USDA Recovery Act funds help stimulate low-income housing tax credits and new markets tax credits for the construction of new facilities and housing.

USDA Recovery Act funds can be used for energy-efficient retrofits of existing facilities through weatherization programs.

USDA The Recovery Act funds help support the construction of new affordable housing units.

HUD HUD Secretary Shaun Donovan toured Native American housing in Montana and commented on the communities' unique opportunity to use American Recovery and Reinvestment Act funds to create jobs, improve the quality of housing, build communities, and promote energy efficiency.

The American Recovery and Reinvestment Act (Recovery Act) put in place funding mechanisms to address finance gaps for "shovel ready" multifamily housing development (low income housing tax credit projects) and grants to address foreclosed and abandoned single family units that are destabilizing neighborhoods. These programs are meant to stimulate production, create jobs, stabilize local housing values, and revitalize neighborhoods. The legislation creates opportunities for bankers seeking to expand their lending, investments, and community development service activities. Some of these activities may be eligible for consideration under the Community Reinvestment Act (CRA). National banks are encouraged to discuss the possible CRA considerations of specific housing programs with their OCC supervisory office.

This article highlights some of these new and expanded federal programs. For readers interested in gaining a better general understanding of the opportunities made available by the Recovery Act funding, please read A Look Inside.

Housing Development and Rehabilitation

The Recovery Act included provisions to restore the low-income housing tax credit (LIHTC) market, which has experienced significant disruptions since 2008. Because of the economic downturn, the demand for tax credits by investors has diminished. As a result, the pricing of tax credits has declined, and many approved developments now lack adequate funding for completion. The Recovery Act allowed states to request a portion of their 2009 LIHTC allocation in the form of a cash grant rather than as tax credits through the Tax Credit Assistance Program (TCAP). States were also permitted to exchange tax credit allocations for 2008 and 2009 for cash through the Tax Credit Exchange Program (Exchange Program). A smaller allotment of funds is being provided through the Native American Housing Block Grant Program (NAHBGP) to finance new construction, renovation, and energy retrofit investments.

Both TCAP and the Exchange Program initiatives are subject to many of the same requirements under section 42 of the Internal Revenue Code as low-income housing credits are. TCAP funds may only be awarded as grants to projects, while the Exchange Program funds may be awarded as grants or loans.

Tax Credit Assistance Program (TCAP)

Title XII of the Recovery Act appropriated $2.25 billion under the HOME Investment Partnerships Program (HOME) to provide funds for capital investments in LIHTC projects. TCAP provides grants to housing credit agencies in each state to facilitate the development of projects that received LIHTC awards between October 1, 2006, and September 30, 2009. The housing credit agencies distribute these funds competitively to project owners. The funds are provided as grants or loans to projects to fill funding gaps that developers have recently experienced, rather than as tax credits.

These changes do not affect how banks invest in these projects or receive their tax credits. The Recovery Act funds are meant to stimulate projects that are ready to commence construction or rehabilitation but cannot because a reduced market appetite for LIHTC investments is creating a funding shortage.

TCAP funds from the Recovery Act may be used only for new construction or rehabilitation/reconstruction of existing LIHTC rental properties that can be afforded by households earning up to 60 percent of the area median family income. HUD awards TCAP grants by formula to state housing credit agencies to facilitate development of projects that received or will receive LIHTC allocations between October 1, 2006, and September 30, 2009. State-by-state information on TCAP grants is available on the HUD Web site.

The Recovery Act requires TCAP funds to be distributed to each state housing credit agency according to the percentage of the FY 2008 HOME program appropriation received by the state and its local participating jurisdictions. Because a major purpose of TCAP funds is to save jobs or create new jobs quickly, the Recovery Act establishes deadlines for the commitment and expenditure of grant funds and requires state housing credit agencies to give priority to projects that will be completed by February 16, 2012. Although TCAP funds were appropriated under the HOME heading of the Recovery Act, HOME program requirements (see 24 CFR part 92 and the consolidated planning requirements in 24 CFR part 91) do not apply to TCAP funds.

For more information about TCAP, visit the HUD Web site.

Tax Credit Exchange Program

Under section 1602 of the Recovery Act, state housing credit agencies are eligible to receive grants for low-income housing projects in lieu of low-income housing tax credits under section 42 of the Internal Revenue Code for 2009. This program, which exchanges 2009 tax credits for grants, is referred to as the "Exchange Program" and is estimated to cost up to $3 billion. As is the case with TCAP, these funds are used to finance construction or acquisition and rehabilitation of qualified low-income housing under the LIHTC program. The Treasury Department awards section 1602 grants to state housing credit agencies in an amount equal to their low-income housing grant election amount, using an established formula. Awards can be made through 2010.

The state housing credit agency that receives the grant will use the funds to make sub-awards to finance the development of qualified low-income projects, with or without an allocation under section 42 of the Internal Revenue Code. The sub-awards are subject to the same requirements as low-income housing credits under section 42, and the agencies may make sub-awards through December 31, 2010. States may disburse sub-award funds through December 2011. The Exchange Program may temporarily fill the gap left by diminished investor demand for low-income housing tax credits. The program allows projects to continue when developers are unable to proceed because of a lack of investors. In this way, the near-term goal of creating and retaining jobs is achieved as well as the long-term benefit of increasing the supply of affordable housing.

