The state’s housing finance agency expects to make about half as many loans this year as it did last year, and is anticipating further decline in fiscal year 2024.
But Virginia Housing Development Authority borrowers did better keeping up loan payments during the pandemic than the agency thought they would, budget documents presented to its finance committee show.
And a ballooning grant program, which is projected to disburse some $22.3 million next year for affordable housing to support Amazon’s Northern Virginia expansion, is biting deeply into the agency’s bottom line, the documents show.
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High interest rates and a tight supply of homes for sale have cut interest in loans for single family homes, Tammy Neale, VHDA director of programs, told the agency’s finance committee Tuesday.
She added that high interest rates and reduced funding for mixed-use, multi-income projects combining apartments and commercial space are reducing developers’ interest in taking out loans for rental properties.
As a result, from last year’s loan total of $2.67 billion, fiscal year 2023’s total is expected to fall to $1.29 billion, director of accounting and administration David Henderson said.
Next year, the total will slip again to $1.13 billion, he added.
Virginia is not alone in seeing a reduction in mortgages. ATTOM, a California-based real estate data firm, found a 24% decline in new mortgages in its fourth-quarter 2022 U.S. Residential Property Mortgage Origination Report, to a total of 1.5 million nationwide. It marked the seventh consecutive quarterly decline, and mortgage originations are down 55% from the fourth quarter of 2021.
The agency’s budget documents show that the missed payments it was expecting with the start of the pandemic — it set aside some $40.3 million in fiscal year 2020 to cover those losses — were not as bad as it had projected.
VHDA revised that loan loss provision downward by $24.8 million last year, and expects another $10.2 million downward revision this year.
Federal relief payments were a big help, Henderson said.
“We’re anticipating a return to normal” for fiscal year 2024, he added, when the agency is looking to make a provision for loan losses of $5.3 million.
VHDA’s bottom line next year looks likely to be hit by soaring costs of its REACH Virginia grant program for affordable housing, he added.
These grants are expected to rise from $34 million last year, to $65 million this year, to $77.8 million in fiscal year 2024.
The two biggest parts of next year’s grants are $26 million for a commitment made in fiscal year 2021 under the Planning District Commission Housing Development Program and $22.3 million for affordable housing linked to the Amazon headquarters project in Northern Virginia.
VHDA is reviewing the REACH program to look at its costs and effectiveness, Neale said.
Meanwhile, a shift in how the agency finances itself — returning to selling bonds instead of focusing on selling its loans to the mortgage-backed bond programs of the Government National Mortgage Association, a federal agency, as well as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, private entities first set up by Congress — means it will keep more mortgages on its books.
Earlier this year, VHDA quietly approved a plan to borrow $1.75 billion over the next few years to expand efforts to help finance single-family home sales for low- and moderate-income borrowers. The first portion, $150 million, will be sold this summer. It will be the first such sale since 2012.
Va. housing agency to sell up to $1.75B in bonds to fund home purchases
And it will be one reason for a big jump in what the agency pays out in interest, from $144 million last year to $162 million this year and $205 million in fiscal year 2024, VHDA budget documents show.
A loss early in fiscal year 2023 on sales of mortgage-backed securities VHDA was holding as an investment will keep its income from its investments flat this year, despite the higher interest rates paid by the bonds and shorter term notes it holds. But this income is expected to more than double next year, from a projected $38.7 million to $118.5 million in fiscal year 2024.
In all, VHDA is looking for this year’s “excess revenue” — what in the private sector would be its profit — to fall from $131 million last year to $41.8 million this year and $33.8 million next year.
The big movements this year included the loss on the mortgage backed securities sales, the rise in REACH grants and a $40 million drop in what it gained from selling loans it made. The REACH grants are the main reason next year’s bottom line is expected to slip again.
Later this month, the agency’s board will consider the budget that Henderson presented to the finance committee Tuesday.
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