Topics
	Affordable Housing Saved Through Mark-Up to Market
	HUD Streamlines Subsidy layering Review Process
	GSE Forums Discuss Affordable Housing Goals
	Neighborhood Watch System Helps Monitor FHA Lenders
	HUD, Mortgage Bankers Caucus on Homeownership
	Program Updates

Calling the fiscal year 2000 budget, "The best HUD budget of the Clinton Administration," Secretary Cuomo said that by offering the mark-up option, "we (also) adverted a crisis of affordable housing."

Mark-up to market assistance is being offered to owners of well managed and well maintained properties as an incentive not to abandon the Section 8 program because subsidies fall below rents available in the private market. The FY 2000 budget adds measures that will aid the preservation of affordable housing stock.

The potential for increased rental income in the private market contributes to the decision of some landlords to opt-out of the Section 8 program when their contracts are eligible for renewal. This trend, according to Assistant Secretary for Housing William C. Apgar, threatens the best affordable housing. "The latest data show that 90 percent of the subsidized units in properties whose owners say they will likely opt out are located in low-poverty neighborhoods, where good housing also brings better opportunity—more jobs, better schools, and less crime." These landlords instead choose to convert their properties to market-rate, unsubsidized housing.

HUD will be required to mark-up to market properties owned by for-profit entities in tight rental markets that are in good condition and not subject to use restrictions.

The mark-up to market initiative targets properties in high-rent areas because owners of such properties are the most likely to opt-out. To be eligible, a project’s current rents must exceed 110 percent of fair market rents and cannot be marked up more than 150 percent of fair market rents.

In FY 2000, the mark-up to market program was opened up for nonprofit transfers even if the property does not meet the standard eligibility criteria.

For more information on the Mark-Up to Market program, contact the Multifamily Office of Business Products, at (202)708-3000 or visit HUD’s website www/hud.gov/fha/mfh/mfhsec8.html.

HUD Streamlines Subsidy Layering Review Process

HUD headquarters staff negotiated a Model Memorandum of Understanding with the National Council of State Agencies for the assumption of responsibility for subsidy layering. The Kentucky HUD Office was the first office to implement the Model Memorandum of Understanding that was transmitted in late September 1999.

Charles Shive, Director of the Multifamily Program Center at HUD’s Kentucky State Office and F. Lynn Luallen, Chief Executive Officer of the Kentucky Housing Finance Agency signed the agreement in October 1999. Shive credits the speedy formalizing of this agreement to the longstanding relationship between the two agencies. He further stated that formalizing the agreement with an MOU strengthens our partnership with them and lets our stakeholders know that HUD is serious about building more affordable housing.

Field offices typically conduct a review of each affordable housing project that uses the tax credits. The MOU places the responsibility for conducting the subsidy layering review for projects with Low Income Housing Tax Credits (LIHTCs) on the State HFA. Subsidy layering (using a combination of funds from more than one source to build affordable housing), is not a new concept, but when combined with LIHTCs, it may result in excessive use of Federal funds for a project and windfall profits for the developer.

Under the Tax Reform Act of 1986, Congress created the LIHTC program to increase the supply of primary tax incentives for stimulating development of low-income housing. Tax incentives serve as a major source of encouragement for developers to build affordable housing projects and HUD provides subsidies or assistance to these properties. When LIHTCs were used with other forms of subsidies such as loans, grants, or insurance, tax credit proceeds often became windfall profits for the developer, a profit disproportionate to the risk or investment.

As a result, HUD established subsidy layering review requirements in 1989 to safeguard control of project development costs. When developers used LIHTCs with other government subsidies, HUD field offices needed to take a closer look at funding procedures.

The FHA Commissioner urges all the HUD offices to execute Memorandum of Understanding Agreements to allow the state tax credit agencies to assume the responsibility for the subsidy layering review. He congratulates the Kentucky, Tennessee, Colorado and Michigan Hud Offices for being leaders in this effort.

GSE Forums Discuss Affordable Housing Goals

More than 125 New England and New York housing finance and advocacy organizations attended HUD’s Office of Housing’s first Government Sponsored Enterprise (GSE) forum in Hartford, Connecticut December 9, 1999. Assistant Secretary William C. Apgar hosted the forum, and along with Senior Advisor Allen Fishbein, presented an overview of the GSEs, including HUD’s rulemaking responsibilities for implementing affordable housing goals.

