[Federal Register Volume 59, Number 137 (Tuesday, July 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17152]


[[Page Unknown]]

[Federal Register: July 19, 1994]


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Part II





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Secretary



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24 CFR Parts 203, 982, and 984




Section 8 Certificates and Vouchers Homeownership Program; Proposed 
Rule
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Parts 203, 982, and 984

[Docket No. R-94-1716; FR-3385-P-01]
RIN 2577-AB23

 
Section 8 Certificates and Vouchers Homeownership Program

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: This rule proposes additional amendments to the Section 8 
Certificate and Voucher programs at 24 CFR part 982, in addition to 
those amendments previously proposed by HUD on February 24, 1993 (58 FR 
11292). These amendments would implement section 185 of the Housing and 
Community Development Act of 1992 (HCD Act), which authorizes public 
housing agencies, including Indian housing authorities (HAs), to make 
available to eligible families section 8 certificates or vouchers to 
pay for homeownership costs under a mortgage. The proposed rule would 
amend 24 CFR part 203 to authorize the use of FHA insurance in 
connection with a mortgage receiving section 8 certificate or voucher 
assistance, and would also make technical conforming amendments. In 
addition, the proposed rule would amend the Family Self-Sufficiency 
(FSS) regulations at 24 CFR part 984 to enable a family receiving 
section 8 certificate or voucher assistance under this homeownership 
authority to use a portion of its FSS escrow account to pay for the 
cost of major repairs and replacements in the dwelling, and for down 
payment expenses.

DATES: Comments must be submitted by September 19, 1994.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Office of the General Counsel, Rules Docket 
Clerk, room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW., Washington, DC 20410-0500.
    Comments should refer to the above docket number and title. 
Facsimile (FAX) comments are not acceptable. A copy of each 
communication submitted will be available for public inspection and 
copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern 
time) at the above address.

FOR FURTHER INFORMATION CONTACT: Louise Hunt, Director of Policies and 
Procedures Branch, Rental Assistance Division, Public and Indian 
Housing, Department of Housing and Urban Development, Room 4216, 451 
Seventh Street SW., Washington, DC 20410, telephone (202) 708-3887. 
Hearing or speech impaired individuals may call HUD's TDD number (202) 
708-4594. (These telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-
3520).
    The public reporting burden for each of these collections of 
information is estimated to include the time for reviewing the 
instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. Information on the estimated public 
reporting burden is provided under the Preamble heading, Other Matters. 
Send comments regarding this burden estimate or any other aspect of 
this collection of information, including suggestions for reducing this 
burden, to the Department of Housing and Urban Development, Rules 
Docket Clerk, 451 Seventh Street SW., Room 10276, Washington, DC 20410; 
and to the Office of Management and Budget, Attention: Desk Officer for 
HUD, Washington, DC 20503.

II. Background

    The purpose of this proposed rule is to implement section 185 of 
the Housing and Community Development Act of 1992 (HCD Act) (Pub. L. 
102-550, approved October 28, 1992), which amended section 8 of the 
United States Housing Act of 1937 to authorize public housing agencies 
(including Indian housing authorities) (HAs) to make available to 
eligible families section 8 certificates or vouchers for the purchase 
of a home owned by one or more members of the family.
    [The reader is advised that on February 24, 1993, HUD published a 
rule that proposed to unify the rules for tenant-based section 8 rental 
assistance under the rental certificate program and the rental voucher 
program (see 58 FR 11292). Under that rule, HUD proposed consolidating 
the rental certificate program (currently 24 CFR part 882) and the 
rental voucher program (currently 24 CFR part 887) into a unified 
tenant-based program at 24 CFR part 982 (``unified rule''). Today's 
proposed amendments to the section 8 program should be read in 
conjunction with the amendments already proposed by HUD in its February 
24, 1993 unified rule.]
    The Department is proposing to implement the section 185 amendments 
to the section 8 program by adding a new form of ``Special Housing'' 
under 24 CFR part 982, subpart M, of the unified rule. Section 8 
certificates and vouchers used in accordance with this new subheading 
would be designated as homeownership vouchers and certificates. The 
rule refers to this component of the section 8 certificate and voucher 
program as simply the ``homeownership program.''
    The proposed rule requires HAs to implement the homeownership 
provisions of the section 8 certificate and voucher program. The rule 
states that a family meeting the homeownership eligibility criteria 
(either an applicant or a participant) may choose to use its 
certificate or voucher for homeownership purposes and clarifies that 
there is no separate funding for homeownership purposes. Rather, any 
eligible applicant selected to participate in the section 8 program, or 
any eligible current participant, may exercise the option to pursue 
homeownership opportunities in accordance with the program rules.
    Since families determined by an HA to be eligible to participate in 
the homeownership program must secure their own mortgage financing, 
section 185 of the HCD Act also amended section 203 of the National 
Housing Act to authorize the use of FHA insurance in connection with a 
mortgage for which section 8 assistance is provided under the 
homeownership program. Such a mortgage will be treated as an obligation 
of the General Insurance Fund. HUD has included in this rule a number 
of proposed amendments to 24 CFR part 203 to implement this statutory 
authority.
    Finally, section 185 amended the Family Self-Sufficiency Program 
(FSS) to permit an eligible family to use a portion of its FSS escrow 
account to pay for the down payment, and for major repairs and 
replacements, on a unit receiving homeownership assistance. The 
Department is proposing to implement this statutory authority by 
amending the section 8 FSS regulations at 24 CFR part 984.

III. Section-By-Section Analysis

A. Amendments to 24 CFR Part 203--Single Family Mortgage Insurance

    Under section 185 of the HCD Act, a mortgage that is insured under 
section 203 of the National Housing Act (NHA), and for which assistance 
is provided under the homeownership program, is treated as an 
obligation of the General Insurance Fund. This provision alters the 
general rule under the NHA that a mortgage insured under section 203 
must be treated as an obligation of the Mutual Mortgage Insurance Fund. 
A technical amendment to reflect this modification to the applicable 
insurance fund is included at Sec. 203.391 (``Title objection waiver 
with reduced insurance benefits'').
    Section 185 also provides that a FHA-insured mortgage for which 
assistance is provided under the homeownership program is subject to 
both an upfront mortgage insurance premium (MIP) as well as an annual 
MIP. HUD is proposing to implement this statutory directive at 
Secs. 203.259a (``Scope''); 203.284 (``Calculation of up-front and 
annual MIP on or after July 1, 1991''); and 203.285 (``Fifteen-year 
mortgages: calculation of up-front and annual MIP on or after December 
26, 1992'').
    HUD has also included in this proposed rule a new Sec. 203.559 
(``Responsibilities of FHA-insured mortgagees accepting section 8 
tenant-based assistance''). This provision is directed at FHA-insured 
mortgagees that are receiving assistance under the homeownership 
program on behalf of an eligible family. The purpose of the section is 
to inform such mortgagees that, as a result of their acceptance of the 
section 8 assistance payments, the mortgagee is required to comply with 
the notification requirements set forth in this proposed rule. The 
Department will include in FHA-insured mortgages that receive section 8 
homeownership assistance a specific rider to this effect, so that the 
mortgagee and subsequent purchasers have actual notice of these 
requirements. HUD requests public comment as to how non-FHA-insured 
mortgagees and their assignees can be given actual notice of their 
obligations under this proposed rule while still preserving the 
viability of these mortgages on the secondary mortgage market.
    HUD notes that underwriting for a FHA-insured mortgage in 
connection with assistance provided under the homeownership program 
will follow standard FHA single family requirements (see HUD Handbook 
4155.1 REV-4). Moreover, such mortgages will be eligible for streamline 
refinancing with the mortgage remaining an obligation of the General 
Insurance Fund, if the family still holds a homeownership certificate 
or voucher at the time of refinancing.

