“New Tools for Financing Affordable Housing pursuant to the Housing and Economic Recovery Act of 2008”

An important Event from the CHAPA Calendar:

The Real Estate Bar Association’s Affordable Housing Committee is pleased to invite you to attend a panel discussion regarding “New Tools for Financing Affordable Housing pursuant to the Housing and Economic Recovery Act of 2008”. Our guest speakers will be Maureen Flynn, Special Counsel in the Executive Office of Housing and Economic Development, Consumer Affairs Division, and Joseph Flatley, President and CEO, and Bruce Ehrlich, Investment Officer, at the Massachusetts Housing Investment Corporation (MHIC).

The new Federal Housing Legislation, signed into law on July 31, 2008, substantially reformed prior housing finance processes and programs,including establishing a new regulator for Fannie Mae and Freddie Mac, funding a federal Affordable Housing Trust Fund (with projected funding of over $280 million in 2010), and creating a $3.9 billion Neighborhood Stabilization Grant Fund. Our panelists will share their perspectives from the public and private sectors on housing finance reform and how these changes will impact on structuring and financing affordable housing transactions in 2008 and beyond.

Location:

Rackemann, Sawyer & Brewster, P.C.
160 Federal Street, 15th Floor,
Boston.

Additional Information:

Interested attendees should contact Kurt James at (617) 951-1154 or kjames@rackemann.com to RSVP for this meeting. A complimentary lunch will be served. If you are interested in learning more about REBA, or becoming a REBA member, you may contact REBA at (617) 854-7555 or visit REBA on line at www.reba.net.

First Time Home Buyers Return

Massachusetts has not escaped this down real estate market unscathed. In the first eight months of 2008, the median sale price for single-family homes was down nine percent from the same time last year. It's clear that this might be an opportune time for first time home buyers in some Bay State housing markets. The median sale price in Hyannis, for example, is down by over an enormous 40%. The foreclosure crisis has hit Hyannis like a Category 4 hurricane. With the declining housing market and increasing affordability, first time buyers are coming to Hyannis.

Utility, mortgage insurance, and homeowners insurance costs have increased substantially in last 12 months. Buyers are looking for any way to save on associated homeowner costs. The first time home buyer tax credit, recently passed under the Housing and Economic Recovery Act of 2008, should offer some assistance to buyers. However, don't get too excited over the phrase "tax credit". This credit is a 15-year interest-free loan payable yearly beginning two years after you claim the credit. The maximum allowed is $7,500 for a couple. Every year for 15 years, you'll be asked for $500 extra bucks on top of what you might already owe on your Federal tax return. This payment structure might present a problem for some buyers who struggle pay the government each April 15th. But, to first time home buyers who are accustomed to predictable tax refunds this might be welcome relief.

Sustainability versus Affordability

Mortgage insurance companies are tightening their criteria for insuring mortgages. According to Tuesday's Mortgage Market Turmoil section of the Wall Street Journal in recent years, the overall focus on the industry was to provide housing affordability versus sustainability. Now that the housing market and mortgage industry are in tourmoil, lenders for mortgages and insurances are reining in their underwriting standards to make the industry sustainable in the long-term. Insurers are requiring down payments of at least 10% versus 3% or 5% in the years past. Certainly this is a more prudent investment on behalf of mortgage insurers to insure only the households who make a more secure financial investment in the property. However this makes purchasing a home extraordinarily difficult for first-time buyers.

Sustainability is the word of the millennium. We use the word when we talk about green, environmentally friendly construction. Although it is a word not commonly used when speaking about mortgages, there was a number of references to sustainability in the mortgage insurance industry in Tuesday's WSJ article. This made me think of the additional hurdles households will have to jump through when looking to buy a home for the sake of mortgage industry sustainability. I agree that the industry needs to tighten its belt with regards to who it lends to and who it insures but we need not overlook the fact that providing housing to a variety of income levels is sustainable and essential for a local economy. It has more than social benefits for the particular household but benefits to the regional economy as well. Without providing housing to service sector employees, municipal employees and tradesmen, the labor demands placed on the regional service sector by market-rate households will be unmet. Providing housing for a variety of income levels provides housing for all employment sectors and creates a sustainable regional economy. The question is, does tightening your belt too much regarding mortgage approvals inhibit regional economic sustainability by making it difficult for low- and moderate-income households to qualify for a mortgage?

