FY 1996 APPROPRIATIONS REQUEST A. Overview of the Affordable Housing Program The FDIC Improvement Act of 1991 required the FDIC to implement an Affordable Housing Program upon appropriation of funds by Congress. This legislation authorized appropriations of $30 million annually to reimburse the FDIC for discounts on properties in its liquidation portfolio. Additional funds were to be appropriated to reimburse the FDIC for any incremental administrative expenses associated with running the program. Congress appropriated $5 million for FY 1993, $7 million for FY 1994, and $15 million for FY1995 to be used for discounts and administrative expenses associated with the program. Because the funding levels were less than originally anticipated, the funding legislation has allowed the FDIC to modify the program in a manner which can best utilize the limited amount of funds. The modified program is described below. The FDIC provides credits or grants to low- and moderate-income households for the purchase of certain affordable single-family homes in its inventory of properties retained from failed banks. C. Eligible Properties Eligible properties include residential properties with appraised values less than or equal to the Federal Housing Administration (FHA) mortgage loan limit for the applicable county, subject to a maximum statutory cap shown below: Upon acquiring marketable title to an eligible property and procuring the services of a listing broker, the FDIC restricts the sale of qualified properties to low- and moderate-income buyers for 180 days. After 180 days, properties can be sold to anyone; however, subsidies are only available to qualified buyers. FY 1996 APPROPRIATIONS REQUEST The FDIC notifies the appropriate state housing finance agencies and the Federal Home Loan Banks of the availability of eligible properties. These "clearinghouses" disseminate property information to prospective purchasers. Also, recognizing that some properties may ultimately sell for less than appraised value, a number of properties with appraised values exceeding the FHA limit (or statutory cap), are also included on the FDIC's list of available properties. The FDIC has a certification process to identify qualifying purchasers. A qualified purchaser is defined as a household with an adjusted income less than 115% of the median income, indexed on household size and based on the location of the property. Income qualification worksheets are obtained from any FDIC Affordable Housing Coordinator or participating real estate broker. These qualified purchasers are the only persons eligible to receive subsidy assistance. Qualified purchasers also include non-profit organizations and public agencies that agree to make the property available for purchase or rent by low- or moderateincome families under the provisions of Section 40 of the Federal Deposit Insurance Act. The FDIC utilizes the joint FDIC/RTC non-profit form when determining the eligibility of such organizations. E. Subsidies Subsidies (i.e., credits or grants) are limited to 10 percent of the purchase price or $1,500, whichever is greater. The FDIC assistance can be used in one or more of the following ways: Down payment assistance. Buying down mortgage points and covering closing costs. Any qualified household that purchases a property through the FDIC Affordable Housing Program must certify that they intend to occupy the property as a primary FY 1996 APPROPRIATIONS REQUEST residence for at least twelve continuous months following the date of closing. If a property is resold within one year, the purchaser is required to remit 75% of the net profit from the sale of such property ("net profit" is defined as the difference between the purchaser resale price and the original sale price plus the cost of any equity improvements made by the purchaser). This requirement can be waived in situations where the purchaser is relocated as a result of employment. Current tenants can purchase their residence whether or not they are income qualified. Only income qualified tenants are eligible for credits or grants. All tenant sales have the occupancy and profit-recapture requirements described above. It should be noted that because of the limited amount of funding, no multifamily program was implemented in FY1993. During FY1994, the FDIC implemented a limited multifamily program in conjunction with the RTC. Ten FDIC multifamily properties were identified and subsequently sold through the RTC's Direct Sales Program utilizing approximately $2.3 million in discounts and administrative expenses. With $15 million in appropriations approved for FY1995, the FDIC anticipates a larger number of multifamily properties will be marketed and sold through the RTC's Direct Sales Program. While funding requirements for singlefamily sales during FY1995 are anticipated to remain at a level similar to FY1994, the FDIC estimates approximately $12 million may be used for discounts and administrative expenses associated with the marketing and sale of multifamily properties. Multifamily sales will be subject to land use restriction agreements which will restrict 35% of the units in a property to low- and very low-income occupancy, at least 20% of which must be occupied by very low-income households. I. Unification of the FDIC and the RTC Affordable Housing Programs The RTCCA was signed into law on December 17, 1993. The primary purpose of this piece of legislation was to provide $18.3 billion for the RTC to complete the remaining savings and loan resolutions over a two-year period. Among other FY 1996 APPROPRIATIONS REQUEST provisions, the RTCCA also directed the RTC and the FDIC to implement an agreement to provide for an orderly unification of all activities and responsibilities of the RTC and the FDIC affordable housing programs. Unification of the programs must be completed no later than September 30, 1995, three months prior to sunset. On April 12th, 1994, the FDIC Board of Directors approved an agreement that provides a plan for the unification of the FDIC and the RTC affordable housing programs. Some of the more significant elements of the agreement include: Joint clearinghouse notices Joint sales events Standardized purchaser incentives Joint marketing of selected multifamily properties under the RTC's Joint advertising Joint enforcement activities Joint training Standardized forms and legal documents As of November 30, 1994, all of the elements of the unification have been accomplished or are in the process of being completed. The unification plan further provides for the merger of the Washington, D.C. offices of the FDIC and the RTC affordable housing staffs by March 31, 1995, with the field offices to be merged no later than July 31, 1995. Although the operations of the FDIC and the RTC programs will be merged before October 1995, accounting practices will differentiate between the FDIC and the RTC affordable housing sales to ensure that funds appropriated to the FDIC program are used for their designated purpose. |