B. Amendments to 24 CFR part 982 (Including Amendments to Subpart M--
Assistance for Homeownership)

--Sec. 982.52  HUD requirements. This section states that for purposes 
of the section 8 homeownership program, HUD must comply with 24 CFR 
part 50 (Protection and Enhancement of Environmental Quality). This 
section also requires that HAs supply HUD with environmental threshold 
data to assist it in complying with the applicable Federal 
environmental laws and authorities listed in 24 CFR Sec. 50.4.
--Sec. 982.552  HA denial or termination of assistance for family. This 
proposed rule revises Sec. 982.552(b)(1) of the unified rule (``HA 
denial or termination of assistance for family'') by providing that a 
HA may deny or terminate program assistance on behalf of an applicant 
or participant in the section 8 homeownership program if the family has 
violated any of its obligations under the section 8 program 
(Sec. 982.551), or under the section 8 homeownership program at subpart 
M (Secs. 982.631-982.633). In such instances, the procedural 
requirements applicable to denials or terminations of assistance under 
the general section 8 program will apply (see Sec. 982.553).
--Sec. 982.629  Homeownership Program: Purpose, implementation and 
applicability. This section states the purpose of the homeownership 
program, which is to provide homeownership opportunities for low-income 
families. The section states that the HA must allow a certificate or 
voucher family that meets the homeownership eligibility criteria to use 
the certificate or voucher in the homeownership program. The proposed 
rule specifies that HAs must inform families of the homeownership 
option during the briefing session. Families that have already been 
issued certificates or vouchers (both a participant with a unit under 
HAP contract and a family that was issued a certificate or voucher to 
search for a rental unit) must be informed of the homeownership option 
no later than the next regularly scheduled recertification.

    The Department is aware that some HAs may wish to give current 
public housing tenants the opportunity to participate in the section 8 
homeownership option. While families receiving section 8 certificates 
and vouchers must be selected from the section 8 waiting list, HAs are 
reminded that the proposed unified rule published on February 24, 1993 
allows HAs to provide a selection preference to public housing 
residents, and that such a preference could be provided to families 
interested in participating in the homeownership program.
    In addition, the Department will soon implement legislation that 
allows certain public housing residents to retain their federal 
preference status for the section 8 program (i.e., their preference 
status on the certificate and voucher waiting list) even after they 
move into public housing, and even after the federal preference 
condition no longer exists (e.g., rent burden, substandard housing). 
Implementation of this provision may increase the number of former 
public housing families receiving section 8 assistance who meet the 
eligibility criteria for the section 8 homeownership program.
    Section 982.629 clarifies the relationship of the homeownership 
program to other sections under subpart M, and notes that the 
requirements contained in the other subparts of part 982 also apply to 
the homeownership program, except as expressly indicated under this 
section and as provided in the proposed rule.
    The proposed rule states that homeownership certificates and 
vouchers may not be used in conjunction with part 882, subpart G, 
project-based assistance under the certificate program. This is because 
section 185 of the HCD Act of 1992 specifically limits participation in 
the section 8 homeownership program to ``families receiving tenant-
based assistance.'' However, even aside from this statutory impediment, 
the Department believes that it would not be appropriate to allow 
project-basing under this program. Since the subsidy for both 
homeownership vouchers and certificates would permit families to pay 
more than 30 percent of their income for housing costs, project-basing 
in the homeownership program could result in a ``take it or leave it'' 
offer of a homeownership unit at a price set by the owner, forcing 
families to accept a higher financial burden than if they shopped for 
their own units, or to have their assistance delayed. Furthermore, 
since there are specific eligibility criteria (e.g., a minimum income 
threshold) under the homeownership program, above and beyond the 
eligibility requirements for rental families, federal preference 
holders and other needy families could be unfairly skipped over on the 
waiting list to reach ``homeownership families'' to fill the project-
based units. Finally, the tenant-based certificate and voucher programs 
offer housing choice opportunities not available under project-based 
subsidy programs. HUD believes that this housing choice opportunity 
should not be negated in the homeownership program by tying the 
homeowner subsidy to specific units.
    The Department recognizes that many nonprofit sponsors have been 
looking to homeownership certificates and vouchers to finance their 
development projects as part of larger neighborhood transformation 
efforts. There are ways, other than through project-basing, that these 
sponsors can use homeownership certificates and vouchers. There is 
nothing to prevent HAs from establishing cooperative relationships with 
these sponsors, referring families to them or even sharing waiting 
lists with them.

--Sec. 982.630  Homeownership Program: Definitions. The proposed rule 
defines a number of terms used in the homeownership program, including: 
``average equity,'' ``average passbook savings rate,'' ``default,'' 
``down payment,'' ``first-time homeowner,'' ``homeownership 
assistance,'' ``homeownership unit,'' ``imputed amount of family 
contribution for assets,'' ``major repairs and replacements,'' 
``monthly homeownership expenses,'' ``mortgage,'' ``mortgagee,'' ``net 
sales proceeds,'' ``public assistance,'' and ``Statement of Family 
Responsibilities.'' The definitions under the homeownership program 
supplement the definitions already proposed in Sec. 982.4 of the 
section 8 unified rule.

    Following are the salient points the Department considered in 
developing some of the homeownership program definitions:
    1. ``Default.'' HUD believes that the determination of whether a 
default has occurred under the mortgage instrument must be left to the 
determination of the mortgagee, not HUD. Hence, the proposed rule 
provides that a default under a FHA-insured mortgage must be determined 
in accordance with the general rules set forth in 24 CFR part 200. A 
default under a non-FHA-insured mortgage must be determined by the 
mortgagee under the terms of the mortgage instrument.
    2. ``Down payment.'' Under section 185 of the HCD Act, a family is 
required to contribute from its own resources (which HUD is defining to 
mean cash resources obtained through a gift or inheritance, personal 
savings, or amounts in its FSS escrow account) 80 percent of the down 
payment for the home. HUD has defined the term ``down payment'' to mean 
the difference between the purchase price and the mortgage amount. The 
Department opted not to include in this definition other expenses, such 
as the cost of points, appraisals, legal fees, and other closing costs, 
since this would increase the amount the family must pay out-of-pocket.
    3. ``First-time homeowner.'' Section 185 of the HCD Act limits 
eligibility under the homeownership program to a ``first-time 
homeowner,'' and defines the term to mean ``a family, no member of 
which has had a present ownership interest in a principal residence 
during the 3 years preceding the date on which the family initially 
receives [homeownership assistance] . . .''
    Once a family establishes that it is a first-time homeowner under 
this definition, and is in compliance with all program (including 
eligibility) requirements, it will not lose its status as a first-time 
homeowner simply because it wants to sell its existing home and buy a 
new one. This is because the statutory definition of ``first-time 
homeowner'' establishes eligibility based upon the date the family 
initially received assistance for homeownership. However, to retain its 
eligibility, the family must be participating continuously in the 
section 8 homeownership program, and may not have been in default under 
a previous section 8-assisted mortgage.
    In this proposed rule, HUD has declined to exercise the statutory 
authority granted to it under the HCD Act that would enable it to 
expand the definition of a first-time homeowner. The Department 
specifically requests comments from the public as to how HUD might 
expand the definition of a first-time homeowner so that participation 
in the homeownership program may be broadened.
    4. ``Imputed amount of family contribution for assets.'' See 
discussion below concerning Sec. 982.641.
    5. ``Monthly homeownership expenses.'' HUD is proposing in this 
rule to define ``monthly homeownership expenses'' to include a family's 
total monthly expenses for the homeownership unit, including the cost 
of mortgage principal and interest (limited to the lesser of the 
principal and interest payment on the initial first mortgage or any 
subsequent refinancing, but excluding principal and interest payments 
on any second mortgages, home equity loans, or cash-out refinancings), 
real estate taxes and special assessments, imputed maintenance expenses 
equal to 5% of the FMR for the unit size purchased at the time of move-
in or at the regular re-examination, home insurance, and an allowance 
for utilities using the HA's utility allowance schedule.
    6. ``Net sales proceeds.'' Upon sale of the homeownership unit, the 
HA is to recapture from any net proceeds the amount of additional 
assistance paid to or on behalf of the eligible family because the HA 
did not take into account the value of the family's equity in the 
homeownership unit for purposes of calculating the monthly assistance 
payment. (See discussion below regarding the exclusion and recapture 
provisions.) HUD has defined net sales proceeds to be the market value 
of the house (as opposed to the selling price), less the sum of any 
unpaid balance on the first mortgage. HUD decided to use the current 
market value of the house rather than the actual sale price to prevent 
families from either giving away or under-pricing the house as a means 
of circumventing the recapture provision. The Department is only taking 
into account the unpaid balance of the first mortgage in order to 
prevent families from cashing out all equity at the time of the sale 
through a vehicle such as a home equity loan in order to escape the 
recapture provision.

