ShareOn September 1, 2021, the Biden Administration announced a joint effort by the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA) to increase housing supply at the entry level of the market. The effort will focus on entry-level and affordable unit production and “will create, preserve, and sell to homeowners and non-profits” as many as 100,000 units over the next three years.
For its part, the FHFA announced three important changes to support an expansion of housing supply:
- First, an increase in the cap on capital investments that the GSEs can make directly to construction projects in the form of LIHTC bonds. The annual cap was raised 70%, from $500m to $850m, but any annual investments over the $425m must be in areas having trouble getting investors and targets the GSEs duty to serve mission such as rural, low-income, and manufactured housing.
- Second, the GSEs must now allow for 30 days, a 50% increase from 20 days, for current homeowners to buy back their home after foreclosure. Non-profits and community groups are also allowed to purchase these properties during this period.
- Finally, the FHFA indicated that it will look at the interaction of the GSEs and Federal Home Loan Banks with local zoning issues in the areas they provide financing.
The expansion of investments in LIHTC will help to expand affordable rental supply, while the extension of the look-back period will help to keep foreclosed properties in the owner-occupied portion of the market rather than bought up by large landlords. Local zoning issues are widely regarded as the primary impediment to expansion of the housing supply.
The higher cap on LIHTC investments allows the GSEs to invest more of their profits in charter duty obligations. However, as the GSEs increase these investments, it will be harder for them to meet investors’ expected returns on equity (ROEs) and fund non-housing fees on GSE production (e.g. the current infrastructure bill in congress).
HUD will also be taking several steps to improve the current housing supply for the benefit of owner-occupants:
- HUD will revise the Federal Housing Administration (FHA) Second Chance Claims Without Conveyance of Title (CWCOT) sales program, in which servicers can sell their FHA-insured foreclosed properties directly to third parties with FHA paying the claim, so that government entities, non-profits, and owner-occupiers may submit bids for these properties during an exclusive listing period, rather than purchase by large investors who turn these homes into rental properties. HUD is hoping to ensure that at least 50 percent of these properties will be purchased by governmental entities, non-profits, and owner-occupant buyers with the intention of keeping these homes as owner-occupied.
- HUD plans to focus the bulk sale of distressed properties to non-profit and community organizations that commit to rehabilitating, and then selling, the related properties to owner-occupants. HUD’s goal is to have 50 percent of the sales earmarked for resale to owner-occupying borrowers, non-profits, and community organizations, ensuring expansion of housing inventory for potential homebuyers rather than for large investors.
- Similar to FHFA, FHA will extend the existing REO “first look” sale periods from 10-20 days to 30 days for either potential owner-occupants and qualified non-profit buyers.
- HUD’s Office of Community Planning and Development will create a Housing Supply Toolkit that demonstrates how existing block grants and other resources can be used to improve housing supply and affordability issues.
NAR has long advocated for similar improvements to the sale of distressed FHA and GSE properties. Ensuring homes remain with owner-occupants rather than being turned into rental housing by large-scale investors helps families grow wealth, benefiting the individuals and their neighborhoods and communities.
In addition, FHA and the Department of Treasury will be taking steps to improve rental supply in communities. FHA intends to restart the Section 542 (c) Housing Finance Agency Risk-Sharing Program with the Department of Treasury’s Federal Financing Bank. The risk-sharing program will provide low-cost capital for the development of rental housing in cooperation with state Housing Finance Agencies (HFAs). HFAs may submit applications through September 2024. Unlike previous risk-sharing programs, there is no dollar cap so FHA can insure all eligible mortgages.
Finally, the White House, HUD, and FHFA will bring together state and local officials and stakeholders for a series of learning and listening sessions to share best practices on ways to improve supply and affordability and identify obstacles that continue to prohibit implementation, such as addressing zoning issues. The first session will be hosted by FHFA in September and focus on accessory dwelling units.