Administration Announces Steps to Increase Affordable Housing Supply

The Biden Administration on Wednesday announced a number of steps aimed at creating, preserving and selling to homeowners and non-profits nearly 100,000 additional affordable homes for homeowners and renters over the next three years, with an emphasis on the lower and middle segments of the market.

Steps include expanding the equity cap for Fannie Mae’s and Freddie Mac’s Low-Income Housing Tax Credit program, the largest federal program for construction and rehabilitation of affordable rental housing; and increasing funding to HUD Community Development Finance Institutions and non-profit housing groups for affordable housing production under the Capital Magnet Fund.

“The large and long-standing gap between the supply and demand of affordable homes for both renters and homeowners makes it harder for families to buy their first home and drives up the cost of rent,” the White House said in a statement. “Higher housing costs also crowd out other investments families can and should make to improve their lives, such as investments in education.”

“These actions will expand access to critical capital for state Housing Finance Agencies, empower local communities to build more affordable housing using the historic investments contained in the American Rescue Plan and advance equitable housing policies such as inclusionary zoning practices,” said HUD Secretary Marcia L. Fudge.

MBA President and CEO Bob Broeksmit, CMB, released the following statement on the Administration’s announcement:

“MBA strongly supports the administration’s efforts to increase the housing supply by encouraging the construction and rehabilitation of affordable apartments and homes for renters and first-time buyers.

“The lack of supply is a huge problem, and HUD and FHFA should do what they can administratively while Congress considers more significant initiatives. MBA looks forward to continuing to work with the administration, Congress, and all other stakeholders on ways to address supply constraints and ensure government programs appropriately complement private capital to help both renters and homeowners.”

Specific steps announced:

Boost supply of quality, affordable rental units by relaunching a partnership between the Department of Treasury’s Federal Financing Bank and HUD’s Risk Sharing Program to enable eligible state housing finance agencies to provide low-cost capital for affordable housing development;

Raising Fannie Mae’s and Freddie Mac’s equity cap for Low-Income Housing Tax Credits to $850 million; the previous limit was $500 million. The Federal Housing Finance Agency also announced it will increase the Duty to Serve rural/targeted investment requirement from 40% to 50% of each Enterprise’s total LIHTC investment capacity, or $425 million in targeted investment and $425 million in unrestricted investment.  

“Increasing the amount each Enterprise can invest in the LIHTC market, especially in areas that have difficulty attracting investors, will help expand the supply of affordable housing across the country.” said FHFA Acting Director Sandra L. Thompson.

“LIHTC investments are one of the most impactful tools we use to create and preserve affordable housing in underserved markets. Increasing the annual cap allows us to better address the affordable housing supply shortage for low- and very low-income families,” said Michele Evans, Executive Vice President and Head of Multifamily with Fannie Mae. “Since our return to the LIHTC market in 2018, we have been able to better serve the multifamily market and play an integral role in addressing our nation’s affordable housing crisis.”

“Freddie Mac has built a robust LIHTC Equity investment program, with more than 120 investments in 26 states and Puerto Rico and Guam since 2018,” said Debby Jenkins, executive vice president and head of multifamily for Freddie Mac. “This work has supported the preservation or creation of thousands of units of rental housing, meeting the needs of underserved communities throughout the country. FHFA’s announcement today will allow us to build on this work in the years to come and do so much more to meet the tremendous need for additional safe and affordable housing.”

Making more funding available to Community Development Finance Institutions and non-profit housing groups for affordable housing production under the Capital Magnet Fund.

Boost the supply of manufactured housing and 2-4 unit properties by expanding financing through Freddie Mac. This expands a program started in 2020 with Fannie Mae to accept loan delivery on single-wide manufactured housing.

Make more single-family homes available to individuals, families and non-profit organizations by prioritizing homeownership and limiting the sale to large investors of certain FHA-insured and HUD-owned properties, in addition to expanding and creating exclusivity periods in which only governmental entities, owner occupants and qualified non-profit organizations are able to bid on certain FHA-insured and government-owned properties.

