Housing: Program Models and Activity Alternatives...• Eligible Uses of HOME –Used to assist affordable housing in acquisition, new construction, rehabilitation and tenant-based

Housing: Program Models

and Activity Alternatives

2019 COSCDA Annual Training Conference

Traverse City, Michigan

29 September, 2019

Housing 101 1

Presenters• Donna Enrico, Program Manager

Pennsylvania Department of Community and Economic Development

– [email protected]

• Rick Ballard, Principal

Richard G. Ballard, LLC, Housing and Community Development Solutions


Moderator:

• Rebecca Frawley, HOME Program Director,

Massachusetts Department of Housing and Community Development


Housing 101 2

mailto:[email protected]



HOME and CDBG Objectives

• Keep in mind – HOME and CDBG have a different history

and different strategic objectives.

– CDBG is primarily a resource intended to help local

governments support community and economic development

activities to improve the quality of life for low and moderate

income households and communities

– HOME is primarily a resource intended to help housing

developers, especially community-based nonprofits, to improve

the availability and quality of affordable housing

Housing 101 3

HOME and CDBG Objectives

• HOME and CDBG typically exist in different administrative

environments at the State level (but not always!)

– CDBG is often housed within community and economic

development agencies;

– HOME is often housed within state housing finance agencies.

• In entitlement communities, the programs are often

housed together.

• How are HOME and CDBG organized in your State?

Housing 101 4

Other Housing Resources

• HOME and CDBG are by no means the only resources:

– Low-income housing tax credit

– Federal Housing Trust Fund

– Homeless facilities funding

• State-level funds

– State housing/ community development funds

Housing 101 5

HOME and CDBG

• Both HOME and CDBG can be used for home ownership

and rental housing

– HOME is often used as a direct development resource;

– CDBG is often used “in support of” housing development

• Lots of overlap, but lots of nuances for how the resources

can be used in different but complementary ways

Housing 101 6

HOME Eligible Activities

• Eligible Uses of HOME

– Used to assist affordable housing in

acquisition, new construction, rehabilitation

and tenant-based rental assistance

– May be used to refinance existing debt if

HOME funds are used to rehabilitate the

property

Housing 101 7

Eligible Uses of CDBG

• Labor and materials

• Replacement of principal fixtures and

components of existing structures.

• Reconstruction of housing is permitted.

• Both HOME and CDBG now require

broadband service to projects with 4 or

more units.

Housing 101 8

Housing with HOME and CDBG

• CDBG does not fund:

– Creation of a secondary housing unit attached to a primary unit

– The value of sweat equity

• HOME and CDBG do not permit funding of:

– Luxury items

– Costs of furnishing or other personal property

Housing 101 9

10

Assisting Homeownership

under HOME and CDBG

The Basics of Homebuyer Programs

• Eligible Homebuyer Incomes

– Under 80 percent of Area

Median Income in HOME and

CDBG

– Typically single-family homes,

but includes fee simple

ownership in 1-4 unit building

or a condo unit

– Often community-based

developers

Housing 101 11

HOME Homebuyer Development

• A versatile resource

• Think about objectives for specific projects

– Neighborhood revitalization?

– Long-term affordability?

– Income diversity in high-cost markets?

– Produce as many units as possible?

Housing 101 12

Homeownership Under HOME

• Ownership in fee simple title or 99 year leasehold interest

• One-to-four unit dwelling or condo unit or equivalent

approved by HUD

• Ownership interest may be subjected to restrictions, i.e.

on resale.

• Buyers must receive homeownership counseling from a

HUD-approved counselor.

Housing 101 13

HOME Homebuyer Eligible Activities

• Property acquisition

– Acquisition by eligible households

– Acquisition for development and resale by developers

• Construction/rehabilitation

• Soft costs

– Including developer fees.

– Developers are not subrecipients, developing property not

administering a program to develop property

Housing 101 14

Homeownership Activities:

“Down Payment Assistance”

• What we call DPA is comprised of three eligible parts

– Down payment: CDBG is restricted to ½ the minimum down payment required by the lender

– May additionally include closing costs and prepaid expenses such as taxes, insurance

– Principal reduction

– Other methods of structuring assistance include subsidized interest rates, financing or loan guarantees

Housing 101 15

HOME Resale and Recapture Requirements

• HOME requires that all assisted property meet wither a “resale” or

“recapture” requirement for an affordability period determined by

the amount of HOME funds used on the project.

