Contents

• Introduction
• Background on the Housing Trust Fund's Creation
• HTF Funding
• Funding Mechanism
• HTF Formula
• Annual HTF Funding and FY2025 Allocations
• Program Requirements
• Eligible Uses of Funding
• Restrictions on Eligible Activities
• Income Targeting
• Affordability
• Planning
• Oversight
• Application of Selected Cross-Cutting Requirements
• Uses of HTF Funds

Summary

The Housing Trust Fund (HTF) was established by the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289) to provide funds to states to use for affordable housing activities, with a primary focus on the production, preservation, and rehabilitation of rental housing for extremely low-income households. It is administered by the Department of Housing and Urban Development (HUD) and is funded through contributions from two government-sponsored enterprises, Fannie Mae and Freddie Mac, rather than through appropriations. Fannie Mae and Freddie Mac purchase mortgages made by private lenders and sell mortgage-backed securities to investors, providing investors with a guarantee of timely payments of principal and interest in exchange for a guarantee fee. Their contributions to the HTF come from their earnings.

The HTF provides funding for formula-based grants to states to use for affordable housing activities. By statute, most of the funding must be used for rental housing; states can use up to 10% of their grants for certain homeownership activities (and up to 10% for administrative expenses). Furthermore, all the funds must benefit very low- or extremely low-income households, and at least 75% of the funds used for rental housing must benefit extremely low-income households (defined as households with incomes that do not exceed 30% of area median income) or households with incomes no greater than the federal poverty line. HTF funding is commonly layered with other housing subsidies—such as project-based Section 8 Housing Choice Vouchers—to meet these affordability requirements.

In September 2008, due to concerns about their financial status, Fannie Mae and Freddie Mac entered voluntary conservatorship overseen by their regulator, the Federal Housing Finance Agency (FHFA). Shortly thereafter, FHFA exercised its authority to suspend Fannie Mae's and Freddie Mac's contributions to the HTF in light of their financial position at the time. This suspension took effect before Fannie Mae and Freddie Mac had made any contributions to the HTF, and it continued for several years. In late 2014, FHFA directed Fannie Mae and Freddie Mac to begin setting aside contributions for the HTF during 2015. Those first funds were transferred to HUD early in 2016, and HUD made the first HTF allocations to states later that year. As of the cover date of this report, Fannie Mae's and Freddie Mac's contributions to the HTF have continued in every year since.

Introduction

The Housing Trust Fund (HTF), administered by the Department of Housing and Urban Development (HUD), provides formula funds to states to use for certain affordable housing activities. The HTF was established by the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289), which contained a wide range of housing-related provisions.¹ Some of the key features of the HTF include the following:

• It is intended to be primarily a rental housing production program. Most funds must be used to produce, preserve, rehabilitate, or (up to a limit) operate rental housing, while a limited amount can be used to support homeownership for certain first-time homebuyers.
• A majority of funds must be used to benefit extremely low-income households, and all funds must be used for extremely low- or very low-income households.
• Rather than being funded through appropriations, the HTF (along with the Capital Magnet Fund, another affordable housing fund established by HERA) is funded through contributions from two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.

As used in this report, the term "extremely low-income" means households with incomes no higher than 30% of area median income, "very low-income" means households with incomes no higher than 50% of area median income, and "low-income" means households with incomes no higher than 80% of area median income.

This report provides background on the HTF, including its funding mechanism and key programmatic features.

Background on the Housing Trust Fund's Creation

Many states and localities across the nation have created housing trust funds, which provide dedicated sources of state or local funding for affordable housing activities. Revenue for housing trust funds may be sourced from annual appropriations but is more commonly sourced from a dedicated funding stream such as an earmarked tax. For example, various types of real estate transaction fees are a common source of funding for state or local trust funds.² According to the National Low Income Housing Coalition, an advocacy group, over 850 state, city, and county housing trust funds have been established in 49 states across the nation.³

For several years prior to the establishment of the federal Housing Trust Fund in 2008, a coalition of low-income housing advocacy organizations led by the National Low Income Housing Coalition advocated for the establishment of an affordable housing trust fund at the national level. (Appendix A provides a brief overview of earlier legislative proposals to create a national housing trust fund.) Advocates wanted a national housing trust fund to be capitalized with new resources devoted to affordable housing activities, rather than resources diverted from other federal affordable housing programs. A dedicated source of funding would allow the program to avoid the uncertainties of the annual appropriations process and would mean that the program would not be in competition with other housing priorities for discretionary appropriations.