Work with state and local governments to boost housing supply by leveraging existing federal funds to spur local action, exploring federal levers to help states and local governments reduce exclusionary zoning, and launching learning and listening sessions with local leaders.

Additionally, FHFA and HUD made the following supplemental changes:

Prioritizing Homeownership in Sale of FHA-Insured Properties: Consistent with the American Housing and Economic Mobility Act, HUD will develop guidelines over the next year that provides an exclusive listing period during which only governmental entities, non-profits, and owner occupant buyers may submit bids for these properties in the Second Chance Claims Without Conveyance of Title (CWCOT) sales. In addition, and also within a year, HUD is exploring setting a target of at least 50 percent of these properties each year being conveyed to governmental entities, non-profits, and owner occupant buyers. 

Promoting Sale of Distressed HUD Properties to Non-Profits: HUD is planning a sale of distressed single family notes this fall. This upcoming sale is currently projected to include mortgage notes for more than 1,700 single family properties. For this sale, HUD is exploring offering 50% of those notes to non-profit and community organizations that commit to rehabilitating, and then selling, the related properties to owner occupants or creating other positive outcomes for the communities.

Expanding the Exclusivity Period for HUD and the GSEs’ Real Estate Owned Sales: Currently, HUD, Fannie Mae and Freddie Mac have more than 12,000 single-family homes as part of their respective Real Estate Owned (REO) inventory. These homes were backed by FHA-insured mortgages, or Fannie Mae or Freddie Mac mortgages, and have since been foreclosed upon and were not sold at auction. FHA, in addition to the Enterprises at the direction of FHFA, will extend their existing “first look” periods to 30 days for the sale of all available REO properties. Currently, these “first look” periods generally range from 10-20 days. During the “first look” periods, only potential owner occupants and qualified non-profit buyers will be permitted to make a purchase offer.

“Extending the amount of time owner occupants have to bid on a REO property, without competition is especially important for neighborhood preservation while the supply of homes for sale is severely limited,” said FHFA Acting Director Sandra L. Thompson. “By providing greater access to affordable homeownership opportunities, expanding the First Look Program is one step in addressing the gap between the supply and demand of single-family homes.”  

Improving Outreach to Non-Profits for Real Estate Owned Sales: HUD will announce efforts to expand outreach to non-profit entities, local governments and other interested community organizations to further educate them on the note sales process for distressed properties. This will include a virtual note sales educational seminar around HUD’s upcoming fall single family note sale. Fannie Mae and Freddie Mac will continue to advance existing partnerships they have in place with non-profits focused on owner occupancy and neighborhood stabilization to complement the retail disposition of their REO properties.

Leveraging Federal Funding to Spur State and Local Action: To support state and local governments that receive flexible HUD block grant funding, HUD’s Office of Community Planning and Development will create a Housing Supply Toolkit that provides easy-to-implement strategies to deploy existing block grants and other resources to address supply and affordability challenges that have been deepened by the pandemic. In addition, HUD will form and support a cohort of communities working to address supply issues, helping accelerate their efforts to find solutions. In addition, the Interim Final Rule governing the American Rescue Plan’s $350 billion State and Local Fiscal Recovery Funds explicitly allows recipients (states, territories, Tribal governments, and localities, including cities and counties) to invest these funds in development and preservation of affordable housing, as part of the response to the public health emergency and its disparate impacts on certain populations and geographies.

Exploring Federal Levers to Partner with States and Local Governments to Reduce Exclusionary Zoning: FHFA announced it will conduct a study on the degree to which the Enterprises’ mortgage activity is concentrated in jurisdictions with exclusionary policies. The report will provide data on the demographic characteristics of homeowners whose loans are purchased by the Enterprises and the overall effect of these purchases in allowing localities to sustain restrictive zoning measures or helping to support localities enacting inclusionary zoning policies.

A fact sheet on the Administration’s actions can be found here.