What is affordable?

People often have difficulty when thinking about what it means to be considered "affordable". Many people believe it's only housing for the poorest of the poor not realizing it's also housing for some members of the workforce. This can be tradesman, government workers, office workers, service sector employees. Essentially, it is those whose jobs are critical to a city or municipality.

A home that is affordable is attainable to a household where household expenditures (mortgage, insurance and taxes) do not exceed 30% of household income . A household who spends greater than 30% is considered cost-burdened. To be eligible for State or Federal housing subsidies, households are subject to certain income limitations. They are very low-income, low-income, and moderate-income and are defined as:

Moderate-income is between 50% and 80% of the area median income.
Low-income is between 30% and 50% of the area median income.
Very low-income is below 30% of the area median income.

Food for Thought

A Cape Cod real estate company has resouces and FAQ's about short sales on their home page. If the very first page you see when you go to their website includes this information, it must be very prevelant in the region. A short sale is when the bank is accepting less than the total amount due on the mortgage. I realize there are tax implications for the buyer in these transactions and i believe it can be considered income if the sale is below market value. But does it make sense for Towns to scoop up some of these short sales using federal and local funding and rent or sell them to moderate-income households? In Massachusetts, where most of the 352 towns have not hit their magic 10% affordability number, they are seeking alternative ways to reach that 10% threshold while not relying on Chatper 40B developments. I wonder if this deserves some additional thought.

Are you serious? Banks need to step up

I read in the Boston Herald today that "more than 45% of all real estate transactions in the city are now bank seizures". This is a horrible situation where predatory lenders have significantly contributed to this housing crisis. It's likely that many of the households who are facing certain foreclosure should not have been loaned money in the first place. We can go as far back as late 1990s early 2000s and see that lending criteria and practices should have been subject to more scrutiny. Now we are faced with a terribly burst housing bubble with people being evicted from their homes by the very banks who gave them their house keys not long ago. The banks should reach out to households who are faced with preforeclosure to help the situation before their homes end up in auction or bank owned. They need to watch over their investment; not walk away licking their lips while waiting for a property to swallow. Banks need to educate and provide financial tools to households making sure that these loans remain in repayment.

Cottage Bylaw Support

The Easton Housing Partnership Committee is supporting the Cottage Community Developments as an innovative housing strategy for the Town of Easton.

It is the committee’s responsibility to explore opportunities that expand affordable housing in accordance with Easton’s Affordable Housing Plan. This includes developing “housing choices” in the Town of Easton. Between the cost and availability of developable land, and restrictive zoning and environmental regulations, creative solutions are imperative to develop housing. The committee believes cottage housing provides an innovative alternative that can potentially meet the needs of middle-income buyers while increasing housing stock diversity in the Town of Easton. Middle-income housing options should be part of every municipality’s housing strategy as it assists in providing homes for a demographic that is typically not considered in new construction projects.

Based on recent income and housing data, it is clear that middle-income households cannot afford to purchase newly constructed market rate housing and cannot qualify for affordable housing units that are restricted to low- and moderate-income households. Homes in Easton that are currently for-sale and are at or below the median sale price of $329,800 are generally aged and in need of various levels of maintenance. However, to purchase the cottage units, as proposed by Mirrione Realty with an estimated price of $300,000, a household would need to earn approximately $76,000, assuming a competitive interest rate . This is less than Easton’s 2005 median household income of $83,538.

The committee understands the units developed under this bylaw, as currently proposed, will not qualify for the State’s Subsidized Housing Inventory. HPC has requested that five percent of the units be restricted to households earning no more than 100% of the area median income. Although this restriction would prevent the unit(s) from being included in the Subsidized Housing Inventory, it would make clear the need for middle-income housing.