Prospects for Increased Program Participation

On October 24, the Federal Housing Finance Agency (FHFA) announced that it will modify a number of borrower eligibility and lender participation requirements of Home Affordable Refinance Program (HARP) in an attempt to increase participation in the federal refinancing program.

photo courtesy of kevin dooley

HARP was implemented in 2009 in order to allow underwater homeowners the opportunity to refinance their home loans to lower mortgage interest rates. Many borrowers were eager to take advantage of the historically low rates, but were handicapped by their inability to meet some of the standards typically required to refinance, such as those that preclude borrowers with high loan-to-value loans. HARP was modeled – like several other Administration loss mitigation and foreclosure prevention programs started around the same time – to assist a very specific problem and class of homeowner. In HARP’s case, the target homeowner is one who wished to refinance his or her mortgage, but owes more on their mortgages than their individual homes are worth. Program administrators believed that underwater homeowners represented a substantial portion of the troubled homeowner populations, and that HARP would go a long way to stymie the accelerating wave of foreclosures flooding the nation’s housing market.

[click to continue…]

{ 2 comments }

This article is reprinted with the permission of Nixon Peabody LLP

In the early morning hours of Friday, October 21, the Senate in their consideration of the so-called minibus legislation (which includes the fiscal year 2012 Transportation, Housing and Urban Development Appropriations, Agriculture Appropriations and other measures) voted on an amendment offered by Senator Tom Coburn (R-OK) that would end rental subsidies to “slumlords.” The amendment failed 59–40 with Senator Jim Webb (D-VA) not voting. Under Senate procedures, this amendment required 60 votes to pass. This was a good thing.

Although seemingly targeting “slumlords” receiving federal rental subsidies, the amendment would have terminated rental subsidies for any owner of federally insured or assisted housing who was cited for a “life threatening condition” (which as we know can mean as little as missing batteries from a smoke detector) within the past 5 years.

In his floor statement, Senator Coburn referenced scandals, wasted federal dollars, and criminal activities—all from public reporting, i.e., television, newspapers—at public housing projects, not privately owned affordable housing, as support for his amendment. Although the amendment was mainly supported by Republicans, a few Democrats did vote for it.

Unfortunately, there will be more discussion in the Senate next week about similar amendments. Coburn Amendment 795, under consideration, would cancel funding for projects facing construction delays, and Coburn Amendment 800 would seek to reduce the Rural Development budget by $1 billion, or more than a quarter of its current funding by some measures.


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

Late last week HUD distributed copies of its October 19, 2011, dated Notice H-2011-30 instructing HUD staff and project owners on how to use Reserve for Replacement Accounts in restructured Mark-to-Market properties. The genesis of this Notice was the ongoing discussion about the proper use of Reserve for Replacement accounts when HUD asset managers emphasize spending operating funds on project upkeep, while the Office of Assisted Housing Preservation (“OAHP”) staff have been optimizing surplus cash distributions.

The Notice generally discusses the Mark-to-Market transaction structure and underwriting, noting that the underwriting anticipated certain expenses to be paid from the Reserve for Replacement account. In essence, failure or delay in paying underwritten activities from the Reserve for Replacement account leads to more operating funds used for those purposes, and that in turn leads to less surplus cash. The Mortgage Restructuring Mortgages (“MRM”), or the “soft second loans,” generated by the Mark-to-Market process are paid based on surplus cash. The Notice discusses IRS Revenue Ruling 98-34 and notes that the MRM needs to be reasonably prepayable to be considered “real debt.” This discussion ignores prior OAHP policy that the MRM is considered new debt and not replacement debt.

The Notice also contains an appeal process if an owner believes there is insufficient Reserve for Replacement funding. Specifically, an owner can ask the local HUD office to use operating income to pay for specific capital improvements. An owner can also request an increase in the monthly deposit to the Reserve for Replacement account to pay for costs not previously taken into account in the underwriting. These requests would have to be prospective and for the same fiscal year so as not to affect surplus cash in other years.

