Housing Briefs - June 17, 2011

State Updates

HUD Announces Disaster Relief for Hampden and Worcester Counties

On June 15, President Obama declared Hampden and Worcester counties disaster areas as a result of the storms and tornadoes two weeks earlier and HUD Secretary Shaun Donovan announced that HUD will provide four types of assistance to help affected homeowners and low-income renters:

• Flexible use of CDBG and HOME funds to meet disaster needs: HUD will allow DHCD and entitlement communities to redirect their funds to meet critical housing and service needs and streamline program requirements to expedite the repair and replacement of damaged homes and rental units.
• Foreclosure relief through a 90-day moratorium on foreclosures on FHA-insured home mortgages (this applies to initiation of foreclosures as well as foreclosures already in process).
• Help for homeowners financing repairs or buying a new home through FHA mortgage insurance programs that will allow borrowers to finance 100% of the cost, including closing costs and to roll financing and repair costs into a single mortgage.
• Federal guaranteed loans under the Section 108 program that DHCD and entitlement communities can use to finance housing rehabilitation, repair of public infrastructure and economic development. Communities can borrow up to five times their annual CDBG grant, to be paid back from future CDBG annual grants.

Legislative Conference Committee Finalizing FY12 Budget

A six-person Conference Committee of state legislators is negotiating differences between the House and Senate budgets to finalize the legislature’s FY2012 budget and send it to the Governor for approval.

The House and Senate budgets contain a few notable differences in affordable housing, with most programs receiving level funding under both spending proposals.

Of the notable differences, the Senate budget, S. 1920, proposes cutting the Housing Consumer Education Centers by $118,000 (11%) and cutting funding for Service Coordinators in Public Housing by $25,000 (7%). The House budget, H. 3401 level-funds both program.

In addition, the Senate appropriation for MRVP is $100,000 lower than the House appropriation. However, the Senate budget would require a transfer from MassHousing to add $8.4 million to MRVP. It is less clear if the House budget would also require the transfer to be directed to MRVP.

The Senate budget also includes a requirement that any changes to Group Adult Foster Care rates are preceded by a 60 day notice to the Legislature. Advocates for seniors and persons with disabilities are concerned that the Patrick Administration plans on cutting GAFC this year, but both branches chose not to include definitive language preventing a GAFC cut.

Both budgets continue to fund Residential Assistance for Families in Transition (RAFT) at $260,000 and Public Housing Operating Subsidies at $62.5 million. These programs were cut in 2009 and the cuts have not been restored. These funding levels will be very difficult to manage in 2012.

We expect the budget to be enacted by the Legislature and sent to the Governor by the end of the month. Governor Patrick has 10 days to sign the budget and can choose to veto individual budget items.

Conference Committee Putting Finishing Touches on New HomeBase Program

As part of their FY 2012 budgets, the Massachusetts House and Senate both adopted the Patrick-Murray Administration’s HomeBase proposal to make housing assistance, not shelter, the primary response to assisting families that are homeless.

The two chambers agree on the following components of the HomeBase program, which will begin to be implemented in July:

• Families that face homelessness and are served with HomeBase short-term rental assistance may secure rental housing with the help of the regional nonprofits and Central Massachusetts Housing Alliance. These families will pay no more than 35% of their income towards rent and utilities when they are enrolled in the program. Families could also receive assistance of up to $4,000 to avoid homelessness if they don’t need continuous rental assistance. HomeBase assistance is capped at three continuous years.
• HomeBase-eligible families can earn no more than 115% of the federal poverty level, but if they are successful in increasing their incomes while utilizing the program, families could earn up to 50% of area median income without being terminated from the program.
• Families utilizing HomeBase will be assigned a stabilization worker and receive stabilization services. The program administrators will be able to subcontract with other service providers to assist with stabilization services.
• Families that seek HomeBase assistance must be provided with temporary housing or shelter while they wait to secure an apartment.
• Families with heads of households that adhere to their housing stabilization plan or are headed by a person with a disability or a senior may not be barred from shelter if they follow their housing stabilization plan.
• HomeBase rental housing should not exceed 80% of the Fair Market Rent, with some opportunity for flexibility if that maximum rent level is a barrier to securing housing.

