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Duty to Serve: Our Recommendations to Federal Housing Agencies

Tackling the nation’s affordable housing crisis requires ensuring that existing affordable properties -- especially those created through the Low Income Housing Tax Credit (Housing Credit) program -- are preserved, rather than converted into higher-cost housing. After the initial 15-year compliance period, the Housing Credit program offers nonprofit general partners a Right of First Refusal (ROFR) to obtain eventual ownership of a property at a minimum purchase price, once the investor has claimed all Housing Credits and before the program’s rent restrictions expire. Strengthening a nonprofits’ ROFR to purchase a Housing Credit property at Year 15 and ensure long-term affordability is therefore an essential tool in the preservation toolbox. National Housing Trust (NHT) has long been engaged in ensuring that Housing Credit properties promote long term of affordability.

On August 12, NHT summitted comments to the Federal Housing Finance Agency (FHFA) and Freddie Mac and Fannie Mae (together, the Enterprises) on their 2022-2024 Duty to Serve (DTS) proposed rule.  Our comments (which mirror those NHT provided at the July 11th listening session on Affordable Housing Preservation) urge the Enterprises to preserve the affordability of existing and future Housing Credit properties by upholding and strengthening the ROFR.

NHT offered four recommendations to both Enterprises to adopt language and practices that would:

  1. Identify Housing Credit properties approaching Year 15;
  2. Provide technical assistance to nonprofits;
  3. Adopt stricter investor eligibility; and
  4. Expand language in Partnership Agreements that would clarify ambiguity that exists in the federal ROFR statute.

Duty to Serve is a regulation, issued by FHFA, that requires the Enterprises to provide leadership, expand their engagement and address housing challenges for very low-, low-, and moderate-income families in three historically underserved markets, including affordable housing preservation. DTS serves as a wide-ranging document that illuminates obstacles and proposed solutions for lenders and the broader housing industry.

By acknowledging challenges to the nonprofit ROFR in their respective DTS plans, in addition to advancing the actionable solutions shared by NHT, the Enterprises will demonstrate a commitment to the long-term preservation of existing affordable housing and nonprofit ownership. Further, these solutions will limit the ability of those challenging the ROFR only for their own financial gain from participating in the Housing Credit program.

NHT continues to uplift concerns that outside parties motivated solely by profits have sought to unreasonably limit the circumstances in which the ROFR may be exercised, taking advantage of ambiguity that exists in the federal ROFR statute. NHT recognizes the wide-ranging impacts that challenges to the ROFR have on low-income residents who call Housing Credit properties home, in addition to nonprofit general partners who are committed to the long-term preservation of affordable housing communities.

As the convenor of an HFA Working Group devoted to ROFR issues, NHT has developed a toolkit of best practices to protect Housing Credit properties and nonprofit owners from disputes related to ROFR.  We continue to work closely with state and local Housing Credit allocating agencies to strengthen of the nonprofit ROFR, to better serve the needs of affordable housing residents and support quality housing opportunities.

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8.16.2022