In arguing for the need for the HTF, advocates noted—and continue to note—that there is a persistent shortage of rental housing that is affordable and available to those with the lowest incomes.⁴ As of 2023, for every 100 extremely low-income renters, 38 physically adequate housing units were both affordable and available to that population.⁵ They argue that there is a particular need for funding targeted specifically to the production of rental housing units for extremely low-income renter households.⁶ Much federal housing assistance funding is largely aimed at making existing housing more affordable to low-income households, such as by providing rental assistance, rather than producing or rehabilitating additional housing units that are affordable to low-income households.⁷ Current funding for these federal rental assistance programs is not sufficient to serve all eligible households, however, and the majority of eligible households do not receive assistance.⁸ While some federal programs do support the production of new affordable housing—including the Low Income Housing Tax Credit and the HOME Investment Partnerships Program—these programs may not always reach those who are extremely low-income (rather than low- or very low-income). Furthermore, in the case of flexible funding like HOME, the production of rental housing may compete with other eligible uses of the funds.

While housing advocates argue for the need for a national housing trust fund, there has also been opposition to the concept of a national housing trust fund in general and the Housing Trust Fund as established by HERA in particular. Among other criticisms, some argue that the HTF is duplicative of other federal affordable housing programs, and HOME in particular, because the activities that it funds are also eligible uses of other sources of federal funds.⁹ Some also argue that any funding for affordable rental housing activities should go through the regular appropriations process, thereby giving Congress the oversight opportunities that the appropriations process provides.¹⁰

In July 2008, the Housing and Economic Recovery Act (HERA, P.L. 110-289) was enacted. Among other things, it established the Housing Trust Fund, administered by the Department of Housing and Urban Development,¹¹ and the Capital Magnet Fund (CMF), administered by the Department of the Treasury's Community Development Financial Institutions (CDFI) Fund.¹² (See the text box below for a brief description of the CMF and how it differs from the HTF.) Both programs were to be funded through annual contributions from Fannie Mae and Freddie Mac. However, as discussed in more detail later in the "Funding Mechanism" section of this report and Appendix B, these contributions were suspended for several years beginning shortly after HERA was enacted. Fannie Mae and Freddie Mac were directed to begin setting aside contributions for the HTF and CMF starting in 2015, and the HTF received its first funding in 2016.

HUD initially published a proposed rule governing the allocation formula for the HTF on December 4, 2009,¹³ and a proposed rule governing program requirements on October 29, 2010.¹⁴ On January 30, 2015, HUD published an interim rule governing both the HTF formula and program requirements.¹⁵ It also indicated that it would seek public comment on the interim rule after the HTF received funding and grantees had experience administering the program.¹⁶ In April 2021, HUD published a request for public comment seeking feedback on the interim rule as well as posing certain additional questions.¹⁷ As of the cover date of this report, the 2015 interim rule remains in effect with some technical amendments to implement overarching HUD policies such as the National Standards for the Physical Inspection of Real Estate (NSPIRE) protocols and the Housing Opportunity Through Modernization Act of 2016.

HTF Funding

Funding Mechanism

Both the HTF and the CMF are funded through contributions from Fannie Mae and Freddie Mac rather than through appropriations.¹⁸ Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that were chartered by Congress to provide liquidity in the mortgage market. They do not originate mortgages, but rather purchase mortgages that meet certain standards, issue mortgage-backed securities, and provide a guarantee (in exchange for a fee) that investors in the securities will receive timely payment of principal and interest even if borrowers become delinquent on the underlying mortgages.¹⁹

Contributions to the HTF and the CMF are based on a percentage of the GSE's earnings. Each year, HERA requires Fannie Mae and Freddie Mac to set aside 4.2 basis points (0.042%) for each dollar of the unpaid principal balance of their new business purchases (basically, 0.042% of the dollar amount of mortgages that they purchase, or 42 cents for every $1,000 of the unpaid principal balance of mortgages they purchase). Of that amount, 65% is provided to HUD for the HTF, and 35% is provided to Treasury for the CMF.²⁰ Fannie Mae and Freddie Mac are prohibited from passing the costs of the contributions on to mortgage lenders.²¹

The first allocations to the HTF were not made until 2016 due to the Federal Housing Finance Agency (FHFA) temporarily suspending the GSE's contributions beginning in 2008. HERA requires FHFA, Fannie Mae's and Freddie Mac's regulator, to suspend the GSEs' contributions to the affordable housing funds if it finds that making those contributions would (1) contribute to a GSE's financial instability, (2) cause a GSE to be classified as undercapitalized, or (3) prevent a GSE from successfully completing a capital restoration plan.²² In September 2008, a little over a month after HERA was enacted, Fannie Mae's and Freddie Mac's financial condition was deteriorating as the financial crisis unfolded. They agreed to enter voluntary conservatorship, and FHFA took control of the companies from their stockholders and management. (They remain in conservatorship as of the cover date of this report.²³) Shortly after Fannie Mae and Freddie Mac entered conservatorship, FHFA exercised its authority to suspend the contributions to the HTF and the CMF before any contributions had been made.

