Economic stimulus measure includes multifamily housing provisions

While the stimulous is mainly focused on non-real estate issues, there are several provisionsof interest to apartment builders.

February 06, 2009

Responding to the President's call for "swift and bold" action, Congressional Democrats have put the massive $800-$900 billion stimulus package on a fast track for enactment. The House passed its version of the measure, the American Recovery and Reinvestment Act Bill of 2009 (H.R. 1) last Wednesday on a straight party line vote. As Washington Update went to press, the full Senate was debating its version and was expected to make changes to the package. Assuming Senate passage, lawmakers will still have to resolve the significant differences between the two versions.
While the package is mainly focused on non-real estate issues, there are several provisions of interest to apartment firms, including several tax provisions related to net operating loss, bonus depreciation, cancellation of indebtedness and enhancements to the Low-Income Housing Tax Credit. It also authorizes energy-efficiency tax incentives and increased funding for the Section 8 program and lead-based paint abatement. A summary of the apartment-related elements of the two bills is available at www.nmhc.org/goto/5038 and will be updated to reflect final action on the Senate floor this week. President Obama has asked Congress to complete action on the package by February 16.
NMHC seeks multifamily mortgage assistance
NMHC has launched a high-profile effort to help restore the apartment sector's access to capital. In addition to issuing the NMHC-commissioned policy paper by Harvard's Joint Center for Housing Studies last month (see the January 16 Washington Update), NMHC has issued a three-point program statement calling on the Federal Reserve and Treasury Department to take action to bring badly needed liquidity to the apartment sector until the credit crisis is resolved. In addition to our ongoing outreach to lawmakers, we are meeting with senior Federal Reserve officials this week and with the Federal Housing Finance Agency (FHFA), the GSEs' regulator, to make our case.
Citing the looming risk of systemic failure and a wave of defaults and bankruptcies on otherwise performing properties because of a lack of capital to refinance maturing debt, the NMHC initiative calls on the federal agencies to use the authority they have under the Troubled Assets Relief Program (TARP) to:
1. Purchase multifamily mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac. Federal Reserve/Treasury purchases are important to invigorate the multifamily MBS investor market which has begun to show limited signs of activity.
2. Purchase longer-term (e.g. 10-year) debt issuances by Fannie Mae and Freddie Mac so that the GSEs can support their lenders’ funding needs without having to rely on mismatched short-term debt. This is essential to align the GSEs’ capital needs with longer-term multifamily loan products.
3. Exempt multifamily loans from GSE mortgage portfolio limits through December 31, 2010 or until a new secondary market structure for multifamily loans is operational, whichever comes first. Based on Fannie Mae’s and Freddie Mac’s strong multifamily loan portfolio performance, exempting these loans will have virtually no impact on the overall portfolio risk of the two enterprises.
Additional details on the three-point program are posted at www.nmhc.org/goto/CapitalCrisis. In related news, on January 27, FHFA issued interim final rules requiring substantial portfolio reductions at Fannie Mae and Freddie Mac as required by the Housing and Economic Recovery Act of 2008. The rule would codify the terms of the September agreement that placed Fannie Mae and Freddie Mac under federal conservatorship. The interim rule states that each firm's retained mortgage and MBS portfolio must not exceed $850 billion as of December 31, 2009 and must decline by 10 percent per year until it reaches $250 billion. The interim rule also requests public comment on portfolio criteria that should apply when the GSEs are no longer subject to the terms of the conservatorship. NMHC will submit comments seeking to protect the GSEs' role as a liquidity backstop to the apartment sector, arguing for separate treatment for multifamily assets in portfolio calculations.
Seller-financed "charity" downpayment assistance
NMHC has once again mounted a campaign to oppose reinstating seller-financed "charity" downpayment programs. These circular funding schemes, which NMHC has long opposed, were banned as of October 1 because loans secured with assisted downpayments are three times as likely to default. We successfully opposed efforts by homeownership advocates to overturn the ban via amendments to last year's financial bailout bill and the continuing resolution funding the government through March. On January 16, Representative Al Green (D-TX) reintroduced a measure reinstating and allegedly reforming the programs. NMHC continues to educate lawmakers that these programs threaten the financial viability of the Federal Housing Administration (FHA), perpetuate the now discredited zero-down mortgage lending and threaten to re-inflate the housing bubble.