--Sec. 982.631  Homeownership Program: Initial family eligibility. 
Section 185 of the HCD Act establishes the criteria for determining a 
family's eligibility for participation under the homeownership program. 
A family that expresses interest in the homeownership program, but that 
does not meet the criteria listed in this section, may not be 
considered for the homeownership program. A family that meets these 
conditions is eligible for assistance under the homeownership program, 
provided it fulfills the requirements listed in Sec. 982.632. The 
initial eligibility requirements include:

    1. First-time homeowner. Section 185 requires that the family be a 
first-time homeowner. See the discussion at Sec. 982.630 for the 
statutory definition of a ``first-time homeowner.'' It is noted that a 
family that previously participated in the homeownership program, but 
that subsequently defaulted, is ineligible to participate in the 
homeownership program again, regardless if three years have passed from 
the date it last owned a home (see Sec. 982.640).
    2. Participation in FSS or adequate income. Under the homeownership 
program, a family must either be participating in the HA's Family Self-
Sufficiency (FSS) Program and be in compliance with the FSS contract of 
participation, or it must demonstrate that it has an adequate income, 
from sources other than public assistance, to cover its homeownership 
expenses.
    A family not participating in an HA's FSS program, can still be 
considered for participation in the homeownership program if its gross 
monthly income (not including public assistance) is at least two and a 
half times the Existing Housing fair market rent (FMR) for the area in 
which the homeownership unit is located. The proposed rule separately 
defines the meaning of ``public assistance,'' thereby identifying the 
types of income that may not be included in determining whether a 
family meets the homeownership income standard.
    3. Employment. Section 185 states that, except as provided by HUD, 
the family must be able to demonstrate at the time that it initially 
receives homeownership certificate or voucher assistance that one or 
more adult members of the family have been employed for the time period 
established by HUD.
    The Department is proposing in this rule that one or more adult 
members of the family must be currently employed on a full-time basis, 
and must have been continuously so employed for at least one year 
before the date the HA determines family eligibility for homeownership 
assistance. If a family is eligible to participate under the 
homeownership program because it is participating in the FSS program 
(rather than because it met the homeownership income test), it is still 
subject to the one-year employment requirement.
    The Department requests public comment concerning whether it should 
grant an exception to the one-year employment requirement in the case 
of disabled persons who can establish that they have an adequate income 
(from sources other than public assistance) to cover their monthly 
homeownership expenses.

--Sec. 982.632  Homeownership Program: Actions after an HA determines 
that an interested family is eligible for the homeownership program. 
This section details the actions that must occur after the HA 
determines a family is eligible for the homeownership program.