At the end of 2014, after the GSEs' financial positions had improved, FHFA directed Fannie Mae and Freddie Mac to begin making contributions.²⁴ Fannie Mae and Freddie Mac began setting funds aside in 2015 and the first funds were transferred to the HTF in 2016. As of the cover date of this report, they have made contributions in every year since. For more details on the suspension and ultimate beginning of the contributions, see Appendix B.

The Congressional Budget Office and the Office of Management and Budget have different views regarding the budgetary impact of the GSEs' contributions to the HTF and the CMF. The Congressional Budget Office views the GSEs as "effectively part of the federal government" while they are under conservatorship and therefore views GSE contributions to the HTF and CMF as intragovernmental transfers.²⁵ Under this view, HTF and CMF outlays to grantees are expenditures of federal resources and add to the budget deficit.²⁶ In contrast, the Office of Management and Budget treats the GSEs as nongovernmental entities for budgetary purposes and therefore views GSE contributions to the HTF and CMF as income to the government.²⁷ Under this view, the budgetary impact of HTF and CMF outlays would be offset by the GSEs' contributions.

HTF Formula

On an annual basis, the GSE contributions designated for the Housing Trust Fund are transferred to HUD, which administers the program. Through the HTF, HUD provides formula grants to the 50 states, the District of Columbia (DC), Puerto Rico, and four insular areas: American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands. HUD allocates funding to the insular areas based on the ratio of renter households in each insular area to the total number of renter households in the 50 states, DC, Puerto Rico, and the insular areas.²⁸ The balance of funds remaining after determining formula allocations for the insular areas are allocated among the 50 states, DC, and Puerto Rico by a separate formula. By statute, this formula is based on four factors, which HUD weights to prioritize the housing needs of extremely low-income households:²⁹

• the ratio of the shortage of standard rental units affordable and available to extremely low-income renter households in a given state to the aggregate shortage of such rental units in all states (weighted at 0.5);
• the ratio of the shortage of standard rental units affordable and available to very low-income renter households in a given state to the aggregate shortage of such rental units in all states (weighted at 0.125);
• the ratio of extremely low-income renter households living with incomplete kitchen or plumbing facilities, more than one person per room, or spending more than 50% of income on housing costs in a given state to the aggregate number of such households in all states (weighted at 0.25); and
• the ratio of very low-income renter households spending more than 50% of income on rent in a given state to the aggregate number of such households in all states (weighted at 0.125).

For each of the 50 states, DC, and Puerto Rico, the sum of these weighted ratios is multiplied by the relative cost of construction in the jurisdiction, compared to the national average cost of construction.³⁰ This adjusted ratio equals the proportion of available funding that each state, DC, and Puerto Rico is eligible to receive by formula.

The statute specifies that each of the 50 states and DC are to receive a minimum annual grant of $3 million.³¹ The minimum grant amount does not apply to the four insular areas or Puerto Rico. If any of the 50 states or DC would receive less than $3 million by formula, HUD increases the allocation to that state (or DC) to $3 million, and allocations to all other recipients (including insular areas and Puerto Rico) are reduced on a pro rata basis. In its interim rule, HUD stated that, in the event that HTF funding in a given year is not sufficient to award each state and DC a minimum grant amount of $3 million, HUD will publish an alternative method for allocating the funds in the Federal Register with an opportunity for public comment.³² States and DC may receive allocations of less than $3 million to correct for overallocations in prior years.³³

Annual HTF Funding and FY2025 Allocations

Since the GSEs first set aside contributions for the HTF during 2015, allocations to the HTF have fluctuated based on several considerations.³⁴ In 2016 and 2017, 25% of GSE contributions were diverted to Treasury's Hope for Homeowners program, a temporary foreclosure prevention program.³⁵ In subsequent years, no funds have been diverted to this program, leaving a larger pool of funds to be divided between the HTF and the CMF. Because the GSE contributions are based on their new business purchases, allocations to the HTF can also fluctuate from year to year based on their activities and market conditions. For example, increases in GSE contributions in 2021 and 2022 reflected an increase in the dollar amount of mortgages that Fannie Mae and Freddie Mac had purchased in 2020 and 2021, relative to other years.³⁶ Monetary policy actions at the outset of the COVID-19 pandemic in early 2020 lowered mortgage interest rates, leading to an increased number of mortgages purchased and refinanced.³⁷

Final HTF allocations made by HUD to grantees differ in amount from the GSE contributions due to sequestration and reallocations. After the GSE contributions are disbursed to HUD for the HTF, a percentage is sequestered for one fiscal year by the Office of Management and Budget in accordance with the Balanced Budget and Emergency Deficit Control Act of 1985 (P.L. 99-177).³⁸ Therefore, in a given fiscal year, the HTF receives a contribution from the GSEs, subtracts a percentage due to sequestration, and then adds the sequestered amount from the prior fiscal year (if applicable). Additionally, HUD recaptures funds from grantees that decline funding or do not meet program requirements, and reallocates those funds. Each fiscal year, HUD publishes the amount of HTF funding available to be distributed to grantees in an allocation notice in the Federal Register; this notice includes sequestration adjustments and reallocation of recaptured funds.

