[Federal Register Volume 59, Number 15 (Monday, January 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1528]


[[Page Unknown]]

[Federal Register: January 24, 1994]


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Part IV





Department of Housing and Urban Development





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Office of the Secretary



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24 CFR Part 907




Homeownership Demonstration Program in Omaha, Nebraska; Interim Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Part 907

[Docket No. R-94-1704; FR-3573-I-01]
RIN 2577-AB38

 
Homeownership Demonstration Program in Omaha, Nebraska

AGENCY: Office of the Secretary, HUD.

ACTION: Interim rule.

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SUMMARY: This interim rule implements section 132 of the Housing and 
Community Development Act of 1992. Section 132 establishes a 
demonstration program to facilitate self-sufficiency and permits the 
homeownership sale of single family homes administered by the Housing 
Authority of the City of Omaha in the State of Nebraska. The purpose of 
the demonstration is to exhibit the effectiveness of promoting 
homeownership and providing support services.

DATES: Effective date: January 24, 1994. Expiration date: 24 CFR part 
907 will expire on January 24, 1995. Comments due date: March 25, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Rules Docket Clerk, Office of the General 
Counsel, room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW., Washington, DC 20410-0500. Communications should 
refer to the above docket number and title. A copy of each 
communication submitted will be available for public inspection during 
regular business hours (weekdays 7:30 am to 5:30 pm) at the above 
address.

FOR FURTHER INFORMATION CONTACT: Gary Van Buskirk, Homeownership 
Division, Office of Public and Indian Housing, Department of Housing 
and Urban Development, 451 Seventh Street, SW., room 4112, Washington, 
DC 20410. Telephone number, voice (202) 708-4233, TDD (202) 708-0850. 
(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: This interim rule implements section 132 of 
the Housing and Community Development Act of 1992 (Pub. L. 102-550, 
approved October 28, 1992). Section 132 establishes a demonstration 
program to facilitate self-sufficiency and to permit the homeownership 
sale of single family homes administered by the Housing Authority of 
the City of Omaha in the State of Nebraska. The purpose of the 
demonstration is to exhibit the effectiveness of promoting 
homeownership and providing support services.
    This interim rule is closely modeled on the interim rule for the 
Section 5(h) Homeownership Program codified in 24 CFR part 906. Section 
132 specifies that the Housing Authority of the City of Omaha 
(hereafter the Housing Authority) is the organization to carry out the 
demonstration program. The Housing Authority is already administering a 
homeownership program approved pursuant to Section 5(h) of the United 
States Housing Act of 1937. In its correspondence with the Department 
concerning the demonstration program, the Housing Authority has 
indicated that it wishes to operate the demonstration program in a 
fashion similar to that of its existing Section 5(h) program.
    There are many areas of similarity between the Section 5(h) 
homeownership program and the demonstration program. The Department 
believes that, in light of the Housing Authority's desire to pattern 
the demonstration program upon its existing Section 5(h) homeownership 
program and the Department's substantial experience with the Section 
5(h) homeownership program, it should use language from the existing 
5(h) regulation whenever appropriate in this interim regulation.
    There are a number of clear differences between the demonstration 
and the Section 5(h) regulation. Because the demonstration program is 
established pursuant to legislation that is not part of the 1937 Act, 
it is not subject to the replacement requirements of the 1937 Act. The 
demonstration program also gives the Housing Authority greater freedom 
in selecting participant homebuyers under the program than the Section 
5(h) program permits. There is, however, a specific mandate that, 
``[i]n conducting the demonstration, the Housing Authority shall 
affirmatively further fair housing objectives.'' There is also a 
statutory obligation that ``[t]he Housing Authority shall ensure the 
availability of supportive services to each family participating in the 
demonstration program.''

Justification for Interim Rule

    In general, the Department publishes a rule for public comment 
before issuing a rule for effect, in accordance with its own 
regulations on rulemaking at 24 CFR part 10. However, section 132(g) 
requires that the Secretary implement this demonstration by issuing 
interim regulations, allowing for a 60-day public comment period. The 
Department has adopted a policy of setting an expiration date for an 
interim rule unless a final rule is published before that date. This 
``sunset'' provision appears in Sec. 907.1(b) of the interim rule, and 
provides that the interim rule will expire on a date 12 months from 
publication.
    Section 132(g) also requires that the interim regulation be 
effective upon issuance. The Department interprets this provision as 
superseding the requirement for a 30-day delay between publication and 
effective date of a rule required by section 7(o) of the Department of 
Housing and Urban Development Act.

