USDA Rural Housing Bill Passes; Low-Income Rental Legislation Advances

by devteam July 30th, 2010 | Share

One government housing programrnthat had run out of funds months ago was revived by Congress yesterday, andrnanother bill targeted at low-income rental housing moved a step closer tornapproval.</p

The Senate yesterday passed HR 4899 to reestablish the popular U.S. Department of Agriculture Single-FamilyrnHousing Guaranteed Loan Program (Section 502 Housing) as a self-sustainingrnprogram. Also, the House Financial Services Committee approved H.R.4868, thernHousing Preservation and Tenant Protection Act of 2010 which aims to stem thernloss of affordable rental housing units and prevent the displacement ofrnlow-income tenants.</p

The Rural Housing program had runrnthrough its $13.1 billion funding by early this year and many buyers hoping tornfinance home purchases using Homebuyer Tax Credits were unable to close theirrnloans.  Depleted funding has been arnnearly annual occurrence for the program that guarantees loans for single familyrnhomes in designated exurban and rural areas. rnThe new legislation will end the annual uncertainty by putting thernprogram on a self-funding basis through enacting a 3.5 percent guarantee feernpaid by the borrower.  The fee, whilernsubstantial, can be included in the total amount financed.</p

Senator Michael Bennet released the following statement, “The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. The bill would also enable the Rural Housing Service to waive these fees for low-income borrowers for up to $679 million in loans. Together, these changes will enable the USDA-Rural Development's Rural Housing Service to continue offering loan guarantees through the duration of the year and to become self-funding.”</p

Despite the low down paymentrnrequired to participate in the program, it is generally considered to be a goodrnrisk by lenders because of the 90 percent government guarantee and because thernloan size is limited to 115 percent of the area's median income.  This keeps the loans small; the average loan sizernis $112,000. Last year the foreclosure rate for these USDA loans was a reportedrn1.72 percent compared to 3.32 percent for Federal Housing Administration loans.</p


The bill, which was stronglyrnsupported by the National Association of Realtors® and Mortgage News Daily, nowrngoes to President Obama for signature. As we went to press, USDA had notrncommented on the action and we are still waiting for guidance from lenders.</p

H.R. 4868 was approved by thernHouse Financial Services Committee Thursday, and passed on to the full Housernfor consideration.  It is designed tornprevent the loss of rental housing units from the pool subsidized by HUD forrnlow income tenants.  According to the bill'srnsponsor, Committee Chairman Barney Frank (D-MA), approximately 1.7 millionrnrental units in over 23,000 privately owned properties are subsidized by HUDrnthrough various programs, some of which have existed since the 1950s.  The Government Accountability Office (GAO) sixrnyears ago projected that over 193,000 units could convert to market-rate housingrnin the following 10 years as their HUD mortgages matured.  These mortgages carry rental costrnrestrictions which would also disappear, enabling the owners to convert unitsrnto market rates or even to condominiums.  While some of the tenants in those units wouldrnbe sheltered from big rental increases by existing protections such as enhancedrnvouchers, GAO estimated that approximately 200,000 tenants in 101,000 unitsrnmight face rent increases or eviction. The bill establishes several mechanismsrnto keep these units affordable.  </p

Grants and loans will bernavailable to both for- and non-profit housing sponsors to recapitalize the propertyrnand keep it affordable and the bill will establish a voluntary PreservationrnExchange Program to encourage owners to sell to purchasers who will keep the propertyrnaffordable.  State housing agencies willrnhave a right of first refusal to purchase a property that the owner wishes tornsell as it comes out of the HUD program. rnA right of first refusal does not prevent the seller from accepting arnbetter offer.  </p

The legislation would permitrnproperty owners to request project-based assistance in lieu of enhancedrnvouchers if that would help keep the project affordable or assist with capitalrnfor rehabilitation and ensure that tenants are not displaced.  Owners will also be able to receivernbudget-based rent increases as an incentive to renew Section 8 contracts andrnkeep the property maintained.</p

In the event that housingrndoes convert to market-rate rentals, the legislation will close gaps inrnexisting laws to make sure existing tenants are eligible for enhanced vouchersrnto prevent displacement and includes notification requirements to ensure thatrntenants have time to plan for alternative housing. </p

The law has specificrnprovisions for both elderly and rural housing. rnIt will give HUD and affordable housing providers assistance inrnrecapitalizing the aging Section 202 elderly housing portfolio and enablesrntenants to be partners with HUD and the Rural Housing Service (RHS) to ensurernthat housing is properly maintained.  Arnrural housing revitalization demonstration program initiated in 2006 to preservernand recapitalize Section 515 properties will be made permanent and the bill extendsrnthe above provisions for HUD-assisted housing to tenants in RHS-assistedrnmultifamily properties.</p

Finally, the law directsrnHUD to establish a nationwide database of HUD and RHS assisted properties sornthat the public and policymakers can more effectively monitor and preserve thernexisting portfolio of affordable housing. A vote on H.R. 4868 on the House floor has not yet been scheduled. READ MORE

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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