Table 1 shows GSE contributions to the HTF and HUD allocations to grantees in each year from 2016 through 2026.

HUD announced the 2025 allocations from the HTF in December 2025.³⁹ State allocation amounts are shown in Table 2. Several state grantees received close to the $3 million minimum allocation: six states were allocated exactly $3,001,259.36 and 22 states and DC were allocated exactly $3,134,373.20. California received the highest allocation, at $23.4 million, followed by New York at $14.3 million. American Samoa, Guam, the Commonwealth of Northern Mariana Islands, and the U.S. Virgin Islands all declined their FY2025 HTF allocation, so a value of $0 is shown.⁴⁰ Insular areas, which are not guaranteed a minimum allocation of $3 million, might decline HTF allocations due to the allocation being inadequate to support the administrative and regulatory obligations of the program.

State allocations from the HTF in previous years are available on HUD's website.⁴¹

Program Requirements

States and territories designate an entity to administer their HTF allocations, such as a housing finance agency, housing and community development agency, or another "qualified instrumentality of the state."⁴² The state-designated entity can administer the grant itself, or it can allow subgrantees to administer some or all the funds. Subgrantees can be state agencies or units of local government that receive other HUD block grant funds and have submitted Consolidated Plans to HUD.⁴³

Grantees (the state-designated entities that administer the funds) and any subgrantees must submit plans to HUD that describe how they will distribute HTF funds, including both geographic priorities and any priority housing needs they plan to address with the funds. These plans are discussed in more detail in the "Planning" section.

Grantees and subgrantees ultimately provide funds to recipients, which are for-profit or nonprofit entities that receive HTF funds as owners or developers of affordable housing. Grantees may provide funds to recipients in the form of grants, equity investments, and interest-bearing or non-interest-bearing loans or advances.⁴⁴ Recipients of HTF funding must have relevant experience. More specifically, an organization receiving funding for a rental housing project must have experience owning, constructing, rehabilitating, managing, or operating affordable multifamily rental projects. An organization receiving funding for homeownership activities is required to have experience in designing, constructing, rehabilitating, or marketing affordable homeownership housing, or in providing assistance with down payments, closing costs, or interest rate subsidies. Recipients also have to demonstrate general financial experience and expertise and familiarity with the requirements of any related federal, state, or local housing programs that will be used in conjunction with grants from the HTF.⁴⁵ Public Housing Agencies (PHAs) that otherwise qualify are eligible to receive HTF funds as recipients.

Eligible Uses of Funding

Grantees must use 80% of their HTF funds to pay for eligible rental housing project costs. Grantees may use up to 10% of their allocations to pay for certain homebuyer activities, and up to 10% for administrative purposes.⁴⁶ Eligible project costs include the following:⁴⁷

• Development hard costs: costs associated with the construction and rehabilitation of affordable housing, including cost of demolition, utility connections, and site improvements.
• Refinancing costs: costs to refinance existing debt secured by rental housing units that are being rehabilitated with HTF funds.
• Acquisition costs: costs of acquiring improved or unimproved real property, including acquisition by homebuyers.
• Related soft costs: costs such as professional planning and auditing services, associated financing and development fees, impact fees, information services such as affirmative marketing, funding an initial operating deficit reserve, and staff and overhead costs of the grantee.
• Operating cost assistance and operating cost assistance reserves: the ongoing costs of operating rental housing, such as paying for utilities, maintenance, insurance, or other similar expenses.
• Relocation costs: relocation payments and other relocation assistance to persons displaced by the project.
• Costs relating to payment of loans: payment of principal and interest for loans used for eligible costs.

Housing assisted with HTF funds must meet certain property standards that address various requirements related to housing quality, accessibility, and energy efficiency, among other things. Different standards apply depending on whether HTF funds are used to construct, rehabilitate, or acquire housing, and, in some cases, whether the funds are used for rental or owner-occupied housing.⁴⁸ HTF-assisted housing must be permanent housing; transitional housing is not an eligible use. Manufactured housing units must be connected to a permanent utility hook-up and located on land that the unit owner either owns or leases for a period at least equal to the applicable period of affordability.

