VHFA outlines strain on down-payment program, asks legislature to extend state tax-credit authority and fund first-generation grants

Maura Collins, executive director of the Vermont Housing Finance Agency, told the General & Housing committee on Jan. 17 that the agency’s down-payment assistance (DPA) program is under pressure because repayments have slowed as mortgage refinancing and turnover dropped after interest rates rose.

Collins said VHFA funds DPA largely by selling a state tax-credit allocation; banks and other purchasers buy those credits and VHFA receives the proceeds up front. “We get $1,100,000 that funds this down payment assistance pool that we can lend out,” Collins said, adding that the credits are sold as a five‑year tax credit worth $1,250,000 in total face value but discounted when sold. She said the statutory authority to sell those credits now ends in fiscal 2026 and asked the committee to consider allowing VHFA to sell credits through 2031 to sustain the program.

The request matters because VHFA uses the credit sales plus loan repayments to operate a revolving DPA loan fund. “These are 0% loans … they only get repaid when you refinance your mortgage or you sell your home,” Collins said. With refinancing and turnover down in the past two years, the amount returning to the fund has fallen, she said, forcing VHFA to reduce the maximum DPA award from pandemic-era levels and consider further reductions or changes to asset limits or geographic targeting.

Nut graf: Collins framed three near-term priorities for the committee: (1) extend the tax-credit authority that funds the DPA program, (2) secure ongoing appropriations to sustain the first‑generation homebuyer grant program, and (3) allow VHFA limited flexibility to manage a statutory 3% annual rent-increase cap in projects funded through VHFA loan subsidies.

Details on how the programs work

Collins described several funding streams and program rules. The state tax-credit mechanism is a five‑year credit sold to purchasers; because purchasers pay VHFA up front for a stream of tax credits, VHFA receives capital immediately to lend. VHFA also has put its own capital into the pool (Collins referred to that source as IORTA funding—interest on real estate trust accounts—and explained VHFA receives interest swept from certain real‑estate escrow accounts and is required by statute to spend that interest on down‑payment assistance).

DPA loans are zero‑percent loans that must be used for down payment and closing costs and are available only to VHFA borrowers. Collins described DPA borrowers as younger, with lower incomes and credit scores, higher combined loan‑to‑value ratios and greater student‑loan debt than typical buyers, and more likely to be people of color. The program has evolved since 2015: initial maximum awards were about $5,000, later raised to $7,500 and then modified during the pandemic to give up to $15,000 for borrowers earning under 80% of area median income and $10,000 for higher incomes. As repayments have slowed, Collins said VHFA reduced the maximum again and is evaluating further adjustments.

First‑generation grant program

Collins reviewed the first‑generation homebuyer grant program that the legislature funded with $1 million per year in 2022, 2023 and 2024 (a total of $3 million). She said VHFA has awarded about 116 grants, typically $15,000 each, and described outreach and documentation requirements that improved reporting of race and ethnicity for program participants. Collins said VHFA’s share of borrowers who identify as people of color rose from approximately 3% (before the program) to about 10% of VHFA borrowers since the program began; she said about 18% of first‑generation grant recipients identify as Black, Indigenous or people of color.

Collins asked the committee to consider an additional $1 million to keep the first‑generation grant program operating and suggested the state tax‑credit mechanism could provide a recurring revenue source to sustain the grant without recurring annual appropriations.

Rental revolving loan fund, employer-assisted housing and developer programs

Collins also summarized the agency’s rental revolving loan fund and other developer-directed programs. She said a prior $10 million appropriation to a rental revolving loan fund helped leverage about $21 million in employer and municipal commitments for specific projects. VHFA’s subordinate loan product can cover up to about 35% of development costs to close an affordability gap and often served construction or short‑term financing needs; subsidized interest rates typically ranged from 0% for a few projects to 2–3% for most projects. Collins said subsidized loans typically include an affordability period equal to the loan term plus three additional years (for example, a 30‑year loan would aim to preserve affordability for 33 years), and the loan repayments return to VHFA to fund new projects.

Collins said VHFA also used $24 million appropriated for a middle‑income homeownership program to fund modest “starter” homes (average about 1,300 square feet), producing roughly 125 homes funded in the first year; she said VHFA’s shared‑equity requirement directed at least one‑third of the money to perpetual shared‑equity models and that more than half of the awards went to shared‑equity homes.

Rent‑increase cap and compliance flexibility

Collins flagged a statutory “3% rent increase” cap written into earlier program language and told the committee that fixed statutory caps can produce unintended consequences because costs such as property taxes and insurance sometimes rise faster than 3%. She asked the committee to allow VHFA limited discretion to review project budgets and approve higher increases in particular, documented cases through the Budget Adjustment Act process rather than retain a strict, unconditional cap. She said the goal and target would remain 3%, but that VHFA should be able to grant case‑by‑case relief to prevent deferred maintenance or building distress.

Other items and resources

Collins referenced a recent VHFA report on off‑site construction and manufactured housing and said VHFA has published an employer‑assisted housing guide, a housing‑data website and a housing‑ready toolkit for local planning committees. She said a BIPOC developer technical‑assistance program would launch soon in partnership with the Land Access and Opportunity Board and that the Department of Housing’s Homes for All program would supply complementary TA resources.

Quotes and committee response

Representative Lamont pressed Collins on the statutory sunset for the tax‑credit sales; Collins confirmed the current authority to sell credits expires in fiscal 2026 and said the agency plans to ask Ways and Means and Senate Finance to extend the authority through 2031. Collins told the committee, “If you allow us at the same level to continue to sell these credits for another 5 years, to buy us a little more, hail on this for a little longer. That is something that we plan on asking Ways and Means and Senate Finance for.”

Representative Bloomly (committee member) and others asked for written language and numeric proposals; Collins said she had legal language and would provide specifics by email and follow up with staff and appropriations liaisons.

Ending

Collins closed by urging the committee to prioritize sustaining the first‑generation grant program and the down‑payment assistance tool and to consider program‑level flexibility for developer loans and rent‑increase compliance rules in the Budget Adjustment Act. The committee agreed to coordinate a timely Appropriations Committee letter and to consider the policy and funding requests in upcoming deliberations.