If you have any questions about this Alert, please contact Richard Michael Price at 202-585-8716 or rprice@nixonpeabody.com, or your regular Nixon Peabody LLP attorney.


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. Originally released on Oct. 25, 2011

On September 23, Governor Cuomo signed legislation that permits the New York City Housing Development Corporation (HDC) and the New York State Housing Finance Agency (HFA) to privately place unrated bonds for the purpose of financing affordable housing projects. This law took effect immediately.

Prior to passage of this legislation, HFA and HDC could only issue bonds that had been rated by a rating agency. These bonds were generally publicly offered, and the State of New York Mortgage Agency (SONYMA), Fannie Mae or Freddie Mac, or other financial institutions typically provided credit enhancement. Other issuers in New York State, such as Industrial Development Agencies (IDAs), have long had the power to issue unrated bonds, which were then purchased by a financial institution. The new law permits HFA and HDC to issue unrated bonds for private placement as an alternative form of financing for the development and preservation of affordable housing.

Under this structure, the real estate credit risk is assumed by the financial institution that purchases the bonds. The direct purchase structure should reduce transaction costs substantially, as it eliminates the need for involvement of the rating agencies, underwriters, and credit enhancers. Some financial institutions may elect to continue to seek credit enhancement from Fannie or Freddie for certain types of transactions, but the new law provides a mechanism through which HFA and HDC would still be able to issue bonds were Fannie and Freddie to cease providing credit enhancement.

The direct purchase option could not come at a better time, with the New Issue Bond Program (NIBP) expiring on December 31, 2011. The NIBP program has been enormously popular and successful in New York State, and has facilitated dozens of transactions over the past two years. It is hoped that the private placement option will facilitate some transactions that may have been structured as NIBP deals, but are not positioned to close before the end of this year.


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

10/17/2011 – This Affordable Housing Alert addresses the recently enacted New York state law that allows municipalities to adopt local laws providing real property tax exemption to certain affordable housing projects including mixed use projects.

The newly enacted New York Real Property Tax Law (“RPTL”) Section 421-m allows municipalities outside of New York City and Nassau, Rockland, and Westchester Counties to adopt a new tax exemption. The real property tax exemption can be for the construction or substantial rehabilitation of multiple dwellings where at least twenty percent (20%) of the units are occupied by individuals or families whose incomes do not exceed 90% of AMI. If adopted locally, the exemption will apply to general municipal taxes, special ad valorem levies, and school taxes (if the applicable school district also opts to grant the exemption), but not to special assessments.

The exemption begins at 100% of the applicable taxes and phases out over a term of 20 years as follows:

During construction/rehabilitation period (maximum of 3 years)—100% exemption

Beginning the year after construction is completed:

Years 1—12 100% exemption

Years 13—14 80% exemption

Years 15—16 60% exemption

Years 17—18 40% exemption

Years 19—20 20% exemption

However, note that RPTL Section 421-m imposes a minimum tax for each taxable year in an amount equal to the taxes paid on the subject property in the year prior to the beginning of the exemption, and the subject property cannot receive the 421-m exemption if it benefits from any other real property tax exemption.

For the exemption to apply, the project must be located in a benefit area designated by the municipality, and the construction or substantial rehabilitation of the subject property must be financed, at least in part, with grants, loans, or subsidies from a federal, state, or local agency. Also, for mixed use projects, at least 50% of the project’s square footage must be used for residential rental purposes. Construction work must commence after the local law providing for the exemption is enacted and before June 15, 2015.

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.