While the House and Senate agree on the vast majority of program design components, there are a handful of sub-issues that the Conference Committee will need to decide how to address in the budget language. These include:

• Whether to add a category of eligibility for families that are at imminent risk of homelessness but not yet homeless that earn no more than 115% of the poverty level.
• How to determine flexibility on the maximum rental assistance payment.
• Whether to delineate the type of appeals process for families denied HomeBase assistance.
• Whether to stipulate that a state sanitary code inspection is required when leasing an apartment with HomeBase.
• Whether to stipulate when the start date for the 36 month cap on assistance begins.
• Whether to require reporting of the consequences of barring families from shelter for various reasons.
• Whether to offer direction on what should be included in implementing regulations.

The Legislature and the Patrick Administration have taken a thoughtful approach in advancing this new initiative and we are appreciative of their leadership, hard work, and attention to detail. This program will not end homelessness, but it will provide a crucial alternative to shelters, particularly hotels and motels. While we are concerned about funding levels for this program and many others, we are encouraged that HomeBase will be a cost-effective and valuable resource for families facing homeless.

Housing Committee Advances Public Housing Innovations Act and Supportive Housing Legislation

We are pleased to report that the Joint Committee on Housing has favorably reported the Public Housing Innovation Act, filed by Rep. Jeffrey Sanchez and Sen. Harriette Chandler. The House and Senate bills have been referred to their respective Ways and Means Committees.

H. 375 and S. 582 would provide public housing authorities with a tool to maximize resources available for rehabilitation of public housing, reduce and streamline regulatory and statutory requirements for public housing authorities, and encourage innovative designs to secure the long-term preservation of this important public resource. We encourage members interested in bolstering innovation and efficiency in state public housing to contact their state representatives to ask them to indicate support for the Public Housing Innovations Act, H. 375, to the House Ways and Means Committee.

We are also encouraged that the Housing Committee advanced An Act Relative to Community Housing and Services H. 368 and S. 607, filed by Chairman Honan and Senator Jehlen. This legislation is also headed to both House and Senate Ways and Means. The bill calls on the Administration to create an efficient and effective application process for creating supportive housing and sets a modest goal of 1,000 units of new supportive housing over the next 36 months. If members are interested in expanding supportive housing, they should contact their state senator and ask them to indicate their support for the Community Housing and Services bill, S. 607, to the Senate Committee on Ways and Means.

We would like to thank Chairman Honan, Chairman Eldridge and the entire Housing Committee for advancing these important priorities and look forward to working with the entire legislature to secure passage this year.

Bill to Boost Community Preservation Act Advances

Chairman Sal DiDomenico and Chairwoman Linda Dorcena Forry, and the Community Development Committee recently offered a favorable report to An Act to Sustain Community Preservation, H. 765 and S. 1841. The bill is now before the House Committee on Ways and Means.

An Act to Sustain Community Preservation would provide a higher CPA state trust fund match for each CPA community. In addition, it would broaden participation in CPA by making it easier for cities and less affluent communities to join, and clarify allowable uses of CPA funds, including programs that assist households with the high cost of housing.

We are grateful for the Committee’s support and encourage interested members to alert their Representative of this positive news and ask that they write to the Speaker to reiterate their support for the legislation.

HUD Announces Fiscal Year 2011 Income Limits

On May 31, HUD announced its FY2011 income limits effective immediately. These are the area median income (AMI) limits used for most federal and state housing programs. (The limits for 50% and 60% AMI are slightly different in some areas for the federal Low Income Housing Tax Credit [LIHTC] program and the tax-exempt bond program because they are protected by a federal “hold harmless” law.)

HUD’s estimate of the statewide median family income rose to $84,900, up from $82,600 in FY2010 and the FY2011 income limits for 30%, 50% and 60% of AMI are higher than the FY2010 limits in all areas of the state except in the New Bedford region (there limits declined across the board by 5% due to updated median family income data) and Eastern Worcester county. However, the 80% limit declined slightly in Greater Boston and the North and South Shore (from $64,400 to $64,200), because of a statutory requirement that a local 80% limit cannot exceed 100% of the national median family income unless the new limit would make it very difficult to afford local rents.