Other Matters

National Environmental Policy Act

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50 
implementing section 102(2)(C) of the National Environmental Policy Act 
of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the Office of Rules Docket Clerk, 451 Seventh Street 
SW., room 10276, Washington, DC 20410-0500.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this interim rule before publication and 
by approving it certifies that the interim rule will not have a 
significant economic impact on a substantial number of small entities. 
The interim rule is limited in scope to Omaha, Nebraska.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that the provisions of this 
interim rule will not have a significant impact on family formation, 
maintenance or well being, except to the extent that the program 
authorized by the interim rule will increase homeownership 
opportunities for low-income families in Omaha, Nebraska. Any such 
impact is beneficial and merits no further review under the Order.

Executive Order 12611, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12611, Federalism, has determined that the policies 
contained in this interim rule will not have substantial direct effects 
on States or their political subdivisions, or the relationship between 
the Federal government and the States, or on the distribution of power 
and responsibilities among the various levels of government.

Semi-Annual Agenda of Regulations

    This interim rule was listed as sequence number 1648 in the 
Department's Semiannual Agenda of Regulations published on October 25, 
1993 (58 FR 56402, 56409) under Executive Order 12291 and the 
Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 907

    Low and moderate income housing, Public housing, Reporting and 
recordkeeping requirements.

    In accordance with the reasons set forth in the preamble, title 24 
of the Code of Federal Regulations is amended by adding to chapter IX, 
a new part 907, consisting of Secs. 907.1 through 907.21, to read as 
follows:

PART 907--HOMEOWNERSHIP DEMONSTRATION PROGRAM IN OMAHA, NEBRASKA

Sec.
907.1  Purpose.
907.2  Applicability.
907.3  General authority for sale.
907.4  Fundamental criteria for HUD approval.
907.5  Resident consultation and involvement.
907.6  Property that may be sold.
907.7  Methods of sale and ownership.
907.8  Purchaser eligibility and selection.
907.9  Counseling, training, and technical assistance.
907.10  Nonpurchasing residents.
907.11  Maintenance reserve.
907.12  Purchase prices and financing.
907.13  Protection against fraud and abuse.
907.14  Limitation on resale profit.
907.15  Use of sale proceeds.
907.17  Records, reports, and audits.
907.18  Submission and review of homeownership plan.
907.19  HUD approval and Housing Authority--HUD implementing 
agreement.
907.20  Content of homeownership plan.
907.21  Supporting documentation.

    Authority: 42 U.S.C. 3535(d); sec. 132, Pub. L. 102-550, 106 
Stat. 3712-3713.


Sec. 907.1  Purpose.

    (a) Purpose. This part implements section 132 of the Housing and 
Community Development Act of 1992 (Pub. L. 102-550, approved October 
28, 1992) (hereafter section 132). Section 132 establishes a 
demonstration program to facilitate self-sufficiency and permits the 
homeownership sale of single family homes administered by the Housing 
Authority of the City of Omaha in the State of Nebraska (hereafter 
``the Housing Authority''). The purpose of the demonstration is to 
exhibit the effectiveness of promoting homeownership and providing 
support services.
    (b) Expiration date. This part 907 expires on January 24, 1995.


Sec. 907.2  Applicability.

    This part applies to single-family public housing units 
administered by the Housing Authority that have been designated by the 
Housing Authority for eventual homeownership. Before entering into a 
contract or other obligation to sell a home to a homebuyer under this 
part, the Housing Authority will give the Department of Housing and 
Urban Development (hereafter HUD) a written proposed designation that a 
home is to be sold under this part. The proposed designation shall 
specify the address of the unit(s) to be sold. HUD shall review the 
proposed designation to ensure that the designated home is single 
family public housing, that the Housing Authority has not designated 
more than twenty percent of the total number of public housing units 
that it administers and that the location of the homes complies with 
fair housing requirements. (The twenty percent ceiling on the number of 
homes that can be designated is 602 homes plus twenty percent of any 
additional public housing units developed by the Housing Authority 
through the award of public housing development funds pursuant to 
section 5 of the 1937 Act subsequent to October 28, 1992 that do not 
constitute replacement units for units demolished or disposed of 
pursuant to Section 18 of the 1937 Act or the Section 5(H) or Title III 
homeownership programs under the 1937 Act.) Consistent with the Housing 
Authority's affirmative obligation to further fair housing objectives, 
the Housing Authority shall offer homeownership opportunities in a 
variety of locations and promote an expanded housing choice for 
minorities. Homeownership opportunities for minorities shall include 
locations not located in an area of minority concentration.


Sec. 907.3  General authority for sale.