    In drafting this section of the proposed rule, the Department 
seriously considered, but decided against, requiring or allowing the HA 
to disapprove homeownership units if it considered either the purchase 
price of the unit or the financing terms to be unreasonable. HUD is 
concerned with the added administrative burden such a requirement would 
place on HAs and questions whether HA staff have adequate expertise in 
these areas. In addition, delays attributable to HA review and approval 
of these items could result in families losing the desired 
homeownership unit to another interested buyer.
    There are other timing problems that affected HUD's decision. 
Requiring the HA to determine if the listed purchase price is 
reasonable is not necessarily an accurate reflection of the real 
purchase price, since in most cases buyers and sellers negotiate a 
final price. As for evaluating the financing terms, buyers do not 
typically secure financing before executing a contract to purchase a 
homeownership unit. In most cases, the family would already have 
entered into a legally binding contract to purchase the property before 
the HA disapproved the terms of the financing.
    The Department believes that requiring the family to wait for the 
HA to determine the reasonableness of the listed price or of the 
family's offer, or requiring that the family convince the owner to 
accept a contract contingent on the family's obtaining financing 
satisfactory to the HA, would place a severe handicap on section 8 
homeownership families' ability to make an offer that is timely and, 
thus, acceptable to the seller.
    Alternatively, though, the Department is prohibiting in this 
proposed rule seller-financing (except in the case of financing 
provided by a nonprofit entity), since HUD believes that seller-
financing poses the greatest risk to homebuyers of artificially 
inflated sales prices or unreasonable financing terms. As a result, in 
the vast majority of cases the family will be required to secure 
mortgage financing from a lender that will require an appraisal, and 
that would be unlikely to approve a mortgage for a homeownership unit 
that has an inflated purchase price. In addition, HUD is prohibiting in 
this proposed rule the use of balloon mortgages, since it considers 
these financing instruments to be inherently risky, and particularly so 
when used by low-income families. The Department believes that this 
approach, in conjunction with homeownership counseling at the front-
end, is the more efficient and effective strategy to prevent bad deals.
    HUD requests specifically public comment as to whether the final 
rule should authorize the use by families of adjustable rate mortgages 
(so-called ``ARMs''). While these types of mortgages tend to increase 
the number of families that can qualify for financing and, thus, 
participate in the program, HUD is concerned that they may also result 
in an increased risk of default. This is because the homebuyer's 
mortgage payment could rise precipitously during periods of high 
inflation, while the family's income and homeownership subsidy payment 
remain constant.
    In addition, the Department requests comments as to whether it 
should establish certain guidelines or restrictions with respect to the 
types of seller-financing instruments that may be utilized by a 
nonprofit, including whether to limit such entities to the use of 
fixed-rate mortgages.
    Finally, HUD considered requiring that the family's share of the 
monthly homeownership expenses could not exceed 40 percent of the 
family's monthly adjusted income, but ultimately decided against a 
limit. The Department believes that such a limit would be very 
difficult to administer since the actual purchase price is subject to 
negotiation and the financing terms often would not be known until near 
the end of the purchase process. HUD further believes that the lender 
should make the determination of the family's risk of default. The 
homeownership counseling will also play an important role in assisting 
families in determining an acceptable percentage of income to devote to 
homeownership expenses.
    The Department specifically invites comments concerning whether a 
cap on the amount of a family's monthly homeownership expenses relative 
to its income should be imposed in the final rule, and whether the HA 
or another entity should approve the purchase price or financing terms.
    Section 982.632 outlines the sequence of actions that take place 
once the family has been determined by the HA to be eligible initially 
for the program. These actions are:
    1. Family Participation in a homeownership and housing counseling 
program. The family must attend a homeownership and housing counseling 
program that covers areas such as: negotiating purchase prices; 
securing mortgage financing; home maintenance; budgeting; credit 
counseling; credit repair; money management; transportation options and 
opportunities for housing and schools located throughout the 
metropolitan area; and the availability of multiple listing services 
through local realtors so that families can explore the full range of 
housing options located throughout the metropolitan area.
    The HA must provide such counseling to prospective homebuyers 
through a HUD-approved counseling agency, where it exists, or by 
developing its own program or arranging to make use of an existing 
program in the community. Eligible sources of funding that an HA may 
use to pay for the cost of a homeownership and housing counseling 
program include administrative fees, local resources, and the section 8 
administrative fee reserve.
    The Department believes that homeownership counseling is an 
integral and vital component of the section 8 homeownership program, 
and will be critical to the program's ultimate success or failure. 
Consequently, HUD specifically requests public comment as to whether 
implementation of the section 8 homeownership option should be limited 
to PHAs that have adequate resources (e.g., local resources, section 8 
administrative fee reserves, etc.) to provide initial and ongoing 
homeownership and housing counseling to eligible families.
    2. HA issues the family a homeownership certificate or voucher. The 
term of the homeownership certificate or voucher is 120 days, and the 
family must submit a completed Request for Authorization to Purchase a 
Homeownership Unit and either make an offer to purchase, or execute a 
contract of sale, before the expiration date of the certificate or 
voucher. There are no extensions for homeownership certificates and 
vouchers. However, once a family submits a completed Request for 
Authorization to Purchase a Homeownership Unit, the HA must suspend the 
term of the certificate or voucher until the HQS inspection is 
completed (see discussion below).
    The family may only submit one Request for Authorization to 
Purchase a Homeownership Unit at a time. The Request for Authorization 
to Purchase serves several functions. First, its submission suspends 
the term of the family homeownership certificate or voucher. It 
identifies the location of the property and the identity of the seller, 
and, in the same manner as the Request for Lease Approval in the rental 
program, triggers the HQS inspection.
    It is important to note that the term of the homeownership 
certificate and voucher only controls a family's search-time to locate 
a homeownership unit, submit a Request for Authorization to Purchase a 
homeownership unit, and either make an offer to purchase the unit or 
execute a contract of sale for the unit. The family is not required to 
have secured mortgage financing, obtained title to the property, or 
brought the unit up to HQS before the certificate or voucher expires, 
although all three conditions must be met before housing assistance 
payments may be made on behalf of the family. The family has nine 
months (plus tolling, i.e., the time between when the family submits a 
Request for Authorization to Purchase a Homeownership Unit for HA 
approval and the time when the HA approves or denies the request) from 
the date the HA issued the homeownership certificate or voucher in 
which to satisfy these conditions. The proposed rule also provides that 
during the 120-day term of the homeownership certificate or voucher, 
the family may request to convert the certificate or voucher into a 
rental certificate or voucher. The HA must determine the term of the 
rental certificate or voucher in accordance with Sec. 982.302, except 
that the time period used under the homeownership certificate or 
voucher must first be deducted. It is possible that if such a request 
occurred after the initial sixty days, the HA may have to consider 
giving the family an extension, in accordance with its administrative 
policy, to convert the certificate or voucher back to the rental 
program. The family is not entitled to the expiration date on the 
homeownership certificate or voucher if it requests to change to the 
rental program.
    3. Request for Authorization to Purchase a Homeownership Unit; HQS 
Inspection. Once the family submits a Request for Authorization to 
Purchase a Homeownership Unit, the HA must inspect the unit to 
determine whether it is in compliance with the HQS. If the 
homeownership unit does not meet HQS, the HA must provide the family 
with a list of deficiencies. The family does not have to wait for the 
HQS inspection before making an offer or signing a purchase contract, 
since such a restriction would severely limit the family's chances of 
purchasing the unit. However, the family must be informed that the 
housing assistance payments may not be made until the unit is in 
compliance with HQS. The HA may disapprove the Request for 
Authorization to Purchase a Homeownership Unit if the unit is 
structurally unsound or if there are many serious HQS violations and 
the HA determines that the family will be unable to have the HQS 
violations corrected within nine months (plus tolling) from the date 
the HA issued the homeownership certificate or voucher. Although 
disapproving a unit after the family has made a purchase offer or 
executed a contract of sale is undesirable, this protection is 
necessary to prevent immediate mortgage defaults. In such cases, a 
section 8 family may lose its down payment, and possibly other out-of-
pocket expenses, depending on the contract terms.
    The Department solicits comments as to whether it should require 
all participating families to have their proposed homeownership unit 
inspected professionally by a third party before entering into a 
purchase offer or contract of sale; whether the purchase offer or 
contract should be made contingent on the outcome of the inspection; or 
whether implementation of a homeownership program should be limited to 
areas where pre-purchase inspections are available at no cost to the 
family (e.g., funded from community development block grants). HUD 
believes that such an inspection would be extremely beneficial in 
alerting the family to potentially costly defects in the home. This is 
especially important since the HQS inspection conducted by the HA is 
unlikely to determine whether the unit is structurally sound, and the 
extent to which the family is likely to incur significant repair and 
replacement costs. On the other hand, the Department also recognizes 
that participating families have limited income and may have difficulty 
paying for such an inspection.
    In addition, the Department wants to request comment as to whether 
it should consider establishing a time period in which the HA must 
complete its HQS inspection of the unit. HUD believes that such a 
deadline may be beneficial for purposes of minimizing the amount of 
time between the family's offer to purchase the unit (or execution of 
the contract of sale) and its need to obtain financing.
    4. Mortgage Financing; title. The family is responsible for 
securing mortgage financing to purchase the property. Before monthly 
assistance payments can commence, the family must provide evidence to 
the HA that it has a mortgage on the homeownership unit, although 
purchase-money mortgages (i.e., a mortgage taken by the seller on the 
homeownership unit in exchange for its agreement to finance the 
family's purchase of the unit) and ``balloon'' mortgages are expressly 
prohibited. HUD is providing an exception to the prohibition on 
purchase-money mortgages in the case of financing provided by a bona 
fide nonprofit entity. Because of the requirement that the family 
obtain a mortgage on the homeownership unit, it is anticipated that 
lenders will require appraisals as a condition of providing financing 
to the family. The Department believes that this requirement will 
enable the family to assess the reasonableness of the purchase price.
    The family is also required to execute a second mortgage on behalf 
of the HA to secure the repayment of the recapture amount due under 
Sec. 982.641. This second mortgage must be executed and recorded by the 
HA before section 8 homeownership assistance may commence on behalf of 
the family. As a result of this second mortgage, the HA will be able to 
recover the recapture amount at the time the family subsequently sells 
the dwelling. However, if for any reason there are inadequate cash 
proceeds generated by the sale of the unit to repay the full recapture 
amount, the family will be required to repay this amount to the HA. One 
method the HA may employ to recover this amount from the family is to 
offset the amount against any future section 8 rental payments paid on 
behalf of the family, in accordance with a schedule established by the 
HA. The Department believes that there will be few instances in which 
the HA will have to resort to such offsetting measures, particularly 
since any financial mechanisms a family may employ to withdraw the 
equity in its home (e.g., home equity loans or cash-out refinancings) 
would be limited by the amount of HUD's second mortgage on the 
property.
    In addition, the proposed rule requires the family to obtain title 
to the property. Title may be held by any member or members of the 
family, and the family must provide the HA with adequate evidence of 
its ownership.
    The family is required to secure mortgage financing, obtain title 
to the unit, and bring the unit into compliance with the HQS within 
nine months (plus tolling) of the date the HA issued the family the 
homeownership certificate or voucher. Monthly housing assistance 
payments may not commence until these conditions are met.
    5. Statement of Family Responsibilities; section 8 payments to 
mortgagee and utility suppliers. Once the family brings the unit into 
compliance with the HQS within the nine month deadline, the HA must 
reinspect the unit. If the unit meets the HQS and the family has taken 
possession of the unit, the family must execute a Statement of Family 
Responsibilities (SFR) in the form prescribed by HUD. In the SFR, the 
family agrees to combine the HA's payment with its own required 
contributions, and to pay such amounts directly to the mortgagee and 
utility suppliers. The family also agrees that, if the HA determines 
that the family's past performance in making such payments so warrants, 
the HA may pay housing assistance payments directly to the mortgagee 
and utility suppliers.
    The Department has decided to give the monthly housing assistance 
payment to the family rather than sending it directly to the mortgagee, 
to eliminate the need for the mortgagee to maintain a dual system for 
recording payments from the HA and the family. HUD also chose not to 
require the family to make its payment to the HA, with the HA sending 
one consolidated payment to the mortgagee, simply because this 
procedure appears to be at odds with the fundamental notion of family 
homeownership. Nevertheless, the Department requests comments from 
mortgagees and others concerning these issues, as well as any other 
issues that may affect the sale on the secondary mortgage market of 
mortgages receiving section 8 assistance.
    6. Submission of documents from mortgagee. Before commencement of 
homeownership assistance, the family must submit to the HA any 
documents prescribed by HUD, and executed by the mortgagee, indicating 
that the mortgagee agrees to comply with the notification requirements 
established under this proposed rule. These requirements consist 
primarily of notifying the HA in the event the family defaults on the 
mortgage, or when a defaulting family has complied with the conditions 
for the resumption of section 8 rental assistance. In addition, FHA-
insured mortgagees must inform the HA as to whether the family has 
elected to participate in, and has qualified for, HUD's Assignment 
Program under 24 CFR part 203, subpart C.
    7. Down payment requirements. The family must provide from its own 
resources (which may include cash resources obtained through a gift or 
inheritance, or from the family's personal savings) at least 80 percent 
of the down payment on a homeownership unit. The family may use up to 
50 percent of the amount contained in its FSS escrow account to meet 
this down payment requirement. Not more than 20 percent of the down 
payment may be provided from other sources, such as funds provided by 
nonprofit entities or from state or local government programs.
    8. Environmental review. HUD must comply with the applicable 
environmental laws and authorities listed in 24 CFR Sec. 50.4. HAs must 
assist HUD by establishing procedures to assure that prior to approval 
of any ``Request for Authorization to Purchase a Unit,'' full 
compliance is made with Federal laws and authorities related to coastal 
barriers, flood insurance, and runway clear zones. In addition, HAs 
must supply HUD with threshold data to assist HUD in complying with the 
historic preservation requirements set forth in 24 CFR Sec. 50.4. HUD 
will carry out a historic preservation review with respect to any 
property that requires rehabilitation to bring it up to HQS. If the HA 
determines during its HQS inspection of the unit that, as a condition 
of meeting the HQS, the family must undertake rehabilitation of the 
dwelling, it must so inform the family. Thereafter, until such time as 
HUD completes its environmental review, the family may not carry out 
any rehabilitation work in the dwelling. It is noted that many HQS 
violations will not require the family to undertake rehabilitation work 
in order to correct the deficiencies and bring the unit into compliance 
with HQS. For instance, minor interior repairs would not be subject to 
a historic preservation review. When the homeownership program is 
implemented, the Department will issue specific guidance on what 
conditions would require actual rehabilitation work and would be 
subject to the historic preservation review.

