FHA Mortgage Guide

The following news release has just been distributed by the House Financial Services Committee:

Washington, DC — The U.S. House of Representatives today passed H.R. 2895, the National Affordable Housing Trust Fund Act of 2007 by a vote of 264 to 148. The National Affordable Housing Trust Fund will be the largest expansion in federal housing programs in decades, with a goal of producing, rehabilitating and preserving 1.5 million housing units over the next 10 years. The bill as will initially allocate between $800 million and $1 billion annually directly to states and local communities, without increasing government spending or the federal deficit.

“The National Affordable Housing Trust Fund addresses the affordable housing crisis as it affects every level of society. Right now, housing costs are outstripping wages for more households than ever before, and working is simply no longer a guarantee of being able to afford housing” said Rep. Maxine Waters, Chairwoman of the Financial Services Subcommittee on Housing and Community Opportunity. “It has been seventeen years since the federal government last enacted a major affordable housing production program, and I am pleased that this legislation will tackle the full range of housing crises, providing relief to overburdened renters and homeowners while targeting funds where the need is greatest.”

“The growing shortage of affordable housing is one of the most serious social and economic problems facing our country. Given our severely constrained fiscal realities, we are today doing the best we can to address this – creating a low income housing trust fund that will be paid for in ways that do not draw from federal tax revenues,” said Rep. Barney Frank, Chairman of the House Committee on Financial Services.

The National Affordable Housing Trust Fund is an important step in addressing the affordable housing crisis in our country. Over the last several years, many people purchased homes with mortgages they could not afford because they believed it was one of the few avenues to achieving a decent place to live. In addition to the trust fund, the House of Representatives passed last month, H.R. 1852, the Expanding American Homeownership Act of 2007, to reform the Federal Housing Administration (FHA), which will enable the program to serve more subprime borrowers at affordable rates and terms, recapture borrowers that may have received risky loan products in recent years, and offer refinancing opportunities to borrowers currently struggling.

Additionally, on May 23, 2007, the House passed H.R. 1427, reforms of the Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac, and the Federal Home Loan Bank system, allowing these entities to purchase more loans in higher cost areas (lowering interest rates for new homes and refinances in those areas). The bill also seeks to increase liquidity now by asking federal regulators to reconsider artificial restrictions on the number of loans that the GSEs can own.

Summary of the National Affordable Housing Trust Fund Act

Funding of the Trust Fund: The goal of the Trust Fund is to construct, rehabilitate, and preserve 1,500,000 units of housing over the next 10 years. The bill seeks to accomplish this with funding from the proposed GSE Affordable Housing Fund (H.R. 1427), FHA savings that result from the enactment of the Expanding American

Homeownership Act (HR 1852), and any other sources of funds subsequently identified.

Formula under the Trust Fund: 60% of monies will go to participating local jurisdictions and 40% to states, Indian Tribes and insular areas. A proportionate amount of funds to States must go to rural areas in each State. If the total amount available in any year is less than $2 billion, there is a $750,000 minimum funding threshold for local jurisdictions.

Targeting under the Trust Fund: All Trust Fund monies must be used for low income families (below 80% of state or local median income), except that this income ceiling is reduced to 60% of local median income if annual funding in any year is less than $2 billion. At least 75% of funds must go to extremely low-income families (below 30% of median income or below the national poverty level). At least 30% of funds must go to families with incomes below the SSI income limit. In addition, at least 10% of funds must go to families with incomes over 50% of the local area median income.

Eligible Recipients of Trust Fund Monies: States, participating local jurisdictions, and insular areas are required to make Trust Fund grants to eligible recipients, which can be any organization, agency, or other entity, including for-profits, nonprofits, and faith-based organizations, that have demonstrated the experience and the capacity to carry out the proposed Trust Fund activity. HUD allocates grants to Indian tribes by competition.

Eligible Uses of Trust Fund Monies: The bill would allow Trust Fund monies for construction, rehabilitation, acquisition, preservation incentives (including for manufactured housing and community land trusts) and operating assistance to facilitate affordability. Funds may be used for both rental housing that is affordable and for down payment and closing cost assistance by first time homebuyers.

Prohibited Uses: The bill includes prohibitions against any funds being used for administrative costs or expenses, political activities, advocacy, lobbying, counseling, travel expenses, and preparation of or advice on tax returns. In addition there is a requirement that grantee develop systems to ensure program compliance, and require annual state fund use reports, and authority for HUD to impose penalties on states that do not comply with requirements, including requiring states and grantees to reimburse misused funds.

Matching Requirements of the Trust Fund: The bill requires a match for Trust Fund dollars equal to 12.5% if provided from state, local and private resources or 25% if provided from federal sources. Up to 33% of this match may be provided through binding commitments to provide services for residents. The match may be reduced or waived where a zoning variance or other waiver of regulatory barriers was required to site Trust Fund-assisted housing.

Check out these FHA resources for more information

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