Congress expands mark-to-market program
Congress has expanded the so-called "mark-to-market" demonstration program for Federal Housing Administration-insured Section 8 rent subsidy projects as part of the fiscal 1997 appropriations act for the U.S. Department of Housing and Urban(HUD).
The bill also provides funding to renew contracts for Section 8 projects that don't go into the mark-to-market program and to keep Section 221(d)(3) below market interest rate (BMIR) and Section 236 projects in the low-income housing inventory.
The mark-to-market program is aimed at reducing the long-term cost of FHA-insured Section 8 projects with above-market rents b reducING the mortgage to the amount that can be supported by market rents. The debt restructuring may involve a full or partial FHA insurance claim payment, debt forgiveness, reinsurance or other credit enhancement.
If the restructuring involves a reduced first mortgage, HUD can take back a second mortgage for the difference between the new first mortgage and the outstanding balance on the original loan. This mechanism will avoid any tax liability for the project owner for forgiveness of debt income.
HUD can contract with state housingagencies, housing agencies or nonprofits to administer the program. These agencies, in turn, can enter into partnerships with other entities, including public housing authorities, financial institutions, Fannie Mae and Freddie Mac.
If a mortgage is restructured under the mark-to-market program, the owner must agree to accept Section 8 contract renewals and to maintain low, income affordability for at least 20 years, under guidelines established by HUD or the ad, ministering agency. The affordability requirements may be waived by HUD or the agency for a good cause.
The bill adds $10 million to the $30 million appropriated for the mark-to-market program in fiscal 1996 and in, creases the maximum size of the program from 15,000 to 50,000 units. While expanding the size of the program, the 1997 bill reduced the universe of eligible projects. To be eligible for the demonstration program under the new law, a project must have rents exceeding 120% of area fair market rents (FMRs). Under the 1996 version of the program, projects with rents above 100% of FMR were eligible.
The bill provides for one, year renewals at current rents for conventionally financed projects with rents at or below 120% of FMR and projects financed or insured by state or local housing agencies, Section 202 elderly housing projects, Section 881 handicapped housing projects, and Section 515 rural housing projects, regardless of their current levels. FHA-insured projects with rents above 120% of FMR can have their contracts renewed at 120% of FMR.
The bill provides $350 million for assistance under the Low-income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA) and the Emergency low-income Housing Preservation Act of 1987 (ELIHPA) for Section 221(d)(3)BMIR and Section 236 projects whose owners can re a the mortgages and convert the low-income housing to other uses.
Most of the money is ear, marked for grants to support sales of projects to tenant organizations and nonprofits which will maintain them as low-income housing. Up to $75 million can be used for loans to owners to encourage them to extend the low-income use restrictions of their projects. This funding is available only to owners of certain projects for which the processing of applications for assistance had been delayed. The bill also provides up to $100 million for rental assistance to prevent displacement of tenants in projects whose mortgages are prepaid. Congress breaks without completing housing billThe 104th Congress adjourned without completing action on a major public- and assisted-housing reform bill that had passed both houses in different forms. The legislation would have made a number of changes in the Section 8 program, combining certificates and vouchers into a single tenant-based assistance program and eliminating the endless lease and take-one, take-all provisions.One of the sticking points that blocked an agreement on the bill was the House's insistence on repealing the U.S. Housing Act of 1937, which provides the statutory authority for public housing and Section 8. Critics pointed out that a repeal could present a lot of technical problems, because many other statutes reference the 1937 act as a standard for low-income housing.
Lenders get protection
from superfund liabdity
Congress has given real estate lenders some protection from liability for the cost of cleaning up contaminated properties securing their loans. Under an amendment to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), or Superfund law, added to the session-ending omnibus appropriations act, a lender won't be considered a property owner solely because it holds indicia of ownership to protect its security interest in the property.
Also, a lender which forecloses on property won't be considered an owner or operator if the lender acts to dispose of the property at the earliest practicable time on commercially reasonable terms.