Hendersen-Webb receives 2008 NMHC Good Neighbor Award
On January 23, NMHC awarded its annual "Good Neighbor Award for Outstanding Community Service" to Hendersen-Webb. The award, which carries a $10,000 donation to the charity of the winner’s choice, highlights the many positive contributions apartment firms make to their communities and showcases good ideas that others can replicate. Hendersen-Webb was selected by an independent panel of judges for its Creative Kids program, which operates community centers for residents of the firm's apartments, offering a variety of services including English classes, tutoring, homework assistance and job-seeking help for adults. More information on the award is available at www.nmhc.org/goto/GoodNeighbor.
Smoke-free housing
Santa Monica joined several other cities, many in California, last month by approving a ban on smoking in common areas of multi-unit residential buildings. The law makes it a criminal infraction to smoke in outdoor common areas, including patios, garden and pool areas and parking lots. Victims of secondhand smoke can file a civil action in court to get an injunction or collect as much as $100 in damages. The law requires a resident to try to reach a solution with the smoker before filing a civil action, including providing written notice of the law and a written request to stop smoking in the common areas. The ordinance includes condominiums and does not grandfather smoking rights for existing rent control residents.
Meanwhile, one of the nation's most restrictive smoke-free laws went into effect on January 9 in Belmont, CA, a city approximately 20 miles south of San Francisco, after a 14-month grace period to allow apartments to comply. That law bans smoking in any apartment that shares a floor or ceiling with another, including condominiums. The 25,000-person city now only allows smoking in detached houses and yards, streets, some sidewalks and designated smoking areas outside. It was enacted as a result of a grassroots campaign by the residents of a federally subsidized retirement home who complained that secondhand smoke was adversely affecting their health.
A few private apartment firms have imposed smoking bans in their portfolios voluntarily. Guardian Management, LLC implemented the largest ban last January. The firm prohibits smoking inside apartments and in common areas as well as within 25 feet of any building on its properties. In a recent survey of residents at 17 of Guardian's federally subsidized properties, nearly three quarters said they were very or somewhat happy with the ban. Even among smokers, 30 percent said they were somewhat happy with the policy. More information on smoke-free housing is available on NMHC's web site at www.nmhc.org/goto/SmokeFree.
Miscellanea E-Verify. On January 28, the federal government for the second time agreed to postpone implementation of its controversial requirement that most government contractors verify the legal work status of their employees using the government's E-Verify system. The requirement was originally set to take effect on January 15. On January 9, the Department of Justice delayed implementation of the new regulation until February 20 in response to a legal challenge by the U.S. Chamber of Commerce and other industry groups. Last week's announcement postpones implementation until May 21, 2009. Meanwhile, the House-passed version of the economic stimulus package (H.R. 1) includes a provision mandating E-Verify participation for employers who receive federal contracting funds made available under the stimulus plan. For more information on the regulation, visit www.nmhc.org/goto/4976.
High-Level Multifamily Professionals in Obama Administration. Shaun Donovan was confirmed as HUD Secretary on January 22. Donovan brings extensive multifamily and private sector experience to the position and publicly expressed his support for a more balanced housing policy during his confirmation hearings. Rental housing has an unprecedented high profile in the new Obama Administration. In addition to Donovan, who spoke at NMHC's Board of Directors Meeting in 2005, President Obama named Valerie Jarrett a Senior Advisor. Jarrett was recently the CEO of The Habitat Company and was a member of NMHC. She spoke at the Council's Board of Directors and Advisory Committee meeting in 2006. NMHC has maintained a good relationship with both in the intervening years.
For more information, contact NMHC's Michael Tucker, at mtucker@nmhc.org or at 202/974-2360.

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