National Housing Trust Fund
A Brief Outline
August 1, 2008 (modified 8/18)
A national Housing Trust Fund was created on July 30, 2008.
The basic features of the Housing Trust Fund are shown here.
(For more details, see “A Thumb-Nail Sketch”.)
WHAT IS A “HOUSING TRUST FUND”?
A national Housing Trust Fund is a program that collects and distributes “dedicated” funds not at risk of cuts each year due to politics in Congress.
A National Housing Trust Fund Is Created
· HUD (US Department of Housing and Urban Development) must create and manage a “Housing Trust Fund”.
o The first “dedicated” money will come from a very small amount of money from Fannie Mae and Freddie Mac (see next page).
§ [The money is “dedicated” (set aside); it is not open to changes from year to year by the political winds in Congress.]
o In the future, Congress can identify and transfer money from other sources into the Housing Trust Fund.
· The purpose of the Housing Trust Fund is to increase and preserve the supply of rental housing and to increase homeownership – all for extremely low income and very low income families.
TARGETING THE MONEY TO EXTREMELY LOW INCOME PEOPLE
· At least 75% of the money used for rental housing must benefit extremely low income people.
[Extremely low income is less than 30% of the area median income, or the national poverty level, whichever is higher.]
· No more than 25% of the money used for rental housing must benefit very low income people.
[Very low income is between 30% and 50% of the area median income.]
· Money used for homeownership (see “Eligible Activities” below) must benefit extremely low and very low income people. [For rural homeownership, “very low income” can mean the national poverty level.]
PRIORITY FOR RENTAL HOUSING
No more than 10% can be for homeowner activities.
ELIGIBLE ACTIVITIES
Rental Housing
· Housing Trust Fund money can be used to produce, preserve, or rehab rental housing.
· Housing Trust Fund money can be used for operating costs for rental housing.
Homeownership
Housing Trust Fund money can be used to benefit extremely low or very low income first-time homebuyers by:
· Producing, preserving, or rehabbing housing.
· Providing assistance with downpayments, closing costs, or interest rate buy-downs.
INELIGIBLE ACTIVITIES
· Housing Trust Fund money can not be used for project administration or outreach costs, but states can use up to 10% of their money for overall program administration costs.
· Counseling services, advocacy, and travel expenses are not eligible uses.
TENANT PROTECTIONS
All assisted projects must comply with:
· Laws relating to tenant protections and tenant rights to participate in decision making regarding their residences.
· Laws requiring public participation, including laws relating to the Consolidated Plan, Qualified Allocation Plan, and Public Housing Agency Plan.
· Laws about fair housing and accessibility to federally assisted housing, including “Section 504”.
DISTRIBUTING THE MONEY
HUD will distribute the money to states.
· States choose an entity (such as a housing finance agency or housing department) to receive and administer the money.
· These state entities can provide Housing Trust Fund money to “recipients” such as nonprofits, for-profits, or agencies.
Small states will get a minimum of $3 million.
It will be important for advocates to work at the state level to make sure that the Governor chooses the state entity that advocates think is the best for making the Housing Trust Fund work for extremely low income people.
ALLOCATION PLAN REQUIRED
Each year the state must prepare an “Allocation Plan” that shows how it will distribute the money that year, based on “priority housing needs”.
Public Participation
When coming up with an Allocation Plan, the state must:
· Notify the public that an Allocation Plan will be drafted.
· Provide the public an opportunity to make comments about the plan.
· Consider public comments.
· Make the completed Allocation Plan available to the public.
Required Contents of the Allocation Plan
The Allocation Plan must spell out the state’s process for seeking applications and then awarding Housing Trust Fund money.
HUD will come up with regulations which, according to the new law, will require state funding priorities to be based on:
1. Geographic mix.
2. Ability of a recipient to carry out activities in a timely manner.
3. How “affordable” rents are, especially for extremely low income people.
4. How long the rents will remain affordable.
5. Whether other funding sources will be used.
6. The “merits” of a proposed activity.
Advocates Must Monitor the State
Each year it will be important for advocates to work at the state level to:
· Make sure that the state agency responsible for drafting the Housing Trust Fund Allocation Plan writes it to meet genuine, high-priority housing needs of extremely low income people.
· Ensure that the Allocation Plan complies with the regulations, particularly regarding affordability for extremely low income people.
· Ensure that the public participation obligations are truly met, and that the state doesn’t just “go through the motions”.
ACCOUNTABILITY TO THE PUBLIC
Each state must send an annual report to HUD that:
· Describes the activities assisted that year.
· Shows that the state complied with its annual Allocation Plan.
This report must be available to the public.
A FORMULA WILL DECIDE HOW MUCH MONEY EACH STATE GETS
HUD will create a formula, based on needs, for getting money to each state.
There are five factors in the formula (each state is compared to the entire nation):
1. The shortage of standard rental units that are both affordable and available to extremely low income renter households. [See definition after #5] This factor must be given priority.
2. The shortage of standard rental units that are both affordable and available to very low income renter households. [See definition after #5]
3. The number of extremely low income renter households:
a. Paying more than 50% of their income for housing; or,
b. Living in overcrowded housing (more than one person per room); or,
c. Living in a place without complete plumbing or kitchen facilities.
4. The number of very low income renter households paying more than 50% of their income on rent.
5. The cost of construction.
Definitions:
· “Shortage” for extremely low income renters is the gap between:
o The number of extremely low income renter households, and
o The number of units that:
§ Have complete plumbing and kitchen facilities; and,
§ Have rent that is 30% or less of 30% of the area median income; and,
§ Are occupied by extremely low income people, or that are vacant.
· The definition of shortage for very low income renters is the same, except uses rent that is 30% or less of 50% of the area median income.
Use It Or Lose It
Housing Trust Fund money must be “committed” or used within two years of a state getting the money from HUD. If it isn’t, HUD recaptures the money and must reallocate the recaptured money with the next year.
Where Does The First Dedicated Source of Money Come From?
Each fiscal year, Fannie Mae and Freddie Mac must set aside 4.2¢ for every $100 dollars of new mortgages they buy.
o (The federal fiscal year starts on October 1.)
o (Fannie and Freddie are “Government Sponsored Enterprises” – “GSEs”. They buy mortgages from lenders and then bundle many mortgages together to sell as a package to investors.)
65% of the money from Fannie and 65% of the money from Freddie must be transferred to HUD for the Housing Trust Fund.
o The other 35% of the money from each GSE must be transferred to the Capital Magnet Fund, which will be run by the Treasury Dept. This money will be awarded to “Community Development Financial Institutions” to provide housing, economic development, and community facilities benefitting people with incomes below 80% of the area median income.
DIVERSION OF THE MONEY FOR THE FIRST THREE YEARS
For the first three years, the GSE money for the Housing Trust Fund will go to pay for a new foreclosure prevention program.
o 100% will be diverted in calendar year 2009.
o 50% will be diverted in 2010.
o 25% will be diverted in 2011.
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