    The Housing Authority may sell single family homes designated 
pursuant to Sec. 907.2, for purposes of homeownership, according to a 
homeownership plan approved by HUD under this part. If the home is 
subject to indebtedness under the ACC, HUD will continue to make any 
debt service contributions for which it is obligated under the ACC, and 
the property sold will not be subject to the encumbrance of that 
indebtedness. (In the case of a home that is part of a development with 
financing restrictions (such as a bond-financed development), however, 
sale is subject to the terms and conditions of the applicable 
restrictions.) In reference to housing properties, ``development'' 
means the same as ``project,'' as defined in the United States Housing 
Act of 1937 (hereafter the 1937 Act), rather than the statutory 
definition of ``development.'' Upon sale in accordance with the HUD-
approved homeownership plan, HUD will execute a release of the title 
restrictions prescribed by the ACC. Because the property will no longer 
be subject to the ACC after sale, it will cease to be eligible for 
further HUD funding for operating subsidies or modernization under the 
1937 Act upon conveyance of title by the PHA. (That does not preclude 
any other types of post-sale subsidies that may be available, under 
other Federal, State, or local programs, such as the possibility of 
available assistance under Section 8 of the 1937 Act, in connection 
with a plan for cooperative homeownership.)


Sec. 907.4  Fundamental criteria for HUD approval.

    HUD will approve the Housing Authority's homeownership plan if it 
meets all three of the following criteria:
    (a) The plan must be practically workable, with sound potential for 
long-term success. Financial viability, including the capability of 
purchasers to meet the financial obligations of homeownership, is a 
critical requirement.
    (b) The plan must be consistent with law, including the 
requirements of this part, any other applicable Federal, State, and 
local statutes and regulations, and existing contracts. Subject to the 
other two criteria stated in this section, any provision that is not 
contrary to those legal requirements may be included in the plan, at 
the discretion of the Housing Authority, whether or not expressly 
authorized in this part.
    (c) The plan must be clear and complete enough to serve as a 
working document for implementation, as well as a basis for HUD review.


Sec. 907.5  Resident consultation and involvement.

    (a) Consultation. In developing a proposed homeownership plan, and 
in carrying out the plan after HUD approval, the Housing Authority 
shall consult with residents of the homes to be designated pursuant to 
Sec. 907.2, and with any resident organization that represents them, as 
necessary and appropriate to provide them with information and a 
reasonable opportunity to make their views and recommendations known to 
the Housing Authority. Except where otherwise indicated by the context, 
``resident'' means the same as ``tenant,'' as the latter term is used 
in the 1937 Act. In a case where vacant units are expected to be 
available for purchase, the Housing Authority shall consult with any 
resident organization or organizations that represent the prospective 
purchasers, as indicated by the eligibility standards stated in the 
plan, and with any Resident Management Corporation (RMC) formed by 
residents of the Housing Authority's public housing developments. While 
this Part gives the Housing Authority sole legal authority for final 
decisions as to whether or not to participate in the homeownership 
program under this part, as to whether or not to submit a proposed 
homeownership plan and the content of such a proposal, the Housing 
Authority shall give residents and their resident organizations full 
opportunity for input in the homeownership planning process, and full 
consideration of their concerns and opinions.
    (b) Negotiations. Where individual residents, a RMC, or another 
form of resident organization may wish to initiate discussion of a 
possible homeownership plan, the Housing Authority shall negotiate with 
them in good faith. Joint development and submission of the plan by the 
Housing Authority and RMC, or other resident organization, is 
encouraged. In addition, participation of a RMC or other resident 
organization in the implementation of the plan is encouraged.


Sec. 907.6  Property that may be sold.

    (a) Types of Property. A homeownership plan may provide for sale of 
one or more single family homes designated pursuant to Sec. 907.2. A 
plan may provide for conversion of existing housing to homeownership or 
for homeownership sale of newly developed public housing.
    (b) Housing standards. The unit must be free from any defects that 
pose a danger to life, health, or safety and shall meet minimum housing 
standards (except as permitted below) before transfer of an ownership 
interest to a purchaser (or execution of a lease with an option to 
purchase). The minimum housing standards requirement shall be met 
either by complying with local housing codes or, if no local code 
exists, the housing quality standards established by HUD for the 
Section 8 Certificate program. The Housing Authority prior to sale 
shall inspect, or ensure inspection of, each unit to determine it does 
not pose an imminent threat to the life, health, or safety of current 
or future residents and that the property has passed recent fire and 
other applicable safety inspections conducted by appropriate local 
officials and that the unit does comply with minimum housing standards. 
Higher standards may be proposed by the Housing Authority or required 
by lenders. The property also must meet the requirements for 
elimination of lead-based paint hazards in HUD-associated housing, 
under subpart C of 24 CFR part 35. Further, the property must be in 
good repair, with the major components having a remaining useful life 
that is sufficient to justify a reasonable expectation that 
homeownership will be affordable by the purchasers. These standards 
must be met as a condition for sale of a dwelling to an individual 
purchaser (or execution of a lease with an option to purchase), unless 
the terms of sale (or lease) include measures to assure that the work 
will be completed within a reasonable time after the purchase (or 
lease), not to exceed two years (e.g., as a part of a mortgage 
financing package that provides the purchaser with a home improvement 
loan or pursuant to a sound sweat equity arrangement).