Rental Housing Activities

At least 80% of a state's HTF grant must be used for the production, preservation, rehabilitation, or operation of rental housing. A state grantee may use no more than one-third of its annual grant for operating assistance.⁴⁹ Only HTF-assisted units for which project-based assistance from another program is not available may receive HTF-funded operating assistance. The amount of operating assistance a unit can receive is based on the deficit remaining after the monthly rent payment for the unit is applied to the unit's share of monthly operating costs, as determined by the underwriting of the project and specified in a written agreement between the grantee and the recipient.

The one-third cap on operating assistance is not statutory, and some housing advocates have argued that the cap should be raised. HUD has taken the position that "the use of HTF funds for operating assistance could very quickly consume each State's annual grant," thereby limiting the use of HTF funds for the program's primary purpose: the production, preservation, and rehabilitation of affordable housing supply.⁵⁰

HTF funds may also be used for new construction of public housing units in conjunction with the Choice Neighborhoods program or the Low-Income Housing Tax Credit (LIHTC) program.⁵¹ Newly constructed public housing units must replace units removed from the public housing agency's inventory and must receive Public Housing Operating Fund assistance. HTF may also be used for the rehabilitation of existing public housing units as part of the Choice Neighborhood program, LIHTC, or the Rental Assistance Demonstration (RAD) program.⁵²

Owner-Occupied Housing Activities

Up to 10% of a state's HTF grant may be used for the production, rehabilitation, or acquisition of owner-occupied housing. ⁵³ This may include down payment assistance, closing cost assistance, and interest-rate buy-downs. Homebuyers must be a first-time homebuyer, complete a pre-purchase financial counseling requirement, and use the home as a principal residence.⁵⁴ According to HUD's National Production Reports, no grantee has used HTF funds to assist an owner-occupied housing unit as of December 2024.⁵⁵ In addition to the 10% expenditure cap, owner-occupied housing is an unlikely use of HTF funds due to the difficulties income-eligible households may experience in obtaining a mortgage.⁵⁶

Restrictions on Eligible Activities

Certain activities are explicitly ineligible for HTF funds. No more than 10% of a state's HTF grant may be used for the cost of administering the programs funded by the grant; using funds for other administrative costs of the grantee or funding recipient is prohibited. By statute, money from the HTF cannot be used for political activities, advocacy, lobbying, counseling services,⁵⁷ travel expenses, or preparing or providing advice on tax returns.⁵⁸ HUD's interim rule specifies additional activities that are ineligible uses of HTF funds, including costs incurred before HTF funds are committed to the project.⁵⁹

Income Targeting

HTF funds must, by statute, benefit households with incomes below certain limits. These limits are based either on percentages of HUD Area Median Family Income (HAMFI)⁶⁰ or on the federal poverty line.⁶¹ Under the HTF program, households with incomes below 30% of HAMFI are considered "extremely low-income" (ELI), and households with incomes greater than 30% of HAMFI, but less than 50% of HAMFI, are considered "very low-income" (VLI).⁶² By statute, of the funds that are used for rental housing, at least 75% must be used to benefit either ELI households or households with incomes at or below the poverty line, whichever limit is greater.⁶³ In general, the remaining funds may be used to benefit VLI households.

By regulation, the effective income limits for the HTF are the greater of the ELI limit or the federal poverty line. In its interim rule, HUD requires that all HTF funds must benefit ELI households or households with incomes at or below the poverty line in years when the total amount of HTF funds available for allocation is less than $1 billion.⁶⁴ Annual HTF funding has not exceeded $1 billion as of the cover date of this report.

The HTF income limit is based on the federal poverty line, and greater than the ELI limit, in approximately 69% of counties.⁶⁵ Federal poverty guidelines do not apply to the four insular areas or Puerto Rico, and so the ELI limit is always used in these areas. HUD publishes the dollar amounts of the income limits by area on its website.⁶⁶ These income limits generally align with those used for the Section 8 program, with some exceptions.⁶⁷

Affordability

HTF-assisted housing must meet a number of requirements to be considered affordable.⁶⁸ Among other things, these requirements include maximum rents that can be charged for HTF-assisted rental units and affordability periods for all HTF-assisted units.

