On July 11 the Minnesota Housing board held a special session to work on its next Affordable Housing Plan (AHP). This special session also provided Commissioner Mary Tingerthal the opportunity to discuss how the state government shutdown would lead to unique modifications in the plan and to introduce the board to some new agency business initiatives.
Given Uncertainty, Traditional Two-Year Plan Becomes Two One-Year Plans
Tingerthal said that both the state shutdown and the very uncertain national financial and political environment necessitate a variation on the standard two year AHP. She recommended, and the board agreed to, completing a plan that would take the agency only through September of 2012; the agency would then assess the situation and complete a new plan for the second year of the cycle. Because of delays in adopting a budget in the regular legislative session, the plan would go before the board for adoption in October, one month later than originally planned.
Business Initiative Ideas
Most of the discussion centered on initiatives the agency could take due to having access to additional tax exempt bond authority. Because of aberrations in the financial markets, tax exempt interest rates are currently no better than regular, taxable interest rates. This has left the state unable to sell tax exempt bonds to its full authority. Minnesota Housing, however, can link tax exempt bonds to additional financing options unavailable to other agencies, so is in a position (likely temporary) to use more of the state’s bonding authority for housing than it typically can use. (With interest rates being what they are, the agency has only been able to keep its mortgages competitive, said Deputy Commissioner Patricia Hippe, by linking its mortgage lending with agency-provided down payment assistance, thereby sweetening the deal for borrowers.)
Rental. Tingerthal suggested that the agency could boost its revenues by becoming a more active multifamily lender. In conjunction with tax-exempt bonding, it could expand the use of the federal risk share loan program for rental housing developments. Under risk share, the federal FHA assumes half of the risk on loans, though the agency can still use its own standards to underwrite projects. This is attractive to developers because the time it takes to secure a loan can be much faster using risk share than with the typical issuance of FHA insurance. Also, the agency can more actively provide tax exempt debt in conjunction with 4 percent housing tax credits. Tingerthal said to make these projects workable financially, the agency can use its resources to provide a shallow subsidy.
Ownership. For home ownership, the agency will consider a couple of new options. It might provide financing for “rescue mortgages” through loans that can help people buy or keep their homes when facing credit or valuation issues. These mortgages would help provide financing for nonprofits to sell homes on contracts for deed or under lease purchase arrangements instead of having buyers use regular mortgages.
The agency also will explore increasing the income cap for its mortgages. Federal tax exempt rules permit borrower incomes to be as high as 115 percent of median, while agency guidelines limit income to 100 percent. The agency normally wants to direct its mortgages to lower income people, but with plentiful tax exempt financing, it can alter guidelines to serve higher income households. Tingerthal said it would likely do so only to further a particular policy objective, such as reaching higher-income emerging market households.
Board members were in favor of the agency exploring these new financing products. Member Gloria Bostrom wanted to see more emphasis on making ownership sustainable. She endorsed post-purchase counseling.
Tingerthal said that the agency had no interest in displacing the business of other lenders as it considers which new loan products to offer. Member Joe Johnson thought that lenders would welcome an expanded role of Minnesota Housing expanding in the market, since this would provide additional opportunity for the agency to buy loans from local lenders. (Of note, earlier in the meeting Johnson mentioned that qualifying people for loans has not been difficult; about 5 out of 6 they saw in his Duluth market qualified; problems instead rest with low appraised valuations derailing sales, and people reluctant to purchase because of the uncertain market.)
Tingerthal said that when all is said and done at the legislature, in the new planning period, the agency will likely see a total budget, including use of funds obtained through sale of tax exempt bonds that is only about $150 million less than in the current affordable housing plan (AHP), which had a budget of $1.4 billion for 2010-11.