Sec. 907.7  Methods of sale and ownership.

    (a) General. Any appropriate method of sale and ownership may be 
used, such as fee-simple conveyance or sales to resident-owned 
cooperatives or condominiums.
    (b) Fair housing objectives. In conducting the demonstration, the 
Housing Authority shall affirmatively further fair housing objectives. 
Prior to marketing the homes, placing an occupant in a vacant public 
housing unit designated pursuant to Sec. 907.2, or entering into a 
contract or other obligation to sell the homes, the Housing Authority 
shall submit to HUD for its approval an affirmative fair housing 
marketing strategy for informing and soliciting applications from 
people who are least likely to apply, because of race, color, religion, 
sex, handicap, familial status, or national origin, for the 
homeownership program without special outreach. (See Sec. 92.351 of 
this title for an example of an affirmative fair housing marketing 
strategy.) HUD shall review the affirmative fair housing marketing 
strategy to ensure that it complies with all fair housing requirements. 
Once HUD approves the affirmative fair housing marketing strategy, the 
Housing Authority must comply with the strategy's provisions in 
marketing the homes to purchasers. If the initial sale will be to a 
resident-owned cooperative or condominium, the cooperative or 
condominium shall also be required to comply with the provisions of the 
affirmative fair housing marketing strategy.


Sec. 907.8  Purchaser eligibility and selection.

    Standards and procedures for eligibility and selection of the 
initial purchasers of individual dwellings shall be consistent with the 
following provisions:
    (a) Participation of families. The Housing Authority shall 
establish criteria for the participation of families in the 
demonstration program. Such criteria shall be based on factors that may 
reasonably be expected to predict a family's ability to succeed in the 
homeownership program governed by this part.
    (b) Evidence of interest. The criteria referred to in paragraph (a) 
of this section shall include evidence of interest by the family in 
homeownership, the employment status and history of employment of 
family members, and maintenance by the family of the family's previous 
dwelling.
    (c) Homebuyer eligibility. Eligibility shall be limited to 
residents who are capable of assuming the financial obligations of 
homeownership, under minimum income standards for affordability, taking 
into account the unavailability of public housing operating subsidies 
and modernization funds after conveyance of the property by the Housing 
Authority. A homeownership plan may, however, take account of any 
available subsidy from other sources (e.g., if available, assistance 
under Section 8 of the 1937 Act, in connection with a plan for 
cooperative ownership). Under this affordability standard, an applicant 
must meet the following requirements:
    (1) The monthly expenditure for principal, interest, taxes, and 
insurance by an eligible purchaser plus estimated utility costs and 
other monthly housing costs (such as maintenance and condominium or 
cooperative monthly fees) shall be not more than 35 percent of the 
adjusted family income of the purchaser, determined in accordance with 
parts 913 or 905 of this title, as appropriate. The Housing Authority 
may request that HUD approve a higher percentage cap, where the 
application demonstrates that a higher cap than 35 percent is necessary 
to make the homeownership program feasible and that the purchaser will 
be able to afford the higher monthly cost.
    (2) In the case of cooperative or condominium ownership, if the 
monthly charge to the homeowner includes amounts for principal, 
interest, taxes, insurance, or utilities, the portion of the charge 
covering these amounts shall be considered for purposes of making the 
affordability determinations under this paragraph.
    (3) The Housing Authority can pay any amounts required for closing, 
such as a down payment (if any) and closing costs chargeable to the 
purchaser, as may be specified in the homeownership plan.
    (d) Procedures/Affirmative Fair Housing Marketing Strategy. The 
Housing Authority must establish written equitable procedures for 
identifying and selecting eligible families to participate in the 
homeownership program. The Housing Authority must have an affirmative 
fair housing marketing strategy that applies whenever homeownership 
opportunities are made available to other than current residents of the 
property. Selections made from the Housing Authority's waiting list for 
the homeownership program must be in a nondiscriminatory manner in 
accordance with HUD approved preferences.
    (e) Other eligibility standards or preferences. If consistent with 
paragraphs (a) through (d) of this section, a homeownership plan may 
include any other standards for eligibility or preference, or both, 
that are not contrary to law, at the discretion of the Housing 
Authority.
    (f) Homeownership plan eligibility standards. Once a homeownership 
plan has been approved by HUD and prior to the sale of a unit 
identified for sale under the homeownership plan, the Housing Authority 
must use the eligibility standards and procedures outlined in its 
homeownership plan pursuant to this section in placing residents in 
occupancy of vacant public housing units using the order of the 
homeownership program waiting list.


Sec. 907.9  Counseling, training, and technical assistance.