Maximum Rent

HUD's interim rule specifies a maximum rent (including utilities) for HTF-assisted rental housing units. For ELI households, rents in HTF-assisted units cannot exceed the greater of (1) 30% of the income of a household that is making 30% of area median income, or (2) 30% of the federal poverty line.⁶⁹ For VLI households, rents cannot exceed 30% of the income of a household that is making 50% of area median income.⁷⁰ HUD annually publishes the dollar amounts of rent limits by area.⁷¹ As noted previously, ELI households have incomes at or below the greater of 30% of area median income or the federal poverty line, and VLI households have incomes at or below 50% of area median income. Therefore, maximum rents for HTF units are effectively 30% of the maximum eligible income for the unit. HTF funds may be used to assist a subset of units in a mixed-income project, on a prorated basis.⁷²

Some housing advocates have argued that rents in HTF-assisted units should be limited to no more than 30% of tenants' actual incomes, similar to other federal programs such as public housing as Section 8 rental assistance.⁷³ These advocates point out that all households except those that earn the maximum eligible income for an HTF-assisted unit will pay more than 30% of their household income towards the maximum rent of that unit.

In response, HUD notes that "subsidizing the development and operations of rental units targeted to ELI households can be extremely challenging." Income-based rents could be more variable, complicating underwriting. Rents capped at 30% of an ELI tenant's actual household income may also fall short of covering the housing's operating costs, requiring an additional continuing subsidy. HTF funds can be used for operating assistance to make up this difference, but HUD places a cap on the percentage of funds that can be used for that purpose so as to use funds primarily for housing production.⁷⁴ Furthermore, HTF funding may not be consistently available due to fluctuating GSE contributions. Therefore, HUD believes that fixed rents (rather than variable rents based on tenants' actual incomes) are necessary for the purposes of underwriting and financing rental developments using HTF funds.⁷⁵ Many tenants of HTF-assisted units pay an income-based rent in practice due to the frequent pairing of HTF funding with rental assistance through other programs.

Affordability Periods

HTF-assisted housing must remain affordable for a specified period of time. HTF-assisted rental housing must remain affordable for 30 years. HTF-assisted owner-occupied housing must remain affordable for 10, 20, or 30 years, depending on whether "resale" or "recapture" provisions are used and the amount of HTF assistance provided to the unit.⁷⁶ Grantees can choose to impose a longer affordability period.⁷⁷

Planning

HERA requires states or the state-designated entities that administer grants from the HTF to develop allocation plans describing how the grant money will be distributed. The allocation plan is part of the Consolidated Plan and Annual Action Plan that grantees must submit in order to receive certain other HUD block grant funds (such as HOME and CDBG).⁷⁸ Grantees' allocation plans must describe the state's priority housing needs and how it plans to distribute HTF funds, and they must include performance goals. The states and state-designated entities are to make their allocation plans available for public comment and consider any public comments they receive. Subgrantees that receive HTF funds from the state must submit their own allocation plans.

Grantees and subgrantees that will directly select applications submitted by eligible recipients must describe selection criteria that include several required funding priorities, such as the extent to which the project has federal, state, or local project-based rental assistance.⁷⁹ Grantee allocation plans must also establish a maximum per-unit subsidy limit for housing assisted with HTF funds and describe any planned preferences given to a particular segment to the ELI or VLI population.⁸⁰

By statute, grantees must commit HTF funds within two years of when HUD executes the grant agreement and funds become available to the grantee.⁸¹ Additionally, by regulation, grantees must spend HTF funds within five years of when HUD executes the grant agreement.⁸² Grant agreements are only executed after HUD reviews and approves grantee annual action plans, so deadlines vary by grantee and award year.⁸³ Any funds that are not committed or spent within the time provided will be recaptured by HUD and reallocated. According to a Government Accountability Office report, as of 2023 HUD had reallocated funds under this authority 20 times and waived the five-year expenditure deadline once.⁸⁴

Oversight

Both grantees and HUD have certain oversight responsibilities for HTF funds. The states or state-designated entities that receive grants from the HTF are responsible for overseeing the proper use of the funds and obtaining reimbursement from recipients for improperly used funds. Future HTF grants are to be reduced by the amount of any improperly used HTF funds—that is, funds that are used in projects that do not meet HTF requirements or are not completed—unless the improperly used funds are repaid to the grantee by the recipient. Grantees must conduct inspections of HTF-assisted properties at the time of project completion and must conduct inspections of HTF-assisted rental housing periodically thereafter. Grantees are also subject to recordkeeping and other requirements. In addition, grantees are responsible for monitoring the compliance of subgrantees. Grantees and subgrantees are required to submit annual performance reports to HUD describing how HTF funds were used and the extent to which they complied with the allocation plans.⁸⁵

HUD is to review grantees' performance on at least an annual basis.⁸⁶ If grantees are not complying with HTF requirements, and fail to come into compliance, HUD can take certain actions, such as requiring the grantee to submit plans detailing how it will correct the issue.⁸⁷ In cases of substantial noncompliance, HUD can take additional actions, including preventing the grantee from withdrawing HTF funding, restricting its activities, or terminating its HTF assistance entirely. HUD must comply with requirements related to providing notice and an opportunity for a hearing before taking these actions.⁸⁸

