WASHINGTON - The massive housing reform and aid bill passed by the House Wednesday raises every state's private-activity bond cap by 38.6% through the end of the calendar year, giving states additional incentives to offer affordable housing financed by tax-exempt bonds.
The housing legislation, which could clear the Senate and be signed into law this weekend, grants an $11 billion increase to the $28.477 billion of volume cap for private activity bonds in 2008. Though states issue private-activity bonds for a variety of purposes, the legislation mandates that they use the additional cap only for single- and multi-family housing projects.
The increase is based on the states' current private activity cap, which limits the amount of tax-exempt financing a state can issue each year to finance privately-owned infrastructure. The existing caps are proportional to a state's population. California, for example, has the largest cap with $3.1 billion this year. Under the legislation, California will get an additional $1.2 billion.
Twenty-one small states and the District of Columbia received a flat cap of $262.095 million for 2008 and will each receive an additional $101.241 million.
The cap increases will be effective once the legislation is signed into law and expire at the end of the 2008 calendar year, which means states will have about five months to allocate the additional cap. Once the cap money is allocated, state authorities will have three years to issue the housing bonds.
Joe DeAnda, a spokesperson for the California Treasurer Bill Lockyer, said the state has every intention of using the additional cap money. California housing authorities will have until October to apply for the additional cap, and the state expects to allocate it in December, he added.
In addition to the increase in volume cap, the legislation allows existing homeowners with mortgages worth more than the value of their homes to refinance at rates that have historically been reserved for only first-time buyers. And it allows subprime loans to be temporarily refinanced into long-term affordable loans. In addition, it allows proceeds from tax-exempt bond sales to be used for low-income rental housing.
Housing advocates who applauded the legislation said that it would give potential home buyers an incentive to purchase homes at below-market rates through their housing finance agencies, which in turn will stem the decline of residential housing prices.
But some housing experts said that Congress could have gone further to attract homeowners "sitting on the sidelines." Girard Miller, a senior strategist and former policy author for the Government Financial Officers Association, said the private-activity volume caps should be waived entirely for 10 months.
"That would have more impact on solving our country's problems than any single thing Congress could do," Miller said.
In the fall of 2007, the Bush Administration was looking at the mortgage revenue bond program as a possible refinancing tool for subprime mortgages. The National Council of State Housing Agencies began holding talks with the Treasury Department to create authority for refinancing within the MRB program, but said the housing authorities needed more resources to help fund the program. Any proposal for housing agencies to help troubled homeowners needed to come with a cap increase, said Barbara J. Thompson, executive director with the NCSHA. The White House began advocating for a cap increase, which received support in the Senate.
"It addresses a critical need," Thompson said of the legislation, "which is to keep affordable money flowing to lower-income, first-time time homebuyers."