Housing Briefs - May 21, 2010

State Updates

Senate Committee on Ways and Means Releases Budget; Affordable Housing a Priority

On May 19, Senate Ways and Means released its FY’11 budget proposal. The funding recommendations would provide appropriate levels of funding for several key affordable housing and homelessness prevention priorities. This includes $37.9 million for the Mass. Rental Voucher Program, $64.5 million for State Public Housing, and $1 million for RAFT.

Outside Section 25 of the budget also extends the Historic Rehabilitation tax credit for an additional 6 years. The financing incentive to help redevelop historic buildings is set to expire in 2011. The program is responsible for a significant amount of affordable housing and critical neighborhood redevelopment, especially in the smaller cities.

The Senate budget proposes to eliminate funding for the Massachusetts Accessible Housing Registry. Senator Pat Jehlen will sponsor an amendment to restore funding for Mass Access.

Click here for a summary of CHAPA budget priorities and their status in the budget process.

We would like to thank Chairman Steven Panagiotakos and the entire Ways and Means Committee for their commitment to expanding affordable housing and reducing homelessness.

The Senate will debate the budget between May 26 and 28. A Conference Committee will then resolve differences between the House and Senate budgets and send the Governor the FY’11 budget for approval in late June. Unlike the majority of states, Massachusetts has passed a budget on time throughout the current economic downturn.

DHCD Promulgates Affordable Housing Preservation Regulations

The Department of Housing and Community Development has promulgated regulations (760 CMR 64) to implement Ch. 40T, the Commonwealth’s affordable housing preservation statute signed into law in November, 2009. The regulations were filed as emergency regulations and are in effect. A public hearing will be held on Thursday, June 24, 2010, 11:00 AM - 12:00 PM, 100 Cambridge Street in Boston.

State Foreclosure Legislation Continues through Legislative Process

The House Committee on Ways and Means is currently reviewing legislation to provide relief to communities, homeowners, and tenants impacted by the foreclosure crisis (S. 2407). The legislation cleared the Senate in late April with a unanimous vote.

This week, the Warren Group reported that first quarter foreclosure deeds are up 36% over last year. Foreclosures continue to have a profound impact on neighborhood stabilization and threaten the Commonwealth’s housing and economic recovery.

Please contact your state representative and indicate your support for additional tools to prevent and mitigate the impacts of foreclosures in your community.

House and Senate Pass Municipal Relief Legislation; Include Local Tool to Finance Energy Efficiency

Each branch of the legislature passed municipal relief legislation which creates a local option for municipalities to issue bonds to finance energy efficiency and renewable energy projects in commercial and residential properties. The proceeds of the bonds are offered to homeowners as loans to pay for energy efficiency retrofits or heating/cooling system upgrades and repaid through a property tax assessment. The legislation is now before a conference committee as the branches resolve differences.

Time is Short for CHAPA 2009-2010 Legislative Priorities; 10 Weeks Left in Legislative Session.

Nine out of 11 of CHAPA legislative’s priorities have made it out of Committee, but there is significant work left to cross the finish line. Here is a quick update on several priorities:

S. 90 would stabilize the Community Preservation Act matching fund, clarify how funds for CPA housing can be used, and create a more flexible way for communities to adopt the Act. It is currently before the House Committee on Ways and Means.

H. 1235, technical legislation to clarify how condominium percentage interest in mixed-income associations may be determined, has been on the House calendar for several weeks, which is the last hurdle before advancing to the Senate.

H. 4544, the Public Housing Innovations Act, would create a pilot program for 10 housing authorities to allow innovative rehabilitation, supportive services, and management programs. It is before the House Ways and Means Committee.

H. 3572, legislation to modernize the Commonwealth’s zoning, planning, and land use statutes emerged from the Municipalities Committee this week.

H. 4342, legislation to coordinate the development of supportive housing, is being reviewed by the House Committee on Ways and Means.

Massachusetts Foreclosures Up 37% in 2010, Lenders Foreclosing More Quickly

Banker and Tradesman reported on May 18 that foreclosure deeds have risen by almost 37% in 2010 (January through April), compared to the same period in 2009 (4,821 versus 3,530), though petitions to foreclose rose by only 4% (9,008 versus 8,649). It also found that the average time it takes for a property to go from the initial filing to the auction stage has fallen to 138 days (4.6 months) for properties with initial petitions in November 2009, down from 234 days (almost 8 months) for petitions initiated in early 2008 before the 90-day cooling off period law went into effect and 8.5 months in early 2009. Auction notices in 2010 (January-April) are up by 148% compared to a year earlier. They note a number of possible explanations for the increase in foreclosure and auction activity, including lenders adjusting procedures to comply with the Land Court decision last year and greater willingness to begin moving the REO inventory to market.

