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Announcements

AAHSA to Hold its Annual Meeting and Exposition
October 12-15, 2008 in Philadelphia

AAHSA’s annual meeting, the largest gathering of aging services and senior housing professionals, will meet this year at the Pennsylvania Convention Center in Philadphia, PA starting Sunday, October 12 at 1:00 pm through Wednesday, October 15th at 4:30. Addressing AAHSA’s members in the general sessions to explore AAHSA’s theme of “One Voice” will be Whoopi Goldberg; Former Senator John Glenn; Marc Morial, CEO of the Urban League; Craig Barrett, Chairman of Intel Corporation; and Nikki Giovanni, noted writer and poet. Entertaining the more than 7,500 meeting participants will be the Queen of Soul, Aretha Franklin. Educational sessions will cover senior housing operations and development, senior housing and tax credits, senior housing and supportive services, seniors and public housing, fair housing, the legal implications of providing housing and supportive services, and a host of other topics critical to developing and managing housing for seniors. Join AAHSA in Philadelphia. For more information and to register for the conference, click on the link below.

AAHSA to Sponsor its First SHCM Training
In conjunction with AAHSA’s Annual Meeting in Philadelphia, AAHSA will offer for the first time a training program for housing professionals operating tax credit properties and preparing to earn the Specialist in Housing Credit Management certification, developed by NAHMA, and jointly sponsored by NAHMA, AAHSA, and NAA. The program, “On the Road to the Specialist in Housing Credit Management Certification,” will be held on Saturday, Oct. 11, from 9 to 5, at the Pennsylvania Convention Center, at a cost of $249 for the entire day. The SHCM exam will be offered on Sunday morning following the training program. The program is designed specifically so that housing management professionals will obtain the skills and knowledge necessary to successfully complete the SHCM exam and will outline the regulations and requirements unique to the tax credit program – while also reviewing the overlapping HUD provisions. Nationally recognized trainers, Gianna Solari, Vice President, Operations, Solari Enterprises, and Anita Moseman, Vice President, Monfric, Inc., will be the trainers presenting the program. For more information and to register for the program, click on the link below.
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Headlines

Association News

Part of Section 202 Reform Legislation Included in Senate Appropriations Bill
Delegated Processing for Section 202 Mixed Finance Projects Enacted

Industry News


"Housing Bill a Boost for Affordable Sector"
"When Congress Works"
"New IRS Utility Allowance Regulations Good For LIHTC Properties"
"HUD Modernizes FHA with LIHTC Program"
"Using Solar Power to Achieve a Triple Bottom Line"
"Affordable Housing Preservation and Protection of Tenants; NAHMA's Pagano Testifies on Affordable Housing Preservation and Protection of Tenants"
"Good LIHTC Deals Get Passed Over"
"Apartment Groups Ask Supreme Court to Decide Whether Participation in Section 8 Housing Should Be Mandatory"
"Finance: Players Ponder LIHTC Price Plunge"
"State LIHTC Funds Prepare for Tough Year"
"Fairfax Will Buy Foreclosed Properties"
"Cities Pick Up 100-Plus Homes to Ease Region's Housing Crunch"
"Low-Income Housing Limits to Be Waived in Indiana and Iowa"
"$154.6 Mil to Go Toward Housing"
"Building for Poor Has Stopped With Lack of Mortgages"