    (a) Supportive services. The Housing Authority shall ensure the 
availability of supportive services to each family participating in the 
demonstration program through its own resources and through 
coordination with Federal, State, and local agencies and private 
entities. Supportive services available under the demonstration program 
may include counseling, remedial education, education for completion of 
high school, job training and preparation, financial counseling 
emphasizing planning for homeownership, and any other appropriate 
services. The Housing Authority must identify the needs of prospective 
homebuyers for supportive services and must adequately provide for all 
identified needs.
    (b) Counseling. Appropriate counseling shall be provided to 
prospective and actual purchasers, as necessary for each stage of 
implementation of the homeownership plan. Particular attention must be 
given to the terms of purchase and financing, along with the other 
financial and maintenance responsibilities of homeownership. In 
addition, where applicable, appropriate training and technical 
assistance shall be provided to any entity (such as a RMC, other 
resident organization, or a cooperative or condominium entity) that has 
responsibilities for carrying out the plan.


Sec. 907.10  Nonpurchasing residents.

    (a) General. If an existing resident of a dwelling authorized for 
sale under a homeownership plan is ineligible to purchase, or declines 
to purchase that unit or another unit under the homeownership plan, the 
resident may choose to relocate. However, no person who is a tenant of 
public housing may be involuntarily relocated or displaced (forced to 
relocate permanently) from his or her dwelling as a result of the 
demonstration program. A violation of this relocation/ displacement 
prohibition may, in addition to applicable program sanctions, trigger a 
requirement to provide relocation assistance in accordance with the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970, and implementing rules.
    (b) Notice. As soon as feasible after they can be identified, all 
nonpurchasing residents shall be given written notice of their options 
under this section. The notice must contain a clear statement that the 
resident will not be displaced if he or she does not wish to 
participate in the program.
    (c) Relocation assistance to residents who elect to relocate 
permanently. A tenant/resident who chooses to relocate permanently 
shall be offered at least the following relocation assistance:
    (1) Advisory services, including timely information about the 
assistance to be provided under this section, counseling, referrals to 
suitable, affordable, decent, safe and sanitary alternative housing, 
inside and outside areas of minority concentration, and an explanation 
of the resident's rights under the Fair Housing Act.
    (2) Payment for actual, reasonable moving expenses.
    (3) Replacement housing assistance sufficient to permit relocation 
to suitable, decent, safe and sanitary replacement housing (at a rent 
no higher than permitted by the 1937 Act) in accordance with the 
relocation assistance component of the HUD-approved homeownership 
assistance program. This requirement will be met if the resident is 
offered the opportunity to relocate to another suitable dwelling under 
the Public Housing Program, any of the housing assistance programs 
under Section 8 of the 1937 Act, or any other Federal, State, or local 
program that is comparable, as to standards for housing quality, 
admission and rent, to the programs under the 1937 Act, and provides a 
term of assistance of at least five years.


Sec. 907.11  Maintenance reserve.

    (a) General. Maintenance and capital replacement reserves are 
required, unless the availability of the funds needed for maintenance 
and capital replacement is adequately addressed under the affordability 
standard adopted in accordance with Sec. 907.8(c).
    (b) Purpose of reserves. The purpose of these reserves shall be to 
provide a source of reserve funds for maintenance, repair and 
replacement, as necessary to ensure the long-term success of the plan, 
including protection of the interests of purchasers and the Housing 
Authority. The amounts to be set aside, and other terms of this 
reserve, shall be as necessary and appropriate for the particular 
homeownership plan, taking into account such factors as prospective 
needs for nonroutine maintenance and replacement, the homeowners' 
financial resources, and any special factors that may aggravate or 
mitigate the need for reserves.


Sec. 907.12  Purchase prices and financing.

    (a) Purchase price. To ensure affordability by eligible purchasers, 
by the standard adopted under Sec. 907.8(c), a homeownership plan may 
provide for below-market purchase prices or below-market financing, or 
a combination of the two. Discounted purchase prices may be determined 
on a unit-by-unit basis, based on the particular purchaser's ability to 
pay, or may be determined by any other fair and reasonable method 
(e.g., uniform prices for a group of comparable dwellings, within a 
range of affordability by a group of potential purchasers).
    (b) Financing. Any type of private or public financing may be used 
(e.g., conventional, Federal Housing Administration (FHA), Department 
of Veterans Affairs (VA), or a State or local program). The Housing 
Authority may finance or assist in financing purchase by any methods it 
may choose, such as purchase money mortgages, guarantees of mortgage 
loans from other lenders, shared equity, or lease-purchase 
arrangements. The homeownership plan shall avoid using financing, such 
as a mortgage that is not fully amortizing (such as a ``balloon'' 
mortgage) or that involves negative amortization, that would impair the 
continued affordability of the property for eligible families.


Sec. 907.13  Protection against fraud and abuse.

    A homeownership plan shall include appropriate protections against 
any risks of fraud or abuse that are presented by the particular plan, 
such as extended use of the dwelling by the purchaser as rental 
property, or collusive sale that would circumvent the resale profit 
limitation of Sec. 907.14.


