CARH’S BROADCAST E-MAIL: Legislative Update – H.R. 3221

July 28, 2008

H.R. 3221, Housing and Economic Recovery Act of 2008

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On July 26, 2008, the Senate agreed, by a vote of 72 to 13, to pass H.R. 3221, the Housing and Economic Recovery Act of 2008, which the House passed earlier in the week by a vote of 272 to 152. This is the most comprehensive housing bill to pass Congress in decades. After going back and forth between both chambers for many months, the bill is now expected be signed by President Bush this week.

In addition to addressing single family mortgage issues, H.R. 3221 also amends section 42 of the Internal Revenue Services code and other provisions of the United States Housing Act of 1937.  Below is a summary of H.R. 3221, which notably includes many the provisions long advocated by CARH:

Low Income Housing Tax Credit

• Increases the housing credit cap from $2.00 per resident to $2.20 per resident for 2008-2009 and increases the small population state minimum by ten percent for those same years.

• Provides a temporarily applicable percentage of nine percent for newly constructed non-federally subsidized building placed in service after the date of enactment and before December 31, 2013.

• Repeals permanently the Alternative Minimum Tax on Housing Credits for buildings placed in service after December 31, 2007.

• Sets the 70 percent present value “9 percent” credit applicable percentage at the greater of current law and 9 percent, with a sunset date of December 31, 2013.

• Eliminates below-market federal loans from the definition of federally subsidized properties, allowing the 9 percent credit on rural housing properties—exception would remain current law for tax-exempt bond financed properties.

• Eliminates the prohibition on the 30 percent basis boost for HOME-assisted properties qualified census tracts, or difficult development areas.

• Repeals the housing credit ten-year rule for acquisition of housing credit for projects currently subsidized pursuant to certain specified HUD and USDA housing programs and similar state assisted programs (e.g. Section 8, Section 221(d)(3), Section 221(d)(4), Section 236, Section 515, and other HUD and RHS programs).

• Defines area median income in rural areas as the greater of the area median income and the national non-metropolitan median income, effective for income determinations made after date of enactment, and an applicable only to nine percent credit developments.

• Repeals housing credit recapture bond rule, effective for future dispositions and past dispositions if: 1) it is reasonably expected to continue to operate as a qualified low- income building and 2) the taxpayer elects to be subject to new longer statute limitations.

• Excludes military employee’s basic allowance for housing from the definition of incomes if they are housed in a building located in a county with a military base that had its population grow 20 percent or more between December 31, 2005 and July 1, 2008.

• Adds a third type of eligible high-cost area enhanced credit: Any building designated by the state housing credit agency as requiring enhanced credit in order for such building to be financially feasible. This new type of high-cost area is not subject to the present law limitation which limits high cost areas to 20 percent of the population of each metropolitan statistical area or nonmetropolitan statistical area.

• Increases the minimum expenditure requirements: Rehabilitation expenditures must equal the greater amount that is at least 20 percent of the adjusted basis of the building or at least $6,000 per low income unit in the building being rehabbed. The provision also indexes the $6,000 for inflation.

• Eliminates present law prohibiting against the provision of the low income housing tax credits to buildings receiving moderate rehab assistance under sect 8(e)(2) of US Housing Act 1937.

• Adds two additional criteria which all states must use in its allocation of credits among potentially low-income housing projects: 1) the energy efficiency of the project and 2) the historic nature of the project.

Tax-Exempt Bonds for Housing

• Provides $11 billion in new tax-exempt housing bond authority in 2008 for single-family and multifamily housing activities. Authority lasts until 2010.

• Makes refinancing an eligible MRB activity for 2008-2010 for adjustable rate single-family mortgages made after December 31, 2001, and before January 1, 2008.

• Exempts permanent housing bonds from the alternative minimum tax.

• Allows HFA’s to use housing bonds for single room occupancy units.

•Modifies the tax-exempt bond, next available unit, and student rules, to make them consistent with the Credit rules.

• Extends MRB disaster relief by waiving the first-time homebuyer rule and increasing purchase price and income limits to targeted area requirements in presidentially declared disaster areas established on or after May 1, 2008 and on or before January 1, 2010, effective for bonds issued after May 1, 2008.

• Permits recycling of tax-exempt multifamily bonds if: o the second (refunding) bond is issued within six months of loan repayment and not later than four years of original issuance. o the second bond (refunding bond) does not generate new housing

Housing Finance Agency; Government Sponsored Enterprises

• Establishes a GSE-financed housing trust fund to provide grants to states for rental and homeownership activities targeted to extremely low income families.

• Requires Fannie Mae and Freddie Mac to set aside an amount equal to 4.2 basis points for each dollar of the unpaid principal balance of its total new business purchases and to transfer 65 percent of that amount to HUD to fund the new Housing Trust Funds and 35 percent to the Treasury to fund the new Capital Magnet Fund.

• Directs all the GSE set-aside funds the first year, half the funds the second year, and 25 percent the third year to offset costs of new FHA refinancing.

• Increases Fannie Mae and Freddie Mac high-cost area loan limits to the lesser of 115 percent of median house price and 150 percent income limit or $625,000.

• Strengthens Fannie Mae’s and Freddie Mac’s affordable housing goals by lowering the income limit on qualifying mortgages from 100 percent are area median gross income to 80 percent area median income, requiring to serve a variety of underserved markets, such as rural areas.

• Creates a new, independent GSE regulator named Federal Housing Finance Agency (FHFA).

• Gives the FHFA director banking regulator-type powers over Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLBs).

• Requires the director to establish criteria for the portfolio holdings of the GSEs

Affordable Housing Trust Fund

• Establishes a Housing Trust Fund to provide grants to states for use to 1) increase and preserve the supply of rental housing for extremely low and very low income families, including homeless families and 2) to increase homeownership for low and very low income families.

• Requires the HUD Secretary to establish a needs-based formula for distributing funds to the states within 12 months of enactment of the bill.

• Requires the state or state-designated entity receiving grant funds to establish an allocation plan.

• Defines eligible activities as production, preservations, and rehabilitation of rental housing and production, preservation, and rehabilitation of housing for homeownership, including down payment assistance, closing cost assistance, and assistance for interest rate buydowns.

Capital Magnet Fund

• Establishes the Capital Magnet Fund within the Treasury’s Community Development Financial Institutions Fund.

• Directs Treasury to carry out a competitive grant program to attract private capital and increase investment to:

o The development, preservation, rehabilitation, or purchase of affordable housing for primarily extremely low, very low, and low-income families and

o Economic development activities or community service facilities which, in conjunction with affordable housing activities, stabilize, or revitalize a low-income area or underserved rural areas.

Since discussion of many of these issues have been front and center for several months, it is the belief that the regulatory agencies will be promulgating regulations to carry out the provisions of the legislation in an expedited fashion. Many of the issues that are part of this all encompassing housing legislation, have been advocated by CARH for several years. Thank you to all CARH members who attended CARH’s recent annual meeting and legislative conference and met with their members of Congress to urge them to adopt many of these important provisions. CARH also thanks members who have contacted their member of Congress outside of CARH meetings and urged support of these legislative changes.

A copy of H.R. 3221 can be found by visiting http://thomas.loc.gov and searching under “Bill Number.” Please contact Lyan Joy Pernala, Director of Policy and Advocacy at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it should you have further questions or concerns.