Association News

Part of Section 202 Reform Legislation Included in Senate Appropriations Bill

Three provisions of HR 2930 and S 2736, the Section 202 Supportive Housing for the Elderly Act of 2008, were adapted for inclusion in the Senate FY 2009 appropriations bill approved by the full Committee. The appropriations bill provides the explicit authority necessary to refinance the 3% interest Section 202 mortgages as an administrative provision, Section 232. Those projects which typically need substantial rehabilitation will now be able to refinance their mortgages and use low income housing tax credits. The bill also will provide funding for new project based assistance for seniors residing in the Section 202 properties built between 1959 and 1974 who do not now have rental assistance when they are refinanced. The assistance will be funded from the tenant protection account to prevent displacement when rents inevitably rise after refinancing and rehabilitation. This authority should also make it easier to refinance mortgages using tax credits. Finally the bill language requires that state or local housing agencies process the funding that HUD awards for HUD’s leveraged mixed financing demonstration rather than HUD. This requirement adapts Section 102 of S 2736 that would streamline the processing of new mixed finance Section 202 applications, eliminating the frequent bottlenecks that HUD processing entails. This, too, will make tax credits combined with Section 202 funding, easier to do.

The full Section 202 reform bill includes many provisions to make refinancing a lot easier, but those will have to await passage of the reform legislation. The House passed HR 2930 last December under suspension of the rules, but the Senate has yet to consider its version of the bill, S 2736. Please go to AAHSA’s Contact Congress website to encourage senators to co-sponsor the legislation at http://capwiz.com/aahsa/home/ , or click on the link below.
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Delegated Processing for Section 202 Mixed Finance Projects Enacted

For those 202 sponsors who have struggled to combine Section 202 capital advances with tax credits and those who wish to do so in the future, HR 3221 is a legislative victory! Buried in the GSE/FHA Reform legislation is the requirement that in the case of mixed finance Section 202 projects, those combining Section 202 capital advances and tax credits or other funding, HUD shall transfer the processing of the proposals after their selection to state or local housing agencies. The language is taken directly from the provision included in HR 2930 and S 2736, the Section 202 Supportive Housing for the Elderly Act, passed by the House and awaiting action in the Senate. This has the potential of greatly increasing the efficiency with which deals are processed and bringing projects to construction with fewer delays, particularly for tax credit transactions.

Specifically, the legislation provides for delegated processing of the capital advances which include sources other than Section 202 funding by state or local housing entities within 30 days of the award of capital advance funds and PRAC amounts pursuant to the NOFA. HUD shall retain the authority to process capital advances where no state or local agency has applied as a delegated processing agency or has not entered into an agreement with HUD. HUD still retains the authority to approve final rents and development costs but is required to execute the capital advance within 60 days of receipt of the commitment from the state or local agency. If HUD reduces either the capital advance or the initial PRAC, HUD is required to state reasons in writing and sponsors may appeal the reductions.

Mixed financed projects will no longer be plagued by bureaucratic roadblocks, dual processing or time delays with this new requirement to transfer the processing of these transactions.
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Industry News

"Housing Bill a Boost for Affordable Sector"
Commercial Property News (07/28/08) Murray, Barbra

The Housing and Economic Recovery Act of 2008 passed in Congress recently and has been signed into law by President Bush. The legislation will offer aid to thousands of homeowners at risk of foreclosure, and will also offer assistance to the affordable-housing sector, which has been experiencing credit-crunch troubles. The bill includes changes to the Low-Income Housing Tax Credit (LIHTC) and alterations for mortgage lenders Fannie Mae and Freddie Mac that are meant to simplify the process of creating affordable housing. The legislation calls for updating the LIHTC in an attempt to increase the development of additional affordable housing. The bill mandates an expansion of the maximum credits--a bigger hike for large-population states and a lesser amount for those states with smaller populations. Meanwhile, the mortgage lenders' affordable-housing objectives will be adjusted to offer liquidity to the rental-housing markets for low-income inhabitants. Attention will also be given to neglected sections of the affordable-housing industry, including rural communities, manufactured housing, and preservation projects. In addition, Fannie Mae and Freddie Mac will finance the New Housing Trust Fund and Capital Magnet Fund, which will function as finance tools for the creation of affordable rental units.
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"When Congress Works"
Washington Post (07/31/08) P. A19; Broder, David

