How can Delta public housing authorities support Delta homeownership?

The Section 8 subsidy can be used as a downpayment and financing vehicle to provide additional homeownership subsidies to qualified borrowers.

Background

HUD's Section 8 housing voucher is the Delta's prevailing direct housing subsidy. Section 8 vouchers were limited to use as a rental subsidy until October 2000 when HUD finalized rules for using them for homeownership. This is probably a viable option for approximately 10 percent of the Delta study area's 12,613 Section 8 recipients whose incomes would support modest homeownership.¹²

Recommendation: Section 8 Homeownership Program

The necessary components of a Section 8 homeownership program include:

• public housing authorities (PHAs) that are willing to issue housing choice vouchers for homeownership (large scale and regional PHAs are the most likely candidates for this program);

• available homes or new construction dwellings (a PHA might team up with a self-help operator, CHDO, nonprofit CBO or private developer to develop a subdivision of no less than 10 units, or might use the Section 8 homeownership program to sell public housing units as condominium or cooperative units); and

• willing and qualified (debt lowered, creditworthy and downpayment in hand within one year of joining program) Section 8 housing choice voucher recipients.

Process

A streamlined version of the HUD's final rule authorizing the use of Section 8 vouchers for homeownership is included in Appendix E.

Barriers

Potential barriers to use of Section 8 vouchers for homeownership include:

• need for cooperation at the local level;

• lack of planning;

• lack of information – PHAs do not know about the program, and tenants do not know enough to advocate for it.

Cost to PHAs

HUD makes no additional administrative monies available for PHAs that choose to use vouchers for homeownership. They must pay for increased program operating expenses from earned income or another source.

Costs to Families

• A 1 percent contribution is required from a purchasing family's personal resources.

• The family pays for the cost of unit inspection prior to purchase.

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How can rural Delta communities achieve direct participation in HOME funding?

Delta counties that share in-state boundaries can form consortia under HOME program guidelines for the purposes of receiving direct allocations of HOME funds set aside for entitlement communities.

Background

HOME funds are among the most flexible available to participating jurisdictions for designing and implementing low-income housing strategies. States receive 40 percent of HOME funds. The remaining 60 percent are reserved for cities and urban counties. In FY 2001, the Mid-South states received over $44 million in HOME monies (15 percent of which are set aside for CHDO projects), while Mid-South cities and urban counties received just over $23 million. Nonmetropolitan counties in the Delta region currently receive HOME funds from their respective states.

Consortia are contiguous units of local government that form for three-year renewable terms for purposes of receiving a HOME allocation and administering the HOME program as a single grantee. Each consortium designates a lead member and must receive certification from the state that it will direct its activities to the alleviation of housing problems within the state.¹³

Recommendation: HOME Partnership Consortia

Nonmetro Delta communities should consider forming consortia with urban counties and cities. Doing so would create the opportunity to consider rural demand in light of regional priorities, resources and capacity for creating low-income housing; would increase the amount available for local leverage of housing; and should result in a fairer deployment of resources for low-income persons across each consortium area. It would also provide the opportunity for rural areas to negotiate access to CDBG, other investments and capacity from organizations typically unavailable to them if they were not part of a regional housing strategy.

Benefits to Delta communities

• Consortia can obtain access to the 60 percent of HOME direct participation monies set aside nationally for entitlement cities and urban counties.

• Consortia would enjoy the benefits of a coordinated regional approach for addressing the Delta's housing issues with increased resources for strategic planning and housing delivery for the Delta's low-income residents.

• Coordination of resource deployment and leveraging requirements could benefit more low-income households than any one jurisdiction can assist on its own.

• Direct participation in HOME funding provides access to a 15 percent set-aside from the consortium's annual budget for local CHDOs.

• Each newly formed consortium can use up to 20 percent of its minimum 15 percent CHDO set-aside for capacity building activities during its first 24 months of participation in the program.