Sec. 907.14  Limitation on resale profit.

    (a) General. If a dwelling is sold to the initial purchaser for 
less than fair market value, the homeownership plan shall provide for 
appropriate measures to preclude realization by purchasers of windfall 
profit on resale. ``Windfall profit'' means all or a portion of the 
resale proceeds attributable to the purchase price discount (the fair 
market value at date of purchase from the Housing Authority less the 
below-market purchase price), as determined by one of the methods 
described in paragraphs (b) through (d) of this section. Subject to 
that requirement, however, purchasers should be permitted to retain any 
resale profit attributable to appreciation in value after purchase, or 
a reasonable portion of such profit, under a limited or shared equity 
arrangement, along with any portion of the resale profit that is fairly 
attributable to improvements made by them after purchase.
    (b) Promissory note method. Where there is potential for a windfall 
profit because the dwelling unit is sold to the initial purchaser for 
less than fair market value, the initial purchaser shall execute a 
promissory note, payable to the Housing Authority, along with a 
mortgage securing the obligation of the note, on the following terms 
and conditions:
    (1) The principal amount of indebtedness shall be the lesser of:
    (i) The purchase price discount, as determined by the definition in 
paragraph (a) of this section and stated in the note as a dollar 
amount; or
    (ii) The net resale profit, in an amount to be determined upon 
resale by a formula stated in the note. That formula shall define net 
resale profit as the amount by which the gross resale price exceeds the 
sum of:
    (A) The discounted purchase price;
    (B) Reasonable sale costs charged to the initial purchaser upon 
resale; and
    (C) Any increase in the value of the property that is attributable 
to improvements paid for or performed by the initial purchaser during 
tenure as a homeowner.
    (2) At the option of the Housing Authority, the note may provide 
for automatic reduction of the principal amount over a specified period 
of ownership while the property is used as the purchaser's family 
residence, resulting in total forgiveness of the indebtedness over a 
period of not less than five years from the date of conveyance, in 
annual increments of not more than 20 percent. This does not require 
the Housing Authority's plan to provide for any such reduction at all, 
or preclude it from specifying terms that are less generous to the 
purchaser than those stated in the foregoing sentence.
    (3) To preclude collusive resale that would circumvent the intent 
of this section, the Housing Authority shall (by an appropriate form of 
title restriction) condition the initial purchaser's right to resell 
upon approval by the Housing Authority, to be based solely on the 
Housing Authority's determination that the resale price represents fair 
market value or a lesser amount that will result in payment to the 
Housing Authority, under the note, of the full amount of the purchase 
price discount (subject to any accrued reduction, if provided for under 
paragraph (b)(2) of this section). If so determined, the Housing 
Authority shall be obligated to approve the resale.
    (4) The Housing Authority may, in its sole discretion, agree to 
subordination of the mortgage that secures the promissory note, in 
favor of an additional mortgage given by the purchaser as security for 
a home improvement loan.
    (c) Limited equity method. As a second option, the requirement of 
this section may be satisfied by an appropriate form of limited equity 
arrangement, restricting the amount of net resale profit that may be 
realized by the seller (the initial purchaser and successive purchasers 
over a period prescribed by the homeownership plan) to the sum of:
    (1) The seller's paid-in equity;
    (2) The portion of the resale proceeds attributable to any 
improvements paid for or performed by the seller during homeownership 
tenure; and
    (3) An allowance for appreciation in value, calculated by a fair 
and reasonable method specified in the homeownership plan (e.g., 
according to a price index factor or other measure).
    (d) Third method. The requirements of this section may be satisfied 
by any other fair and reasonable arrangement that will accomplish the 
essential purposes stated in paragraph (a) of this section.
    (e) Appraisal. Determinations of fair market value under this 
section shall be made on the basis of appraisal within a reasonable 
time prior to sale by an independent appraiser, to be selected by the 
Housing Authority.