– For example: Over $40,000 of assistance, minimum period of affordability

15 years.

• HOME resale requirements carry substantial compliance risk for

HOME grantees; but it can be managed (for example, by limited-

equity ownership).

Housing 101 16

Beyond the

Regulations

• Eligible buyers need to be:– Eligible for mortgage

financing under reasonable terms

– Ready to invest their own funds

– Prepared to undertake the responsibility of homeownership

Housing 101 17

The Key Variables

in a Homebuyer Deal

• Total Development Cost:

– the cost to create a homebuyer unit

• Market Value:

– the amount a ready, willing and able buyer will pay for the unit in an arms-length, unsubsidized transaction

• Affordable Mortgage:

– the amount an eligible family can afford to pay for the home

18

Total Development Cost

Market Value/Sale Price

Affordable Mortgage

$0

$

$$

$$$

The Homebuyer

Development

Project:

Setting the Stage

19

The Basics of Gap Financing

• Market value: the most likely price that would be paid for the property by a ready, willing and able buyer from the general public in an arm’s length transaction

• Market value – affordable mortgage = homebuyer subsidy

• Actual affordability gap based on the actual income and debt level of the specific prospective borrower.

Housing 101 20


Affordable Mortgage$

$$

$$$

The Homebuyer Subsidy

(the assisted portion of the

buyer’s equity, subject to

recapture)

$0


21


• Cost of the project

• Development costs

include:

– Acquisition

– Rehabilitation/construction

– Developer fee

– Allowable soft costs

Housing 101 22

Considerations in

Prioritizing

Development

Costs

• Flexibility in determining specification for rehab

or new construction beyond minimum standards

• Must have written standards

• Homebuyer grantees are often concerned about

the challenge of the marketability of constructed

or rehabilitated units.

Housing 101 23

Cost vs. Value: The Development Subsidy

• Development

cost – market

value =

development

subsidy

Housing 101 24



$$

$$$




recapture)

The Development

Subsidy (not subject to

recapture, i.e., a grant)

$0


25

Location: A Continuum of Neighborhoods

• Neighborhoods can be

categorized as:

– High-Cost Markets

– Stable neighborhoods

– Revitalization

neighborhoods

– Redevelopment

neighborhoods

Housing 101 26



$$

$$$The Homebuyer Subsidy



recapture)

$0


High-Cost Area:

Achieving and

Preserving

Affordability

27

$$$




recapture)

The Development



$0


Affordable Mortgage$$$$$$

$0


Stable

Neighborhood:

Stimulating Owner

Investment through

Moderate Subsidy

Gaps

28

$$$

$0



$$

$$$




recapture)

The Development



$0


Revitalization

Neighborhood:

Achieving feasibility

and creating demand

29

HOME and CDBG

for Rental

Housing

Housing 101 30

HOME/CDBG Affordable Rental Development

• Primary Federal government

resources for financial assistance for

rental housing construction and

rehabilitation:

– LIHTC,

– Housing Trust Fund

– Tax-exempt bonds

– HOME and

– CDBG. Housing 101 31

Rental Development and the HOME Program (continued)

• Tenant-based Rental Assistance (TBRA)

– Permits HOME grantees to provide financial

assistance to low-income households to

permit them to rent market rate units.

– TBRA helps individual households rather than

subsidizing particular rental project.

– TBRA may not exceed two years.

Housing 101 32

Rental Development and the HOME and CDBG

Programs (continued)

• Rent and Occupancy Requirements

– Every HOME-assisted unit is subject to rent

limits.

– The maximum rents are referred to as “HOME

Rents.”

– CDBG has no federally determined rent limits

(defined by local written policy)

Housing 101 33



• Occupancy Requirements– HOME-assisted rental units can only be occupied by

households earning under 80% of AMI (low-income

household)

– HUD requires additional deep targeting called

“Program Funds rule”.

• 90% of total households assisted through the

rental or TBRA program have incomes that do not

exceed 60 % of AMI

– CDBG requires 51% of all households be at 80% AMI

(low to moderate income)

Housing 101 34

Required HOME and CDBG Units

10 unitsHOME

$400,000

CDBG

$200,000

Total

Development

Costs $1

million

How many

HOME

units?

