What you need to know about HUD’s National Housing Trust Fund regulations

Yesterday the National Low Income Housing Coalition held an informative webinar on the regulations for the National Housing Trust Fund (NHTF), which the federal government released last week.

The program was created as part of the Housing and Economic Recovery Act of 2008, but funding has been delayed due to a hold placed after the government’s takeover of mortgage giants Fannie Mae and Freddie Mac (for more on NHTF’s background, and the current threats to its funding from Congress, read our previous post). The federal Department of Housing and Urban Development (HUD) lifted the hold in December and has now announced the program’s interim regulations and rollout. In the coming years, HUD will solicit comment from states to develop its final regulations.

You can view and listen to the complete webinar on the National Low Income Housing Coalition’s website. Here are the most important things to know:

How much money is available, and when?

On Jan. 1, 0.042 percent of new business generated by Fannie Mae and Freddie Mac started to go into NHTF’s dedicated fund. Sixty days after the end of the 2015 calendar year, that fund will be open for block grants to states, which HUD Secretary Julián Castro has said should be allocated in the summer of 2016.

The Obama administration’s fiscal year 2016 budget estimates that $245 million will be in the fund by the end of 2015, with $120 million for NHTF ($64 million would go toward the Capital Magnet Fund, another element of the Housing and Economic Recovery Act, and $61 million would go toward a HUD reserve fund). However, the National Low Income Housing Coalition believes this estimate is very low; if NHTF was available this year based on Fannie and Freddie’s 2014 business, the fund would be at $385 million, with $188 million for NHTF. And with the homeownership market on the rise, that number should increase in 2015.

How will the money be distributed?

NHTF funds will be allocated through block grants to states. States must identify which state agency will receive and administer funding. Agencies are allowed to then allocate funding to subgrantees – local governments and other state entities – who can also distribute project funds. Within 30 days of HUD’s announcement, sometime in 2016, of how much money each state will receive, states must indicate which agency will receive funding. If for some reason any state declines to participate in NHTF, their allocation will be reapportioned to the rest of the states.

Each state and the District of Columbia is guaranteed at least $3 million, as long as there is enough in the fund, and the remainder of the money is distributed to states via a formula based on these points:

  • shortage of affordable rental properties for extremely low income (ELI) and very low income (VLI) households
  • shortage of available rental properties for ELI and VLI households
  • number of ELI and VLI rental households under a severe cost burden, i.e. paying more than 50 percent of their income for rent and utilities
  • priority toward ELI households set at 75 percent of formula weight

Based on the Obama administration’s estimate, under this formula Texas would receive $10.47 million. Money must be committed within two years.

States are required to prepare an allocation plan each year, which must be based on the priorities identified in each state’s consolidated plan for housing. Allocation plans must be integrated into consolidated plans and comply with the same public comment requirements, and subgrantees must have their own consolidated plans.

What are the rules for allocation?

At least 90 percent of NHTF funding that states receive must be used to produce, preserve, rehabilitate or operate rental housing. Up to 10 percent can be used for homeowners. When the NHTF fund holds less than $1 billion, which will almost surely be the case in its first year, 100 percent of funding must go toward ELI households – those whose average median income (AMI) is below 30 percent of their area’s. When the fund tops $1 billion, 75 percent must still go toward ELI households, with up to 25 percent for VLI households between 30 and 50 percent of AMI.

Each state’s allocation plan must describe the requirements and the selection criteria for funding recipients. Allocation must be based on six priorities:

  • geographic diversity
  • rental affordability
  • length of rental affordability over time
  • merit of a project, i.e. serving people with special needs, accessible to transit or employment centers, energy efficient, etc
  • applicant’s ability to obligate money and finish project in timely manner
  • project’s use of non-federal funds

HUD has set maximum rent requirements for NHTF rental properties at 30 percent of 30 percent of the area’s average median income or poverty level, whichever is greater. Rent is required to remain affordable for 30 years, but states and subgrantees can set their own longer time requirements. Length of affordability is a factor that states must consider in awarding project funds, so longer timelines are beneficial for applicants.

How do allocation plans work?

States and subgrantees can decide how to award NHTF funding: through loans, grants, interest subsidies, equity investments and more. Many different types of project costs are eligible for funding, including:

  • buying property
  • “hard costs” related to construction
  • “soft costs” related to financing and development
  • relocation
  • demolition
  • utility connections and site improvements
  • staff and overhead

Up to 33 percent of state funds can be used for operating cost assistance, covering the gap between rent and the actual cost of maintaining housing, or an operating cost assistance reserve fund. Grants can commit funding from a single year to provide operating costs for more than one year, but all NHTF dollars committed from one year must be spent sometime in the next five. However, money added to an operating cost assistance fund can be used over the entire affordability period, providing long-term support for projects.

Funding for homeowners, which must be 10 percent or less of a state’s total, can include building, preserving or rehabilitating homes or helping with down payments. Eligibility is limited to ELI households who are first time home buyers or displaced or single parents, undergo homeownership counseling and have one principal residence.

Trailers, or manufactured homes, are also eligible for NHTF funding. Money can be allocated to purchase or rehabilitate a manufactured home or buy the land the home sits on. The home must be permanently connected to utilities and on land owned or leased for the length of the affordability period by the ELI household.

What about public housing?

In general, NHTF funding cannot go toward building or rehabilitating public housing. But an interim rule allows for rehabilitating public housing converted under the Rental Assistance Demonstration program, or rehabbing or building housing that is part of the Choice Neighborhoods Initiative or will accept Low Income Housing Tax Credits.

The National Low Income Housing Coalition is concerned that this interim rule may direct money away from the intended goal of NHTF, which is to expand affordable rental housing for ELI households, and allow states to instead focus on maintaining their existing public housing stock.

Indeed, NHTF is not an excuse to reallocate or cut funding from other housing programs. The trust fund is extra; separate from Congressional appropriations so that it isn’t beholden to program cuts, but is instead a tool to expand affordable housing – a tool which states will finally be able to use.


  1. […] The NHTF was created as part of the Housing and Economic Recovery Act of 2008 to produce, preserve, rehabilitate or operate rental housing for very low income and extremely low income households, defined as those below 50 percent and 30 percent of their area’s average median income, respectively. By design, it was meant to be separate from the appropriations process, funded by 0.042 percent of new business generated by the government-sponsored mortgage enterprises Fannie Mae and Freddie Mac (read much more about the NHTF here). […]

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