The one-day forums offer participants an in-depth look at how well GSEs Fannie Mae and Freddie Mac are supporting affordable housing opportunities in local communities. They also give HUD officials an opportunity to learn from business partners how they believe Fannie Mae and Freddie Mac can achieve their public missions.

Assistant Secretary Apgar said, "These meetings, which are designed to reach across all geographic regions, will allow us to reach a broad segment of the public on issues related to how effectively Fannie Mae and Freddie Mac achieve their public mission of expanding affordable housing opportunities. He added, "they will assist HUD in further refining its oversight approach toward Fannie Mae and Freddie Mac to ensure that they serve the public as intended by Congress."

The forums, "Fannie Mae’s and Freddie Mac’s Affordable Housing Goals: How Does Your Community Benefit?" were organized in connection with a new policy Secretary Andrew Cuomo announced last July requiring the nation’s two largest housing finance GSEs to buy $2.4 trillion in mortgages for affordable housing over the next 10 years. The Secretary’s historic action is intended to raise the required percentage of mortgage loans for low-and moderate-income families that the GSEs must buy, from the current 42 percent of their total purchases to a new high of 50 percent in the year 2001. The Department will be issuing shortly for public comment proposed rules for implementing the higher goal requirements.

Participants viewed data charts on current GSE performance in New England and New York, including shortfalls, relative to both the current goals and proposed higher goal levels. Other charts demonstrated that the region’s housing stock was predominately small single family rental and multifamily housing, which is important to housing low- and moderate-income households. Such demographics, however, present special financing needs.

According to participants, community banks provide the bulk of the financing. Loans are held in portfolio, primarily because they are profitable to the banks and origination costs are too expensive for borrowers if underwritten to standard GSE multifamily guidelines. Participant comments underscored HUD’s concerns that small multifamily lending is not being well served by the secondary market.

In future sessions, panels comprised of lenders, affordable housing developers, and local officials from the region will discuss their community’s specific credit needs. Each forum will also include a roundtable discussion session with housing experts that explores a current issue in the mortgage industry, such as multifamily housing needs, manufactured housing, predatory lending practices, and minority lending.

For more information about this and other conferences, contact Janet Tasker, Director of the Office of Government Sponsored Enterprise Staff, at (202) 708-2224.

Neighborhood Watch System Helps Monitor FHA Lenders

The Neighborhood Watch system is a web-based software application intended to aid Housing staff in evaluating its programs and in monitoring the origination performance of FHA-approved lenders. Since March 1999, Neighborhood Watch was made available to lenders via the FHA Connection, and provided lenders the ability to police themselves and each other. Neighborhood Watch is a tool that identifies originating lenders (originators and sponsor lenders) and loan characteristics within various geographic areas that have a high incidence of single family insured mortgages going into default (90 days or more delinquent) and claims within the first two years of loan origination.

Major components of Neighborhood Watch, include an "Analysis" feature and a "Details" feature in addition to the Early Warning menu choice, which enables users to identify and detect problems and/or unusual activity from the entire realm of lenders and geographic areas nationwide. The Analysis option allows the user to assess comparative performance measures of any two entities of interest, whether they are lenders or areas, by Zip Code or nationally. The Details feature includes three options, "Lender Details," "Program Profiles," and "Default Cases." The Lender Details option generates a detailed profile of any lender whose loans appear in Neighborhood Watch. The Program Profiles option provides a behind-the-scenes conversion from ADP code to HUD program. The Default Cases option gives authorized users the ability to view, print or export to Excel case-level data on defaulted cases.

Neighborhood Watch is a work in progress; whereby the Department is adding components to the system in stages. Loan default and claim statistics relating to broker/sponsor relationships are the latest functions to come on line. Usage continues to grow each day, with as many as 500 lenders accessing the system daily. The system was sponsored by the Office of Lender Activities and Program Compliance.

HUD, Mortgage Bankers Caucus on Homeownership

In a new effort to develop ideas and techniques for creating more housing opportunities for all Americans, HUD’s Office of Housing is sponsoring a series of homeownership conferences across the country with mortgage bankers and brokers and others in the business of producing affordable housing options.

