Thanks to the leadership of Colorado Attorney General John Suthers and Governor John Hickenlooper, the vision of the State’s Division of Housing and the Colorado Housing Finance Authority (CHFA), and more than a decade of advocacy from Housing Colorado and its supporters, the State of Colorado created a housing trust fund in July 2012. The State of Colorado is dedicating $13.2 million of the $51.2 million it received as part of the National Mortgage Settlement to establish the Colorado Housing Investment Fund, a revolving loan fund for rental housing affordable to households earning no more than 60% of the area median income.
“The Housing Investment Fund is a dearly needed new tool to help address the housing crisis in our state, and a long time goal of housing advocates from across the state,” said Sara Reynolds, Executive Director of Housing Colorado. “One in four renters in Colorado pay half or more of their incomes for housing, meaning working families, veterans, seniors and many others are making choices between paying rent and affording groceries and medicine. The Housing Investment Fund will allow us to increase the supply of housing affordable to these people, and help them regain the security of home.”
The Housing Investment Fund is structured to provide low interest short-term loans, primarily construction loans, to help reduce the cost of financing construction during the development of affordable housing. Loans will be used for acquisition, new construction, and rehabilitation of rental housing, as well as bridge loans. Loans will be made for up to $2 million, with terms of five years or less. Twenty percent of the loan may be converted to a long term cash flow loan–long-term debt that can be deferred until the property is sold or refinanced. Mixed income developments will be eligible for loans, but the loan amount is to be tied only to the housing serving those with incomes at or below 60% of the area median income.
The fund will be leveraged with Private Activity Bonds. Due to the major impact of the foreclosure crisis on rental markets, the decision was made to target funds initially to affordable rental for households with incomes below 60% area median income with a goal of producing at least 750 affordable units. Building on the previous work on a Colorado Housing Investment Fund, the current Housing Investment Fund priorities could change over time based on the most pressing State housing needs. This fund will grow in the future because it has been designated to receive any unspent funds and returns generated from the Supplemental Loan-modification programs as early as three years from now, or when the foreclosure crisis has abated.
The Division of Housing projects providing loans at interest rates between 2% and 5% below a conventional construction loan would generate a savings of approximately $150,000 in construction finance costs for a $2 million loan with a 5-year term. The Housing Investment Fund is expected to leverage more than $150 million to finance affordable housing throughout Colorado and create or sustain 1,050 jobs.
The Division of Housing will administer the Housing Investment Fund, including collecting a 0.5% origination fee to fund administrative activities. The Colorado State Housing Board will review the accomplishments of the Fund annually and report to the Attorney General. Five years from initiation of the Housing Investment Fund, the State Housing Board will review the Fund and recommend reallocation based on market needs in Colorado.
“Construction costs, increasing rents, and limited household incomes continue to be barriers to the production of affordable housing,” said Pat Coyle, Director of the Colorado Division of Housing. “This new fund can help our partner agencies bring down some of their borrowing costs which will in turn keep their rents a little lower.”
From the moment it became clear that Colorado would receive funds from the National Mortgage Settlement, the Offices of the Attorney General, the Governor, the Division of Housing and CHFA led a coordinated effort to ascertain the housing and foreclosure-related needs of the people in Colorado with the goal of identifying the best possible uses of settlement funds.
“Both the Attorney General and the Governor deserve a lot of credit for the level of engagement and coordination of the housing community,” said Christopher Stefan, Housing Colorado Board Member and Chair of the Advocacy Council. “Throughout, they sought our expertise and they listened to our input in a process that was open and easy to access. Similar credit goes to the Division of Housing and CHFA. They are true partners with Colorado’s housing development community, and we have a long history of successful collaboration. Their leadership helped assure that the state was going to use the settlement funds in ways that will have the greatest impact on Colorado communities.”
In mid-March, Attorney General Suthers held two public hearings (to which he also invited several legislators with interest in housing and foreclosure issues) and released a draft proposal for public comment. The initial proposal included supplemental loan modification; an affordable housing investment fund; and counseling, foreclosure hotline, and legal services funding, as well as the flexibility to shift among these categories as needed.
Both CHFA and the Division of Housing began soliciting comments on the proposal, tapping Housing Colorado and its members for their expertise in assessing what would feasible and have the highest impact with the settlement funds. Further demonstrating the commitment to using settlement to provide housing relief, Attorney General Suthers included Division of Housing Director Coyle in the Colorado delegation to the National Mortgage Settlement announcement on April 4, 2012.
In addition to the Housing Investment Fund, Colorado is using settlement funds for a supplemental loan modification programs ($24.0 million), housing counseling support ($5.6 million), housing for homeless veterans ($4.9 million), Colorado Legal Services ($1.5 million), Attorney General’s Office enforcement ($750,000), a foreclosure hotline ($600,000), and marketing and outreach ($500,000).
“In many states we have heard that settlement funds have been diverted to uses beyond housing or foreclosures, and we are exceedingly grateful for elected officials who are responsive, thoughtful and listen to those with feet-on-the-ground housing experience,” said Stefan. “At a time when the need for affordable rentals is quite high, the Housing Investment Fund will serve as an important part of the solution to the current affordable housing problem. The Fund is also a step towards our long term goal: the creation a larger and more flexible fund with dedicated revenue.”