HUD’s website has a look-up function with detailed documentation on how the limits are calculated for each area. CHAPA also has an explainer, illustrating how HUD calculated the 2011 limits for the Boston-Cambridge-Quincy area calculations

MACDC Releases Report on Economic Impact of CDCs

The Massachusetts Association of Community Development Corporations recently released a report on Massachusetts CDC progress from 2007 to 2010. Highlights include the following:

• CDCs built or preserved 5,162 homes over the past four years, including 1,180 in 2010.
• CDCs assisted 6,422 entrepreneurs to start, grow, or stabilize their businesses over the past four years, including 2,128 in 2010.
• CDCs supported 140,112 families with housing, jobs, foreclosure prevention counseling, homebuyer education and other services over the past four years, including 38,359 in 2010; and
• CDCs attracted almost $1.1 Billion in both public and private investment to support their community improvement efforts over the past four years.

The report was released at the June 1st State House hearing on the Community Development Partnership Act, a new bill that would generate private investment in high-impact community development initiatives across the state.

Community Preservation Coalition Announces Nomination Process for Robert Kuehn Awards

The Community Preservation Coalition (CPC), of which CHAPA is an active member, has announced round two of The Robert Kuehn Community Preservation Awards.

The CPC will be honoring ten individuals who have been significant contributors to the success of the Community Preservation Act (CPA) during its first decade: heroes of community preservation, whose work best exemplifies the spirit of Bob Kuehn's legacy.

The Robert Kuehn Community Preservation Awards were developed to honor the memory and leadership of former CHAPA President and Coalition Steering Committee member, Bob Kuehn. Bob was actively involved in the process of drafting and passing CPA, and served as Vice Chair of the Steering Committee until his death in 2006. He was a pioneer in revitalization of historic buildings for use as mixed-income housing, among other major achievements.

To learn more about the awards program, including how to nominate your Community Preservation Hero, click here.

Affordable Housing Development Competition Brings Together Students and Community Groups

The 11th annual Affordable Housing Development Competition conducted its awards ceremony in May. The student teams matched with the following developers were the winners in the Competition: first place, Viet-Aid; second place, Somerville Community Corporation; third place, Jewish Community Housing for the Elderly. Students from Harvard, MIT, Tufts, and the Boston Architectural College participated. Other participating developers included Asian CDC, Cambridge Housing Authority, Caritas Communities, Metro West Collaborative Developers, and Olneyville Development Corporation in Providence.

The annual competition is co-sponsored by CHAPA, the Federal Home Loan Bank of Boston, Boston Society of Architects/AIA, Kevin P. Martin & Associates, ICON Architecture, and Shepley Bulfinch.

Federal Updates

House Considers Bill to Transfer Rural Housing to HUD and Tighten FHA Loan Standards

The House Financial Services Subcommittee on Insurance, Housing and Community Development held a hearing on May 25 on a draft bill that would transfer all of the Department of Agriculture’s Rural Housing Service (RHS) functions and staff to HUD within 18 months of enactment. The bill would also require RHS to charge guarantee fees for Section 538 multifamily rental housing loans.

Speakers at the hearing had mixed reactions to the proposed transfer, with some citing a 2000 GAO report that found both potential benefits and challenges. Speakers supported mandatory guarantee fees as a way to keep the Section 538 program going by making it self-supporting.

The FHA portion of the bill would raise the minimum downpayment for an FHA-insured home loan from 3.5% to 5%, prohibit financing of closing costs and require a minimum FHA mortgage insurance premium for 1-4 unit homes of at least 0.55% of the outstanding loan balance (currently there is no statutory minimum) and set a maximum of 1.5%. It would also change the 203(b) mortgage, setting it by county rather than by metro area and revise the single family limit to the lower of 125% of the single family median price (rather than 115%) or 150% of the conforming loan limit and removing the current national floor 65% of Fannie Mae/Freddie Mac conforming loan limits.

