OVERVIEW
Products Offered by State Housing Finance Agencies
OVERVIEW
State Housing Finance Agencies (HFAs) are state-
chartered, nonprot organizations that provide
nancing and services for affordable housing and
related community development activities. Most are
quasi-governmental entities that operate as nancially
independent organizations and are governed by a
state-appointed board of directors. HFAs generally
have the mission to provide funding to increase and
sustain affordable rental options and homeownership
opportunities, most often targeted toward low- and
moderate-income renters and homebuyers, and/
or special populations such as rst-time homebuy-
ers, active military and veterans, police and teachers,
individuals with disabilities, and homeless individuals.
HFAs operate in every state, as well as the District of
Columbia, Puerto Rico, and the Virgin Islands.
Homeownership Programs
HFA homeownership programs vary by state, but all
are aimed at promoting homeownership and increas-
ing mortgage affordability for rst-time homebuyers
and low- and moderate-income households. These
programs include low interest-rate, low down payment
mortgage products, as well as down payment and clos-
ing cost assistance (distributed by the HFAs as well as
local municipal and nonprot organizations with whom
they work), and mortgage tax credit certicates, which
are dollar-for-dollar federal tax credits in connection
with home loans.
Other HFA homeownership programs are designed
to help sustain homeownership by lowering home-
ownership costs and increasing the livability of homes
for low- and moderate-income homeowners. These
include renance products, home repair and rehabili-
tation programs, and programs designed to increase
the energy efciency of homes. Some HFAs offer an
Individual Development Account (IDA), which is a
matched-savings program or other saving programs
to prospective borrowers to help them save for down
payment and closing costs. Many HFAs also offer
homebuyer education and foreclosure prevention
counseling either directly, or by providing sponsor-
ship and training opportunities for housing educators
and counselors in their states. Some HFAs offer private
mortgage insurance options for rst-lien mortgage
loans.
Other Programs
HFAs also work to increase the supply of affordable
rental units in their states by working with developers
that build or rehabilitate housing for rent to low- and
moderate-income families. Rental programs include
below market nancing options for developers and/
or subsidy funds allocated directly to projects. Housing
tax credits allow developers to raise private equity
by selling federal tax credits to investors. Some HFAs
offer lending and subsidy funding for other community
development activities, such as small business lending
to underserved businesses in the state. In this Guide,
we focus on single-family mortgage-related HFA
programs.
Sources of Funds
HFA programs are funded primarily through three
funding sources: tax exempt bonds, The U.S.
Department of Housing and Urban Development
HOME Investment Partnerships Program, and Low-
Income Housing Tax Credits. However, decisions
about which programs are offered and at what funding
amount are made at the state level.
HFA Bonds are generally Private Activity Bonds (PABs),
which are bonds used to attract private investment for
projects that have some public benet. Each state’s
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allowance for PABs is capped using a federal formula
based on state population. States often designate some
portion of their PABs as Housing Bonds. As separate
nancial entities, HFAs issue the Housing Bonds directly,
with no nancial liabilities tied to the states. Depending
on the purpose for the revenue that is raised, the bonds
are known as Mortgage Revenue Bonds (MRBs) or
Multifamily Housing Bonds. HFAs use Housing Bonds
to fund rst-lien mortgage programs and mortgage
tax credit certicate programs. In recent years, the low
interest rate environment has limited the value of the tax
advantage of MRBs to purchasers causing HFAs to seek
alternative sources of funding, including an expansion
of their secondary market activity.
The second source of funding is the U.S. Department
of Housing and Urban Development’s Federal HOME
Investment Partnerships program, which is a federal
block grant designed to meet each state’s diverse
affordable housing needs from rental assistance to
homeownership down payment assistance.
The nal source of funding comes through Low-
Income Housing Tax Credit (LIHTC) funds, which are
used to nance the development and preservation of
affordable rental units and are allocated to the state,
which then awards the credits to project sponsors/
developers for affordable rental housing projects for
low-income households.
Guide Coverage
Each HFA creates and offers its own set of homeowner-
ship programs uniquely designed to meet the needs of
its state. Therefore, not all programs discussed in this
Guide are offered by all HFAs. However, HFA programs
usually share many of the same requirements and
characteristics. For this reason, this publication focuses
on providing an understanding of the types of state
programs with an overview of the key elements found in
many HFA programs. The Guide also provides a quick
overview of HFA programs in the State Housing Finance
Agency Products matrix, and nally, it provides indi-
vidual program summaries and contact information by
state in Appendix A.
A COMMUNITY BANKER CONVERSATION
Working with a State Housing Finance Agency
A bank representative from the east coast said that her bank looks to
its State Housing Finance Agency (HFA) as its first choice to sell loans
to low- and moderate-income borrowers into the secondary market.
“They have really good pricing. The loan level price adjustments on
credit scores are advantageous to our borrowers. And they have good
benefits when it comes to mortgage insurance pricing and loans with no
mortgage insurance.”
