Two groups are urging House Ways and Means Committee members to preserve low income housing tax credits and tax-exempt housing bond programs as they consider comprehensive tax reform.
The National Council of State Housing Agencies, which represents housing finance agencies in 50 states plus Washington, D.C., New York City, Puerto Rico and the U.S. Virgin Islands, submitted a statement to the committee ahead of Thursday’s hearing on tax reform and residential real estate.
Separately, the National Association of Local Housing Finance Agencies submitted comments to the tax reform debt, equity and capital and real estate tax reform working group earlier this month raising similar concerns about preserving tax incentives for affordable homeownership and rental housing.
NCSHA president Brian Hudson, told committee members, “These indispensable financing tolls contribute more significantly to state HFA efforts to create housing, community, and economic opportunity than any other federal resource. With the housing credit and housing bonds, HFAs are able to respond to the full spectrum of housing need, financing ownership and rental housing, newly constructed and rehabilitated, for all populations.”
On Thursday the committee examined all housing-related tax provisions as part of a comprehensive review of the tax code as it moves forward on tax reform.
NCSHA highlighted how housing credit and housing bond programs have historically had broad bipartisan support in both chambers of Congress and throughout the housing industry. Using single-family housing bonds, known as mortgage revenue bonds or MRBs, state HFAs have made three million families first-time homeowners, the NCSHA said. These bonds typically help 100,000 additional families become first time homeowners each year.
Each state’s annual issuance of MRBs and other private-activity bonds is capped based on state population estimates. Congress restricts MRB mortgages to first-time homebuyers who earn no more than the area median income. Both the low-income housing tax credit and the ability for HFAs to issue MRBs were created by Congress in 1986.
“In strong and weak economies, using primarily MRBs, HFAs have been a constant, reliable source of flexible, affordable mortgage money for lower-income first-time home buyers, anchoring the first-time home buyer market,” the statement said. “HFA single-family loan performance is strong, long noted for its low delinquency and default rates. HFAs have never engaged in subprime or other risky lending.”
The NCSHA contends that these two housing programs should be preserved because they are highly effective in achieving the housing objective Congress set out for them and the social benefits they produce would not occur without these tax incentives and therefore cannot be “replicated through a federal spending program, even if Congress could find a way to fund one in today’s severely constrained budget environment.”
“The affordable housing activity the housing credit and the housing bonds generate simply would not happen without these programs,” the group said. “MRBs represent about the only hope for creditworthy families with modest incomes and limited capacity to amass large down payments to access homeownership. The prospects for replacing MRB results through a federal spending program are dim.”
Traditionally, HFAs have financed their mortgage lending business by issuing tax-exempt bonds and using the proceeds to offer affordable mortgage loans to first-time, low-income home buyers. However, conventional mortgage interest rates have generally been lower than those that can be achieved through the issuance of bonds due to actions by the Federal Reserve Board to keep interest rates low. As a result, tax-exempt bond financing does not provide a cost of funds low enough to offer competitive mortgage rates.
This has “greatly reduced, if not eliminated, the housing bond tax-exempt interest rate advantage,” the NCSHA said. The group forecasts housing bond issuance will increase once the Fed’s temporary economic recovery measures are lifted and lending rates for housing bonds become more attractive.
NALHFA noted the success of the 2009 New Issue Bond Purchase Program (NBIP). Under the program, 44 local HFAs created nearly 17,000 affordable housing opportunities for first-time homebuyers and low-income renters.
“NIBP has been a critical tool in expanding affordable homeownership and rental housing opportunities, stabilizing blocks and neighborhoods as well as generating significant economic activity in response to the nation’s housing crisis,” NALHFA said.