Sec. 907.15  Use of sale proceeds

    (a) General authority for use. Sale proceeds may, after provision 
for sale and administrative costs that are necessary and reasonable for 
carrying out the homeownership plan, be retained by the Housing 
Authority and used for housing assistance to low-income families (as 
such families are defined under the 1937 Act). The term ``sale 
proceeds'' includes all payments made by purchasers for credit to the 
purchase price (e.g., earnest money, down payments, payments out of the 
proceeds of mortgage loans, and principal and interest payments under 
purchase-money mortgages), along with any amounts payable upon resale 
under Sec. 907.14, and interest earned on all such receipts. (Residual 
receipts, as defined in the ACC, shall not be treated as sale 
proceeds.)
    (b) Permissible uses. Sale proceeds may be used for any one or more 
of the following forms of housing assistance for low-income families, 
at the discretion of the Housing Authority and as stated in the HUD-
approved homeownership plan:
    (1) In connection with the homeownership plan from which the funds 
are derived, for special purposes that are justified to ensure the 
success of the plan, and to protect the interests of the homeowners, 
the Housing Authority and any other entity with responsibility for 
carrying out the plan. Examples include a reserve for loans to 
homeowners to prevent or cure default, or for other emergency housing 
needs; a reserve for any contingent liabilities of the Housing 
Authority under the homeownership plan (such as Housing Authority 
guaranty of mortgage loans); and a reserve for Housing Authority 
repurchase, repair and resale of homes in the event of defaults.
    (2) In connection with another HUD-approved homeownership plan 
under this part, for assistance to purchasers and for reasonable 
planning and administrative costs.
    (3) In connection with a State or local homeownership program for 
low-income families, for assistance to purchasers and for reasonable 
planning and administrative costs. Under such programs, sales proceeds 
may be used to construct or acquire additional dwellings for sale to 
low-income families, or to assist such families in purchasing other 
dwellings from public or private owners. Where this kind of use is 
proposed, the homeownership plan must include a description of the 
State or local homeownership program.
    (4) In connection with the Housing Authority's other public housing 
that remains under ACC, for any purposes authorized for the use of 
operating funds under the ACC and applicable provisions of the 1937 Act 
and Federal regulations, as included in the HUD-approved operating 
budgets. Examples include maintenance and modernization, augmentation 
of operating reserves, protective services, and resident services. Such 
use shall not result in the reduction of the operating subsidy 
otherwise payable to the Housing Authority under 24 CFR part 990.
    (5) In connection with any other type of Federal, State, or local 
housing program for low-income families.


Sec. 907.17  Records, reports, and audits.

    The Housing Authority shall be responsible for the maintenance of 
records (including sales and financial records, which contain racial 
and ethnic characteristics of the purchasers) for all activities 
incident to implementation of the HUD-approved homeownership plan. 
These records include those pertaining to the affirmative fair housing 
marketing strategy and the nondiscriminatory selection of purchasers. 
Until all planned sales of individual dwellings have been completed, 
the Housing Authority shall submit to HUD annual sales reports, in a 
form prescribed by HUD. The receipt, retention, and use of the sale 
proceeds shall be covered in the regular independent audits of the 
Housing Authority's public housing operations, and any supplementary 
audits that HUD may find necessary for monitoring. Where another entity 
is responsible for sale of individual units, pursuant to Sec. 907.7(b), 
the Housing Authority must ensure that the entity's responsibilities 
include proper record keeping and accountability to the Housing 
Authority, sufficient to enable the Housing Authority to monitor 
compliance with the approved homeownership plan, to prepare its reports 
to HUD, and to meet its audit responsibilities. All books and records 
shall be subject to inspection and audit by HUD and the General 
Accounting Office (GAO).


Sec. 907.18  Submission and review of homeownership plan.

    Whether to develop and submit a proposed homeownership plan is a 
matter within the discretion of the Housing Authority. The Housing 
Authority may initiate a proposal at any time, according to the 
following procedures:
    (a) Consultation with Field Office. Before submission of a proposed 
plan, the Housing Authority shall consult informally with its local HUD 
Field Office to assess feasibility and the particulars to be addressed 
by the plan.
    (b) Plan. The Housing Authority shall submit the proposed plan, 
together with supporting documentation, to the local HUD Field Office.
    (c) Conditional approval. Conditional approval may be given, at HUD 
discretion, where HUD determines that to be justified. For example, 
conditional HUD approval might be a necessary precondition for the 
Housing Authority to obtain the funding commitments required to satisfy 
the requirements for final HUD approval of a complete homeownership 
plan. Where conditional approval is granted, HUD will specify the 
conditions in writing.
    (d) Environmental review. Before approval of the plan, HUD will 
conduct an environmental review of the properties in accordance with 24 
CFR part 50.


Sec. 907.19  HUD approval and Housing Authority-HUD implementing 
agreement.

    Upon HUD notification to the Housing Authority that the 
homeownership plan is approvable (in final form that satisfies all 
applicable requirements of this part), the Housing Authority and HUD 
will execute a written implementing agreement, in a form prescribed by 
HUD, to evidence HUD approval and authorization for implementation. The 
plan itself, as approved by HUD, shall be incorporated in the 
implementing agreement. Any of the items of supporting documentation 
may also be incorporated, if agreeable to the parties. The Housing 
Authority shall be obligated to carry out the approved homeownership 
plan and other provisions of the implementing agreement without 
modification, except with written approval by HUD.


Sec. 907.20  Content of homeownership plan.