A banker from the south central part of the country said that she consis-
tently uses the first mortgage products offered by her HFA. “I have been
processing or originating HFA loans for as long as I have been originat-
ing loans. It’s always been a program that has really helped my state’s
homebuyers.”
The banker said that her bank delivers loans to the HFA as a direct
lender so they are able to underwrite and approve loans on behalf of the
HFA. The banker said that although an HFA product combined with a FHA
loan might carry a slightly higher interest rate than if the loan product
originated for another investor, there are other significant advantages.
The banker explained that the down payment and closing cost loan that
can be combined with the HFA/FHA loan is worth the additional cost in
rate because, in most cases, the borrower would otherwise be unable to
purchase the home.
Because HFAs are state agencies, each with its own set of products and
programs, bank experiences vary. For example, a banker on the west
coast suggested that, while she would like to do business with her HFA,
the structure of the programs in the state presents some challenges.
The representative said that the first mortgage products offered are not
competitive with the portfolio product that her bank offers, primarily due
to the cost of mortgage insurance (the HFA does not offer a product that
does not require mortgage insurance). In addition, many of the affordable
units in the area come with deed restrictions that are not approved by
Fannie Mae, so they are not acceptable to the HFA.
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This Guide covers the following State Housing Finance
Agency programs, products, and services:
First-Lien Mortgage Products: HFAs offer rst-lien
mortgage products for low- and moderate-income
borrowers with low down payments, reduced interest
rates, and/or down payment and closing cost assis-
tance, which they purchase from participating lenders
within their states. Participating lenders are nancial
institutions that are approved by the HFA to offer these
products to borrowers with the assurance that the HFA
will purchase the mortgage at a set price. In addition
to the HFA products, they may purchase conventional
products from the Federal Housing Administration
(FHA), the U.S. Department of Veterans Affairs (VA), and
the U.S. Department of Agriculture (USDA).
3
HFAs may
offer products that serve a variety of purposes includ-
ing purchase, renance, and rehabilitation.
Down Payment and Closing Cost Assistance: HFAs
offer assistance in the form of a grant or a second
mortgage loan, which covers down payment and/or
closing costs for low- and moderate-income, rst-time
homebuyers or other targeted populations. Most HFAs
require that the vast majority of HFA down payment
assistance programs be used in combination with a rst
mortgage product offered by the HFA.
Mortgage Tax Credit Certicates (MCC): HFAs manage
a tax credit program, which is designed to help rst-
time homebuyers offset a portion of their mortgage
interest on a new mortgage. MCCs reduce the bor-
rower’s federal tax liability, dollar for dollar, by a
specic percentage of the mortgage interest paid by
the borrower. MCCs can be combined with a variety of
mortgage loan products including conventional and
government low-down payment products.
Homeownership Education/Counseling: HFAs partici-
pate in homebuyer education and counseling in their
states in a variety of ways, from developing programs
and offering the education to sponsoring education
classes and providing training to regionally-based
housing counselors within their states. Many HFAs also
partner with online homebuyer education providers
to offer online homebuyer classes. Homeownership
classes are required for many HFA programs.
Other Homeownership Programs: Individual
Development Accounts (IDAs) are offered by some
HFAs to provide matching funds to borrowers saving
for a down payment and/or closing costs. Many HFAs
also offer foreclosure prevention services and other
counseling services and may also offer renance prod-
ucts. A few HFAs offer mortgage insurance products for
use in combination with their own mortgage products
or with third party, affordable loans made to low- and
moderate-income borrowers.
DOING BUSINESS WITH STATE HOUSING
FINANCE AGENCIES
HFAs rely on lender partners to promote and deliver
their products and services to customers. Since each
state has its own HFA, programs are generally targeted
to the specic housing markets and the needs of the
low- and moderate-income borrowers in each state.
Utilizing these HFA program offerings helps lenders
meet their business development and Community
Reinvestment Act (CRA) goals for community-oriented
and affordable lending.
Many HFAs offer multiple execution options to allow
banks to choose a method of delivery that best ts their
internal capacity and delivery preference, i.e., deliver
as a Third-Party Originator (TPO) where the loans are
approved by the HFA, or as a direct lender where the
bank approves the loan on the HFA’s behalf.
3
See Affordable Mortgage Lending Guide: Part I: Federal Programs and
the Government Sponsored Enterprises (Washington, DC: Federal Deposit
Insurance Corporation, 2016), https://fdic.gov/mortgagelending for detailed
information about products and services.
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Bank Eligibility and Application Process
Bank eligibility requirements and application pro-
cesses vary by program type and by HFA. Lenders
do not join HFAs as members, but rather apply and
become approved to utilize specic HFA products.
See Appendix A: State Summary of HFA Programs and
Resources for more details.
System Requirements and Quality Control
System and quality control requirements vary by pro-
gram or type of service and by state.
RESOURCES
National Council of State Housing Finance Agencies
https://www.ncsha.org/
See Appendix A: State Summaries of HFA Products
and Resources
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