It would also establish minimum capital ratios for the FHA insurance funds for multifamily housing and health care facilities similar to those required for the single family insurance fund (the Mutual Mortgage Insurance Fund), requiring those funds to reach a ratio of 1.25% in two years and 2% in 5 years. Several speakers at the hearing testified against the proposals, arguing that the FHA is already adequately capitalized and that new capital ratios and minimum premiums were unnecessary.

House Subcommittee to Hold Hearing on new Section 8 Reform (SEVRA) Bill

The Housing Financial Services Subcommittee on Insurance, Housing and Community Development has scheduled a hearing next week on June 23 on the Section 8 program. The Subcommittee released a discussion draft of its own Section 8 Voucher Reform bill, called the Section 8 Savings Act of 2011, on June 16.

HUD Responds to Negative Washington Post Report on HOME Program

On May 15-16, The Washington Post published two articles (“Million Dollar Wasteland”) that strongly criticized HUD’s HOME block grant program based on a small number of stalled developments. The stories stated that HUD “looks the other way” when projects run into problems, that it failed to rescind funds and that HOME had created “a trail of failed developments.” HUD, national and local housing advocates including the National Housing Conference and CHAPA quickly responded, noting the program’s strong record of accomplishment and the fact the 97.5% of projects were timely. The House Financial Services Committee held a hearing on June 3 to take testimony from HUD on the program.

Federal Reserve Extends Comment Period for Risk Retention/QRM Rule

Two interrelated rules on mortgage underwriting were proposed this Spring by federal regulators to implement provisions of the Dodd-Frank Act. The proposed ability-to-repay rule will apply to all mortgage loans and implements the new requirement that lenders cannot make a loan unless they have verified the borrower’s ability to repay it. Comments are due July 22. The proposed credit risk retention rule applies to private mortgage backed security issuers and comments are due by August 1.

Under the ability-to-repay proposed rule, issued in mid-April, a creditor cannot make any loan secured by a dwelling until it has verified and documented that the borrower has the capacity to repay the loan. Borrowers have up to 3 years to seek damages if they can prove noncompliance and can use noncompliance as a defense against foreclosure at any time. As detailed in a Federal Reserve summary, the rule proposal does not apply to home equity lines of credit, reverse mortgages, time share loans or temporary loans (up to 12 months).

To encourage lenders to issue less-risky mortgages, the Dodd-Frank Act proposed giving lenders a stronger “presumption of compliance” with the ability to repay rule if the mortgage was a “qualified mortgages” (QM). The draft defines a QM as a mortgage that lacks negative amortization, interest-only or balloon payments, has a maximum term of 30 years and points and fees of no more than 3% of the loan amount. It also allows balloon mortgages that otherwise meet QM standards in rural or underserved areas and streamlined standards for refinancings from high-cost to standard loans.

For non-QM mortgages, the lender must verify and document 8 underwriting factors, including income, current employment status, payment amounts, and debt obligations. The draft rule seeks comments on many details, including calculation and documentation methods, the definition of QM, whether QM should have the same verification and documentation requirements as non-QM mortgages and whether the presumption of compliance for QM mortgages should be rebuttable. If rebuttable, there is some concern that lenders will not be motivated to issue QM.

The risk retention rule requires that private mortgage securitizers (other than the GSEs) have “skin in the game” by retaining at least 5% of the credit risk. However, to encourage issuers to support mortgages with better underwriting and less risky features, the Act provided that “qualified residential mortgages” (QRM) would be exempt from 5% retention. The proposed rule’s definition of QRM, however, has been widely criticized as overly strict. To qualify, the mortgage must be a QM (see above), be made to borrowers with a good credit history, have at least a 20% downpayment if a purchase mortgage and have debt to income (DTI) ratios not exceeding 28%/36%.

Critics are urging a more flexible definition, arguing that lower down payments and higher DTI ratios have little impact on credit risk, after considering credit history, mortgage features and ability to repay. They argue that the proposed definition will exclude many creditworthy buyers including a disproportionate number of minority buyers, because securitizers will be reluctant to purchase non-QRM mortgages. Others have argued that non-QRM mortgages are likely to be widely available and that the cost of 5% risk retention will add only 10-20 basis points to a mortgage. Many have pointed out that uncertainty over the future role of the Fannie Mae and Freddie Mac make it difficult to project the likely impact of the proposed rule.

