. In the meantime, the government is operating under a continuing resolution that generally keeps funding at fiscal 2007 levels.

The Senate passed its version of the HUD appropriations bill (H.R. 3074) in September, approving $16.599 billion for Sec. 8 vouchers, including $14.936 billion for renewals, and $5.813 billion for Sec. 8 project-based assistance, including $5.523 billion for contract renewals.

The comparable House figures are $16.33 billion and $14.745 billion for vouchers and $6.48 billion and $6.239 billion for project-based Sec. 8.

Other funding provisions include: public housing operating fund, $4.2 billion in both bills; public housing capital fund, $2.5 billion in the Senate bill, $2.439 billion in the House bill; HOME, $1.97 billion in the Senate, $1.64 billion in the House; homeless assistance, $1.585 billion in the Senate, $1.561 billion in the House; Community Development Block Grants, $3.705 billion in the Senate, $3.929 billion in the House; Sec. 202, $735 million in both bills; and Sec. 811, $237 million in both bills.

The Senate version of the bill, which also includes funding for the Transportation Department and other agencies, calls for about $3 billion more than the president’s budget request, and the Office of Management and Budget (OMB) issued a statement of administration policy warning that the measure faces a veto.

“In combination with the other FY 2008 appropriations bills,” OMB said, “it includes an irresponsible and excessive level of spending and includes other objectionable provisions.”

The administration message objected specifically to the appropriations levels for Community Development Block Grants and public housing, along with continued funding for the HOPE VI program, which it has been trying to kill.

Congress, administration act

to address mortgage crisis The subprime mortgage crisis has become the dominant housing issue in Washington, with Congress and the administration moving to provide relief to homeowners facing foreclosure because of sharp increases in mortgage payments.

The crisis was the impetus for House passage of Federal Housing Administration (FHA) modernization legislation (H.R. 1852), with an amendment to make FHA refinancing available to borrowers in default.

The amendment would allow homeowners to refinance if their current loans have adverse terms or rates, or if they lack access to mortgages with reasonable terms and rates because of adverse market conditions. FHA could insure refinancing loans for borrowers in default or at imminent risk of default, provided that the loans meet reasonable underwriting standards.

The bill would also allow FHA to insure no-downpayment mortgages and adjust mortgage insurance premiums to reflect the risk of individual loans.

In addition, the bill would raise FHA mortgage limits, in part to help FHA regain some of its lost market share and in part to address the impact of the market disruptions on the jumbo mortgage sector, where rates have risen sharply.

As reported out of the Financial Services Committee, the bill would have raised the basic one-family mortgage limit from 95 percent to 100 percent of the area median house price and increased the floor and ceiling limits, which are now 48 percent and 87 percent of the Freddie Mac conforming loan limit, to 65 percent and 100 percent of the Freddie Mac limit.

However, the bill was amended on the floor to provide even higher limits—the lesser of 125 percent of the area median house price or 175 percent of the conforming loan limit, with HUD authorized to raise the limits by as much as an additional $100,000.

On the administrative side, HUD announced an initiative, called FHASecure, to allow for FHA refinancing of non-FHA adjustable-rate mortgages that have gone into default after the rates have reset because the borrowers can’t make the higher payments. The arrearages under the old loan could be included in the FHA mortgage.

Many subprime mortgage borrowers, especially those with so-called “2- 28” loans, where a low teaser rate is increased after two years, face the loss of their homes because they can’t afford the sharp payment increases when the rates adjust.

Financial services committee reports out housing bills

The House Financial Services Committee has reported out two public housing bills, including a reauthorization of the HOPE VI program for the revitalization of severely distressed public housing, and a bill to revise the policies and procedures for the construction and refinancing of Sec. 202 elderly housing projects.

The HOPE VI bill (H.R. 3524) includes a one-for-one replacement requirement for all public housing units demolished or disposed of under a revitalization plan, either on the old public housing site or within the jurisdiction of the public housing authority (PHA).

The replacement housing would include on-site mixed housing in which at least one-third of the units are public housing units, unless HUD determines that such on-site replacement is infeasible. Other replacement housing could be provided in other parts of the PHA’s jurisdiction through acquisition or development of additional public housing units or other housing subject to comparable eligibility, rent, and affordability restrictions. All replacement housing would have to be provided in ways that promote the deconcentration of poverty.

Public housing residents displaced by the HOPE VI plan would be entitled to a replacement housing unit. In addition, they would have to be provided relocation assistance that meets the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act.

A revitalization plan would also have to provide opportunities for public housing residents to participate in the planning process.

A separate bill (H.R. 3521) would allow PHAs that own or operate less than 500 public housing units to exempt themselves from the asset management requirements imposed by HUD for the public housing operating fund program.

The bill would also prohibit HUD from imposing any restriction on management and related fees for a public housing project if the fee is determined to be reasonable by the PHA, unless the restriction is established through a negotiated rulemaking process that begins no earlier than April 1, 2009. The restriction could not go into effect before Jan. 1, 2011.

The Sec. 202 bill (H.R. 2930) provides for the delegation of processing to state and local housing agencies when projects receive Sec. 202 capital advances and funding from other sources. HUD would retain the authority to approve rents and development costs.

The bill would also allow Sec. 202 owners to establish a tenant selection preference for homeless elderly persons, if supportive services will be available.

The current provisions on the use of rental assistance savings from the refinancing of Sec. 202 loans would be revised to include the reduction or reconfiguration of obsolete units, the payment of a developer’s fee, and the payment of equity to the owner, sponsor, or seller. The 15 percent limit on the portion of the cost of increased supportive services that could be paid from rental assistance savings would be eliminated.

To prevent displacement of elderly residents when a project is refinanced or recapitalized, the bill would provide project- based rental assistance under a senior preservation rental assistance contract for a term of at least 20 years, subject to annual appropriations.

Banking committee OKs consolidation of homeless programs

The Senate Banking Committee has approved legislation (S. 1518) to consolidate the competitive homeless assistance programs under the McKinney-Vento Act, a move long favored by the administration and homeless advocates.

The move would affect the supportive housing program, Shelter Plus Care, and Sec. 8 moderate rehabilitation single-room occupancy programs.

The bill would also expand the eligible uses of homeless assistance funds to include aid for certain doubled-up households who can’t afford their own housing, and for families and individuals at risk of becoming homeless.

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Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-todate compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law.