The National Housing Trust Fund

Yes, we have a National Housing Trust Fund! 

It was created by the passage of the federal Housing and Economic Recovery Act of 2008.  This is the first new federal housing production program since the HOME program was created in 1990 and the first new production program specifically targeted to extremely low income households since the Section 8 program was created in 1974.

The Funding

The National Housing Trust Fund is a distinct fund that will receive dedicated funds from a percentage of the value of new business within Fannie Mae and Freddie Mac (Government Sponsored Enterprises—GSEs).  These revenues are not based on GSE profits nor on their existing portfolios. The amount dedicated is equal to 4.2 basis points for each dollar of the unpaid principal balance of total new business purchases (a basis point is 1/100th of 1%, that is, 0.01% = 1 basis point).  In 2007 this would have generated about $550 million.

Of the total revenues generated by the formula, 25% are directed to a reserve fund in the Treasury.  The remaining 75% of the total funds will be divided, with 65% of these revenues going to the National Housing Trust Fund and 35% going to a new Capital Magnet Fund.  However, for the first year all of these funds will be diverted to a reserve fund to cover losses that the Federal Housing Administration might incur refinancing troubled mortgages through the new HOPE for Homeowners program.  In the second year, half of the funds are so diverted and in the third year, one-fourth will be.  Under this scenario, the first funds available from the National Housing Trust Fund will be in 2010, with full-funding anticipated in 2012.  In calendar year 2008, approximately $300 million would have been available for the national housing trust fund had it been in place with no diversions for the HOPE for Homeowners program.

Any penalties incurred in connection with a failure by a GSE to comply with certain reporting or housing goal requirements could also be used as dedicated funding.  In addition, other dedicated sources of revenue may be added in the future.

Distribution of Funds

All of the National Housing Trust Fund dollars will go directly to states, the District of Columbia and the territories.  It will be administered by the U.S. Department of Housing and Urban Development (HUD).  The Secretary of HUD must develop a formula for distribution within one year of the date the bill was enacted, that is, by July 30, 2009.

Five factors must be incorporated in this formula.  They are:

1. The ratio of the shortage of affordable and available rental units for extremely low income renter households in the state to the aggregate shortage in all the states.
2. The ratio of the shortage of affordable and available rental units to very low income renter households in the state to the aggregate shortage in all the states.
3. The ratio of extremely low income renter households in the state living with either incomplete kitchens or plumbing facilities, more than one person per room, or paying more than half of their income for housing costs to the aggregate number in all the states.
4. The ratio of very low income renter households in the state paying more than half of their income on rent compared to the aggregate number in all the states.
5. The cost of construction or building rehabilitation in the state relative to other states.

The first factor is to be weighted more heavily in the formula, and the sum of the first four factors is to be multiplied by the fifth factor.  It is not known how HUD will make this adjustment.

HUD will release initial estimates of how much the formula it develops will allocate to each state, the District of Columbia and the territories using current available data.  At this time, it is not known what database will be used, but the final allocations may be based on a special tabulation of the American Community Survey housing file that the Census Bureau will provide. 

The law states that no state, nor the District of Columbia, will receive less than $3 million.  The formula will determine how much above the minimum will be allocated. There is currently no requirement for matching funds in order to receive funds from the National Housing Trust Fund.

How the Funds Can Be Used

At least 90% of the funds must be used for the production, preservation, rehabilitation, or operation of rental housing.  Up to 10% can be used for homeownership activities for first-time homebuyers, including:  production, preservation, and rehabilitation or down payment and closing cost assistance, or assistance for interest rate buy-downs.

At least 75% of the funds for rental housing must benefit extremely low income households (those with incomes at or below 30% of area median income) or households with incomes below the federal poverty line.  All funds must benefit very low income households (50% of area median income or less).

What States Must Do

The governor of each state or territory and the Mayor of the District of Columbia must designate an agency to administer the program.  Eligible options include:  the state housing authority or state housing finance agency, housing or community development offices, and tribally designated housing entities, among others.

The administering agency must develop, make public, and seek public comment on a state allocation plan.  The allocation plan is to reflect priority housing needs in the states based on these factors:

• Geographic diversity,
• The applicant’s ability to obligate amounts and undertake funded activities in a timely manner,
• The extent to which rents are affordable in the proposed project,
• The duration of the affordable rents in the proposed project,
• The use of other funding sources in the proposed project, and
• The merits of an applicant’s proposed eligible activity.

Each state must set performance goals, benchmarks, and timetables for carrying out the purposes of the National Housing Trust Fund.  Each state, territory and the District of Columbia may use up to 10% of its grant for costs related to administering the program.  Each state has two years to either commit or spend its funds, or the funds are returned to HUD and redistributed to other states.

Eligible recipients from the states, territories and the District of Columbia are organizations and agencies (nonprofit or for-profit) that demonstrate:

• The experience and capacity to produce the housing proposed;
• The financial capacity to undertake, comply, and manage the housing; and
• Familiarity with federal, state and local housing programs that will be used in conjunction with the federal funds.

Housing advocates are focused now on three goals:

1. Working with states to make sure they take the necessary steps to receive available funds.
2. Working with HUD in developing appropriate and efficient implementing regulations.
3. Exploring additional dedicated sources of public revenue that can add to the monies contained in the National Housing Trust Fund.

The National Low Income Housing Coalition and its allies have formed a field working group to oversee these next steps.