Application of Selected Cross-Cutting Requirements

HTF projects are subject to environmental review by regulation. Unlike some other HUD grants for housing projects, the HTF's authorizing statute, HERA, did not include an environmental review provision directing the implementation of the National Environmental Policy Act of 1969 (NEPA). Consequently, HUD developed HTF Environmental Provisions under the HTF property standards at 24 CFR Section 93.301(f).⁸⁹ Grantees, or administering subgrantees, are responsible for ensuring that projects funded by HTF meet these property standards, including the environmental provisions. Receipt of funds from the HTF does not trigger Davis-Bacon prevailing wage laws, as HERA did not include prevailing wage provisions and is not a Davis-Bacon related act.⁹⁰

Uses of HTF Funds

Beginning in January 2021, HUD has published National Production Reports with information on funding committed and spent, units completed, leveraging, beneficiary characteristics, and subsidy layering.⁹¹ As of the cover date of this report, National Production Reports were available through December 2024. According to these reports, as of December 2024, $650 million of HTF funds had contributed to 4,716 completed units of new construction rental housing, $254 million had contributed to 2,775 completed units of rehabilitated rental housing, and $3 million had contributed to 28 completed units of acquired rental housing. Over 99% of these completed HTF-assisted units were occupied by renters earning less than 30% of HAMFI at the time of initial occupancy. No HTF funds had contributed to homebuyer activities as of December 2024. As a share of all HTF funds disbursed as of December 2024, approximately 6% contributed to the combination of administrative and rental operating costs.⁹²

HTF is rarely the sole funding source for a housing project. The National Production Report for December 2024 reports that, since the outset of the program, for every $1.00 in HTF contributions to a completed project, there have been $9.81 contributed by other funding sources for a leveraging ratio of 9.81:1. (These data are voluntarily reported by grantees and may be under-reported.) This leveraging ratio partially reflects mixed income projects where only a subset of units in a project are HTF-assisted units.⁹³ Other funding sources for projects containing HTF-assisted units include LIHTC, private financing, state and local programs, and other federal funding sources.⁹⁴ According to HUD data on projects completed between 2017 and 2024, 70% of HTF-assisted rental units were completed in LIHTC projects.⁹⁵

In addition to production subsidies such as LIHTC, HTF is commonly layered with additional rental assistance. Approximately 38% of completed HTF units have been paired with Section 8 Project-Based Vouchers (PBVs), according to HUD's December 2024 National Production Report. According to that same report, an additional 22% received some other form of project-based rental assistance, an additional 14% received tenant-based rental assistance, and 26% received no additional rental assistance. Adding rental assistance to HTF units serves two primary purposes:

• It can allow extremely low-income renters to afford maximum HTF rents without cost burden, since federal rental assistance programs require tenants to pay no more than 30% of their incomes towards rent; and
• HTF recipients can receive higher rent payments for units with rental assistance, as described below, potentially making projects more financially viable than they would be if they received lower HTF rents.

When an HTF-assisted unit receives a project-based rental subsidy, the HTF's affordability covenant is superseded by the terms of the rental subsidy.⁹⁶ Rental subsidy programs pay a landlord the difference between the tenant's 30%-of-income contribution and some previously agreed-upon maximum rent, which can vary by program. These rental subsidy program rents tend to exceed HTF maximum rents. Often, they are based on fair market rents,⁹⁷ which exceeded HTF maximum rents in all areas in 2026.⁹⁸ In an HTF-assisted unit with a project-based Section 8 rental subsidy, the combination of the tenant's contribution and the rental subsidy equal this program-specific rent, rather than the HTF maximum rent. In terms of the rents paid by the tenant and received by the landlord, an HTF-assisted unit paired with a project-based rental subsidy is similar to a non-HTF-assisted unit paired with a project-based rental subsidy. That is, the tenant pays an income-based rent (rather than a rent based on 30% of the maximum eligible income for the unit), which combined with the rental subsidy earns the landlord a higher rent than the maximum HTF rent.

