Biden Admin Restarts Funding for Affordable Housing Mortgages
By Buzz Roberts, NAAHL President and CEO
Today, the Biden Administration announced that the Treasury Department will restart funding for HUD/FHA-insured “risk sharing” mortgages to build and preserve affordable apartments. The move achieves a high policy priority for NAAHL.
Expanding and preserving the supply of affordable housing requires a comprehensive suite of policy supports, including tax incentives and spending that Congress is actively considering in the current budget reconciliation bill being drafted, as well as administrative steps – including the HUD-Treasury partnership – that the White House is taking on its own today. Considered together, the Biden administration and Congress are poised to make a historic expansion of affordable housing, with meaningful benefits for more people and communities.
Under the HUD-Treasury partnership, state and local housing finance agencies (HFAs), including several NAAHL members, make affordable multifamily mortgages, which FHA insures. The Federal Financing Bank (FFB), an arm of Treasury, provides 30-40 year, fixed-rate funding at a 2.2-2.3% interest rate if committed in today’s market, enough to cover Treasury’s cost of funds. HFAs use the funds to make low-rate loans for affordable properties, keeping rents low and stretching other, more scarce federal housing subsidies.
Under the partnership, HFA lenders agree to cover 50% of any loss if a mortgage fails. It is this feature that gives the “risk-sharing” partnership its name. It also frees lenders to follow their own lending policies instead of the 955 pages of guidance required to obtain FHA insurance where lenders assume no risk – a major streamlining that speeds loan approvals, cuts costs, adds flexibility, and uses HUD staff efficiently.
The HUD-Treasury partnership was first started in 2015 after a successful initial test in rebuilding a major affordable housing property ravaged by Superstorm Sandy in New York City. The initiative committed $2.4 billion for some 25,000 apartments by the end of 2018, when the Trump administration halted the partnership despite spotless loan performance. FFB’s fast, reliable, and cost-efficient execution has proved the program works even for the smaller mortgages that urban neighborhoods and rural communities especially need but for which long-term, fixed-rate mortgages are hard to find.
The Biden administration expects to begin making new loan commitments October 1, the start of the new federal fiscal year, but HFAs can work with HUD immediately to start processing loans. The administration has promised to accept commitments for at least three years, plus additional time to close the loans. There will be no limit on the total volume of loans, which generate a small profit for HUD, during this period. The administration anticipates financing about 10,000 apartments annually.
The Administration will also open a process to consider improving HUD-Treasury partnership. Among other steps, NAAHL has recommended expanding the program to other lenders, including community development financial institutions and banks.