This article is reprinted with the permission of Nixon Peabody LLP

In addition to the usual rules defining “low income communities” where projects are eligible for the new markets tax credit, the Code provides that certain individuals or groups of individuals who are low income or lack access to loans or equity investments, may qualify as a “targeted population” that is also eligible. The IRS first provided guidance, describing how an entity serving certain targeted populations could meet the requirements to be a qualified active low-income community business (or QALICB), in Notice 2006-60, and then, proposed regulations were published in September, 2008. Under those rules, a QALICB could rely on the Notice until the regulations became “final.”

Now, more than three years later, final regulations for targeted populations have been published. The IRS received many comments with respect to the proposed regulations to expand and clarify the rules. However, with few exceptions, the final regulations adopt the guidance from the Notice and the proposed regulations. The final regulations are effective December 5, 2011. Taxpayers may apply these new rules to taxable years ending before December 5, 2011 for targeted populations designated as eligible low-income communities by Treasury after October 22, 2004. Thereafter, Notice 2006-60 is obsolete and QALICBs must use the new final regulations.

As you may recall, an entity qualifies as a QALICB serving targeted populations if at least 50% of its gross income is “derived from” sales, rentals, services, or other transactions with low-income persons, at least 50% of its ownership is by low-income persons, or at least 40% of its employees are low-income persons. Such a QALICB could not be located in a census tract that exceeds 120% of the area median family income. A targeted population also includes individuals displaced by Hurricane Katrina.

[click to continue…]

{ 0 comments }

A favorite tactic for zealots on the right and the left is to try to disguise their ideology and values as economic necessity.[ii]

Financial pressures seem to be leading the U.S. to make a fundamental change in the way the government does business.  The Great Recession, beginning late 2007 and presumably ending in 2009 , created a set of massive government initiatives.  We are familiar with the TARP (or the bank rescue) and ARRA (or stimulus) and various other small business, Medicaid, teacher and local government rescue efforts.  These efforts, coupled with the Obama Administration’s expansion of Medicare, created a shift in budget priorities.  Intentional or not, new programs create new constituencies.  Once spending starts, businesses and local governments invest precious resources to wade through typically complex federal programs.  With resources invested, pressure builds to maintain those programs.  This continuing pressure looks to some like a potential ongoing demand for massive federal spending.

The fiscal year 2010 federal budget was in excess of three trillion dollars with a deficit of about $1.3 trillion.[iii]  The fiscal year 2011 budget was even larger, though the deficit projections shrunk slightly.[iv]  These deficits are of historic significance both as a percentage of gross domestic products (“GDP”) as well as a total dollar number.  Indeed, these budget deficits as a percentage of GDP rival deficits the U.S. ran during World War II.[v]  So we see an economic downturn, the likes of which we haven’t seen since the 1930s, and government spending response, the likes of which we haven’t seen since the early 1940s.  In addition to the sheer magnitude of this spending, and with no hint of a financial problem, concerns begin to rise about the United States’ continued ability to borrow.

[click to continue…]

{ 1 comment }

This article is reprinted with the permission of Nixon Peabody LLP

Over the past year the White House has sought to align federal rental policy. Sometimes called “Harmonization,” these efforts have focused on several areas where federal programs work in tandem among the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Treasury (essentially the Internal Revenue Service’s Low-Income Housing Tax Credit Program), and the U.S. Department of Agriculture (USDA) (mainly Rural Housing Services’ multifamily programs operated through Rural Development). The White House has convened several working group meetings culminating in a roll out meeting this past July 27. The Administration published its report called Federal Rental Alignment Opportunities—Conceptual Proposals, and sought comments over the summer. The report is broken out by its 11 subject areas: physical inspections, income reporting and definitions, subsidy layering reviews, reduction in state-to-state variability for income definition, financial reporting, common energy efficiency requirements, appraisal primer, market study standards, capital needs assessment, improve sharing of data on owner defaults, and compliance (fair housing MOUs).

The Administration is now starting implementation through pilot programs for physical inspections and subsidy layering reviews. The physical inspection pilot will involve limited numbers of properties in Michigan, Minnesota, Ohio, Oregon, Washington State, and Wisconsin. The subsidy layering pilot will be implemented in certain transactions in North Carolina, South Carolina, Michigan, and Nevada.

The physical inspection pilots have started their roll outs in the past two weeks in different states. Each pilot is focused on executing Memoranda of Understanding (“MOU”) in each pilot state between HUD, USDA, and the state Housing Finance Agency. Indications are that the Uniform Physical Condition Standard or UPCS would become the common inspection standard.