On a more hopeful note, it also reported that the Mortgage Bankers Association’s delinquency survey found that the percentage of owners who are behind on their mortgages fell slightly in the first quarter of 2010 (to 8.83%), compared to the last quarter of 2009, though noting that a first quarter drop is common as owners fall behind during the holidays and catch up in the new year.

Federal Reserve Bank of Boston Updates Massachusetts Foreclosure Mapping Tool

The Federal Reserve Bank of Boston recently announced that its interactive mapping tool showing foreclosures, house-price changes, and subprime mortgages in Massachusetts cities and towns has been updated with 2009 data. The map shows changes in foreclosure rates and subprime mortgage originations since 1990 and their association with house-price changes.

Paul and Phyllis Fireman Foundation Releases White Paper on Transforming the Commonwealth’s Response to Homelessness

Dennis Culhane and Thomas Byrne have authored a provocative report on reforming Commonwealth assistance to homeless families. The white paper focuses mostly on reforming the Emergency Assistance program. While there does not appear to be consensus on the recommendations, the report continues an important discussion started with the 2008 Commission to End Homelessness report on how to switch from a shelter-based response to homelessness to a housing-based response.

CHAPA Completes Regional Meetings; Over 200 Attended in 9 Cities

CHAPA Staff recently completely our bi-annual regional meetings with CHAPA members and partners. This year, common themes included the need for new tools to address the foreclosure crisis, preserving budget programs that prevent homelessness, especially RAFT, preserving the Affordable Housing Law, the need for increased capital resources to produce and preserve affordable housing, and resolving barriers to using the Universal deed rider in HOME-funded projects.

At the Cape Cod regional meeting, we learned that housing groups are increasingly utilizing the USDA Rural Housing Programs for homeownership and we wanted to share this information. Residents of many Massachusetts communities may be eligible for assistance through the USDA Rural Housing Programs.

Federal Updates

Tax Extender Bill Back in House, Would Also Fund National Housing Trust

On May 20, the House Ways and Means Committee introduced an amendment to H.R. 4213, a bill previously approved by the House and Senate in March. The Committee has also posted a summary of the amendment online. The amendment, called the American Jobs, Closing Tax Loopholes and Preventing Outsourcing Act of 2010, would provide a one-time $1 billion to capitalize the National Housing Trust, along with $65 million for new project-based vouchers to be allocated to states for Trust-funded projects.

It also would modify the Trust Fund targeting language slightly, requiring that 75% of the units funded under the Trust Fund grant (rather than 75% of spending) benefit extremely low income or poverty level households. It again includes language to extend the low income housing tax credit exchange program to 2010 allocations.

Senator Maria Cantwell also introduced a bill on May 6 (S.3326, the Job Creation and Affordable Housing Act of 2010), that would extend the exchange program and expand it to include 4 percent credits. The bill is co-sponsored by Senators John Kerry and Barbara Boxer.

Draft Transforming Rental Assistance (TRA) Legislation Introduced by HUD

On May 18, 2010, HUD released its proposed draft authorizing legislation for the Transforming Rental Assistance (TRA) Initiative, along with a section by section summary. HUD also held a webcast on May 19 led by Secretary Donovan to discuss the bill and answer questions. The House Financial Services Committee will hold a hearing on TRA on May 25.

The bill, called the Preservation, Enhancement, and Transformation of Rental Assistance Act of 2010 (PETRA), would authorize $350 million in new funding to help public housing agencies convert up to 300,000 units of federal public housing and certain privately-assisted properties to long-term project-based rental assistance contracts or project-based voucher contracts. The rents paid under the contracts are intended to provide sufficient funds to leverage debt for needed capital improvements and cover operating costs.

Tenants in converted properties would also be able to request a housing choice voucher after two years if they wished to move (they could request it after one year if in a property using a project-based voucher contract). Converted public housing properties would be subject to a 30 year use restriction and receive a rental assistance contract with an initial term of 20 years, with options to renew for 10-20 more years at a time. Owners could not reject a renewal if offered unless HUD found a compelling reason to not renew.

In the event properties did not renew, HUD would have a right of first refusal to acquire the property. Owners of privately-assisted properties that convert would be allowed shorter contract terms (1, 5 or 20 years). Rents for contracts would be set case by case, starting with a determination of comparable market rents.