Costs to Delta communities

Delta communities would incur certain costs, including:

• the time, effort and expense of coordinating the assembly of a multi-jurisdictional Consolidated Plan (required by HUD);

• a required minimum combined investment from consortia members of $750,000 to leverage HUD investment (a contribution from the state is allowed); and

• a minimum three-year commitment to pursue and invest in the consortium's Consolidated Plan components.

Benefits to states

Benefits to states include:

• increased opportunity for states to accomplish their five-year Consolidated Planning Goals and Annual Action Plan benchmarks for low-income housing through enhanced local participation;

• increased opportunity for states to achieve their non-federal private sector and philanthropic leveraging benchmarks stated in Consolidated Plans; and

• building of resources and capacity for Delta-specific low-income housing solutions.

Cost to states

Forming consortia usually reduces the amount of HOME funds available to states for their programs, and could further reduce the amount of HOME funds available to participating jurisdictions statewide.

Challenges for all

Challenges for all include:

• cooperating, coordinating, communicating and building trust during the establishment of the consortium, the development of a Consolidated Plan, and especially as Consolidated Plan activities were carried out;

• a deadline-driven process with key submission dates beginning March 1 for consortia members seeking consideration for HOME funding in the upcoming program year.

Process

See Appendix F for a description of the roles of consortia members, states and HUD regarding this process.

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How can Delta communities access more resources for rehabilitation?

States may be able to play a role in obtaining increased rehabilitation financing.

Elements of a successful state-funded rehabilitation program should include:

• regional assessments of housing stock that match rehab demand with specific locations and provide baseline data for determining an average cost or range of investment needed for repair;

• establishment of a repair priority – based on homeowner health and safety – that can serve as the basis for negotiating a rehabilitation standard across several Delta counties within a state so that a financing product can be designed to address many circumstances;

• access to funds at less than the federal funds rate or at no interest (e.g., general obligation bond financing targeted for sale to regulated lenders, HOME or CDBG);

• deferred or reduced property assessment increases resulting from property improvements; and

• a secondary market purchase mechanism that serves to accelerate repayment of publicly financed loans. This might best be accomplished by a Community Development Financial Institution working in cooperation with either Fannie Mae or Freddie Mac.

Background

Demand for rehabilitation is extremely strong in the Delta. One important indicator of the demand for home rehabilitation and repair is the use of rural rehabilitation funds in Mid-South Delta states. The Rural Housing Service Section 504 Very Low Income Housing Repair program – among the programs most often used by HAC survey respondents – features loans of up to $20,000 and grants of up to $7,500 to repair low-income, owner-occupied housing.¹⁴ In most cases, Section 504 loan and grant monies are commingled to meet homeowners' ability to repay. RHS allocates separate amounts for loans and grants for each state. As of July 31, 2001, with two thirds of the current fiscal year gone, Arkansas, Louisiana, and Mississippi had expended 104 percent, 116 percent and 144 percent of their Section 504 grant allocations, respectively. Moreover, while Arkansas and Louisiana had expended nearly 90 percent of their Section 504 loan monies, Mississippi had expended 171 percent of its allocation.

Challenges to Successful Rehab¹⁵

Challenges to successful rehabilitation programs in the Delta include:

• finding contractors and subcontractors who can successfully carry out the work for the budget available;

• managing program requirements;

• the need for adaptive re-use of existing structures; and

• obtaining the cooperation of building code officials.

Benefits to Delta Communities

• Elderly homeowners comprise 49 percent of the Delta's low-income homeowners.¹⁶ Most live on fixed incomes and experience some housing problems. Although many of these homeowners cannot pay for new housing, they may be able to pay for repairs necessary to maintain the safety and integrity of the housing unit if a suitable payment and term can be determined.

• Several Delta community-based housing organizations that responded to the HAC survey identified finding adequate rehab resources as being a difficult task. During follow-up interviews, several mentioned a demand for rehab but also indicated a reluctance to pursue it as an activity due to a lack of adequate resources, contractor experience, and a sense of what can be undertaken successfully (standard for rehabilitation).