Washington Post columnist David Broder praises the housing bill signed into law on July 30 by President Bush, especially the section creating the National Housing Trust Fund, which Broder describes as "a creative way of meeting the chronic shortage of affordable low-income rental units -- a huge problem in cities and rural areas across the country." Senator Chris Dodd (D-Conn.) says, "That is the part that will have the greatest long-term impact," while Rep. Barney Frank D-Mass.) states, "That's what I'm most proud of." The bill addresses the shortage of affordable housing by creating a new program within the federal Department of Housing and Urban Development. The National Housing Trust Fund does not depend on annual appropriations by Congress, which might never arrive, but instead taps a portion of the profits that Fannie Mae and Freddie Mac make on their mortgage loans, estimated to yield at least $300 million a year and perhaps as much as $700 million. The trust fund starts in 2010, and each year, as the money comes in, the fund will distribute it to the states using a formula that measures the seriousness of their low-income-housing needs. At least 90 percent of the funds must be used to construct or rehabilitate rental units. All of the benefits are ticketed for very low- or extremely low-income households. Broder concludes by saluting "a rare action that shows both professionalism and conscience in the lawmakers."
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"New IRS Utility Allowance Regulations Good For LIHTC Properties"
Multi-Housing News (07/08) Kher, Anuradha

The Internal Revenue Service has published long-awaited regulations changing the way rents are adjusted on Low-Income Housing Tax Credit (LIHTC) properties where residents pay for their own utilities, giving LIHTC property owners more flexibility in the way they calculate utility allowances for their low-income residents. The previous method of calculating the allowances often was based on averages, which included older, less efficient properties or did not take into account the cost differences between urban sectors versus the rural ones. "These new regulations should solve a critical problem that was threatening to make a large inventory of the nation's affordable housing financially unstable," says David Cardwell, National Multi Housing Council/National Apartment Association (NMHC/NAA) vice president of Capital Markets. The new regulations, which largely mirror a proposal submitted to the IRS by an industry coalition, increase the sources of data that owners can use to calculate resident-paid utilities to make them more accurate. The new rules also allow owners to use utility estimates provided by state LIHTC allocating agencies and estimates produced by a new HUD utility modeling program. The final version also allows owners to seek certified engineering studies to estimate utilities and it allows such models to include water and sewer costs; these provisions were not included in an earlier proposed version of the rules. Industry groups also sought and secured a provision to allow properties to obtain a stabilized occupancy before rents are adjusted at newly developed properties.
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"HUD Modernizes FHA with LIHTC Program"
Commercial Property News (07/23/08) Kher, Anuradha

The U.S. Department of Housing and Urban Development has issued the Mortgagee Letter 2008-19, streamlining the processing of Federal Housing Administration multifamily insurance applications with Low Income Housing Tax Credits. The Mortgagee Letter includes important changes to FHA processing, which will provide flexibility and cut costs, making FHA insurance a competitive financing vehicle for affordable rental properties with Low Income Housing Tax Credits. The Mortgagee Letter also requires the designation of a LIHTC Coordinator in each Multifamily Hub and Program Center to work with credit allocation agencies and developers to better synchronize tax credit funding cycles with FHA's application process.
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"Using Solar Power to Achieve a Triple Bottom Line"
Real Estate Finance (06/01/08) Vol. 25, No. 1, P. 25; Down, Gary P.