The bill includes a number of protections of affordability in the event of foreclosure. It also authorizes uniform resident grievance and other procedural rights for all households participating in HUD rental assistance programs.

HUD Issues 2010 Area Income Limits

HUD issued new median family income estimates and area income limits for Section 8 and public housing on May 14, effective immediately. The income limits for most income brackets increased slightly in most parts of the state, reflecting the 0.7% rise in the state median family income compared to 2009 (from $82,000 to $82,600). However, the 80% of median income limit for Greater Boston and several adjacent areas fell by 2.7% (from $66,150 for a household of four to $64,400 in 2010) as a result of a change in HUD rules.

HUD ended its “hold harmless” policy for income limits this year. That policy kept income limits from dropping even when area incomes declined and was originally instituted to protect allowed rents for low-income housing tax credit projects from later decreases. Congress made hold harmless statutory for the tax credit program, enabling HUD to examine whether hold harmless for its other programs still made sense.

After a period of public notice and comment, it ended hold harmless this year, replacing it with a new rule that sets limits on the amount by which income limits can change annually. Now annual decreases cannot exceed 5% and increases can’t exceed 5% (or twice the national change in median family income if higher). With the end of hold harmless, Greater Boston became subject to the statutory cap that does not allow local 80% limits to exceed the U.S. national median family income ($64,600) except in areas where rents are unusually high relative to incomes (Greater Boston doesn’t qualify).

Loss of Boston Area Difficult Development Area (DDA) Status Creates Financing Gap

Starting in January 2010, cities and towns in the Boston-Cambridge-Quincy Metro FMR area lost their designation as a HUD-designated Difficult Development Area (DDA). DDAs are metropolitan areas with high housing construction and operating costs relative to local incomes.

Developers of low income housing tax credit developments in communities in such areas are eligible for a 30% basis boost (a 30% increase in the value of their tax credits) compared to other areas, meaning the federal government pays a greater share of project development costs. By law, DDAs can not be home to more than 20% of the metropolitan area population nationwide and HUD selects areas with the highest rents relative to LIHTC income limits until it reaches that 20%.

States can make up for this loss in the case of projects using 9% credits since they have the authority to provide a basis boost of up to 30% on their own to selected communities or projects, but there is no such provision for projects using tax-exempt bonds and 4% credits. Massachusetts advocates are working on potential federal legislation that would add narrow language allowing projects in the works in 2009 that lost their DDA designation in 2010 to remain eligible for the boost if they close on their financing by 2010.

HUD Revises Notice on Rent Reasonableness for Enhanced Vouchers

On May 10, HUD issued a new notice PIH 2010-18 that revises an earlier notice (PIH 2009-15) regarding the rents that can be charged for enhanced voucher units in a property undergoing preservation or where there has been an opt-out or prepayment.

Enhanced voucher unit rents cannot exceed rents charged on “unassisted” units in a property. HUD’s original notice counted units as unassisted if they had below market rents as a result of a voluntary phase-in of rent increases for tenants without vouchers, thus limiting the rents that could be charged for enhanced voucher units to that level and the debt a project could support. The revised notice is the result of advocacy by CHAPA and several national groups, and allows those units to be treated as assisted if the owner provides certain documentation to the PHA.

HUD Requests Comments on Small Area FMR Demonstration Program

On May 18, HUD published a notice in the Federal Register announcing its intention to operate a demonstration program using small area Fair Market Rents (FMRs). The first PHAs would start October 1 and HUD plans to add more after January 1, 2011.

The demonstration is intended to make it easier for voucher holders to live in high opportunity areas and avoid over-subsidizing units in lower rent areas. HUD plans to eventually implement small area FMRs nationwide, if the demonstration shows they are feasible. It notes that small area FMRs may eventually make exception rents and 50th percentile FMR areas unnecessary. The notice asks for comments on the proposed program design and selection criteria. Comments are due by July 19.

HUD Announces Plan to Seek NSP Funding for High Foreclosure Neighborhoods

On May 17, HUD Secretary Shaun Donovan announced that HUD plans to work with Congress to find ways to increase funding for its Neighborhood Stabilization Program (NSP) and foreclosure prevention counseling and to assure that new resources are targeted to the hardest hit communities. To date, Congress has provided a total of $6 billion for NSP, including $3.9 billion in the first allocation (NSP1). All NSP1 funds must be committed by October of this year. HUD estimates that about $1 billion will be available for recapture and redistribution to high need locations.