Layering HTF funds with rental assistance is encouraged by the federal government and by some grantees. In HUD's rulemaking, the agency suggested that HTF assistance be paired with federal PBVs that "will help pay for the operating costs of units constructed with HTF funds." By regulation, grantee Action Plans must provide priority for funding based on several factors including "in the case of rental housing projects, the extent to which the project has Federal, State, or local project-based rental assistance so that rents are affordable to extremely low-income families."⁹⁹ According to a report by the National Low Income Housing Coalition, HTF grantees "often" prioritize or give preference to projects with a commitment for PBVs, including four grantees that require such a commitment.¹⁰⁰ Some grantees have argued that the interaction between the two programs is inefficient. For example, Florida's 2024 Annual Action Plan states: "Florida's experience indicates that combining capital subsidies for extremely low-income units with project based rental assistance is wasteful and limits the total number of units available to extremely low-income households."¹⁰¹

Appendix A. Earlier Legislative Proposals to Establish a National Housing Trust Fund

Prior to the enactment of HERA, legislation to establish a national affordable housing trust fund was introduced several times, beginning in the 106^th Congress. This appendix provides a brief description of those previous legislative proposals to establish a national housing trust fund.

One major question surrounding the creation of an affordable housing trust fund was how such a program would be funded. Early legislation proposed using a portion of receipts from the Federal Housing Administration (FHA). However, because FHA receipts are counted as offsets to appropriations, diverting FHA receipts to a housing trust fund would have a cost.

Later legislation proposed using contributions from Fannie Mae and Freddie Mac as a potential funding source. Fannie Mae and Freddie Mac were chartered by Congress to ensure liquidity in the mortgage market.¹⁰² They purchase mortgages from private lenders and package them into mortgage-backed securities that they sell to investors with a guarantee that the investors will receive timely principal and interest payments. Their charters give them a special relationship with the federal government that includes both certain privileges and certain responsibilities. They are overseen by an independent federal regulator.

Because of the GSEs' status as government-sponsored private entities, rather than federal agencies, contributions from Fannie Mae and Freddie Mac would not have counted as new government spending. However, there was some disagreement over whether it was appropriate for the government to require the GSEs to contribute to affordable housing funds. Opponents of GSE contributions argued that the GSEs should not be asked to balance public policy objectives against the interests of their shareholders. Proponents pointed to the special privileges that the GSEs received, and statutory affordable housing goals that they already had, to justify their contributions to a national housing trust fund.

In 2008, HERA created the HTF and the CMF. Both were to be funded by contributions from Fannie Mae and Freddie Mac. Table A-1 summarizes previous legislation that had been introduced to create a national housing trust fund, including proposed funding sources.

Appendix B. Suspension of HTF Contributions in 2008 and Subsequent Beginning of Contributions

This appendix provides a brief timeline of the suspension of the GSEs' contributions to the HTF in 2008 and the subsequent lifting of the suspension.

Suspension of Contributions

In September 2008, not long after HERA was enacted, there were concerns about the financial status of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac entered into voluntary conservatorship and FHFA took over their management. The Department of the Treasury agreed to provide financial support to the GSEs through the purchase of senior preferred stock.¹⁰³

In November 2008, FHFA informed Fannie Mae and Freddie Mac that they should suspend their contributions to the affordable housing funds until further notice.¹⁰⁴ Neither GSE had started making contributions at the time that the contributions were suspended, and the suspension of the contributions left the HTF without a source of funding for several years.

Beginning of Contributions

In December 2014, FHFA directed Fannie Mae and Freddie Mac to begin setting aside contributions for the HTF and the CMF.¹⁰⁵ In lifting the suspension, FHFA noted Fannie Mae's and Freddie Mac's recent profitability. The GSEs were directed to set aside funds beginning in calendar year 2015, with the first funds required to be transferred to the affordable housing funds within 60 days after the end of 2015.

When FHFA directed Fannie Mae and Freddie Mac to begin their contributions to the HTF and the CMF, some criticized the decision to require them to make these contributions while they remained in conservatorship and subject to agreements with Treasury. They argued that the funds being diverted to the affordable housing funds should go to Treasury¹⁰⁶ or to ensure Fannie's and Freddie's continued financial stability.¹⁰⁷

While reinstating the contributions, FHFA stated that Fannie Mae and Freddie Mac would not be required to make contributions in any year during which they draw funds under the agreements they have in place with Treasury, or if the contributions would cause them to make such a draw.¹⁰⁸ FHFA continues to have the authority to suspend the contributions in the future if it determines that circumstances require it.

In the fourth quarter of 2017, Fannie Mae and Freddie Mac each had to take a draw from Treasury. These draws were due to a change in the value of deferred tax assets held by each GSE as a result of the tax revision law that was enacted by Congress and signed by President Trump in December 2017 (P.L. 115-97). Despite these draws, and FHFA's statement that a draw would result in a suspension of the contributions for that fiscal year, the Director of FHFA directed Fannie Mae and Freddie Mac to make their contributions to the HTF as scheduled. The director's decision was based on his view that the draws were the result of a one-time accounting change and that they were not indicative of broader financial instability at either of the GSEs.¹⁰⁹

Katie Jones, CRS Analyst in Housing Policy, authored the original version of this report.

Footnotes