    The homeownership plan must address the following matters, as 
applicable to the particular factual situation:
    (a) Property description. A description of the property, including 
identification of the specific dwellings to be sold.
    (b) Plan for repair or rehabilitation. If applicable, a plan for 
any repair or rehabilitation required under Sec. 907.6, based on the 
assessment of the physical condition of the property that is included 
in the supporting documentation.
    (c) Selection of purchasers. Purchaser eligibility and selection 
(see Sec. 907.8).
    (d) Terms of sale. Terms and conditions of sale (see, particularly, 
Secs. 907.11 through 907.14).
    (e) Consultation plan. A plan for consultation with residents 
during the implementation stage (see Sec. 907.5). If appropriate, this 
may be combined with the plan for counseling.
    (f) Budget estimate. A budget estimate, showing the costs of 
implementing the plan, and the sources of the funds that will be used.
    (g) Counseling plan. Counseling, training, and technical assistance 
to be provided in accordance with Sec. 907.9.
    (h) Sale to entity other than residents. If the plan contemplates 
sale to residents via an entity other than the Housing Authority, a 
description of that entity's responsibilities.
    (i) Plan for nonpurchasers. If applicable, a plan for nonpurchasing 
residents, in accordance with Sec. 907.10.
    (j) Administrative plan. An administrative plan, including 
estimated staffing requirements.
    (k) Plan for use of sale proceeds. An estimate of the sale proceeds 
and an explanation of how they will be used, in accordance with 
Sec. 907.15.
    (l) Accounting and reporting procedures. A description of the 
accounting and reporting procedures to be used, including those 
required to meet the requirements of Sec. 907.17.
    (m) Timetable. An estimated timetable for the major steps required 
to carry out the plan.
    (n) Affirmative Fair Housing Marketing Strategy. A description of 
the Housing Authority's strategy for informing and soliciting 
applications from people who are least likely to apply, because of 
race, color, religion, sex, handicap, familial status, or national 
origin, for the homeownership program without special outreach pursuant 
to Sec. 907.7.
    (o) Supportive Services Plan. A description of the need for and 
availability of supportive services to be provided pursuant to 
Sec. 907.9(a) as well as the source and funding level for the 
supportive services to be provided.


Sec. 907.21  Supporting documentation.

    The following supporting documentation shall be submitted to HUD 
with the proposed homeownership plan, as appropriate for the particular 
plan:
    (a) Value of property. An estimate of the fair market value of the 
property, including the range of fair market values of individual 
dwellings, with such information as HUD finds sufficient to support the 
estimate.
    (b) Condition of property. An assessment of the physical condition 
of the property, based on the standards specified in Sec. 907.6.
    (c) Workability of plan. A statement demonstrating the practical 
workability of the plan, based on analysis of data on such elements as 
purchase prices, costs of repair or rehabilitation, homeownership 
costs, need for maintenance or capital reserves, family incomes, 
availability of financing, and the extent to which there are eligible 
residents who are expected to be interested in purchase. (See 
Sec. 907.4(a).)
    (d) Capability of Housing Authority. Information to substantiate 
the commitment and capability of the Housing Authority and any other 
entity with substantial responsibilities for implementing the plan.
    (e) Consultation activities. A description of resident consultation 
activities carried out pursuant to Sec. 907.5 before submission of the 
plan, with a summary of the views and recommendations of residents and 
copies of any written comments that may have been submitted to the 
Housing Authority by individual residents and resident organizations, 
and any other individuals and organizations.
    (f) Housing Authority certification. The Housing Authority's 
certification that it will administer the plan on a nondiscriminatory 
basis, in accordance with the Fair Housing Act and implementing 
regulations and any other applicable statutes, regulations, or 
Executive Orders related to fair housing and equal opportunity, and 
that it will affirmatively further fair housing. The Housing Authority 
will also assure compliance with those requirements by any other entity 
that may assume substantial responsibilities for implementing the plan.
    (g) Legal opinion. An opinion by legal counsel to the Housing 
Authority, stating that counsel has reviewed the plan and finds it 
consistent with all applicable requirements of Federal, State, and 
local law, including regulations as well as statutes. In addition, 
counsel must identify the major legal requirements that remain to be 
met in implementing the plan, if approved by HUD as submitted, 
indicating an opinion about whether those requirements can be met 
without special problems that may disrupt the timetable or other 
features contained in the plan.
    (h) Resolution. A resolution by the Housing Authority's Board of 
Commissioners, evidencing its approval of the plan.
    (i) Other information. Any other information that may reasonably be 
required for HUD review of the plan. HUD approval is not required for 
documents to be prepared and used by the Housing Authority in 
implementing the plan (such as contracts, applications, deeds, 
mortgages, promissory notes, and cooperative or condominium documents), 
if their essential terms and conditions are described in the plan. 
Consequently, those documents need not be submitted as part of the plan 
or the supporting documentation.

    Dated: January 12, 1994.
Henry G. Cisneros,
Secretary.
[FR Doc. 94-1528 Filed 1-21-94; 10:00 am]
BILLING CODE 4210-32-P