At the first conference held in Philadelphia in January, Assistant Secretary for Housing William C. Apgar told 200 mortgage bankers and brokers "We need to know what we need to do to create more housing opportunities." He challenged participants to work in the breakout sessions scheduled throughout the day to determine what factors would help to increase homeownership, particularly in under-served communities.

Apgar outlined the HUD initiatives undertaken during the last year, which are already making it easier for buyers using FHA programs to purchase a home. With improvements in FHA data systems, the new Homebuyer Protection Plan, increases in FHA loan limits, and improvements in how loss mitigation is handled, FHA "pulled out all the stops to make the case that HUD has good products and is well run," Apgar said.

Gary Eisenman, General Deputy Assistant Secretary for Housing, told the audience it is important to "communicate as partners what we’ve done and where we are going." He cited statistics showing the disparity between the number of white and minority Americans who own homes and said HUD wants to do more to help provide housing to all.

In the breakout sessions, participants discussed how HUD’s appraisal reform, servicing and loss mitigation tools, lender monitoring and "credit watch," and changes in HUD’s two housing rehabilitation programs (Section 203(k) and Title I) will make a difference in homeownership rates.

Another conference to be held in Los Angeles, California, in March is being planned. For more information about the Homeownership 2000 Conference, contact Donna Abbenante at (202) 708-3532.

Program Updates

Section 8 Contract Administration Awards: The Department is pleased to announce the Michigan State Housing Development Authority, South Dakota Housing Development Authority, and the Massachusetts Housing Finance Agency are the first three contract administrators selected to provide contract administration services for project-based Section 8 Housing Assistance Payments.

These successful bidders for the Request for Proposal (RFP) released last May, along with others still to be selected, will oversee HAP Contracts, in accordance with HUD regulations and requirements, for more than 16,000 contracts across the country. The contracts are the first awarded under a new plan to re-focus HUD’s staff resources on its core mission. The new contracting system is part of a landmark management reform plan called HUD 2020 that the Department launched in June 1997. ·

Financing Construction of Storm Shelters:

As part of HUD’s continuing efforts to respond to public safety concerns, the Department allows borrowers to include windstorm shelters as an eligible work item for FHA 203(k) rehabilitation loans and FHA 203(b) financed new construction. The Federal Emergency Management Agency (FEMA) developed designs for windstorm shelters inside single family homes, and prepared a brochure Taking Shelter From the Storm: Building a Safe Room Inside Your House (FEMA 320) to help borrowers and builders construct the shelters. Shelters financed with FHA insured mortgages must be constructed consistent with FEMA 320 guidelines and the National Performance Criteria for Tornado Shelters.

Mortgagee Letter 00-04, detailing HUD’s requirements for FHA financing was issued on January 14. Visit the FEMA website at www.fema.gov/mit/tsfs01.htm.

Homebuyer Protection:

The Department’s Homebuyer Protection Plan, launched last summer, increases the accuracy and thoroughness of FHA appraisals and increases the awareness level of prospective homebuyers regarding the condition of a property. An updated Valuation Handbook (4150.2), effective August 1, 1999, clarifies existing policies, eliminates outdated or superseded requirements, and provides an updated source for the industry. Visit website www.hud.gov/reac/appraisal_handbook.html for more information.

Automated Underwriting:

The Department is reengineering FHA’s business process to fully utilize underwriting technology. Most automated underwriting systems use mortgage scorecards to provide an objective evaluation of default risk on a mortgage. Based on a mathematical analysis of prior loan performance, the scorecard considers the borrower’s credit history and other application variables and allows the lender or mortgage insurer to more accurately and objectively assess the risk on a loan and decide whether to insure that loan. This includes both FHA’s own "universal" mortgage scorecard as well as mortgage scorecards developed by other entities and approved for use.

HUD plans to make its mortgage scorecard available to all FHA lenders. Several private sector mortgage insurers have mortgage scorecards, as do Fannie Mae and Freddie Mac, both of which have been approved for use on FHA mortgages, as well as PMI Mortgage Services’ PMIAURA System.

HOUSINGtoday is a bimonthly publication of HUD’s Office of Housing. Look for this newsletter and other information about Housing at www.hud.gov.

Editorial Staff Maryl Kerley, Theresa Oliver, Paulette Grayson

To comment or contribute to HOUSINGtoday, contact the editorial staff at (202) 708-1020.