--Sec. 982.633  Homeownership Program: Continued assistance 
requirements.

    In addition to initial eligibility requirements, HUD is also 
proposing a number of requirements concerning continued homeownership 
assistance. These requirements are in addition to the general section 8 
requirements contained in Sec. 982.551 that apply to all families 
receiving tenant-based assistance.
    The proposed continued assistance requirements include: (l) 
attending homeownership and housing counseling on a continuing basis 
(if required by the HA); (2) complying with the terms of its mortgage 
with the mortgagee and its SFR with the HA; (3) notifying the HA before 
the family refinances the mortgage or sells the homeownership unit, and 
of any change in the family's monthly homeownership expenses or when 
the mortgage on the property is paid off; (4) maintaining the unit in 
accordance with the HQS, and allowing the HA to inspect the unit; (5) 
paying the monthly mortgage installment and utility payments in a 
timely manner; (6) maintaining the unit as the family's residence 
without leasing or subleasing any portion of the premises; and (7) 
maintaining all lender- or federally-required home insurance for the 
unit, including flood insurance.
    The unit must meet the HQS throughout the period the family is 
receiving monthly homeownership assistance payments from the HA. 
Assistance payments may not commence until the HA determines that the 
unit meets the HQS. Failure of the family to maintain the unit in 
compliance with the HQS may result in the termination of assistance 
payments.
    After purchasing the homeownership unit, the family may use amounts 
in its FSS escrow account to pay for the cost of major repairs and 
replacements. (See Sec. 982.630 for the definition of ``major repairs 
and replacements''.) This proposed rule would require the HA to inspect 
the homeownership unit before the closing date, and to reinspect the 
unit within the nine month deadline for meeting HQS deficiencies to 
determine whether housing assistance payments may commence. Thereafter, 
the HA would inspect the unit at least annually, and at other times as 
needed, to determine if the family is meeting its obligation to 
maintain the unit in accordance with HQS.
    The family's ability to budget successfully adequate amounts to 
make necessary repairs is a prime concern of the Department. 
Homeownership counseling will play a vital role in assuring that the 
family is prepared to handle repair and replacement needs. In addition, 
the Department has decided to include as part of the family's monthly 
homeownership expenses an imputed maintenance expense equal to 5% of 
the FMR for the unit size for the area in which the homeownership unit 
is located. This will assist some families in meeting repair and 
replacement costs as they occur, without putting an undue strain on the 
family. However, since families may not actually set aside funds for 
maintenance expenses on a monthly basis, and since the statutory 
formula for determining the monthly homeownership assistance payment is 
not necessarily predicated upon the amount of the family's monthly 
homeownership expenses, there is no assurance that a family will be 
able to meet routine or unexpected maintenance expenses.
    For example, if a family's monthly assistance payment is calculated 
based upon the extent to which FMR exceeds 30 percent of the family's 
monthly adjusted income, the family would not receive any credit for 
imputed maintenance expenses (i.e., since the family's formula 
calculation does not rely upon its monthly homeownership expenses). 
Conversely, if the family's monthly assistance payment is calculated 
based upon the extent to which the family's monthly homeownership 
expenses exceed 10 percent of the family's monthly income, then a 
certain portion of the monthly assistance payment would be imputed by 
the HA for maintenance expenses. The Department does not have the 
discretion to authorize the use of one subsidy formulation over the 
other, since this is statutorily mandated.
    The Department considered having the HA establish and maintain a 
replacement reserve to help offset the costs of major repairs and 
replacements that are essential for ensuring that the family's unit 
complies with HQS. However, concerns surfaced regarding both the added 
burden on HAs to maintain the reserves and what, if any, control the HA 
would exercise over releasing the reserve for use by the family. 
Another concern is whether amounts in the reserve would be sufficient 
to cover necessary expenditures. Experience with the homeownership 
program under section 235 of the National Housing Act was that when the 
homeownership units were not newly constructed, the replacement reserve 
balance was often insufficient to cover the costs of replacing roofs 
and other major expenditure items.
    The Department requests comments concerning the establishment and 
operation of the maintenance reserve, in light of the family's 
obligation to maintain the unit in accordance with the HQS. In 
particular, the Department is requesting comments concerning whether 
participation in the homeownership program should be limited to 
families agreeing to deposit funds in a replacement reserve, or to 
locations where there are adequate local resources to establish and 
maintain a replacement reserve on behalf of each homeownership family.

