Sectors
Texas HFC Affordable Housing Structures
Texas Housing Finance Corporation structures are Chapter 394 public-instrumentality tools that can support affordable housing through bonds, loans, property ownership, public-purpose participation, and property-tax-exemption economics. They are distinct from Chapter 303 PFC structures and from HOME CHDO certification.
Also known as: Texas HFC structure, Texas Housing Finance Corporation affordable housing
Updated
Use this page when a Texas deal memo references an HFC owner, HFC issuer, HFC user/operator, HFC property-tax exemption, HB 21, Local Government Code Sections 394.9026, 394.9027, or 394.905.
Structure Map
| Party / document | What to identify | Why it matters |
|---|---|---|
| HFC sponsor | City, county, or authorized local government sponsor | Defines geography, approvals, public accountability, and political risk. |
| HFC | Chapter 394 housing finance corporation | May issue bonds, own property, or participate in housing development. |
| HFC user/operator | Private operator or project affiliate associated with the development | Bears audit/compliance obligations and usually captures operating economics. |
| Public approvals | HFC board resolution, local governing-body approval, public hearing, or geographic approvals | HB 21 was designed partly to address out-of-area / traveling HFC risk. |
| Exemption application | One-time exemption submission to TDHCA and chief appraiser where required | Creates the compliance record supporting property-tax treatment. |
| Audit package | Annual audit report, service fee, rent-reduction certification, corrective-action support | Drives ongoing exemption durability. |
The underwriting question is whether the HFC structure is a durable, locally approved, auditable public-benefit structure, not simply whether an HFC appears in the ownership chain.
HB 21 Gate
HB 21 became effective May 28, 2025 and materially changed HFC multifamily exemption underwriting. TDHCA states that it monitors HFC multifamily residential developments required to comply with Sections 394.9026 and 394.9027 and that first covered audit reports are due June 1, 2026, with later reports due annually by June 1.
Screen every HFC deal by:
| Question | Underwriting action |
|---|---|
| Was the property acquired before or after May 28, 2025? | Apply transition rules before assuming all requirements are already satisfied. |
| Is the property claiming exemption under Section 394.905? | If no, the HFC may be an issuer or financing participant rather than the exemption owner. |
| Is the property receiving LIHTC during the relevant period? | Sections 394.9026 and 394.9027 do not apply during a LIHTC-recipient period. |
| Is the HFC acting inside its authorized geography? | Test sponsor boundaries, required approvals, and January 1, 2027 transition risk for certain outside-area properties. |
| Are audit reports, service fees, and rent-reduction certifications current? | Missing June 1 reporting is a direct exemption-risk signal. |
Affordability Mix
HB 21 gives covered HFC exemption structures two main unit-mix paths:
| Path | Required restricted mix |
|---|---|
| Lower/moderate path | At least 10% lower-income units at <=60% AMI plus at least 40% moderate-income units at <=80% AMI. |
| Very-low/middle path | At least 10% very-low-income units at <=50% AMI plus at least 40% middle-income units at <=100% AMI. |
The bedroom-category rule matters. The percentage of restricted units reserved in each income category by bedroom count must match the percentage of that category in the development as a whole. A project cannot satisfy the economics by pushing all restricted units into the smallest or least valuable bedroom types if the statute or agreement requires proportional distribution.
Rent Caps And Public Benefit
HFC rent caps are tied to the restricted tier:
| Unit category | Income limit | Rent cap |
|---|---|---|
| Very-low-income | <=50% AMI | 30% of 50% AMI, adjusted for family size. |
| Lower-income | <=60% AMI | 30% of 60% AMI, adjusted for family size. |
| Moderate-income | <=80% AMI | 30% of 80% AMI, adjusted for family size. |
| Middle-income | <=100% AMI | 30% of 100% AMI, adjusted for family size. |
HB 21 also requires a rent-reduction / public-benefit calculation. In practical underwriting terms:
HFC rent-reduction test =
actual restricted-unit rent reduction
compared with required share of estimated ad valorem taxes avoided
If shortfall exists:
shortfall payment may be owed pro rata to taxing units
Do not reduce this to "50% of tax savings goes to tenants" without showing the statutory calculation, the TDHCA certification form, the market-rent benchmark, restricted rent roll, assisted-unit treatment, vacant-unit treatment, and shortfall payment logic.
Tenant Protection Controls
HB 21 added tenant-facing controls that matter to operations and compliance. The underwriter should test whether the project:
- accepts housing choice voucher holders where required;
- avoids prohibited minimum-income standards for voucher households;
- markets to voucher households and local housing authorities where required;
- includes required lease protections;
- treats required occupancy charges consistently with statutory rent definitions;
- excludes optional amenities from rent only where they are truly optional.
The operating budget should carry compliance staffing and training. Leasing staff can create exemption risk if they treat HFC units like ordinary market units.
Approval, Application, And Audit Calendar
An HFC deal should have a visible public approval and compliance calendar:
- HFC board resolution and local approval analysis.
- Underwriting assessment within the required lookback window where applicable.
- Publication or availability of required assessment / public records.
- One-time exemption application to TDHCA and the chief appraiser where required.
- Annual audit report and service fee due June 1.
- TDHCA review and public summary.
- Corrective action and 180-day cure period for certain Section 394.9026(c) noncompliance.
- Exemption loss if unresolved or if audit report is not timely submitted.
For pre-HB 21 acquisitions, transition dates are a live diligence item. Certain tenant-protection requirements must be met by January 1, 2026, and some outside-area structures face January 1, 2027 approval risk.
Capital Stack And Bond Boundary
An HFC can appear in more than one role:
| HFC role | Underwriting implication |
|---|---|
| Bond issuer | Supports tax-exempt bond financing and potentially 4% LIHTC; this is not the same as HFC property-tax exemption. |
| Property owner / exemption vehicle | Creates public-entity property-tax economics subject to Chapter 394 conditions. |
| Lender or conduit participant | May add public-purpose financing without owning the real estate. |
| Local public partner | Adds political approval, public-benefit, and reporting obligations. |
Do not assume an HFC bond deal is also an HFC tax-exemption deal. Do not assume an HFC tax-exemption deal is subject to the same monitoring rules during a LIHTC-recipient period. The exact HFC role controls.
IC Red Flags
- The HFC is from a distant locality and the memo does not resolve local approval or sponsor geography.
- The model shows full property-tax savings as NOI but no rent-reduction / public-benefit test.
- The unit matrix ignores the alternative 10/40 paths or bedroom-category distribution.
- The project claims LIHTC and HFC exemption without explaining which Chapter 394 sections apply or do not apply during the LIHTC period.
- Annual audit, service fee, certification, or TDHCA submission obligations are not budgeted.
- Tenant protections are absent from lease forms or property-management procedures.
- Transfer/refinance assumptions ignore HFC consent, exemption application, and transition rules.
Related Pages
- Texas PFC and HFC Affordable Housing Structures
- Texas PFC Affordable Housing Structures
- Texas Public-Entity Property Tax Exemption Underwriting
- LIHTC Underwriting and Capital Stack
- LIHTC Calculation Mechanics
- Texas CHDO and HOME Set-Aside Mechanics
- Affordable and Workforce Housing Underwriting
- Texas Geography Hub
- Texas Investment Hub
Sources
- Source: Texas PFC and HFC Affordable Housing Structure Research 2026-05-05
Provenance
Created during the 2026-05-05 PFC/HFC deep-dive expansion using subagent-assisted repo graph review and official Texas HB 21 and TDHCA source support.