U.S. Department of Housing and Urban Development (HUD) Secretary Ben Carson recently spoke about the agency’s latest initiatives at the Mortgage Bankers Association (MBA) National Advocacy Conference in Washington, D.C.
“At HUD, our mission is to ensure every American has access to safe, fair, and affordable housing,” he said. “Both HUD and the MBA share a common understanding: that improving access to capital is a critical driver of economic opportunity.”
Carson then shared some of HUD’s plans to increase access to financing across the housing industry, which includes embracing responsible reform in the months ahead.
One program expected to greatly increase access to capital while expanding affordable housing is the Opportunity Zones initiative. Created by the 2017 Tax Cuts and Jobs Act, Opportunity Zones are designed to stimulate economic development and job creation by incentivizing long-term capital investments in low-income neighborhoods. These zones are structured to serve local communities for the long-term. Only investors who commit capital for five, seven, and 10 years receive rewards. That means new growth becomes consistent growth and new jobs become steady jobs.
“When new businesses are ‘here today, gone tomorrow,’ residents face an uncertain future,” Carson said. “But when they know new businesses are ‘here today, here to stay,’ residents can plan for the long-term future of their neighborhoods, including by applying for mortgage loans and becoming homeowners.
“And Opportunity Zones are not a small, incremental initiative – they represent massive action to encourage financial capital to be invested in distressed communities.”
Last month, the National Council of State Housing Agencies announced that its Opportunity Zone Fund Directory had expanded to nearly $24 billion in anticipated investments. Of those $24 billion, 91 percent of the funds are planning to invest in multifamily residential, student housing, mixed-use, hospitality or other commercial development.
“We have already heard positive reports from city officials that anticipated investments in Opportunity Zones have helped preserve and attract economic development into their localities,” Carson said. “And these are still just the early days. The Department of Treasury estimates Opportunity Zones will attract more than $100 billion in private investment.”
HUD also is expanding its Low-Income Housing Tax Credit Pilot for multifamily home development to add positive incentives for the construction and sale of affordable homes.
“This expanded initiative will streamline the processing of FHA insurance applications for projects with equity from the LIHTC program,” the secretary said. “It’s part of our commitment to further align our policies and underwriting towards supporting affordable housing production and preservation.”
New construction and substantial rehabilitation currently make up more than 40 percent of HUD’s total volume.
“More homes also create more home mortgages, which can contribute to the health of the market,” he said.
HUD also is working to increase the supply of affordable multifamily housing through various initiatives that support the infrastructure on which the mortgage market is based.
“To spur local community reinvestment, we have partnered with local authorities and private businesses to preserve more than 100,000 public housing units,” Carson said. “This public-private partnership, the Rental Assistance Demonstration, or RAD, program has generated close to $6 billion in construction investment and created more than 100,000 jobs.
“To advance economic opportunity, the Federal Housing Administration has served more than 650,000 homebuyers in 2018 alone, most of whom were low-to-moderate income earners. FHA has also supported the production and preservation of more than 120,000 multifamily housing units and provided $2.45 billion in insurance for hospitals and residential care facilities.”
In addition, to help communities recover from natural disasters, HUD has awarded nearly $28 billion since April 2018 through the Community Development Block Grant-Disaster Recovery Program to repair seriously damaged housing, businesses and infrastructure. These grants represent the largest single amount of disaster recovery assistance in HUD's history.
Carson also discussed housing finance reform and said the White House has set forth the following goals:
- Ending the conservatorships of the GSEs upon the completion of certain specified reforms;
- Facilitating competition in the housing finance market;
- Establishing regulation of the GSEs that safeguards their safety and soundness, while minimizing the risks they pose to the nation’s financial stability; and
- Ensuring the Federal Government is properly compensated for any support it provides to the GSEs or the secondary housing finance market.
- Addressing the financial viability of the Home Equity Conversion Mortgage program;
- Assessing the risks and benefits associated with providing assistance to first-time homebuyers;
- Defining the appropriate role of the FHA in multifamily mortgage finance;
- Diversifying FHA lenders through increased participation by registered depository institutions;
- Enhancing Government National Mortgage Association (GNMA) program participation requirements and standards to ensure its safety and soundness; and
- Reducing abusive and unsound loan origination or servicing practices for loans in the GNMA program.
“HUD is also promoting fiscal responsibility in the real estate finance market by ending irresponsible government obligations, while enabling a pathway for responsible citizens to become homeowners,” Carson added.
For instance, HUD discontinued the FHA’s insurance of mortgages on homes that carried Property Assessed Clean Energy (PACE) liens. Through the PACE program, homeowners could obtain financing to make improvements to their homes to increase the home’s energy efficiency.
Carson noted that FHA insurance not only put taxpayers at risk by allowing PACE liens to be placed ahead of the mortgage itself in the event of a default, it strongly threatened secured lenders by eroding the underlying mortgage collateral.