On October 10, 2007, the House passed The National Affordable Housing Trust Fund Act of 2007, H.R. 2895, to establish a national affordable housing trust fund to build or preserve 1.5 million homes or apartments over the next 10 years, without increasing government spending or the federal deficit.  The bill will initially allocate between $800 million and $1 billion annually directly to states and local communities, targeting funds for the construction of affordable housing and for lower income families facing the greatest housing affordability challenges.

This bill is another in a series of steps by the Democratic-led Congress in responding to the subprime mortgage crisis. Constructing more affordable housing is necessary to help families who have lost their homes due to subprime mortgages or due to a family financial crisis, such as ill health or job loss—as well as reducing homelessness and Americans living in unsafe housing conditions

Housing targeted to struggling families:  All Trust Fund monies must be used for low- and moderate-income families (below 80 percent of state or local median income).  At least 75 percent of funds must go to extremely low-income families (below 30 percent of median income or national poverty level), with 30 percent of funds for families with incomes below the SSI income limit.  On top of helping very low-income families, the bill reserves some trust fund money (10 percent) to families who earn from 50 percent to 80 percent of median income – helping families of nurses, teachers, firefighters, and police officers.

Trust Fund needed to construct new housing:  The bill would allow Trust Fund monies for construction, rehabilitation, acquisition, preservation incentives (including for manufactured housing and community land trusts) and operating assistance to facilitate affordability. Funds may be used for both rental housing that is affordable and for down payment and closing cost assistance by first-time homebuyers. Current programs, such as the HOME program, focus on rehabilitation – not on new construction.

Funding from GSE Fees and Expansion of FHA Loans:  The bill does not turn to taxpayers, but instead is funded through required fees (1.2% of their total outstanding mortgages each year) from Fannie Mae and Freddie Mac in the House-passed GSE Affordable Housing Fund (H.R. 1427), FHA savings that result from larger number of loans generated from the enactment of the Expanding American Homeownership Act (HR 1852), and any other sources of funds subsequently identified.  To ensure FHA efforts to expand homeownership, the bill strengthens protections against increases in FHA premiums and against diversion FHA funds for non-housing purposes.

Distribution of Housing Funds: 60% of monies will go to participating local jurisdictions and 40% to states, Indian Tribes and insular areas, with all grantees required to make funds available in rural areas proportionate to identified need in such areas. These funds would be reserved for eligible recipients, which can be any organization, agency, or other entity, including for-profits, nonprofits, and faith-based organizations, that have demonstrated the experience and the capacity to carry out the proposed Trust Fund activity. HUD allocates grants to Indian tribes by competition.

Prohibited Uses: The bill prohibits funds from being used for administrative costs or expenses, political activities, advocacy, lobbying, counseling, travel expenses, and preparation of or advice on tax returns. In addition there is a requirement that grantee develop systems to ensure program compliance, and require annual state fund use reports, and authority for HUD to impose penalties on states that do not comply with requirements, including requiring states and grantees to reimburse misused funds.

Matching Requirements of the Trust Fund:  Grantees have to match every dollar of trust funds with either 25% in other federal funds, 12.5% in state, local, or private resources, or a combination of the two.  It allows for binding commitments to provide services for residents to qualify towards the match, and also provides for a reduction or waiver of the match where a zoning variance or other waiver of regulatory barriers was required to site Trust Fund-assisted housing.

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