--Sec. 982.634  Homeownership Program: Use of Family Self Sufficiency 
escrow account.

    In addition to a family's ability to use a portion of its FSS 
escrow account toward the down payment on the unit, section 185 also 
authorizes the family to use any amounts remaining in the FSS escrow 
account to cover the costs of major repairs and replacements of the 
homeownership unit.
    The rule proposes to adopt to a significant degree the IRS 
definition of the term ``major repairs and replacements.'' The IRS 
defines this term to mean a capital expenditure (an expenditure to 
acquire property having a useful life of more than one year, to 
increase the value of the property, or to prolong the property life) to 
repair or replace a major building system, equipment or component. The 
Department has modified this definition in one respect by requiring the 
HA to make the determination that the family's proposed expenditure 
actually qualifies as a capital expenditure.
    Examples of major repairs and replacements provided in the proposed 
rule are repairing or replacing a roof, repairing or replacing a 
heating system, replacing a hot water heater and rewiring. The 
Department specifically requests public comment as to whether a 
different definition of ``major repairs and replacements'' should be 
substituted in the final rule, or whether HUD should consider 
modifications to its proposed definition.
    The rule also proposes to establish a procedure to be followed by 
the family and the HA before allowing a family to draw down funds from 
the FSS escrow account for major repairs and replacements. This 
procedure would require the family to submit to the HA documentation to 
substantiate that the proposed repairs and replacements are eligible 
work items, and that the amount proposed to be spent by the family on 
such repairs and replacements is reasonable. The family may not draw 
down funds from its FSS escrow account without the HA's approval.
    Section 185(a) further provides that if a family defaults in 
connection with a homeownership program-supported mortgage, the family 
may not receive section 8 rental assistance unless it agrees that ``any 
amounts the family is required to pay to reimburse the escrow account 
under section 23(d)(3) [the FSS statutory provision] may be deducted by 
the [HA] from the assistance payment otherwise payable on behalf of the 
family.''
    The Department has decided to implement this statutory provision, 
notwithstanding the fact that section 185(b), the provision that 
actually amends the FSS statutory provision, refers only to the 
Secretary's obligation to recapture any ``remaining amounts'' contained 
in the FSS escrow account, but does not refer to the family's 
obligation to reimburse the escrow account for amounts previously 
expended.
    The Department has adopted this approach to discourage families 
from defaulting on their mortgages and reverting without consequence to 
rental status, and to protect the integrity of the General Insurance 
Fund. Moreover, HUD's approach is consistent with language contained in 
the Senate Committee Report to the HCD Act of 1992, which makes clear 
that Congress fully intended that defaulting homebuyers would be 
obligated to reimburse the FSS account for all amounts obtained from 
the account. Specifically, the Committee Report states:

    * * * The family could not continue to receive voucher or 
certificate assistance unless it transferred the dwelling to HUD, 
moved from the dwelling within the deadlines established or approved 
by HUD, agreed that any amounts the family is required to pay to 
reimburse the Family Self-Sufficiency program escrow account, as 
required by section 23(d)(3) may be deducted by the public housing 
agency from the assistance payment otherwise payable on behalf of 
the family (the family would have to make up any difference with 
additional payments to the owner) and meet other requirements 
established or approved by HUD. In this way, unsuccessful families 
would have an incentive to minimize the loss to HUD that occurs 
through the often lengthy process of foreclosure. (See S. Rep. No. 
332, 102d Cong., 2d Sess. 161-62 (1992).)

    Consequently, under this proposed rule, the HA would be able to 
recover from the family all amounts that the family obtained from the 
FSS escrow account pursuant to Sec. 982.634 of the rule. To recover 
this amount, the HA would deduct from any future section 8 monthly 
rental payments provided on behalf of the family a certain sum based 
upon a schedule established by the HA. As a result of this reduced 
subsidy paid on behalf of the family, the family would be required to 
increase its contribution toward the monthly rent on the unit. The 
family would continue to pay this higher rent until it reimbursed the 
full amount of the FSS escrow account.
    In addition, section 185(b), which amends the FSS program by adding 
the new section 23(d)(3), provides that ``[I]f a family defaults in 
connection with the loan to purchase a dwelling and the mortgage is 
foreclosed, the remaining amounts in the escrow account shall be 
recaptured by the Secretary.'' HUD is implementing this statutory 
provision in this proposed rule, and provides that the HA may use such 
recaptured amounts as program receipts under the Consolidated ACC.

--Sec. 982.635  Homeownership Program: Monthly housing assistance 
payment.

    Section 185 establishes the amount of the monthly subsidy payment 
to be provided by the HA to the eligible family. Under the statutory 
formula, the amount of the subsidy is the lesser of: (1) the Existing 
Housing FMR for the family unit size for the area in which the 
homeownership unit is located, minus 30 percent of the family's monthly 
adjusted income; or (2) the family's monthly homeownership expenses 
minus 10 percent of the family's gross monthly income. The proposed 
rule directs the HA to make the monthly assistance payment directly to 
the family, which must then combine the HA's payment with its own 
contribution to pay both the mortgage and utility expenses.
    Furthermore, in determining the monthly housing assistance payment, 
HUD has decided that the HA will use the greater of the Existing 
Housing FMR in effect at the time of the regular re-examination for the 
area in which the homeownership unit is located, or the FMR in effect 
for the area in which the homeownership unit is located when the family 
initially received homeownership assistance for that unit.
    Section 185 specifically states that the HA may not reduce the 
amount of the subsidy payment to take into account the family's imputed 
equity in the homeownership unit. Thus, section 185 expressly 
authorizes the HA to disregard the normal section 8 procedure at 24 CFR 
Sec. 813.106(b)(3) for taking equity into account when calculating the 
amount of a family's subsidy payment.
    Nevertheless, section 185 also provides that upon the sale of the 
unit, the family is required to repay to HUD from the net sales 
proceeds the amount of additional assistance provided to the family 
because HUD did not consider the family's equity in calculating the 
monthly assistance payment. (See preamble discussion titled ``Sale of 
homeownership unit.'')
    This section also includes a provision that states that any 
mortgagee accepting section 8 homeownership certificate or voucher 
payments from a family or an HA under the homeownership program thereby 
agrees to comply with the responsibilities of a mortgagee, as set forth 
in these regulations. This provision gives notice to such mortgagees 
that they are subject to certain obligations under the homeownership 
program because of their acceptance of the section 8 subsidy.
    Section 982.635(e) clarifies that housing assistance payments may 
only be paid on behalf of the family for the period that the unit is 
occupied by the family.
    Section 982.635(f) states that the HA may receive the ongoing 
administrative fee described in Sec. 982.151(c) for each month that a 
homeownership subsidy is paid on behalf of the family.