The solar investment tax credit promoted by the renewable energy and affordable housing industries offers investors a 30 percent credit for solar hardware and installation, which can be applied dollar-for-dollar against tax liabilities in the year of implementation. Low-income housing tax credit (LIHTC) investors who take advantage of the solar investment credit will see their LIHTC-eligible basis drop slightly. Experts note that some LIHTC investors are not interested in paying top dollar for the solar investment credit, as they would need to hold the investment for no less than five years. To gain investors' interest, experts insist that the solar power must be considered at the start of the transaction. There have been concerns about the loss of half of the solar credits in bond deals, given that the Internal Revenue Code (IRC) says solar credits cannot be applied to the bond-financed portion of the solar property and that bonds typically account for half of the financing of such bond projects. However, the Internal Revenue Service recently issued a private letter ruling stating that the projects are eligible for the complete solar credit if equity and non-bond-financed debt are used to cover solar costs. If LIHTC investors are not interested in the solar credit, a master lease should be arranged so that a sponsor-owned energy company or a company owned by a third-party investor leases the solar equipment; under the IRC, these entities can take advantage of the solar credits.
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"Affordable Housing Preservation and Protection of Tenants; NAHMA's Pagano Testifies on Affordable Housing Preservation and Protection of Tenants"
US Fed News (06/19/08)

National Affordable Housing Management Association Secretary J. Kenneth Pagano testified before the House Financial Services Committee on June 19 at a hearing to examine preservation of affordable rental housing. Pagano's testimony focused primarily on the factors that affect housing providers' decisions about preservation and NAHMA's recommendations for overcoming the major obstacles to preservation. He noted that while preservation is a cost-effective way to prevent a net loss of affordable units, it is not without costs. In NAHMA's experience, preservation will usually require a rental subsidy to make the unit affordable to families at or below 45 percent of area median income (AMI). Also, properties located in high-appreciation markets with below market rents are the most difficult to preserve. A well administered mark-up-to-market program, a preservation program which increases below-market Section 8 rents to bring them in line with comparable properties, is especially important to preserve these properties. Pagano discussed some of the major impediments and disincentives to preservation, including market forces, the undependability of project-based Section 8 funding, and "HUD fatigue," as multiple frustrations with HUD that, according to a GAO report, "could result in owners opting out of their contracts even when doing so might not be in their economic interest." Reviewing the March 2008 preservation discussion draft, Pagano testified that NAHMA suggests restoring confidence in the guarantee of timely, fully-funded project-based Section 8 HAP payments by: Providing the necessary appropriations to pay the full 12 month increments of HAP contracts at the earliest opportunity; Addressing any regulatory issues that affect the timeliness of HAP payments; and Creating disincentives for under-funding the Section 8 program and making late payments to owners by requiring HUD to make interest payments on late HAPs. In order to ensure long-term financial and physical sustainability of preserved affordable properties, NAHMA emphasized that Section 506 (b) of the discussion draft, Meeting Rehabilitation Needs of Previously Restructured Projects, will allow a voluntary second restructuring to help the early restructured properties with rehabilitation needs. Pagano added that a mechanism to deal with unforeseen spikes in operating costs is desperately needed, and notes the importance of recognizing the essential role of the Section 42 Low Income Housing Tax Credit Program to preservation. Section 110 Market Rents for tax-credit financed housing, which allows owners of Section 42 properties to receive higher Section 8 rents under the voucher program, is especially helpful to Section 42 properties and voucher holders in high cost areas. Pagano said it is imperative to overturn HUD's policy prohibiting owners from charging mandatory LIHTC compliance fees as eligible project expenses. He also urged the Committee to continue working with the Ways and Means Committee to improve regulatory coordination between HUD and LIHTC programs.
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"Good LIHTC Deals Get Passed Over"
Apartment Finance Today (08/08) Kimura, Donna

This year, activity among low-income housing tax credit (LIHTC) investors has declined. Reasons for this include low yields, banks' reduced need for tax credit, and the overall decrease in equity. Sources report that yields have risen to 7 percent. When investor yields increase, prices paid to developers for their tax credit go down, triggering a need to find a suitable balance of high yields and high prices. In the first have of the year, "some perfectly good deals weren't getting done," observes Christoph Gabler, senior director of AEGON USA Realty Advisors, which invested roughly $300 million in LIHTCs in 2007 and intends to invest a comparable amount in 2008. He believes the problem is short-term and that the market started settling in late May. He predicted more investors will start participating in the latter half of the year, when states traditionally make their reservations and investors try to finalize deals. JPMorgan Capital is now restricting the time an offer remains open to invest, usually to 60 to 90 days, says Bill Pelletier, who oversees the firm's propriety and direct investment products. In response to the current situation, developers shod plan for lower LIHTC pricing, say industry insiders, as well as revise their construction loan, permanent loan, and equity terms to reflect current market conditions. Developers also need to go beyond an LIHTC allocation letter and bid out more of the construction costs and commit more soft money.
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"Apartment Groups Ask Supreme Court to Decide Whether Participation in Section 8 Housing Should Be Mandatory"
Multi-Housing News (06/08) Kher, Anuradha