The foreclosure epidemic plaguing this country since the sub-crime crisis has been the subject of much news coverage. While the countless stories of shattered neighborhoods sets the tone of the foreclosure conversation, there is a flip-side. To some, these foreclosed homes represent an ideal investment opportunity. But exactly what sort of investor has entered the market, and what does this mean for the properties and the neighborhoods riddled with boarded-up homes? According to a new study in the Journal of Planning Education and Research, “A large majority of the low-value homeswere purchased by small investors, and purchases of foreclosed homes in low-income neighborhoods were dominated by investor-buyers.”

courtesy of flickr user respres

The report, entitled Distressed and Dumped: Market Dynamics of Low-Value, Foreclosed Properties during the Advent of the Federal Neighborhood Stabilization Program, goes on to explain the implications of this finding:

While responsible investor activity in the market will aid in reutilizing these properties and should provide increased supplies of affordable, decent-quality rental housing, such activity may not be the predominant type in heavily affected communities. Some investor properties may remain unoccupied and boarded up or dilapidated, especially if investors are betting on near-term increases in values and hoping to merely resell the property in a fairly short order. Other investors may seek to rent out properties without rehabilitating what are likely to be very physically distressed homes; these properties may continue to have significant, negative spillover impacts on neighborhoods.

In short, small time investors, with scarce resources to improve properties, hoping for a short-term return, take poor care of their newly purchased investments. While healthy investor activity can and should play an important roll in the housing recovery, purchasing homes as speculative, short-term, investments often has negative implications for the physical state of the foreclosed home and the neighborhood containing it.

Fore more coverage on the story, read The Atlantic Cities piece: Who’s Buying Foreclosed Homes and Why It’s a Problem

{ 0 comments }

On September 21 the Federal Reserve Board (FRB) announced that it would undertake further monetary stimulus in an attempt to revive the staggering economy. The FRB made the announcement after their Federal Open Market Committee (FOMC) meeting, one of eight such meetings held each year to set monetary policies in accordance with the FRB’s “dual mandate” of fostering maximum employment and price stability. To achieve these goals, the Board has a number of policy tools at their disposal, aimed at lowering long- and short-term real interest rates, rates on U.S. Treasury securities of varying maturities, and conventional mortgage rates. Since December 2008, the central bank has purchased $2.3 trillion in longer-term Treasury securities, agency debt, and mortgage-backed securities in an effort to lower longer-term interest rates, including mortgage rates.

Their most recent action is called “Operation Twist,” named after the dance “The Twist”, a dance popular when an operation of comparable mechanics was first (and last) utilized by the central bank. Under Operation Twist, the FRB will purchase $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and sell an equal amount of Treasury securities with remaining maturities of 3 years or less by the end of June 2012. In their notes, the FRB says Operation Twist is an effort to push long-term interest rates down and encourage lending, especially when it comes to home loans. By reducing the supply of longer-term Treasury securities in the market, this action should put downward pressure on longer-term interest rates.

[click to continue…]

{ 0 comments }

Some interesting news out of DeKalb County, GA courtesy of wsbtv. A grand jury has indicted three people for a scheme to take-over/steal foreclosed homes:

{ 0 comments }

Another housing scorecard… another month of “market fragility”:

September Scorecard

{ 0 comments }

The debate over comprehensive tax reform and the implications of such reform on the tax credit program have been a long simmering issue in the affordable housing community. A flurry of reports on debt reduction over the past year and the debt-ceiling debate that followed have contributed to a fiscal and political environment that put many in the industry on watch.  So, with all of the attention this issue has been getting, what are the odds the low income housing tax credit is in any real danger from super-committee action? According to several industry experts, the answer appears to be low.

For starters, one of the committee’s co-chairs, Patty Murray (D – WA) is a staunch ally of affordable housing causes. “Patty Murray is very supportive of housing”, said Colleen Fisher, Executive Director of the Council on Affordable and Rural Housing. “John Kerry also has a very good track record… in general, amongst all members of the committee, there appears to be support on the tax credit side of things”.

Peter Lawrence, Senior Director of Public Policy & Government Affairs for Enterprise Community Partners, echoed Colleen’s sentiments, “Patty Murray has been a long standing champion of affordable housing and huge advocate for housing and community development.” He also mentioned Senator Kerry (D – MA) and Representative van Holland (D –MD) and Baccera (D – CA) as allies of the affordable housing cause.

[click to continue…]

{ 0 comments }