--982.636  Homeownership Program: HA periodic unit inspections; HA 
remedies.

    This section requires the HA to inspect the homeownership unit at 
least annually, and at other times as needed, to determine if the 
family is meeting its obligation to maintain the unit in accordance 
with the HQS. In addition, the section provides that if the family 
fails to so maintain the unit, the HQ must take prompt and vigorous 
action to enforce the family's obligations, which may include 
termination or reduction of the housing assistance payment. This 
provision also provides that the HA must not make any housing 
assistance payments for a homeownership unit that fails to meet the 
HQS, unless the family corrects the defect within the period specified 
by the HA and the HA verifies correction of the defect(s).

--Sec. 982.637  Homeownership Program: Prohibition on use of additional 
homeownership assistance.

    Section 185 prohibits a family receiving section 8 assistance under 
the homeownership program from receiving additional assistance under 
other Federal homeownership programs, as determined by HUD, subsequent 
to the purchase date of the unit (e.g., mortgage principal or interest 
rate reductions). Assistance under other Federal homeownership programs 
may be used, however, for pre-purchase activities. For instance, 
assistance under other federal homeownership programs could be used to 
write down the initial purchase price, to complete pre-purchase 
rehabilitation, and for other pre-purchase activities.
    In addition, language contained in the Senate Committee Report to 
the HCD Act of 1992 makes clear that Congress also intended that 
assistance under the section 8 homeownership program could be used to 
purchase homes sold under the FHA Property Disposition (PD) program, or 
properties held by the Resolution Trust Corporation (RTC) and the 
Federal Deposit Insurance Corporation (FDIC). The Senate also expressed 
its view that state programs funded from the proceeds of mortgage 
revenue bonds could be used to finance dwellings being purchased with 
homeownership assistance. (See S. Rep. No. 332, 102d Cong., 2d Sess. 61 
(1992).) Accordingly, the Department has included in this proposed 
rulemaking the Senate's recommendations.
    The Department has also concluded that section 8 homeownership 
assistance may be used in conjunction with an unsubsidized VA- or FmHA-
guaranteed loan. HUD believes that these programs operate in a manner 
very similar to FHA insurance. Since unsubsidized FHA insurance is 
expressly permitted by section 185 to be used in conjunction with 
section 8 homeownership assistance, there appears to be little basis 
for prohibiting unsubsidized VA- and FmHA-guarantee assistance as well. 
These programs will promote the availability of mortgage capital, which 
in turn will help to ensure the success of the section 8 homeownership 
program.
    A non-exclusive statutory listing of Federal homeownership programs 
that are included under the post-purchase prohibition include 
assistance under the HOME Investment Partnerships Act, the 
Homeownership and Opportunity Through HOPE Act, Emergency Low Income 
Housing Preservation Act of 1987, financial assistance provided by the 
Farmers Home Administration pursuant to section 502 of the Housing Act 
of 1949.

--Sec. 982.638  Homeownership Program: Automatic termination of 
assistance.

    This section states that a family will be terminated automatically 
from the section 8 homeownership program when six months have elapsed 
from the date of the last housing assistance payment because assistance 
payments are no longer necessary (i.e., 10 percent of the family's 
monthly gross income equals or exceeds the monthly homeownership 
expenses, or when the first mortgage is paid off. (The proposed rule 
defines ``mortgage'' as a first lien to secure the unpaid purchase 
price of real estate under the laws of the jurisdiction where the 
property is located. Other mortgages assumed by the family, home equity 
loans and cash-out refinancings are not covered by the homeownership 
program, since the program is intended to enable families to become 
homeowners, and not to subsidize families that have retired the debt 
incurred to initially purchase the unit.)

--Sec. 982.639  Homeownership Program: Termination of assistance for 
mortgage default.

    Section 982.639 specifies the procedures to be followed when a 
family that is complying with its obligations under the section 8 
program (including requirements for continued assistance under the 
homeownership program) defaults on its mortgage for the homeownership 
unit. This section of the proposed rule also sets forth the obligations 
of the mortgagee and the HA in the event of a default on the mortgage, 
and describes the conditions under which section 8 rental assistance on 
behalf of the family may be reinstated.
    Specifically, the proposed rule provides that a mortgagee must 
inform the HA in writing if the family defaults. FHA-insured mortgagees 
are also required to comply with the requirements governing assignment 
of FHA-insured mortgages to HUD before proceeding to acquire the 
property through foreclosure or deed in lieu of foreclosure. 
Consequently, the proposed rule requires a FHA-insured mortgagee to 
inform the HA in writing as to whether the family has elected to 
participate in, and has qualified for, the HUD Assignment Program.
    If an HA receives notice from a FHA-insured mortgagee that a family 
has defaulted on its mortgage, the HA must await notice from the 
mortgagee as to whether the family has elected to participate in, and 
has qualified for, the HUD Assignment Program. If the mortgagee 
notifies the HA that the family has so elected and qualified under the 
Assignment Program, the HA must discontinue further termination action 
related to the default against the family.
    However, if the HA receives written notice from the mortgagee that 
a family has defaulted on a FHA-insured mortgage and has elected not to 
participate in, or has failed to qualify for, the HUD Assignment 
Program, the HA must take steps to terminate promptly homeownership 
assistance on behalf of the family.
    Similarly, if the HA determines that the family has defaulted on a 
non-FHA mortgage (i.e., a mortgage that is not eligible under the FHA 
Insured Assignment Program), it must also take steps to terminate 
promptly homeownership assistance on behalf of the family.
    In terminating assistance on behalf of a family receiving 
assistance under the homeownership program, the HA is required 
generally to follow the same procedures proposed under the section 8 
unified rule. In a number of instances, however, this proposed rule 
would supplement or modify those requirements.
    For example, before terminating assistance, the HA must send to the 
family and the mortgagee the required notice of termination of 
assistance under the section 8 unified rule (see Sec. 982.553(c)). 
However, in cases where the HA is terminating assistance because of a 
mortgage default, the HA must include in that notice a statement that 
the family can move from the homeownership unit and receive section 8 
rental certificate or voucher assistance if the family: (1) transfers 
to the mortgagee (or HUD, if applicable) marketable title to the 
dwelling in lieu of foreclosure within the period established or 
approved by HUD; (2) moves from the dwelling within a specified time 
period; and (3) agrees that any amounts the family is required to pay 
to reimburse the FSS escrow account for funds obtained pursuant to 
Sec. 982.634 may be deducted by the HA from the assistance payment 
otherwise payable on behalf of the family.
    The HA must also inform the family that section 8 assistance on 
behalf of the family will be terminated unless the family can 
demonstrate within a specified period of time that it has complied with 
the conditions for resumption of section 8 rental certificate or 
voucher assistance. As noted, this would require the family to 
demonstrate that it has conveyed title to the property either to the 
mortgagee or to HUD, and has certified that it will move from the 
homeownership unit within the time period established by the HA, and 
will pay a higher contribution toward the monthly rental payment until 
such time as the FSS escrow account is completely reimbursed for 
amounts expended by the family pursuant to Sec. 982.634. If the family 
is unable or unwilling to comply with all of these requirements, the HA 
must terminate promptly section 8 assistance on behalf of the family.
    HUD notes that while section 185 sets forth the conditions for the 
resumption of section 8 rental assistance on behalf of a family that 
has defaulted on a FHA-insured mortgage, it does not identify the 
conditions under which assistance should be reinstated on behalf of a 
family that has defaulted on a non-FHA mortgage. In this proposed rule, 
HUD has decided to employ the same conditions for the resumption of 
section 8 rental assistance, regardless of the type of mortgage. The 
public is invited to comment on whether this decision might pose 
problems for mortgagees, and to suggest possible alternative courses of 
action.
    In addition, the Department has decided not to specify in this 
proposed rule the time period in which the family must move from the 
homeownership unit to be eligible to receive section 8 rental 
assistance payments. HUD believes that this determination is best left 
to the HA to decide on a case-by-case basis.
    Finally, the proposed rule specifies that if HUD accepts assignment 
of a FHA-insured mortgage, and the family subsequently defaults in 
making payments under the HUD-held mortgage, HUD will assume the 
responsibilities of a mortgagee by notifying the HA of the family's 
default under the mortgage.

