How Does the CDFI Fund Define ‘Affordable Housing’ for the Purpose of Meeting Section 3.2(k) of the Allocation Agreement?

Published by Elaine Chang on Thursday, October 1, 2015
Journal thumb October 2015

Question: In our new markets tax credit (NMTC) application, we indicated that we would use NMTC dollars to finance projects that would result in developing or rehabilitating rental or for-sale housing. We received an allocation and in Section 3.2(k) of our allocation agreement, it specifies that we need to provide at least 20 percent of the aggregate housing units that are developed or rehabilitated to be affordable to low-income housing persons. How does the CDFI Fund determine what constitutes affordable housing units?

Answer: The CDFI Fund’s 2014 Certification, Compliance, Monitoring and Evaluation FAQ document, released in December 2014, provides criteria for how the “affordable housing” criteria can be met. The criteria are different for an allocatee that will finance rental housing versus an allocatee that will finance for-sale housing.

For an allocatee that intends to finance rental housing units, the requirements of Section 3.2(k) of the allocation agreement will be met if:

  1. 20 percent or more of the total rental units that are financed with QLICIs are both rent-restricted, as defined in Internal Revenue Code (IRC) Section 42(g)(2)(c), and occupied by individuals whose household income as shown in HUD Handbook 4350.3 REV-1 (or any subsequent versions), is less than or equal to 80 percent of the area median family income (AMI) as determined and adjusted annually by HUD; and
  2. 20 percent or more of the total rental units that are financed with qualified low-income community investments (QLICIs) must maintain their rent restrictions throughout the seven-year NMTC compliance period. The tenants should be certified on the later of the date the QLICI is made or at the time of move-in. The maintenance of the rent restrictions for the seven-year NMTC compliance period shall be documented by certifying the initial household income of the qualifying tenant.

For an allocatee that intends to finance for-sale housing units, the requirements of Section 3.2(k) of the allocation agreement will be met if 20 percent or more of the total number of for-sale housing units that are financed are purchased and occupied by low-income persons with a 38 percent or less debt-to-income ratio and are also owner-occupied by individuals whose household income is 80 percent or less of the AMI as determined and adjusted annually by HUD at the time the housing units are sold to the initial homebuyer.

The FAQ also states that reasonable attempts must be made by the allocatee to occupy the affordable units that have been set aside in order to be deemed compliant with section 3.2(k) of the allocation agreement. Reasonable attempts would be based on the specific circumstances, and include factors such as the size and location of the project, lease-up strategy, tenant turnover rates and market conditions.