Taking over from Chip Halbach, MHFA board meeting minutes will now be reported by MHP's new Executive Director, Anne Mavity.
At its September meeting, the Minnesota Housing Finance Agency (MHFA) board approved the 2018 Affordable Housing Plan (AHP), approved two bond proposals /projects, and heard a presentation on the periodic Cost Containment Report. This was the first MHFA board meeting held in the agency’s new office space.
MHFA’s new office space – formerly the Macy’s building – is located on Wabasha Street in downtown St. Paul. MHFA is the first tenant to occupy the building since the Macy’s store. Since the last board meeting, the agency hired several new staff members who were introduced to the board.
2018 Affordable Housing Plan (AHP)
The board approved the 2018 Affordable Housing Plan (AHP) with little additional discussion. The board discussed the AHP in comprehensive detail at the August 25 board meeting and at the September 11 Board Program Committee meeting. MHFA’s John Peterson mentioned that changes to the AHP are generally minor. Overall, the AHP increases available funds from 2017 by $62 million.
The new fiscal impact is now $1.1 billion for 2018. Peterson highlighted three changes. First, the agency formally added Strategic Investments/Loans as an ongoing activity to the plan and budgeted $10 million Strategic Investments/Loans. The agency regularly uses Pool 2 resources to make strategic investments and loans in order to address critical issues unforeseen at the time MHFA developed the AHP. For example, in 2017, the agency committed $5 million to Greater Minnesota Housing Fund’s Impact Initiative to preserve naturally occurring affordable housing (NOAH). The change allows the agency to respond more quickly as investment opportunities arise. Peterson stated that every quarter, staff will update the board and discuss how the agency is utilizing Strategic Investments/Loans. Second, the agency increased funding for PARIF by $7.7 million. The agency will now carry forward into the 2018 plan uncommitted funds from last year. The agency is able to do this because a few pipeline deals that the agency anticipated funding in 2017 will now see commitments in 2018, and loan repayments were higher than expected. Third, Challenge Program funding increased by $4.5 million because of loan cancellations, corrections, and loan repayments. The program is now funded at $20 million instead of $16 million for 2018.
Homeownership Education, Counseling and Training Fund (HECAT)
The board approved staff’s recommended funding of $1.6 million to assist an estimated 8,821 households through the Homeownership Education, Counseling, and Training Fund (HECAT). The program’s funding recommendation is supported by the AHP. The agency received 40 proposals requesting just over $2.2 million. The final funding awards will be presented next month. Staff did note that the agency will fund all organizations that submitted an application. One of the agency’s strategic priorities is to reduce Minnesota’s racial and ethnic homeownership disparities.
Debt Management Policy
The board approved staff’s recommendation on increasing the limit on short-term borrowing from $150,000,000 to $250,000,000. The agency uses short-term borrowing to purchase mortgage-backed securities (MBS) comprised of loans made to borrowers of the agency’s homeownership programs, and then warehouses these MBS until permanently financed by bond sales or sold into the marketplace. This has proven profitable because the agency can earn on the spread between the rate on the MBS and the costs of short-term borrowing, but the spread is offset by the agency’s hedging costs. Currently, the Debt Management Policy caps the amount of outstanding short-term borrowing at $150,000,000. Recently, there have been occasions where the agency’s short-term liquidity needs have been constrained by the current limit. Staff cited the agency’s increases in homeownership production and home prices as the reason for the proposed increased limit on short-term borrowing. Commissioner Tingerthal explained that in the past, MHFA never had a problem with hitting the limit. In response to a question, Tingerthal indicated that the larger limit will require the agency to exercise additional caution to ensure that the agency has sufficient bonding authority to permanently finance the MBS that are temporarily funded by the warehouse line.
2017 Cost Containment Report
Each year, a month before the board reviews staff recommended RFP award selections, the agency provides the board with an update on its cost containment report. Patterson noted the agency expected costs to rise over the past several years as priorities were added, such a green standards, but the agency hasn’t seen increases in construction costs (adjusted for inflation). He noted that soft costs represented a large share of the increase in total development costs, particularly in supportive housing developments. The agency has not yet considered reducing maximum fee levels, which are part of these soft costs. The report concludes that, overall, the agency has been effective at containing costs over the last decade despite pursuing policy objectives that have tended to increase costs. Board member Rebecca Otto asked about local practices, especially zoning, and asked how that impacted higher costs. Patterson mentioned that a local study conducted by the Center for Urban and Regional Affairs concluded that a four-story building is the best size for cost containment. Commissioner Tingerthal added that this is typical across the country, noting that above four stories, building codes often require steel frame instead of wood frame, escalating costs. She added that local zoning codes do not always align with such building code realities. She noted that Urban Land Institute and Regional Council of Mayors are exploring how cities might better align building codes and zoning codes. The average inflation-adjusted total development cost (TDC) has been around $200,000 for the last decade. Overall, the agency has focused its cost containment efforts on multifamily projects. The agency is currently in the process of enhancing its single-family cost containment strategies.