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SSS_Federal Housing Bill – Resources for Local Government CalHFA Community Stabilization Home Loan Program

On July 30, 2008, President Bush signed into law H.R. 3221, the Housing and Economic Recovery Act of 2008 (the “Act”). This comprehensive bill includes the most far-reaching housing finance reform legislation of the past several decades.

In addition to the widely-reported measures that increase FHA loan limits, provide tax-exempt financing to permit the refinancing of sub-prime mortgages, give tax breaks to first-time homebuyers, and provide federal support for Fannie Mae and Freddie Mac, the Act includes a number of provisions that will benefit California communities grappling with rising rates of foreclosure and neighborhood blight resulting from property abandonment.

On July 21, 2008, the California Housing Finance Agency (CalHFA) announced the establishment of the Community Stabilization Loan Program pursuant to which $200 million in tax-exempt bond financing will be made available to help first-time homebuyers purchase vacant “REO” properties at reduced prices from participating lenders in selected California counties and zip codes that have the highest rates of subprime mortgages and foreclosures.

HR 3221 – the Housing and Economic Recovery Act of 2008

Of particular relevance to California cities, HR 3221:

  • Appropriates $3.9 billion in block grant funds to be distributed to states, cities and counties that have been hardest hit with mortgage defaults and foreclosures. These funds will permit local governments to: (i) purchase, rehabilitate and re-sell or rent foreclosed or abandoned homes and residential properties, (ii) provide second mortgages and other financing to assist eligible low- and moderate-income first-time homebuyers to purchase foreclosed homes, (iii) land bank foreclosed properties for future redevelopment, (iv) demolish blighted structures, and (v) redevelop demolished or vacant properties. The Act requires HUD to develop a formula for distribution of the grant funds within 60 days and to distribute the funds within 30 days thereafter. Local governments must use the funds within 18 months following receipt and must distribute funds to areas of greatest need as measured by the percentage of foreclosures, subprime financing, or the likelihood of a significant increase in the rate of foreclosures. All funds must be used to benefit households with incomes equal to or less than 120% of area median income. At least 25% must benefit households with incomes of 50% of area median income or less. Homes assisted with grant funds must remain affordable to low- and moderate- income households for the longest feasible time.
    Appropriates $180 million for housing and credit counseling resources, including $30 million to be made available for legal assistance to homeowners facing foreclosure and $100 million to be allocated to the Neighborhood Reinvestment Corporation to be used for foreclosure mitigation activities through December 31, 2008.
  • Establishes a permanent Housing Trust Fund to be funded by annual contributions made by Fannie Mae and Freddie Mac. An estimated $300 million would have been available for the Housing Trust Fund during 2008; however since the Act provides for diversion of funds to the Hope for Homeowners program pursuant to which FHA will refinance at-risk mortgages, it is anticipated that payments to the Trust Fund will commence in 2010. Monies deposited in the Housing Trust Fund will be allocated to the states on a needbased formula. Ninety percent of the funds must be used for the production, preservation, rehabilitation and operation of rental housing; 10% may be used for homeownership programs benefiting first-time homebuyers, including downpayment and closing cost assistance, interest rate buy-downs, and rehabilitation. All of the funds targeted for rental assistance must be used to benefit very low-income households.
  • Authorizes the issuance of an additional $11 billion in tax-exempt bonds in calendar year 2008, the proceeds of which can be used to provide loans to first-time homebuyers and finance construction of affordable rental housing. It is anticipated that California will receive approximately $1.2 billion of these funds.
  • Temporarily permits the proceeds of mortgage revenue bonds to be used to refinance certain subprime mortgages.
    Increases the amount of federal low-income housing tax credits available during 2008 and 2009 for financing affordable rental housing, and implements improvements that will make the tax credits easier to use and more attractive to investors.

As City Attorney and Redevelopment Counsel to communities throughout California, Meyers Nave is working closely with local government staff and officials to develop programs that will make best use of these new funds in coordination with existing first-time homebuyer and redevelopment programs. We are continuing to monitor implementation of the federal bill and proposed state legislation that may provide additional resources. Please contact any member of the Meyers Nave Redevelopment, Real Estate and Housing Practice Group for further information on any of these matters or for assistance in accessing funds and structuring programs to complement first-time homebuyer and redevelopment programs.