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Defining Affordable Housing: The Master Key to Unlocking Doors.

What's affordable in a high cost market like San Francisco might seem expensive in a market such as Baltimore. Generally speaking, housing that families cab obtain paying about 30 percent of their income is considered "affordable".

How can housing be made affordable in markets where the lowest priced new homes and average-priced resales are beyond the reach of large segments of the community?

The simple answer is to reduce the cost of production and expand buyer purchasing power. This can be accomplished through a wide range of techniques. Usually, no single technique achieves affordability, but the cumulative effect of several can make a dent in affordability.

Reducing Costs

Cost reductions can be achieved by the actions of local government, builders, and financing institutions. Local government can write down land costs, either through land transfers of surplus property or using community development funds to acquire sites.

Local government can also facilitate affordable housing development and reduce costs by expediting the development process for builders and non-profit sponsors, assuming some infrastructure costs, waiving or reducing permits and fees, and by providing property tax incentives to new home buyers in targeted neighborhoods.

Developers and builders can contribute to cost reduction by identifying creative ways to reduce land development and construction costs. Organizations such as the National Association of Home Builders (NAHB) have catalogued ways builders can contribute to housing affordability. This information is available from Claudia Kedda in NAHB's Mortgage Finance Division at 202/822-0352.

Financial institutions can also assist in achieving cost reductions by providing construction and mortgage financing at favorable terms.

Fannie Mae's American Communities Fund (ACF) specializes in providing debt and equity financing. ACF provides access to private equity capital in neighborhoods that need community development, making a tangible impact on a community's net worth. ACF also supports efforts that increase the output of affordable housing.

ACF's investments have helped develop more than 5,000 housing units since 1996.

In addition, institutions that are members of the Federal Home Loan Bank system can apply for project financing at favorable terms under its Affordable Housing Program and Community Investment Program. National trade organization such as the Mortgage Bankers Association and American's Community Bankers have developed extensive database and publications that describe creative financing techniques used by banks and mortgage bankers across the country.

Expanding Buyer Purchasing Power

The second half of the affordability equation can be addressed by a combination of flexible mortgage loan underwriting, down payment and closing cost assistance programs, and, in high cost markets, soft second mortgages.

Fannie Mae

Fannie Mae's Partnership Offices offer a wide range of Community Lending Mortgage Products with flexible underwriting guidelines that target underserved and emerging markets in affordable housing. Many banks also have their own flexible underwriting mortgage products designed to address specific market needs.

Local government can play a significant role in expanding buyer purchasing power by using HOME, CDBG and other funds to finance down payment and closing cost assistance programs.

Fannie Mae sometimes contributes additional resources to local down payment and closing cost assistance funds and has its own Down Payment Assistance Investment Note (DPAIN) product that is increasingly being used to finance down payment assistance programs and leverage HOME funds.

In high housing cost markets, down payment and closing cost assistance to make housing affordable. In such cases, local governments may establish soft-second mortgage programs that offer below market interest rates and deferred payments for home buyers. These programs are typically funded by HOME and/or CDBG funds.

Some state housing finance agencies also provide funding for soft seconds. Fannie Mae's 3/2 Option mortgage (one of a variety of different Community Lending products) has been used for this purpose in many cities.

Putting the mechanism into place to produce affordable housing requires a cooperative effort among local government, financial institutions, builders, non-profit community development organizations, and others in the housing industry.

The examples on these pages show how Partnership Offices have worked with local government and other partners to increase affordable housing opportunities in their communities, as well as to attract moderate and middle-income housing to communities.
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Copyright 1999 Gale, Cengage Learning. All rights reserved.

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Publication:Nation's Cities Weekly
Article Type:Brief Article
Geographic Code:1USA
Date:Nov 15, 1999
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