A coalition of apartment groups recently teamed to file a "friend of the court" brief asking the U.S. Supreme Court to determine whether states and localities can compel property owners to take part in the federal government's Section 8 program by approving laws that make it illegal to withhold vouchers based on housing applicants' income sources. "When Congress created the Section 8 program, it explicitly made the program voluntary because it recognized that there are costs and burdens imposed on property owners who choose to participate," noted National Multi Housing Council/National Apartment Association (NMHC/NAA) senior vice president of government affairs Jim Arbury. "Now states and localities are trying to alter the voluntary nature of the program by passing so-called 'source of income' non-discrimination laws that essentially make property owner participation mandatory." The NAA, the NMHC and the Louisville (Ky.) Apartment Association are overseeing the effort. Also taking part in the campaign are the National Leased Housing Association, the Apartment and Office Building Association of Metropolitan Washington, the Delaware Apartment Association, the Greater Lexington (Ky.) Apartment Association, the Mobile Bay Area Apartment Association and the New Jersey Apartment Association. So far, every federal appeals court that has studied the preemption matter has upheld the supremacy of federal law or congressional intent where it directly goes against a state or local law. State court decisions, though, including the Maryland state decision mentioned in the brief, have thrown out the federal preemption argument in regards to the Section 8 program. Arbury stressed that although states and localities are grappling with a lack of affordable housing, requiring participation in the Section 8 program is not a good solution and could actually harm the success of the Section 8 program.
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"Finance: Players Ponder LIHTC Price Plunge"
Multi-Housing News (07/08) Foong, Keat

Since last autumn, the Low Income Housing Tax Credit (LIHTC) market has been severely impacted by the financial crisis. Because of the lack of available capital and its cost, the prices investors are paying developers for tax credits have declined. Consequently, developers are having hard time raising the equity they need. Ron Orgel, managing director of Phoenix Realty Group, a national LIHTC fund manager, observes that many projects have stalled in an unprecedented manner. He asserts that there are initiatives state government can undertake to help deal with the financing scarcity. For example, New York and California have acknowledged the decline in tax credit pricing and are launching steps to boost allocations or subsidies, he says. These actions are targeted to initiatives that cannot move forward due to the price declines, according to Orgel. He adds that "developers with good track records and solid teams can still get construction loans," while in the permanent debt arena, Fannie Mae and Freddie Mac are coming forward to provide financing.
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"State LIHTC Funds Prepare for Tough Year"
Affordable Housing Finance (06/08) Kimura, Donna

Affordable housing developers are wondering how they can survive in these difficult economic times. The first rule of thumb is to recognize that the low-income tax credit (LIHTC) market has not dried up. There is still significant investor demand for tax credits, but developers will have to work harder to earn their money. It is no longer enough to have an LIHTC allocation letter. A developer must offer a complete package for investors and lenders that saves them time and energy. Another recommendation is for developers to update their construction loan, permanent loan, and equity terms to ensure that the deal is still viable in today's volatile market. Todd Sears, vice president of finance at Indiana-based Herman & Kittle Properties Inc., states, "Equity pricing has dropped from the $1 range to the 80-cent range consistently, and construction loans have moved from 175 basis points over the London Interbank Offered Rate [LIBOR] to 200 to 250 basis points over LIBOR in about the last six months." Finally, developers need to be conservative in their LIHTC pricing expectations. Planning for lower numbers enables developers to know that their deals will still work if prices continue to fall.
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"Fairfax Will Buy Foreclosed Properties"
Washington Post (07/01/08) P. A1; Gardner, Amy