How many

LMI units for

CDBG?

HOME & LMI

Market rate

HOME & LMI HOME & LMI

LMI LMI

Market rate

HOME & LMI

Market rate Market rate

35

Rental Development and the HOME Program (continued)

• Affordability Period

– HOME-assisted rental units carry rent and

occupancy restrictions from 5-20 years

depending on the amount of HOME funds

invested per unit and rehabilitation,

refinancing or new construction.

– CDBG does not have a minimum affordability

period (exception is CDBG NSP)

Housing 101 36



• HOME: CHDOs or Community Housing

Development Organizations

– Private, non –profit, community-based organizations

that meet certain criteria

– HUD hopes to help CHDOs build the necessary

capacity to produce affordable units.

• CDBG: CBDOs or Community Based

Development Organizations

– Can use CDBG for new construction, but only in a

revitalization area

Housing 101 37

Subsidy Layering

HOME and CDBG

• Before committing funds to a project that

combines the use of any other local, state

or Federal assistance, HOME and CDBG

grantees must evaluate the project in

accordance with subsidy layering

guidelines.

Housing 101 38

Other Federal Requirements on HOME and

CDBG• Environmental Review

• Davis Bacon

• Section 3

• Minority and Women’s Business Enterprise

• Lead-Based Paint

• Fair Housing and Equal Opportunity

• Affirmative marketing

• Equal employment opportunity

• Conflict of Interest

• Relocation

Housing 101 39

Key Programmatic Differences in

HOME and CDBG in Assisting

Rental Properties

• CDBG new construction may be done only

through Community-Based Development

Organizations (CBDOs).

• HOME units can only be occupied by low-

income households.

• The HOME regulations require a

maximum HOME subsidy.

Housing 101 40

Key Programmatic Differences in

HOME and CDBG in Assisting

Rental Properties (continued)• Incomes need to be re-examined for HOME-

assisted units annually.

• Units assisted under HOME must meet applicable codes/standards.

• Units under HOME must meet long term affordability rules on occupancy, rents and property condition.

• CDBG can be used for specialty rehab programs.

Housing 101 41

Support of New Housing with CDBG

• Acquisition

• Clearance

• Site Improvements

• Street Improvements

Housing 101 42


• Acquisition

Acquire the land / property for a public purpose – must be

acquired by grantee or non-profit

LIHTC – is a public purpose

Donate, sell property to developer for housing

– Agreement

– Underwriting

– Rent Restrictions

– Recordkeeping and Reporting Requirements

Housing 101 43


• Clearance

– Clear site to make ready for construction

– Demolish structures on the site

– Residential units (may need to consider 104(d) compliance)

Housing 101 44


• Infrastructure

– Assist with water, sewer, as long as the improvements are in

the public Right Of Way (ROW)

– Sidewalks in public ROW

Housing 101 45

Small Elderly Rental Project

Housing 101 46

CDBG Infrastructure

Housing 101 47

CDBG Infrastructure – Elderly Rental

Housing 101 48

Rental Housing Existing Units

• Available space/structures

• Adaptive reuse

• 51% of the units low and moderate – so mixed use is an

option

• Rent restrictions driven by local written policy

Housing 101 49

Identify Your Needs

• Demographics

– Age of Housing Stock

– Existing vs new construction

– Type of Housing – single story; multi-story

– Elderly versus Young Couples, Families

• Market Study

What can the market bear

Housing 101 50

Home Ownership Assistance - CDBG

• 50% of required down-payment

• Other financing mechanisms

• Pairing of CDBG and HOME funds?

Housing 101 51

HOME and CDBG

• Some projects can be similar:

– Down payment assistance

– Homeowner rehab

– Rental rehab…

Housing 101 52

HOME and CDBG

• …but strategic objects and methods differ:

– HOME emphasis on affordability vs. CDBG allowance for some income

diversity (51% low-mod)

– HOME assistance to developers vs. CDBG assistance for local units of

government

– HOME can promote new construction to expand supply of affordable

units, where CDBG focuses on rehab and public investment support for

development

– HOME emphasis on affordable units, vs. CDBG focus on projects (inc.

mixed income, mixed use, etc.)

