MN Housing Board Update: Legislative session recap, 2020 QAP, Habitat for Humanity Revolving Credit Agreement and more

At its May meeting, the Minnesota Housing Finance Agency board discussed amendments to the Affordable Housing Plan (AHP) for home mortgage and downpayment and closing cost loan programs; comments on and final recommended changes to the 2020 Qualified Allocation Plan (QAP); a revolving credit agreement with Habitat for Humanity; a waiver for Minnehaha Townhomes in Minneapolis; and a state legislative session recap.  

Opening Remarks

In her opening remarks, Commissioner Mary Tingerthal shared excitement around the progress of the Governor’s Task Force on Housing, which has taken a wealth of input from work groups and regional forums and is starting to form recommendations that will be finalized, prioritized and published in a report at the end of July. Tingerthal expressed confidence that the task force will result in a significant body of work.

Tingerthal also noted that the Agency had been busy gearing up for annual request for proposals and winding down the final days of the state legislative session. While she bookmarked a more robust review of the session later in the meeting, she called the board’s attention to a provision in the bonding bill that could “impose significant restrictions on this board’s authority to allocate tax credits according to the Qualified Allocation Plan.” She emphasized that the Agency is reviewing what impacts, if any, it will have on the tax credit program, and would come back to the board with more information.

Amendments to Affordable Housing Plan (AHP) for Home Mortgage and Downpayment and Closing Cost Loan Programs

Due to strong production, staff requested board approval for additional funding for the Home Mortgage Programs under the 2018 Affordable Housing Plan (AHP) and additional funding for the downpayment and closing cost loan programs.

The home mortgage programs, which include Start Up and Step Up, provide home financing to first-time, repeat, and refinance borrowers. Production in 2017 was record-breaking with $670 million in net commitments, and 2018 year-to-date production levels for these programs are 39% higher than in 2017. Subsequently, the demand for downpayment and closing cost loans has also increased. To preserve Pool 3 resources, the Board approved program changes in February to modestly shift borrowers from the Deferred Payment Loan (DPL) to the Monthly Payment Loan (MPL). In the short time since implementing these program changes, some DPL production has successfully shifted to MPL, reducing the projected need for additional scarce DPL resources without impacting service to households of color or Hispanic ethnicity.

Board member Terri Thao asked what number of families are estimated to be served by this program. Staff responded that the original goal was 3,700 families, but now the Agency projects it will serve approximately 4,500 families. The board approved additional funding. 

Waiver for Minnehaha Townhomes

Agency staff recommended a waiver to the predictive cost threshold established by the Predictive Cost Model for the Minnehaha Townhomes project. Agency staff emphasized that this project presents a rare opportunity to create new public housing units in Minneapolis that will come with commitments to capital and operating subsidies from the federal government. The property will provide a long-term source of affordable housing for families experiencing homeless and will pay no more than 30% of household income in rent. These will be deeply affordable units that are integrated into a neighborhood that is considered an opportunity area, which aligns with Minnesota Housing’s mission to help fund projects in under-invested areas. In order to facilitate this much-needed development, MPHA is taking no developer fee and Minneapolis wrote down the cost of the land to $1. Some of the additional costs are attributed to unexpected costs related to unique soil conditions and extra exterior finishing costs required by the city to conform to their planning review process. The board approved the waiver.

Comments and Changes to the 2020 Qualified Allocation Plan (QAP)

In January, the Agency brought a set of recommended changes to be included in the 2020 Qualified Allocation Plan (QAP) to the board, and subsequently released those proposed changes for public comment. While no members of the general public attended the public hearing, written comments were submitted from 15 organizations. Those comments were reviewed by Agency staff and leadership, and resulting changes, including those to the Self-scoring Worksheets, are outlined below.

Most notably, the Agency received a number of comments requesting better differentiation for the review process specific to HTCs applied for under a Competitive Funding Round (including 9% HTCs and dual applications that include projects with a 4% HTC structure), and 4% HTC Only projects that receive an allocation of tax-exempt, private activity volume cap from MMB. Minnesota Housing agrees that having distinct Self-scoring Worksheets for the Consolidated RFP (9% HTCs and dual applications) and 4% HTC Only applications will improve streamlining and administration of the HTC program. 

Changes recommended as a result of public comments include the following:

  • Create a distinct Self-scoring Worksheet for applicants with projects that have been allocated tax-exempt, volume-limited bonding authority from MMB who seek 4% HTC Only credits from Minnesota Housing.
  • For 4% HTC Only applications:
    • Eliminate the strategic priority threshold for 4% HTC Only applications
    • Add points under Serves Lowest Income Tenants for providing 25 percent of restricted unit rents affordable to households with incomes at the county 50% HUD MTSP income limits
    • Eliminate the Risk of Loss threshold requirements under the Preservation category for market conversion, critical physical needs or ownership capacity/program commitment. Projects will continue to be scored on the percent of federally assisted units or critical affordable units at risk of loss.
    • Increase the number of points for the Community Development Initiative from three to five.