The Washington, D.C., metropolitan region is being saddled with foreclosures faster than most other metro areas, and will now become one of the first in the nation to simultaneously combat the problem while striving to meet the need for affordable housing in the community. Officials for Fairfax County--a Northern Virginia suburb of the nation's capital--have authorized a $10 million initiative to purchase foreclosed homes at discount prices and make them available to moderate-income families. The county will buy 10 foreclosures outright and will use federally insured, low-interest loans to help subsidize the purchase of 190 others by eligible buyers, who can earn no more than 80 percent of the area median income. The properties purchased must be single-family houses or townhomes, with a price cap set at $385,000. The hope is that the program will provide a boost to Fairfax's supply of affordable housing--particularly that appropriate for teachers, emergency responders, and other middle-income workers otherwise unable to live near their jobs--as well as stabilize neighborhoods where clusters of abandoned and neglected foreclosure properties threaten to erode the vitality and lower the value of surrounding communities.
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"Cities Pick Up 100-Plus Homes to Ease Region's Housing Crunch"
Hampton Roads News (06/19/08)

In Virginia, Norfolk and Portsmouth are among cities where the amount of landlords accepting Section 8 vouchers has increased. Following a story published in The Virginian-Pilot citing the difficulties encountered by residents seeking properties that accept the federal rent subsidies, a number of landlords have stepped forward to consult housing authorities for assistance with finding Section 8 residents or simply to get more information about the program. Over 100 homes and apartments were consequently added to the Section 8 program, which provides low-income households federal assistance with a portion of their rents.
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"Low-Income Housing Limits to Be Waived in Indiana and Iowa"
SmartPros Accounting (06/25/08)

The Internal Revenue Service will temporarily remove certain restrictions on the low-income housing tax credit in Indiana and Iowa, which have been devastated by severe storms and flooding. The waived limitations will open up more housing options for disaster victims. "We are pleased to help these states to quickly house the needy whose homes were destroyed," said IRS Commissioner Doug Shulman. The agency also will keep an eye on the situation in other states affected by the flooding and is at the ready to act as the circumstances dictate.
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"$154.6 Mil to Go Toward Housing"
Arizona Republic (06/13/08) Anderson, J. Craig

In Arizona, hundreds of new affordable homes will be constructed or renovated through nearly $155 million in federal tax credits. About 200 low-income homes have been proposed for construction in Phoenix, with part of the funding allocated for projects housing seniors, the homeless, and victims of domestic violence. Housing Director Fred Karnas said that households with modest incomes should also be guaranteed the necessities of clean and safe housing. The federal tax credits will support the construction or renovation of about 900 homes in 16 proposed residential developments statewide.
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"Building for Poor Has Stopped With Lack of Mortgages"
Lakeland Ledger (FL) (07/07/08) Pera, Eric

The U.S. government's HOPE VI program, which aims to make homeownership a possibility for the working poor, appears to have ground to a standstill in Lakeland, Fla., as prospective buyers in two new federally subsidized communities encounter difficulties in arranging financing. Mortgage lenders have adjusted credit scores out of reach for low-income workers, preventing them from purchasing the new single-family homes and townhomes, according to Lakeland Housing Authority executive director Herb Hernandez. Would-be buyers have an opportunity to take advantage of credit counseling, classes on budgeting income and down payments as low as $1,000 on new three-bedroom, two-bath homes; but many have been unable to obtain mortgages. More than half of the 40 home sites in the LakeRidge community have not been sold, and none of the 30 home sites in the Washington Oaks community have been sold.
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August 2008