During its January meeting, the board of the Minnesota Housing Finance Agency (MHFA) discussed updates at the state legislature, the statewide Analysis of Impediments to Fair Housing, modifications to the downpayment and closing cost assistance program, proposed amendments to the 2018 housing tax credit Qualified Allocation Plan, funding for the Minnesota City Participation Program and more. 

Legislative updates

In her report to the board, Commissioner Mary Tingerthal focused on activity at the legislature. First, she provided an update on the housing portion of the governor’s budget. In addition to putting forward the Agency’s base budget — approximately $100 million over the two-year biennium — the governor included one-time funding for two housing initiatives.

One housing initiative included in the governor’s budget is an $8 million proposal, “Homework Starts with Home,” to address housing instability of school children. It would be a collaborative effort with the Department of Education and enlist counties and school districts. Tingerthal added that the Heading Home Funders Collaborative pledged to raise an additional $1 million in private funds for the initiative.

The second proposal from the governor is included in his racial equity initiative. The Agency would receive $2 million in downpayment assistance and counseling funds to promote home ownership targeted for households of color.

Tingerthal continued with the legislative update by reporting on the governor’s bonding bill, which includes three items related to housing.

• $70 million in Housing Infrastructure Bond (HIB), available for preservation of federally subsidized privately owned housing, supportive housing, and community land trusts
• $20 million in general obligation bonds to maintain the state’s public housing
• An additional $20 million in HIB, repaid through previously committed debt service appropriations connected to the previous HIB appropriations, which is available because the debt service costs on these bonds came in lower than what the state had budgeted

Fair Housing

Tingerthal shared that the state has contracted with BBC Research and Consulting to complete a statewide Analysis of Impediments (AI) to fair housing. This analysis is a HUD requirement of local and state agencies that receive federal housing and Community Development Block Grant funds. With HUD’s encouragement, the upcoming AI will include a more robust community engagement process than had been done with past AIs. The consultant will provide a website with information on ways for members of the community to share input for the analysis. Tingerthal promised details on this work at the board’s February meeting.

Downpayment and closing cost assistance program

The board agreed to modifications of the downpayment and closing cost assistance program necessitated by changing market conditions, according to Agency staff. Increased mortgage interest rates and house prices, and declining seller willingness to cover closing costs due to the tight housing market, required an increase in loan amounts available in these programs and raising the income cap for program participants. Agency staff estimated that because of the new market conditions the out-of-pocket costs for its program participants would rise to about $4,000, double what it was in 2015. The board increased program loan amounts and raised the income cap from 80% to 95% of area median. In endorsing the change, board member Joe Johnson asked for more information behind the approximately $8,000 variance in income caps between the Twin Cities/Rochester amount and that for Greater Minnesota.

2018 housing tax credit Qualified Allocation Plan

Staff brought back to the board its revised recommendations for amendments to the 2018 housing tax credit Qualified Allocation Plan (QAP). These changes are intended to raise the bar in terms of the type of projects that would receive 4% tax credits from the Agency in conjunction with tax exempt private activity bonds. Because the demand for these bonds is exceeding the state’s federally authorized allotment, the Agency wanted to tighten the connection to its strategic priorities for those projects receiving 4% tax credits in conjunction with tax exempt bonds. The board had first given approval of a draft set of proposed changes in October 2016, but an unprecedented level of responses during the public comment period led to Agency staff reworking this earlier set of proposed amendments.

Staff said the Agency had received more than 250 comments. Staff responded by hosting a webinar on the proposed QAP changes and holding meetings with a variety of stakeholder groups. In the new 2018 QAP draft amendments, the Agency is requiring a minimum score of 40 points (this is the current level in the 2018 QAP, but down from 50 in the earlier draft amendment) for developments to qualify for the 4% tax credits. The developers would need to commit to 20 years’ affordability (down from 30 in the prior draft), and would have the option of receiving additional points for committing to 30 years’ affordability. Other modifications were included to ensure that a variety of developments would still qualify for 4% tax credits.

The proposed changes will now be out for another round of public comments, with a February 9 deadline. It is the intent of staff to bring the comments and the final QAP proposal to the board for adoption at the board’s February meeting. Board member Stephanie Klinzing said that what initially seemed like a simple solution is not really all that simple. The proposed tax credit changes have many ramifications for communities and developers; to its credit Agency staff worked with those who voiced concerns to create a better document. She added that, in this case, the controversy and related public input turned out to be a good thing. The Agency maneuvered though the complications, Klinzing concluded, and came out with a great plan.

Minnesota City Participation Program

The board accepted the staff’s proposal for allocation of tax exempt bond-generated funding for the Minnesota City Participation Program. The state bond allocation statute sets aside 31% of the tax exempt bond Housing Pool for home ownership programs of municipalities and counties. Minnesota Housing supports these local governments by selling the bonds and making the mortgage money available to government applicants that request to participate in this program. This year, $56 million in tax exempt bonds were available for this purpose, and mortgage funds were allocated to 38 local governments located in all regions of the states. Allocation levels were based on population, with a minimum of $100,000.

Miscellaneous notes

• Tingerthal announced that the governor had recently reappointed Joe Johnson of Duluth to the Agency board.
• Minnesota Housing’s lease for its office space expires in August 2017 so Agency staff are looking at options to stay and improve the current space or move to a new location.
• “Best underwriting team in the country” was the assessment by the Agency’s financial advisor as a part of the bi-annual review of the group of companies that advises on and markets Agency loans and securities. The team led by RBC Capital Markets, also includes Piper Jaffrey and Wells Fargo Securities.