Housing Finance Agencies

Government frequently finds it necessary to intervene in housing markets to correct problems that it finds. Among the problems frequently encountered is the absence of lenders willing and able to make loans where they are needed. These loans are necessary to permit developers to acquire, rehabilitate, or build multifamily housing, or they are necessary to permit households to purchase a home, whether a new home or an existing one. Government can resolve these problems by becoming a lender and providing loans where the private lending industry does not. A common method through which government fills this role is the creation of a housing finance agency (HFA). HFAs are, simply, a type of [Page 359]government-sponsored bank providing funds for housing purchase and development.

Over time, government at various levels has recognized a need to form HFAs as alternatives to the private market lenders. The supply of capital for the development of multifamily housing rises and falls periodically as part of normal business cycles in the economy, but over the long term, the supply of capital for multifamily housing development has decreased, leaving the development industry with a shortage of financing for otherwise needed projects. The secondary market for multifamily housing, especially smaller-scale housing, is very limited. If primary lenders cannot readily sell loans made on apartment developments within the secondary market, they will be reluctant to make the loan. This small secondary market for multifamily loans results in a shortage of financing for development. Finally, private financing for the development of affordable housing is frequently in short supply, especially in geographic areas experiencing a high incidence of poverty or physical deterioration. HFAs generally operate as a source of funding to resolve these problems.

HFAs exist as entities created by state enabling statutes. They function in all parts of the United States and have become an important element for the development of affordable housing. The enabling statutes dictate the scope of powers of each HFA as well as the organizational form of the agency. Usually, the agencies operate under the review of a board of directors who set policy. Generally, an elected official (such as a governor for a state-sponsored HFA) appoints the board members. Often, members of the board are public officials for whom service on the HFA board is part of their official duties. This board appoints an executive director who hires other professional staff as needed to implement the programs with which the HFA is charged.

Generally, HFAs are entities serving an individual state, but several HFAs exist to serve other jurisdictions. The National Council of State Housing Agencies lists 56 such agencies across the nation. Some large cities, such as New York City, have their own HFA. Other HFAs exist to serve other areas, such as the District of Columbia, or other territories, such as Puerto Rico and the Virgin Islands.

HFAs usually have the power to sell housing bonds on behalf of the state within which they are located. Proceeds from the sale of these bonds are used to finance housing that may be either multi-family or single-family and may be rental property or for owner occupancy. Interest paid on these bonds is, in most, although not all, cases, exempt from federal income taxes. This exemption enables the HFA to loan the proceeds from these bond issues at interest rates that are lower than could be obtained from private lenders. The reduced interest charges help to make housing affordable to the end user, through either lowering rents or lowering the monthly payments of an owner occupant. Through 2010, HFAs have provided affordable mortgages to 2.6 million families to buy their first homes through the Mortgage Revenue Bond program. HFAs have also financed 2.9 million apartments for low- and moderate-income apartments, including 1.9 million apartments using the Low-Income Housing Tax Credit program.

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