In December 2014, Federal Housing Finance Agency (FHFA) Director Melvin L. Watt instructed Fannie Mae and Freddie Mac to begin setting aside and allocating funds for the Housing Trust Fund (HTF) and the Capital Magnet Fund and the Government Sponsored Entities (GSEs) began setting aside payments beginning January 1, 2015.

The purpose of HTF is to provide grants to State governments to increase and preserve the supply of rental housing for extremely low- and very low-income families, including homeless families, and to increase homeownership for extremely low- and very low-income families. Based on some estimates, the HTF could initially receive between $250-300 million annually and funding would begin in 2016.

As a result, HUD recently released an interim rule to govern the implementation of the Housing Trust Fund.  This rule establishes the regulations that will govern HTF and the formula that will determine how HTF funds are distributed among eligible grantees as well has how grantees can use HTF dollars, including:

  • In order to be eligible for HTF grants, each state/grantee would be required to identify the agency to allocate the funds and develop a consolidated allocation plan. States would be given significant discretion over how HTF funds are to be used to meet local housing needs
  • In years where less than $1 billion is available through HTF, the rule would require that each grantee’s HTF funding is used to support extremely low-income families, or those earning 30 percent or less of area median income (AMI). In funding years where more than $1 billion is available, at least 75 percent of each grantee’s HTF funding would be required to support extremely low-income families, while the remainder could be used to support very low-income families, or those earning 50 percent or less of AMI
  • At least 80 percent of the HTF funds would be required to be used for rental housing, and no more than 10 percent to support sustainable homeownership for first-time homebuyers. The rule specifies that up to 10 percent could be used to cover administrative costs
  • Grantees would be able to use HTF funds for several types of assistance including grants, equity investments, loans, advances, interest subsidies, deferred payment loans and other assistance approved by HUD
  • Specific project costs eligible for HTF support would include hard development costs, certain soft costs like architectural and engineering fees, acquisition costs, refinancing costs, relocation costs and certain operating costs
  • The proposal stipulates that HTF funding shouldn’t be used for public housing, unless through the rehabilitation of existing public housing through HUD’s Rental Assistance Demonstration (RAD) or the Choice Neighborhoods Initiative (CNI) but HTF funds would be able to leveraged in the use of other federal subsidies such as Low-Income Housing Tax Credits (LIHTC) or Project-Based Rental Assistance contracts

The interim rule updates the draft rules proposed 2010; major revisions include strengthened income-targeting, allowance of HTF funds to be used for public housing revitalization, removed requirements that HTF-supported units meet Energy Star or Water Sense certifications, and more.

Click here to read HUD’s interim rule.