Duty to Serve = Your Duty to Comment

Posted by Michael Bodaken and Ellen Lurie Hoffman on February 3, 2016

In gridlocked Washington, rarely does one have the ability to truly influence community development or housing policy. Well, wait for it . . . that time is upon us!

This past December, the Federal Housing Finance Agency (FHFA) published a proposed “Duty to Serve” rule, which requires Fannie Mae and Freddie Mac to increase their secondary market activities to help very low-, low-, and moderate-income families buy or rent a home.

We should be paying attention to this because the proposed rule provides a-scarce-as-hen’s-teeth opportunity for the public to weigh in on a federal agency that wants to drive investment for community development. FHFA has brainstormed dozens of creative ideas about how to prod Fannie and Freddie to drive billions more into affordable housing financing, so it’s urgent that folks working on community revitalization, preservation, and tenants’ rights take a close look at these proposals and weigh in about what makes sense and what does not.

Comments are due to FHFA before March 17, and so its worth setting aside a chunk of time now to consider this lengthy proposed rule. The National Housing Trust will submit complete comments, but here are a few proposals that will perhaps spur you to take a closer look.

The proposed Duty to Serve rule requires Fannie and Freddie to develop plans to support lending by financial institutions for three underserved markets:

  • Affordable housing preservation;
  • Rural housing; and
  • Manufactured housing.

The proposal correctly observes that preservation is understood to mean “preserving the affordability of the rents to tenants in existing properties, including preventing conversion of the properties to market rents at the end of the required long-term affordability retention periods, when major rehabilitation of the properties is usually needed.” FHFA asks if “preservation” should be interpreted to allow Duty to Serve credit for support of the purchase of permanent construction take-out loans on newly constructed rental properties with long-term affordability regulatory agreements.

While we strongly support new construction deals with long-term affordability restrictions in high opportunity areas, we firmly reject including such housing within the “preservation” category in this rule. Words have meaning. The word "new" means “not existing before; made, introduced, or discovered recently or now for the first time.” The word construction means “the building of something, typically a large structure.” The word preservation means “to keep in perfect or unaltered condition; maintain unchanged.”  We strongly discourage FHFA from categorizing this activity as a subset of preservation because including "new construction” within "housing preservation" is illogical and dilutes the very concept of preservation. Of course we urge Fannie and Freddie to provide preservation incentives in higher opportunity areas, but within their housing goals, not as part of their Duty to Serve.

FHFA should follow the relevant statute, which directs the enterprises to serve three specific underserved markets: affordable housing preservation, rural housing and manufactured housing. The Enterprise should be encouraged to invest in preserving existing housing to avoid further losses of this valuable stock [Editor's note: for another perspective on this topic, see Barbara Samuel's Rooflines response to this post here].

But we do applaud FHFA for recognizing energy and water efficiency improvements to existing affordable multifamily rental properties as a preservation activity. The proposed rule acknowledges that savings in utility consumption reduces expenses, helping to maintain the overall affordability of rental housing. In our experience, providing energy efficient retrofits decreases electric, gas, and water consumption by over 20 percent. By 2020, we hope energy efficiency retrofits within our portfolio will produce $200,000 of additional cash flow, funding that can be used for repairs and extending housing affordability. By encouraging lenders to provide more credit for energy improvements, Fannie and Freddie can lower operating costs and preserve existing affordable rental housing.

We also urge FHFA to promote energy efficiency with manufactured housing as part of the Duty to Serve rule. According to the 2013 American Community Survey, 6.7 million households in the United States resided in manufactured housing. Energy costs per square foot in manufactured housing are nearly double energy costs in site-built homes.

Likewise, we support FHFA’s proposal to provide Duty to Serve credit for enterprise activities related to affordable homeownership preservation through shared-equity ownership programs. NHT’s Institute for Community Economics (ICE) pioneered the modern community land trust (CLT) model, a housing model that develops equity for homeowners while preserving public subsidy and affordability in perpetuity.
We were heartened by FHFA’s request for comments on whether Fannie and Freddie should resume equity investments in Low Income Housing Tax Credit (LIHTC) projects. Unlike in 2008 when the enterprises stopped investing in Housing Credits, the LIHTC equity investment market in most of the nation is now liquid and dominated by bank and insurance company investors. There are several weaker submarkets, however, with less investor demand, such as projects in markets outside of the assessment areas of large banks, and rural markets. We support FHFA permitting the resumption of LIHTC equity investments in these underserved submarkets and suggest that FHFA analyze which markets have pricing below the national or regional average, to prevent Fannie and Freddie’s investments from crowding out private investment and instead meet the need where it truly exists.

Finally, we are very pleased that FHFA is considering how to encourage “residential economic diversity” by promoting investments in affordable housing in high opportunity areas, but we suggest a modification of the proposed definition to help measure progress towards the goal. The rule suggests defining a “high opportunity area” as a HUD-designated “Difficult to Development Area” (DDA). The National Housing Trust studies LIHTC investments by state and local housing agencies across the country and we have observed that states are adopting a wide range of definitions for “high opportunity"—including access to good schools, health care, jobs, transit, or a variety of other factors. The definition is likely to change over time as conditions shift in communities and a local definition of "opportunity" is preferable to a one size fits all national standard.

We urge fellow Shelterforce readers to seize this rare opportunity to comment on a proposed rule that will have such a profound effect on housing and community development going forward.

Photo credit: By Michael via flickr, CC BY-NC 2.0)

About the author more ยป

Michael Bodaken is President of the National Housing Trust and of the National Housing Community Development Fund, NHTCDF. Ellen Lurie Hoffman is federal policy director of the National Housing Trust.

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