The federal government has canceled roughly $60M in Section 4 funding for two prominent affordable housing firms in a move that the organizations say will have significant consequences for Americans struggling to find low-cost housing.

The Department of Housing and Urban Development notified New York City-based Local Initiatives Support Corp. and Maryland-based Enterprise Community Partners late last week that it was terminating its contracts with the organizations for Section 4 funding, previously approved projects and all planned engagements, the organizations said.

“Last week’s cancellation of HUD’s capacity-building grants to nonprofit developers and other groups strikes a severe blow at the nation’s infrastructure for creating affordable homes and, if sustained, will damage local economies for years to come,” LISC said in a statement this week.

A HUD spokesperson didn't immediately respond to Bisnow’s request for comment on Friday, but a spokesperson told Multifamily Dive that the late February decisions to cancel contracts with Enterprise and LISC followed “direction from the administration.”

“The Department is reviewing and consolidating contracts,” a HUD spokesperson told Multifamily Dive. “HUD will continue to distribute the remaining funding and deliver on statutory responsibilities. Delivery of services will not slow down. Importantly, HUD will continue to support community development and affordable housing activities that benefit low-income individuals.”

Section 4 funding, otherwise known as the Capacity Building for Affordable Housing and Community Development Program, supplies grants that support housing and community development for low-to-moderate-income households. It was created in Section 4 of the 1993 HUD Demonstration Act, Multifamily Dive reported.

Until last week, LISC, Enterprise and Habitat for Humanity were the three organizations appointed to use federal funds to provide grants and technical assistance that preserve and build affordable housing across the country.

HUD data shows that the three organizations received $83M in Section 4 funding for fiscal years 2022-2023. Intermediary organizations provide expertise that the federal government doesn't have, and cutting off their funding “risks delays, bottlenecks and disruption in real estate financing and economic development,” LISC told Multifamily Dive.

The programs also help low-income communities invest in senior housing, local health clinics, childcare centers and more, Enterprise President and CEO Shaun Donovan said in a statement.

“Section 4 and technical assistance programs provide a vital lifeline to communities across the country,” said Donovan, a former HUD secretary. “Make no mistake: Today’s decision will raise costs for families, hobble the creation of affordable homes, sacrifice local jobs, and sap opportunity from thousands of communities in all 50 states.”

Enterprise has created or preserved more than 45,000 affordable homes in the last decade through grants provided to more than 700 organizations, and it has overseen $80M in technical assistance in the last 15 years, according to the organization’s website.

The three organizations published a petition to Congress asking for its support for Section 4, with a call for public signatures closing Friday.

“Given the tremendous needs in low-income communities — and the scarcity of capital available to nonprofit, community-based groups — now is not the time to eliminate or weaken the only dedicated source of federal funding that builds the capacity of these organizations,” they said in the petition.

The contracts were canceled explicitly by HUD, but the cancellations came three weeks after the Trump administration's attempt to freeze federal funding sowed panic and confusion.

The administration rescinded the order the following day, and a federal judge issued a temporary restraining order blocking the freeze two days later. A separate judge issued a preliminary injunction in early February, which was then reinforced by a second injunction from a third judge Thursday.