Similarly, the subsidy layering pilot will be implemented by state-specific MOUs between HUD, RD, and the state Housing Finance Agency.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

{ 0 comments }

The section 538 Guaranteed Rural Rental Housing Program, which had been targeted for termination by the administration, has been saved from the chopping block in  H.R. 2112. Here is a graphic depicting the funding made available to all USDA Development programs through the Act:

{ 0 comments }

This article is reprinted with the permission of Nixon Peabody LLP

On November 17, 2011, the House of Representatives and Senate passed the so-called “Minibus” legislation (H.R. 2112), which included funding for three of the twelve appropriation bills: Agriculture; Commerce, State, Justice, and Transportation; Housing, and related agencies. A short term “Continuing Resolution” funding the remaining federal agencies through December 16, 2011 was attached to this legislation; the current Continuing Resolution expires today. The House vote was 298-121; the Senate vote was 70-30. Congress is now in recess for the Thanksgiving break. The President signed the legislation today.

The bill contains authorizing language for HUD’s signature initiative, the Rental Assistance Demonstration program. This demo, which is limited to 60,000 units, will provide public housing and Section 8 Mod Rehab (Mod Rehab) properties with project-based rental assistance, which can be used to leverage private sector resources including tax-exempt bonds and low income housing tax credits to rehabilitate existing housing properties. HUD will accept applications through 2015. Funding will be provided through transfers from other public housing programs.

The bill also contains several provisions addressing the maturity of Rental Assistance Payments (RAP), Rent Supplement contracts (Rent Supp), and Mod Rehab contracts. During FY 2012 and 2013, owners may convert tenant protection vouchers to Section 8 project-based vouchers (PBV) for projects which are covered by a RAP, Rent Supp, or Mod Rehab contracts. This provision also has a “reach back” to 2006 that allows for the project basing of previously issued tenant protection vouchers. Tenants in the properties will need to be consulted about the conversion and the voucher administrator must agree to the project basing. The provision of the PBV statute which caps the number of vouchers a voucher administrator can project base at 20% is not applicable to these conversion actions. Also, the Secretary can “waive or alter” other PBV provisions including the provisions which deal with a voucher administrator plans and goals, and the 25% per project PBV cap on family projects.

Another provision provides $10 million to provide either Enhanced Vouchers or PBVs for certain properties, including i) the maturity of HUD-insured, HUD-held, or Section 202 properties that require the Secretary’s consent to prepay; ii) the expiration of a rental assistance contract for which the tenants are not eligible for enhanced vouchers under current law (RAP contracts); or iii) the expiration of mortgage affordability restrictions or a HUD preservation program (ELIHPA/LIHPRHA). This provision is limited to residents living in low-vacancy areas.

Finally, there is yet another provision which allows for the one-year extension of RAP and Rent Supp contracts expiring in FY 2012. This provision was introduced in last year’s funding bill.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

{ 0 comments }

This article is reprinted with the permission of Nixon Peabody LLP

Today, HUD issued a long-awaited clarification of its policy allowing non-profit owners to retain sales proceeds in certain circumstances. The Notice, signed by Carol Galante, Acting Assistant Secretary for Housing – Federal Housing Commissioner, clearly signals that if a non-profit owner sells a property to a purchaser who will preserve the project as affordable housing for the long-term, the seller will be free to use its equity in the project as permitted by its charter and state law.  The Notice does not address sales that have already occurred and that are subject to trust agreements concerning the use of proceeds.  The Notice is not applicable to 202s.

The Notice sets forth six major requirements to obtain HUD’s approval for a non-profit owner to receive sale proceeds, which are summarized as follows:

  1. Execution and Recordation of a New Use Agreement
    a. Must extend 20 years beyond the original maturity date
    b. Must be recorded ahead of new financing
    c. Legal opinion that it is in a first lien position
  2. Renewal and Assignment of Project-Based Section 8 Housing Assistance Payments (HAP) Contracts
    a. Minimum 20-year HAP contract
    b. Existing HAP may be terminated for this purpose
  3. Rent-Setting and HAP Contracts
    a. Section 8 rules govern assisted units
    b. Chapter 15 increases to post-rehab rents capped at market allowed
    c. No option 4 exception renewals permitted
    d. 10% cap on increase for unassisted low – and moderate- income tenants
  4. Physical Improvements
    a. Perform a Capital Needs Assessment
    b. Provide repair plan as necessary
    c. Meet 250(a), decoupling, or TPA requirements as necessary
  5. Financing Plan:  HUD will review new financing to determine long-term feasibility
  6. Purchaser Capacity:  New owner and management must demonstrate experience and capacity to address the project’s physical and financial needs

The Notice is a positive step to address an issue that has prevented the long-term preservation of numerous subsidized properties where HUD’s unwritten policy of disallowing non-profit sales proceeds in transactions involving pre-payments had arisen.  Particularly when the capital markets were strongest, many non-profit owners simply were deciding to wait for the project restrictions to expire so that they would be able to obtain the benefit of their long-term ownership.  The Notice correctly points out that the policy has existed for a long time with respect to sales by non-profit owners involving the assumption of a HUD-insured or HUD-held mortgage, i.e., TPA transactions.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