In addition to seeking a new (third) allocation of NSP funds, Donovan said HUD plans to work with Congress on technical changes to improve the “flexibility and impact” of the program and on ways to help local grantees obtain more technical assistance.

Administration Releases April Data on HAMP Loan Modification Activity

On May 17, the Treasury Department and HUD released their monthly report on loan modification activity under the HAMP program and the New York Times noted several troubling trends, including a decline in new applications and a rise in cancellations of modifications.

As of April 30, about 295,000 households had active permanent loan modifications (up by about 67,000 from a month earlier). However, almost an equal number (281,000) of trial or permanent modifications have been cancelled since the program began (up by over 123,000 in April alone). In the meantime, new trial modification starts are falling – only about 47,000 started in April, down from 57,000 in March and over 150,000 last September.

In Massachusetts, the number of households with active modifications (trial or permanent) fell from about 23,300 at the end of March to about 21,700 at the end of April. HUD attributes some of the decline in new trial modifications to recent rules that require income verification before, rather than after, the start of a trial and expects trials to begin to rise again.

In releasing the April report, the Administration also announced that it will begin reporting in more detail on servicer performance starting in July. It noted that current reports continue to show wide variation among servicers in terms of the percentage of potentially eligible borrowers offered modification and the percentage of trials successfully converted to permanent modifications.

Recent Research

Out of Reach 2010

On April 21, the National Low Income Housing Coalition released its annual “Out of Reach” report outlining the housing affordability challenges facing residents across the U.S. The report compares the earnings of renters with rent costs nationally, by state and by metropolitan and non-metropolitan areas within states. Nationally, it found that rising unemployment and losses in the lowest-cost housing stock have increased renter cost burdens, particularly for extremely-low-income (ELI) households (71% spent more than half their income on rent in 2008).

In Massachusetts, it estimated that the average renter earns $18.20 (down from $18.42 in 2009) an hour and thus would need to work 51 hours a week – the same as the national average - to afford a two-bedroom apartment renting at the FMR ($1,215) or have 1.2 household members earning that wage. A minimum wage worker would need to work 2.9 full-time jobs to afford the same apartment at 30% income.

Study Finds Interest Rates Play Only Small Role in Housing Bubbles

A new policy brief published by Harvard’s Kennedy School of Government has found that low interest rates play a quite limited role in explaining periods of rapid increases in housing prices.

In “Did Credit Market Policies Cause the Housing Bubble?”, Edward Glaeser, Joshua Gottlieb and Joseph Gyourko found that a one percent swing in interest rates resulted in about an eight percent swing in housing prices between 1990 and 2008 and explained only about ten percentage points of the 74 percent increase in housing prices nationwide between 2000 and 2006. However, they also found that housing bubbles were larger in areas where natural or regulatory barriers limited new construction and that policies to address regulatory barriers, (including Chapters 40B and 40R in Massachusetts), can help moderate this.

At the federal level, they note that the weak link between interest rates and home prices suggests that reducing the federal home mortgage deduction (e.g. limiting it to a maximum of $300,000 in debt rather than a million) would not hurt demand and could help discourage people from taking on excessive debt.

New Fannie Mae Survey Finds Continued Desire for Homeownership but Greater Caution

Fannie Mae released the results this April of a national survey of attitudes toward homeownership. It found that two-thirds (65%) of respondents prefer owning to renting, though fewer see it as a safe investment relative to savings or money market accounts (70% down from 83% in 2003). It found that most respondents think housing prices will either increase next year (37%) or stay about the same (36%). It also found that most renters (79%) believe that renting has been positive for them, though 75% believe that owning makes more sense than renting over the long run. More respondents feel that it is harder to buy a home today than it was for their parents’ generation (60% compared to 49% in 2003) and two-thirds think homebuying will be even more difficult for the next generation.

Events

MHP Fourth Annual Massachusetts Housing Institute – Wednesday and Thursday, June 9-10, 9:00 a.m.-5:00 p.m. at Marriott Spring Hill Suites and Conference Center at Devens. Two-day intensive workshop designed for local officials, planners, housing committees, community preservation committees, housing trusts, and others who are working to provide housing options for their community. Day one (June 9) will include basic sessions that have been offered at previous Housing Institutes and day two (June 10) will include all new sessions.

CHAPA Breakfast Forum: Successful Revitalization Strategies in the Smaller Cities – Wednesday, June 2, 9:30 a.m.-11:30 a.m. at MassHousing, One Beacon Street, 29th Floor, Downtown Boston.