Additional changes included:

  • Clarifying in the Self-scoring Worksheets that the People with Disabilities provision regarding permanent physical disabilities is not limited to individuals with a mobility impairment.
  • Articulating that rental assistance programs with alternative rent structures where the program goal aligns with the needs of low-income populations, such as the Moving to Work program and Housing Support, meet the intent of satisfying the rental assistance criterion. The Self-scoring Worksheets have been updated to reflect this change.
  • Adding “tribal corporate entities” to the entities eligible for MBE/WBE in the Self-scoring Worksheets.
  • Agreeing that park dedication fees should be excluded from intermediary costs for purposes of scoring criterion. While this fee is eligible for exclusion from the intermediary cost calculation, Minnesota Housing encourages applicants to consider requests for waivers or reductions in various fees, including intermediary fees, as a cost containment effort. Any reductions or waivers of such are eligible for points under the Other Contributions scoring category.

All written comments are included on pages 215-263 of the board packet and all changes proposed in those comments (including those that were not recommended or approved by the Agency) are included on pages 40-56.

Also of note: The federal government’s 2018 budget bill included the establishment of income averaging as a potential election for tax credit developments. This change has wide-ranging implications for the tax credit program and gives rise to significant administrative complexities. Minnesota Housing is actively assessing the implications of this change, including meeting with stakeholders and reaching out to state housing finance agencies around the country. The 2020 QAP is being released prior to the inclusion of income averaging in order to provide sufficient notice to developers and stakeholders of any other changes to the program. Once the Agency determines how best to incorporate income averaging into the state’s tax credit program, it is anticipated that the staff will propose an amendment to the 2020 QAP.

Habitat for Humanity Revolving Credit Agreement

At the September 2016 Board meeting, the Board gave concept approval to a potential $10 million Agency investment in the Twin Cities Habitat for Humanity (TCHFH) “Home Loan Impact Fund 2020,” which was structured to provide a leveraged source of financing that combined private, non-profit, public and donated funds to accelerate TCHFH’s ability to provide highly subsidized single-family mortgage loans to lower income families for home purchases.

In early 2017, TCHFH announced that they had reached an historic agreement with Bremer Bank to provide significant financial support over the next four years to more than double the number of local families that could partner with TCFHF on affordable homeownership. Because of that commitment the multi-participant structured fund was no longer contemplated. After many discussions over many months Agency staff proposed — and the board approved — entering into a $25 million revolving credit agreement with TCHFH. The term of the commitment is proposed to be 10 years. As a revolving facility, TCHFH will be able to draw on the credit line as needed to finance its working capital needs, and also repay, in whole or in part, prior draws, enabling TCHFH to manage its cash requirements effectively.

At least for the near-term, it is not expected that the entire $25 million will be outstanding at any one time. However, having the long-term commitment for availability of these short-term funds enables TCHFH to explore options with other potential lenders to further build out a reliable and sustainable operating model into the future. While the proposed credit facility will be unsecured, TCHFH will agree to make, and maintain, certain financial and organization covenants as well as certain representations and warranties.

Legislative Session Recap

Legislative Director Katie Topinka shared that, despite some policy language that the Agency is still sorting through, the passage of the bonding bill was a major victory in the state legislative session. The bill includes $80 million in Housing Infrastructure Bonds and $10 million in General Obligation bonds for public housing. Topinka emphasized that the statewide reach and the ability to get projects moving quickly gained the support of lawmakers to make another significant investment in housing with the bonding bill. In addition, the bill includes two changes to the eligible uses for Housing Infrastructure Bonds: affordable housing for seniors aged 55 years and older (which was supported by the Agency and included in the Governor’s bonding proposal) and infrastructure in manufactured home parks (which was not included in the Governor’s proposal but was a priority for housing advocates). Topinka also noted that $30 million in bonds will be for permanent supportive housing for people with behavioral health needs.

Ryan Baumtrog, Assistant Commissioner Policy and Community Development, added that two of the Agency’s priorities in the supplemental budget were not included: an additional $4 million for the Homework Starts with Home and changes to the manufactured housing trust fund. While they were not included in the House, Senate or conference bills, Baumtrog noted that the Agency and advocates had good conversations with lawmakers about these issues. Baumtrog also shared that some of the policy changes that the Agency opposed or remained neutral were included in the supplemental budget that was passed but subsequently vetoed by the Governor, namely changes to tax exempt bond allocation through the Department of Management and Budget that would eliminate the resources or set aside for homeownership.

Given the Agency and advocates’ focus on bonding, though, Baumtrog emphasized that top priority of the session was achieved.

The full board packet can be found here and the next meeting of the board will be June 21.