This month, the Minnesota Housing board meeting included policy updates, an explanation of the new Mortgage Credit Certificate program slated to launch in June, and final approval of the application criteria for low income housing tax credits. Finally, a progress report of the Rental Rehab Deferred Loan pilot program was discussed, along with proposed changes intended to make access to rehab resources easier for small rental property owners in Greater Minnesota.
For her policy update, Commissioner Tingerthal mentioned the proposal by Rep. Keith Ellison to reform the federal mortgage interest deduction by changing it to a tax credit. The proposal would enable more low-income homeowners to take advantage of tax benefits, and would put more federal resources into affordable rental housing. The Agency will be tracking this and similar federal legislation.
At the state level, Tingerthal reported that housing has been faring well in budget proposals, and that indications were positive that the Governor's bonding proposal would also include affordable housing. (This turned out to be the case with the bonding proposal including $40 million for affordable housing.) The Agency is also following bills about areas affected by flooding and the property tax rate for affordable housing.
New mortgage credit certificate program explained
Staff made a power point presentation on the new Mortgage Credit Certificate (MCC) program, with a planned launch in June, 2013. This program will enable the Agency to utilize $135 million in bonding authority that would otherwise have expired in November 2012. Typically, the Agency has used its bonding authority through selling tax exempt bonds for offering first mortgages to homebuyers. However, due to very low interest rates on market mortgages, there had not been sufficient demand for Agency first mortgages and therefore no ability to use the entire tax exempt bonding authority.
The MCC program will allow qualified first time homebuyers to take a federal tax credit equal to 35% of the mortgage interest paid. This benefit would come on top of the existing federal mortgage interest deduction for beneficiaries. Borrowers must also be within income limits, and the property must be an owner-occupied single family home or duplex and purchased within a price limit (which is near $240,000 in Greater MN and almost $300,000 in the Metro area). MCCs can be used by borrowers with loans originated by Minnesota Housing (as long as the loans are not funded with tax-exempt bond proceeds) or elsewhere. The benefit is capped at $60,000 over the life of the loan and at $2,000 per year.
The MCC program is designed to support recovery of communities after the real estate market crash, and to assist first time homebuyers of modest income in buying homes that might otherwise sit on the market. The Agency estimates that about 650 to 750 MCCs will be issued on a first-come, first-served basis before the resource runs out.
Revisions to 2014-15 QAP approved
Staff explained several additional changes proposed for the 2014-15 Qualified Allocation Plan (QAP) for awarding $12.1 million in low income housing tax credits in each year. Changes were made in response to comments received in writing and at a public hearing on February 20. Changes made pertained to
• incentives in the points awarded for units being set aside for special populations.
• the minimum point threshold to enable projects to qualify to use 4% tax credits
• how points are awarded for preservation and stabilization .
• how cost containment points are awarded for 9% tax credits
Of note, no change was made in points awarded based on geographic location of projects, despite many public comments. Staff re-analyzed the mix of communities eligible for location-based points and concluded that a broad mix of communities is eligible when criteria are considered in aggregate.
After hearing the explanations, the board praised the data analysis performed by staff and unanimously approved the changes to finalize the 2014-15 QAP.
Rental Rehab Deferred Loan Program discussed
The last major item on the agenda was discussion of the Rental Rehab Deferred Loan (RRDL) pilot program, the goal of which is to help preserve unsubsidized affordable rental properties in Greater Minnesota through providing resources to rehab small rental properties.
The Agency is about halfway through the pilot program, and is on track to use all funds designated for larger projects with federal rental assistance. However for locally administered programs targeting 8-10 unit projects, only about half of the funding has been awarded.
Staff has sought to understand why applications for rehab of smaller projects have been limited. The data shows that 60% of rental units in Greater MN are in buildings with 10 or fewer units. With aging properties and few private sector loans available, demand for Agency rehab resources should be ample. Staff therefore reached out to stakeholders and found three primary reasons for the limited use of RRDL funds for smaller properties:
• The owners of small properties typically have limited experience in applying for and using Minnesota Housing funds
• The underwriting for the loans is too complex for small property owners
• Most existing loans on these properties involve commercial lending, and commercial loan requirements are incompatible with Minnesota Housing required loan terms
In order to address these concerns, staff is simplifying the application process for small properties, using community profiles to identify and target strategic priority areas, and revising the allowable terms for commercial loans for small properties. To address underwriting complexities in particular, applicants will be able to submit an existing schedule required for rental properties in federal tax returns, rather than needing to have a professional financial audit, which has been a prohibitive barrier. The Agency will report back on the RRDL pilot program in one year.