Foreclosure Updates

MHP Foreclosure Monitor Predicts Rise in Foreclosures in 2011, Slow Housing Recovery

The June 10 issue of the Massachusetts Housing Partnership (MHP) Foreclosure Monitor predicts that full recovery of the housing market in Massachusetts is unlikely until at least 2014 due to weak job growth and housing demand. Massachusetts has only regained 66,900 of the 143,000 jobs lost since March 2008 and the weak economy continues to put pressure on at-risk owners and limit housing demand. Home prices remain weak and there is a large shadow inventory of homes in the foreclosure process but not on the market.

The Monitor expects foreclosures to rise in 2011, compared to 2010, as a backlog of cases created when changes in state law and lender practices caused a temporary slowdown are now proceeding. Two factors caused the temporary slowdown – a new state law that went into effect on August 1, 2010 extending the right to cure period by 60 days (90 to 150) and the slowdown in foreclosures that occurred as lenders re-reviewed their paperwork after the October 2010 robo-signing scandal.

Currently about 21,000 owners are somewhere in the foreclosure process, while an estimated 47,000 to 56,000 homeowners are seriously delinquent (90+ days) on their mortgages but not yet in the foreclosure process. An estimated 320,000 households have negative equity, making them vulnerable to income shocks.

GAO and Federal Reserve Surveys of Counselors Highlight HAMP Servicer Problems

On May 26, the Government Accountability Office (GAO) issued its fourth report on the Home Affordable Modification Program (HAMP), detailing the results of a survey of National Foreclosure Mitigation Counseling Program counselors on their experiences working with borrowers seeking HAMP assistance between June and late October 2010. The authors noted that while they can’t be sure that their findings are representative of the experience of all borrowers, the data provides at least a perspective.

Overall, the survey found a high level of borrower frustration with servicers related to lost paperwork, frequent requests for updated financial information, waits for decisions on applications for trial modifications far in excess of Treasury Guidelines, and denials as a result of servicer miscalculations. Three quarters (76%) of the counselors characterized borrower experiences with the program as negative (43%) or very negative (33%).

Asked how Treasury could improve HAMP, 60% said it should enforce sanctions on servicers for non-compliance and 51% said it should require servicers to make more timely decisions. It noted that Treasury has implemented several initiatives to address some problems in the seven months since the survey was completed, but that problems remain. A 2011 Federal Reserve Bank of Boston survey of Massachusetts counselors confirms this: decisions took 60 days rather than 30 days and paperwork losses were still frequent.

HUD Withholds Payments from Largest HAMP Servicers

As part of their monthly report on HAMP, HUD and Treasury announced that 699,053 households had active permanent loan modifications as of April 30, up by about 29,000 from a month earlier. These totals include 15,303 households in Massachusetts, up 565 from a month earlier; another 3,072 Massachusetts borrowers had active trial modifications.

The report also details its performance assessments for the 10 largest servicers during the first quarter of 2011. The assessments found the same types of problems noted in recent counselor surveys (see above). Four – including the three largest servicers (Bank of America, J.P. Morgan Chase, and Wells Fargo) - were found to need substantial improvement and the other six to need moderate improvement. HUD announced that it would withhold HAMP incentive payments to the three large low performers (Ocwen received an exception) until they improved their performance.

Recent Research

State of the Nation’s Housing 2011 Finds Affordability Problems Up, Recovery Slow

The Joint Center for Housing Studies of Harvard State of the Nation’s Housing 2011 report, issued earlier this month, finds great uncertainty regarding the pace of recovery in the housing market. High foreclosure inventories and a slow pace of household formation, due to the economy, are limiting demand and home prices and it is difficult to predict when that will change.

The rental housing market is likely to recover sooner, due to low inventory, while demand for ownership units remains low. It also found that housing affordability problems are rising up the income scale, as the percentage of households in the cost burdens above 30% in the middle income brackets has risen. The report notes that the pace of recovery is likely to vary among local markets, depending on both rates of job growth and the extent of excess inventory.