Housing 101 53

National Housing Trust Fund

• Federal Code of Regulations can be found at

24 CFR Parts 91 and 93

• January 30, 2015, HUD published an Interim Program Rule(FR-

5246-I-03). The interim rule provides the guidelines for States to

implement the HTF

• Still Interim Rule--awaiting the Final Rule!

• Functionality is similar to HOME, but with a heavier ELI focus,

which accommodates more of a supportive-service-enriched

element.

Housing 101 54


• Goal of the Fund - increase and preserve the supply of

decent, safe, and sanitary affordable housing for

extremely low (0-30% AMI)- and very low-income (30-50% AMI)

households, including homeless families.

– production or preservation of affordable housing through the

acquisition, new construction, reconstruction, and/or

rehabilitation of non-luxury housing with suitable amenities.

Housing 101 55


• HTF is a formula grant program, which is to be administered by

States

• Formula grant program with funds from GSEs

• Grantees are required to use at least 80 percent of each annual

grant for rental housing;

– All HTF-assisted rental housing must meet a 30-year affordability period;

• Some differences in ERR process:

– See https://www.hudexchange.info/programs/environmental-review/htf/

Housing 101 56

https://www.hudexchange.info/programs/environmental-review/htf/


• up to 10 percent of annual allocation may be used for

homeownership housing of extremely low-income (ELI)

and very Low-income (VLI)

– All HTF-assisted homeownership housing must meet the

minimum affordability period of 10, 20 or 30 years based on the

amount of HTF investment in the unit

• up to 10 percent of the annual allocation for the grantee's

reasonable administrative and planning costs.

Housing 101 57

Massachusetts HTF Allocation Plan

• Supportive Housing

• Dedicated Funding Round and typically MA state HOME

is not a participating resource.

• Supportive Service

Partnerships

• Rental Assistance

and Service Stipend

Housing 101 58

Examples of Massachusetts HTF Projects• 242 Spencer, Chelsea

– 34 units of family housing, including 3 units targeted to low income persons with

disabilities and 8 units for formerly homeless families, who will receive supportive

services.

• House of Hope 3, Lowell

– 16 units of permanent supportive housing

for formerly homeless families.

• Abby’s House, Worcester

– Preserves 53 units and adds 3 more

for formerly homeless women

with extensive trauma histories.

Housing 101 59

Massachusetts HTF Projects

• Montello Welcome Home II, Brockton

– 23 new supportive housing units for homeless veterans and other

homeless individuals.

• 21 Jaques Avenue, Worcester

– 4 units of affordable rental housing

for families with very low

and extremely low incomes.

Two units will be targeted

to households with disabilities.

Housing 101 60

Hillside Residence, West Springfield

• The non-profit, Sisters of

Providence, proposed the new

construction of a supportive

housing residence for medically

compromised elders who are

homeless and at risk of

institutionalization. The project

will result in 34 units of PSH and

2 respite units.

Housing 101 61


• Sited on the campus of an

existing elder service

compound, with on-site

services available through a

federal Program of All-inclusive

Care for the Elderly (PACE). 6

Hillside Residence, West

Springfield

Housing 101 62


• PACE is a Medicare/Medicaid

funded community based health

program designed to keep frail

elders living in the community

safely for as long as possible.

Eligibility is restricted to those

who are 55 or older, meet the

definition of “nursing home level

of care” and agree to receive all

their health care from PACE.

Housing 101 63

Resources

• https://www.hudexchange.info/resource/269/basically-cdbg-for-

states/

• https://www.hudexchange.info/programs/home/

• https://www.hudexchange.info/programs/htf/

• https://www.govinfo.gov/content/pkg/FR-2015-01-30/pdf/2015-

01642.pdf

Housing 101 64

https://www.hudexchange.info/resource/269/basically-cdbg-for-states/

https://www.hudexchange.info/programs/home/

https://www.hudexchange.info/programs/htf/

https://www.govinfo.gov/content/pkg/FR-2015-01-30/pdf/2015-01642.pdf

Housing: Program Models and Activity Alternatives...• Eligible Uses of HOME –Used to assist affordable housing in acquisition, new construction, rehabilitation and tenant-based

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