The National Council of State Housing Agencies provides state-by-state information on affordable housing and summaries of the Exchange Program on its Web site.

For more information about the Exchange Program, visit these pages on the U.S. Treasury Department Website.

Stabilization of Foreclosed and Vacant Properties

The Neighborhood Stabilization Program (NSP) was established by the Housing and Economic Recovery Act of 2008 (HERA) to provide $3.92 billion in funding for emergency assistance to states and local governments (NSP1). The Recovery Act provides an additional $2 billion in NSP funding (NSP2) but makes several fundamental alterations to the program. First, the Recovery Act establishes NSP2 as a competitive program as opposed to the original formula distribution for NSP1. Second, NSP2 funding is available to nonprofit organizations as well as states and local governments. A list of the NSP2 grantees can be found on the NSP's Web site. NSP is considered a component of the Community Development Block Grant (CDBG) program and basic CDBG requirements govern the NSP program. Recovery Act funding also provides $50 million of the $2 billion for NSP technical assistance to improve the capacities of NSP1 and NSP2 communities to carry out high-performing, compliant neighborhood stabilization programs swiftly.

The NSP funds will be used to help stabilize property values and prevent neighborhood blight. In addition, the funds help create and preserve jobs. NSP funding will be used for the purchase or redevelopment of thousands of foreclosed and abandoned homes and properties across the nation. These actions can help stabilize neighborhoods by limiting the impact of vacant properties on surrounding properties and can provide the opportunity for thousands of households to own their own home. Program funding can also aid communities by providing a ready source of dollars to demolish and clear blighted structures or to land-bank real property until neighborhoods stabilize and demand for housing rebounds. Further, the inclusion of nonprofit organizations as eligible grantees in NSP2 will foster greater innovation and can encourage public and private partnerships. To increase the reach of NSP, HUD announced on April 2, 2010, an expanded definition for foreclosed and abandoned properties to now include properties in mortgage default and uninhabitable homes with lingering code violations. See HUD No. 10-066 for further details.

NSP funds must be used for activities related to vacant or foreclosed properties but are not restricted to acquisition and rehabilitation activities. Grantees may purchase properties outright or offer financing programs to qualified buyers, such as "soft second" loans (forgivable loans that allow applicants to purchase a home they otherwise could not afford), down payment grants, or rehabilitation loans. NSP expands market interest in foreclosed properties and helps stabilize hard-hit communities while promoting affordable rental and homeownership opportunities.

CRA Consideration

LIHTC Projects

Banks may receive CRA consideration for investments in and loans to LIHTC-eligible projects or funds provided the geographic requirements of the CRA regulation are met. Such loans and investments must benefit the bank's assessment area or the broader statewide or regional area that includes the bank's assessment area. Refer to the regulation (12 CFR 25.12(h) and 25.23) and the March 11, 2010 Interagency Questions and Answers on Community Reinvestment (Q&As) (see 75 FR 11642) for guidance. (See Q&A § __.12(h)-1, Q&A §__.12(t)-4, Q&A §__.23(e)-2, and Q&A §__.42(b)(2)-2.)

Investments in LIHTC projects or funds are eligible investments for national banks under the OCC's part 24 authority. For additional information, see the Part 24 Investments (Resource Directory)

NSP Activities

Banks should evaluate whether CRA consideration is available for their NSP-related initiatives. In general, banks can receive CRA consideration for lending, investment, and service activities that benefit their assessment area(s) or the broader statewide or regional area that includes their assessment area(s).

Loans to purchase, rehabilitate, and sell or rent foreclosed properties as affordable housing for low- or moderate-income individuals receive CRA consideration as home mortgage loans and, in the case of multifamily housing, CD loans. Bank investments and donations to CRA-qualified organizations also receive consideration. In addition, some activities related to the disposition of bank OREO may be eligible for consideration under the CRA. Bank donations to qualifying organizations may be in the form of cash or "in-kind' property. For example, bank donations or sales of property below market value to organizations whose primary purpose is consistent with the CRA definition of community development may be considered as a qualified investment in a CRA examination (refer to Q&A § __.12(t)-5).

In the context of a below-market-value sale of property to a community development organization, CRA consideration applies to the difference between current fair market value and the discounted sales price of the property. If the property were donated outright, then the property's current fair market value would be the amount of the in-kind donation. For example, a bank could donate a vacant house to a nonprofit organization that would rehabilitate the property and sell it to a low- or moderate-income family for affordable housing. The transfer of such a property, when part of a formal revitalization and stabilization plan, also can help stabilize a low- or moderate-income neighborhood when the nonprofit resells the home to new residents, preventing further neighborhood deterioration.

Banks can also receive CRA consideration for providing technical assistance that will help community development organizations build their capacity to acquire and manage foreclosed properties. Technical assistance includes activities such as management training, financial consulting, and marketing assistance. (See 12 CFR 25.12(i), Q&A §__.12(i)—1 and §__.12(i)—3)

For further information on bank activities, the OCC has developed a fact sheet on NSP Property Disposition and the Fall 2009 Newsletter on local partnership efforts to build neighborhood stabilization.