• Rehabilitation makes existing units safer for current inhabitants and contributes to reductions of housing-related public health threats such as lead paint poisoning, respiratory disease, fire prevention, and risk of personal injuries from accidental falls, burns or electrocution.

• Rehabilitation strategies would preserve dwindling housing supplies in Delta communities for new generations of homeowners.

Costs to Delta Communities

• Conducting housing stock assessments would require time and money resources that many Delta communities do not have.

• Developing clearly defined rehabilitation standards and priorities may require coordination with local lenders and secondary market purchasers.

Benefits to Mid-South States

• Increased homeownership preserves the value of local taxable bases.

• Homeownership contributes directly to Delta residents' quality of life.

Costs to Mid-South States

• General obligation bond preparation and use may be considered unfeasible during slow economic cycles.

No less than 20 percent of annual CDBG allocations should be set aside to finance owner-occupied and rental rehabilitation lending programs. In addition, no less than two thirds of this amount should be further designated for rural, distressed communities. These monies would be lent/granted in conjunction with the Rural Housing Service's Section 504 Very Low Income Housing Repair program.¹⁷ An interagency agreement between a state housing finance agency and the Rural Housing Service may be required to achieve the desired impact of doubling the number of single-family households that have access to affordable housing rehab services.

Elements of a Delta Rehab Strategy

• Each Delta county should undertake an assessment of housing stock in cooperation with volunteers from local public housing authorities, county employees, university volunteers and CBOs. The purpose of the assessment would be to identify current housing problems and develop a database for future renovation or demolition.

• Assessments should identify location of structure, number of units, ownership status (homeowner/occupant or landlord), year built and documented existing housing problems as per the American Housing Survey definition or Section 8 Housing Quality Standard. Sources for support might include state HOME and CDBG monies as well as assistance from the Delta Regional Authority. States would bee encouraged to amend their five-year Consolidated Plans to include these assessments.

• Each county would establish a prioritized list of items that must be corrected to preserve the health and safety of owner/occupants and the structural integrity of the housing units.

• State housing authorities should work with Delta counties to coordinate in-state development of rehabilitation standards to be applied to a Delta rehab program.

• Housing finance agencies and Delta counties should seek support from state legislatures to authorize the sale of general obligation bonds at a rate not to exceed 1 percent to finance rehabilitation loans in Delta counties. The bonds would be marketed for sale to regulated banking and finance, insurance and utility institutions in the Mid-South states.

• Housing finance agencies should work with financial regulating entities to recognize bond purchases as eligible for Community Reinvestment Act credit. In addition, state insurance commissions and state industrial development bond authorizing agencies could market the bonds as a "good faith" investment with insurance companies and manufacturing concerns seeking tax abatement.

• Each state housing finance agency should charge no more interest to borrowers than is necessary to repay the state's obligation on its bonds, fees necessary to achieve the bond sale, and the cost of loan servicing.

• Housing finance agencies could manage origination and collection of rehab loans or contracts with a financial intermediary or institution for loan dispersal, administration and repayment. Every effort should be made to accelerate repayment of bonds by bundling pools of loans to social investors and other secondary market sources.

• In circumstances where homestead exemptions are not available for low-income homeowners, states should seek agreement from local taxing jurisdictions to defer property tax increases until a rehab loan is repaid or otherwise limit or phase in a tax increase of no more than 2 percent.

Recommended Loan Program Features

• Eligible borrowers would be homeowner(s) with household income at or below 80 percent of Area Median Income and with net assets limited to their personal residence and its contents, savings of no more than $5,000 and a vehicle valued at no more than $10,000.

• Allowable income sources would include wages and salaries, net income from business or profession, interest or dividends from real property, social security, pension and annuities, disability or death benefits, alimony, and regular contributions or gifts from family members not residing in the home.

• Excluded income sources would include gambling winnings, inheritance or insurance payments and personal injury lawsuit settlements.

• Recommended loan terms are amortization up to 10 years and a maximum loan size of $20,000. These loans could be combined with the Section 504 grant program, if RHS permits.

• The interest rate would be 1 percent.

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