CDFI FUND IMPACT BLOG

Last week, Treasury Secretary Janet Yellen announced several new housing efforts as part of the Biden administration’s push to lower housing costs. Among these efforts, Yellen announced the Community Development Financial Institutions Fund (CDFI Fund) released revised interim rules for the Capital Magnet Fund (CMF) to reduce administrative burden and allow recipients to focus their resources on the production and preservation of housing. This is the first substantive revision of the program’s rules in nearly a decade and was an effort informed by public and stakeholder comments in response to the publication of a Request for Information in 2023, when the CDFI Fund began examining ways the CMF program could be improved.

Since its inception, there have been eight CMF application rounds, providing nearly $1.4 billion in awards. Through the end of 2023, these awards have been used to finance the completion of more than 76,000 units of affordable housing, with another 65,000 units currently in production. 

CMF has had a compelling impact on increasing the supply of affordable rental and single-family housing. Because the need for affordable housing is great and resources are limited, ensuring CMF Recipients use their awards to attract private investment has been a consistent priority of the CDFI Fund. To date, affordable housing completed with CMF has attracted over $12.5 billion in capital, which is a leverage ratio of nearly 30-to-1, far exceeding the 10-to-1 ratio required under CMF. 

While the program has established a track record of success, changes in the affordable housing market can come quickly. Much has changed since CMF rules were last examined back in 2016—market shifts, new business practices, changes to other relevant Federal affordable housing programs and increased costs. All these factors led the CDFI Fund to conduct a deep dive into the program’s rules to ensure CMF remained agile and responsive to market dynamics and remained an accessible, flexible, and transformative financing source.

Methods for maximizing CMF’s impact, adjusting to market factors, safeguarding public funds, aligning resources, and reducing burden were all areas in which the CDFI Fund requested input. In response, the stakeholder community provided thoughtful and insightful commentary, much of which the CDFI Fund incorporated into the revised Interim Rule. 

In addition to the input provided by stakeholders, the CDFI Fund also made changes based on lessons learned through the administration of multiple funding rounds, as well as internal data analysis. As a result, the CDFI Fund has codified a number of changes, which include: 

1. Reduced Regulatory Burden. In an effort to reduce the compliance burden for CMF Award Recipients and program beneficiaries, numerous changes have been made. These range from streamlining the tenant income certification process to aligning terms, definitions, and other requirements with other federal funding sources.
2. Alignment with Other Federal Affordable Housing Programs. This innovative change will allow the CDFI Fund to deem that compliance with certain provisions of other federal affordable housing programs may be “presumptively compliant” with certain CMF rules and requirements, easing compatibility among federal programs and reducing burden for Recipients and beneficiaries. The CDFI Fund will release policy guidance this summer detailing which federal affordable housing programs and their components qualify as presumptively compliant. This guidance will be published after the public comment period for the revised CMF Interim Rule concludes.
3. Adjustment of Very Low-Income Targeting. CMF funded housing is often layered with investment dollars under the Low-Income Housing Tax Credit program. This change enhances compatibility between the two programs by adjusting the definition of Very Low-Income (VLI) from 50% of the Area Median Income (AMI) to 60% and below.
4. Increased Flexibility on Timing to Commit CMF Funds. The revised rule establishes a two-step process to commit CMF Funds, providing a longer timeline for project commitment while still meeting statutory requirements. Recipients will be first required to commit their awards within two years and subsequently commit all award funds to specific projects by the end of year three. This gives Recipients one additional year to identify and commit CMF funds to projects.
5. Increased Flexibility on the Use of Program Income. Program Income is currently restricted to specifically approved activities in the Assistance Agreement. The revised Interim Rule will enable Assistance Agreements to allow for the use of Program Income for all eligible CMF affordable housing activities and applicable Assistance Agreements will be revised accordingly.
6. Update to Current Homeownership Purchase Price Limits. To address changing market conditions, the revised Interim Rule replaces the purchase price limits with those allowed under FHA’s Basic Home Mortgage 203(b) program.
7. Streamlined Income Certification. To reduce burden to both Recipients and beneficiaries, modifications to the tenant income certification process will be made in the Assistance Agreement, providing 100% rent-restricted CMF properties an exemption from annual income recertification requirements with similar streamlining done for rent-restricted CMF units with fixed addresses.
8. Updated Definition for Eligible Nonprofit Organizations. The revised Interim Rule clarifies that nonprofit organizations must have a 501(c)(3) designation. The CDFI Fund is delaying the implementation of this clarified definition until 2026. 

Complete details of all changes, as well as supporting commentary can be found in the revised interim rule. the CDFI Fund is asking for additional feedback on the revised Interim Rule. Comments are due to the CDFI Fund by August 26, 2024. Complete information on how to submit comments is available here.

In addition to its Request for Comments of the revised Interim Rules, the CDFI Fund has also published a related Request for Comments on the CMF Performance Reporting Requirements (PRRs). The PRRs, which ensure CMF Recipients are successfully pursuing their performance commitments, are changing to align with the updates in the revised interim rule and to eliminate certain data points that are no longer needed. Please also take a look at this request, as well. 

We sincerely appreciate the thoughtful input from all interested CMF program stakeholders. Your dedication to addressing the affordable housing needs in the communities you serve and across the country is invaluable, and we are grateful for you input and engagement.  

Andrew Schlack is the Program Manager for the Capital Magnet Fund