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A local officials guide to FIRREA to affordable housing programs.

In 1989 the U.S. Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) [12 U.S.C. 3331 et. seq.]. The Act was developed as the result of the Savings and Loan crisis of the 1980s. It substantially reorganized the entire banking system. Section 721 of the Act contains a highly valuable provision for cities needing funding to meet their affordable housing needs. Through the Federal Home Loan Bank (FHLB) System billions of dollars in community development and affordable housing loans and grants are made available by the Act. There are twelve regional banks that comprise the FHLB System. Each bank serves a geographic region of the country. The Federal Housing Finance Board (FHFB), based in Washington, DC, regulates the activities of the Federal Home Loan Bank system.

Federal Home Loan Banks provide two distinct affordable housing loan programs: The Community Investment Program (CIP) and The Affordable Housing Program (AHP). While both programs offer loans at rates below what can be obtained from commercial lenders, the Affordable Housing Program's interest rates are lowest. Grants as well as very low interest rate loans can be obtained through the AHP. CIP and AHP operate differently in several other respects as well.

The Variety of Programs

The Community Investment Program is very compatible with the Community Development Block Grant Program (CDBG). CIP funds can be used for housing as well as community and economic development purposes. CIP funds can serve both low and moderate income households having incomes as high as 115 percent of the median income for the area.

CIP funds are available 12 months out of the year and are non-competitive in the sense that loan decisions are based on the underwriting and program criteria of the regional bank.

The Affordable Housing Program's affordability provisions are very similar to the HOME Program. AHP funds can only be used for affordable housing. It can only serve people earning 80 percent or less of the median area income, and at least 20 percent of the housing units in rental housing must serve very low-income households.

AHP applicants must compete for funding during two periods in the calendar year which vary from region to region. For the states of Pennsylvania, Delaware, West Virginia, Indiana, Michigan, Alabama, The District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina and Virginia, the application deadline for the "first round" is January 15th and the "second-round" deadline is July 15th. For the remaining states the deadlines are April 15th and October 15th.

Eligible applicants for both programs include public housing agencies, city governments, private for-profit and private non- profit organizations. Applicants must apply through a local lending institution within their jurisdiction that is a member of the Federal Home Loan Banking System. (Note: not all banks are members). Contact the Federal Housing Finance Board on (202) 408- 2848 to find out the name and address of the Federal Bank serving your state, who can then provide the names of member banks in your area.

Cities should already have a development plan in place for a specific project before approaching a member bank for assistance. Applicants should also begin working with their member bank at least 90 to 120 days prior to the application deadline. Member banks are required to provide technical assistance to applicants under Section 721 of FIRREA. Also note that, FHLB programs are not designed to finance the entire cost of development. Therefore, cities will need to identify other sources of funding as leverage for these programs. Other programs that are often used with the CIP and AHP are HOME, CDBG, Low Income Housing Tax Credits, other commercial bank loans, state housing trust funds and local bond or tax revenue programs.

Resolution Trust Corporation

Another institution created by FIRREA is the Resolution Trust Corporation (RTC). RTC is charged with selling off the vast array of assets left by defaulted savings and loan institutions. RTC also has an obligation to enter into sales transactions that further the provision of affordable housing. So far RTC has sold over 17,000 units of single-family housing and over 431 apartment buildings containing 38,000 rental units. Through the Affordable Housing Disposition Program (AHDP) RTC has assured that two- thirds of the single-family homes and 35 percent of the apartment units are affordable to low-income people earning no more than 115 percent of a metropolitan area's median household income.

RTC sells properties directly to individuals as well as to public agencies and nonprofit organizations. Homes in RTC's inventory that are appraised under the AHDP guidelines are sold exclusively to low- and moderate-income buyers as well as to nonprofits and public agencies during a 97-day exclusive marketing period.

After the 97 day period the properties are made available to for profit organizations. Single-family homes are limited in value to $67,500. Two to four unit single-family structures may have higher appraised values up to $107,000 for a fourplex. A large portion of RTC's affordable housing inventory has already been sold. Contact the AHDP Hotline on 1-800-624-HOME. You may also contact the Federal Home Loan Bank in your area and in 36 states, the state housing finance agency keeps up to date lists of RTC properties.

Affordable Housing Updates, Notices and Funding

Drug Elimination Grants: The U.S. Department of Housing and Urban Development (HUD) announced in the February 23, 1995 Federal Register the awarding of some $238 million in grant funds to 520 housing authorities for the elimination of drug related crime in public housing. Authorized under the Anti-Drug Abuse Act of 1988, the Drug Elimination Program allows housing authorities to fund a wide variety of creative solutions to reduce drug related crime. Call 1-800-578-3472 for a booklet of model programs or call HUD user on 1-800-245-2691 for a booklet of case studies.

GSE Affordable Housing Goals Increase: The affordable housing goals for two Government Sponsored Enterprises (GSEs) would increase under a new HUD rule. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mae) will significantly increase the amount of business they generate for affordable housing if a new rule proposed by the Secretary of HUD goes into effect. Under the measure Fannie Mae and Freddie Mac must increase the percentage of low and moderate income housing units assisted to 38 percent in 1995 and 40 percent in 1996;this is an increase over the 1994 30 percent requirement.

Fannie and Freddie purchase loans from commercial lenders that meet their underwriting criteria and sell the loans in the form of securities through what is called the secondary market. Billions of dollars in mortgage loans are packaged into Mortgaged Backed Securities (MBSs) and sold to major investors such as retirement funds, insurance companies and corporations. Through this process of buying loans from banks, packaging and reselling, Fannie and Freddie free up an enormous volume of capital so that banks can continue to make new loans. The new rule was announced in the February 16, 1995 Federal Register. The public comment period closes on May 2, 1995.

Youth Build Grants: HUD announced the availability of $74 million in grants to train economically disadvantaged youth in the building trades industry. HUD plans to award fifty "planning grants" and sixty-nine "implementation grants." This is only the second year for the program the experience with the program is not extensive. Competition for funding is expected to be strong, so cities should carefully read the Notice of Funding Availability (NOFA) and the Final Rule for the Youth Build program published February 21, 1995 in the Federal Register.

Cities that do not have much experience with youth training programs might consider applying for a planing grant, which will enable them to develop the necessary strategy and resource commitments prior to implementation. The deadline for submission of applications is May 8, 1995. Contact HUD at telephone number (202) 708-2035 for the application package.
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Title Annotation:Financial Institutions Reform, Recovery and Enforcement Act of 1989
Author:Doaks, Michael
Publication:Nation's Cities Weekly
Date:Apr 3, 1995
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