{ 0 comments }

Potential Problems with Privatization

In the past two weeks, senior republicans in the House and Senate have introduced comprehensive legislation to reform the nation’s housing finance system.  On October 31, House Committee on Financial Services’ member Scott Garrett (R-NJ) released proposed legislation to replace the current government-sponsored enterprise (GSE) model with a private mortgage-backed securities (MBS) market established under a regulatory framework based on a clear-cut, risk-based pricing system and without a government guarantee.  On November 9, Senate Banking, Housing and Urban Affairs Senior Senator Bob Corker (R-TN) introduced the Residential Mortgage Market Privatization and Standardization Act (S.1834), legislation to unwind the GSEs Fannie Mae and Freddie Mac and replace them with a private, forward-funded MBS market based on certain deliverability rules and technology established by the Federal Housing Finance Agency and banks, servicers, originators, GSEs, and mortgage investors.

While both bills are intended to reform and replace the current GSE MBS mortgage-finance model, only Senator Corker’s bill includes provisions to wind-down Fannie Mae and Freddie Mac.  The primary reason Representative Garrett’s proposal lacks “wind-down” provisions is the fact that the House Financial Services Committee has already passed 15 bills to wind-down different aspects of Fannie Mae and Freddie Mac’s current business that Representative Garrett, in his legislation, assumes to have been enacted.  The Democrat-controlled Senate Banking Committee has yet to mark up legislation that would impose a piecemeal or comprehensive measure to wind-down and overhaul the GSEs; Senator Corker’s legislation reflects that fact.

[click to continue…]

{ 1 comment }

A discussion draft of the legislation was introduced October 31, 2011 by Senior House Financial Services Committee member Scott Garrett (R-NJ). Here is a summary of the key points:

• Requires the Federal Housing Finance Agency (FHFA) to establish classifications for mortgages-backed securities (MBS) – to be known as Qualified Securities (QS) – and set standards around key features of the securities in order for investors to appropriately price credit risk into the QS market. Further requires FHFA to establish criteria for each classification based on underwriting, pooling and servicing, and disclosures’ standards.

• Authorizes the FHFA director to establish standards of classification for the mortgages that collateralize QS based on a mortgagors’ debt-to-income ratio, loan-to-value ratio, credit history, loan documentation, occupancy, credit enhancement, and loan payment terms.

• Directs the FHFA to establish standard form securitization agreements for QS that include terms relating to: pooling and servicing; purchase and sale; representations and warranties; indemnification and remedies; and the qualifications, responsibilities, and duties of trustees.

• Establishes an application system for qualified sponsors of QS under which interested parties would submit applications to the FHFA demonstrating proof of their experience and integrity, compliance history with Federal and State laws, adequacy of insurance and fidelity coverage, and ability to regularly submit audited financial statements to the Agency.

• Grants the FHFA director broad supervisory and enforcement capabilities, with the authority to issue regulations, orders, and interpretations in order to establish a fully-liquid forward market for QS – similar to the Fannie Mae and Ginnie Mae to-be-announced (TBA) markets in which most agency mortgage-backed securities are sold today.

• Directs the FHFA to establish mandatory arbitration procedures under which all disputes between an owner of a QS and the qualified sponsor of such QS shall be subject in the event of a disagreement between investors and issuers on whether there was a breach obligating an originator or securitization sponsor to repurchase a loan or to indemnify a loss.

[click to continue…]

{ 1 comment }

The Senate Banking Committee on October 20 held a hearing to discuss the possibility of, and the need for, the continuation of the 30-year fixed-rate mortgage as the primary financial structure to back the future U.S. housing finance market.

Committee Chairman Tim Johnson (D-SD) began the hearing with a statement in which he explained that a full overhaul of the nation’s housing finance system will not occur in the near future. Specifically, Senator Johnson said he expected the Committee’s schedule and work-flow will prevent it from introducing a comprehensive piece of housing finance legislation for at least a year.

The panel of witnesses at the hearing included industry stakeholder and President and CEO of  Affinity Federal Credit Union John Fenton, testifying on behalf of the National Association of Federal Credit Unions;  housing policy expert and Senior Policy Analyst at the National Council of La Raza Janis Bowdler; Professor of Finance at the George Mason School of Management Dr. Anthony Sanders; and economic policy gurus Dr. Paul Willen, Senior Economist and Policy Advisor at the Federal Reserve Bank of Boston, and Dr. Susan Woodward, President of Sand Hill Econometrics.

[click to continue…]

{ 0 comments }

Here it is folks:

12QAPdraft_3

{ 0 comments }