--Sec. 982.640  Homeownership Program: Effect of default on subsequent 
purchases.

    The proposed rule tracks the language of section 185 in providing 
that a family that receives homeownership assistance under the 
homeownership program, and that subsequently defaults on its mortgage, 
is precluded from receiving homeownership assistance for another unit 
owned by one or more members of the family. This prohibition extends 
beyond the three-year time period required to establish eligibility as 
a ``first-time homebuyer,'' and permanently disqualifies such a family 
from participating in the homeownership program. In addition, the 
family will be required to reimburse the FSS escrow account for all 
amounts that it obtained pursuant to Sec. 982.634, and to forfeit any 
remaining FSS escrow account balance. (See Sec. 982.634.)

--Sec. 982.641  Homeownership Program: Sale of homeownership unit; 
recapture. Once a family that has received assistance payments under 
the homeownership program sells the homeownership unit, it is required 
to repay to the HA the amount of additional assistance paid to or on 
behalf of the eligible family because the HA did not take into account 
the value of the family's equity in the homeownership unit for purposes 
of calculating the monthly assistance payment.

    The amount of ``additional assistance'' to be recaptured by the HA 
is based upon the amount that the HA disregarded under 
Sec. 813.106(b)(3) when it calculated the amount of the subsidy 
payment, and which was secured by a second mortgage on the property. 
When the family sells the homeownership unit, the HA will obtain at 
settlement the amount due under the recapture provision and release the 
second mortgage. The recaptured amount may be used by the HA as program 
receipts under the Consolidated ACC.
    This section also explains how to calculate the value of the 
family's equity in the homeownership unit for purposes of determining 
the recapture amount. The recapture amount is the lesser of: (l) the 
net sales proceeds; or (2) the amount of family contribution not paid 
during the ownership period that would have been paid if the equity in 
the home had been treated as an asset with income imputed to that asset 
(referred to in this proposed rule as ``imputed amount of family 
contribution for assets''). The recapture amount is not automatically 
the imputed amount of family contribution for assets because the 
statute directs HUD to recapture the amount from the net sales 
proceeds. Therefore, the amount recaptured can never exceed the net 
sales proceeds. However, as noted earlier, if for any reason there are 
insufficient cash proceeds generated at the time of sale to repay the 
HA the full recapture amount, the HA may elect to recover this amount 
from any future section 8 rental assistance payments paid on behalf of 
the family, in accordance with a schedule established by the HA.
    The term ``imputed amount of family contribution for assets'' is 
defined in Sec. 982.630 as being equal to the average equity in the 
property (AE), multiplied by the average passbook savings rate (APSR), 
multiplied by the number of full years of family ownership, multiplied 
by 30 percent. The Department believes that calculating this amount 
based on equity at the times the family buys and sells the unit, and 
the interest rate in effect at those times, will involve a much simpler 
and less burdensome procedure.
    To calculate the imputed amount of family contribution for assets, 
the HA must record the first year market value at the time of the 
purchase less the mortgage amount (initial equity amount) and the 
passbook savings rate at the time of the purchase. When the family 
sells the unit, the HA determines the market value of the unit at the 
time of sale less the unpaid mortgage debt (equity at time of sale), 
and the current passbook savings rate. The HA then adds the equity at 
time of sale to the initial equity amount, and divides by two to come 
up with the average equity. The HA then adds the current passbook 
savings rate to the passbook savings rate in effect at the time of the 
purchase, and divides by two to calculate the average passbook savings 
rate. The HA then simply multiplies the average equity by the average 
passbook savings rate by the number of full years of family ownership 
by 30 percent. (That is, AE  x  APSR  x  # of full years of ownership 
x  30%.)
    The proposed rule uses the estimated market value, rather than the 
purchase and selling prices, to capture the actual value of the asset 
and to prevent families from either giving away or under-pricing the 
house as a way of circumventing the recapture provision. The following 
example illustrates this calculation.
    A family purchases a home worth $50,000 in January 1994 and sells 
the house after 10 full years in April 2004. The estimated market value 
of the house in 2004 is $60,000, and the mortgage debt balance is 
$40,000. The passbook savings rates in 1994 and 2004 respectively were 
3 percent and 5 percent. The family assumed a mortgage debt of $45,000 
at the time of purchase.
    When the family purchases the house, the HA takes the market value 
of the house and subtracts the mortgage debt (i.e., $50,000-$45,000) 
and records the initial equity amount ($5,000). Ten years later, the 
family sells the house. The HA takes the current market value and 
subtracts the outstanding mortgage debt at the time of sale ($60,000-
$40,000) to determine the equity at the time of sale ($20,000). The HA 
calculates the average equity ($5,000+$20,0002=$12,500) and the 
average passbook savings rate (3%+5%2=4%), and then multiplies 
the average equity x the average passbook savings rate x number of full 
years of family ownership x 30 percent ($12,500x4%x10x30%) to determine 
the recapture amount ($1500). Thus, in this example, the recapture 
amount is $1,500, since this amount is less than the net sales proceeds 
of $10,000.
    D. Amendments to 24 CFR part 984--Section 8 FSS Program.--
Sec. 984.305 FSS Account. Section 984.305 is being amended to implement 
section 185(b) of the HCD Act, which provides that if an HA elects to 
implement a homeownership program, the family may use up to 50 percent 
of the amount in its FSS escrow account for a down payment on the 
homeownership unit. This section also provides that after the family 
purchases the homeownership unit, the family may use any amounts 
remaining in its FSS escrow account to cover the major repair and 
replacement needs of the unit. If the family defaults on the mortgage, 
it must reimburse the FSS escrow account for all amounts expended from 
the account pursuant to Sec. 982.634 by agreeing to a reduced section 8 
rental subsidy paid by the HA on behalf of the family, and by paying a 
higher tenant contribution toward its monthly section 8 rental payment 
in accordance with a schedule established by the HA. In addition, any 
remaining amounts in its FSS escrow account will be recaptured.

IV. Other Matters

    The information collection requirements for the section 8 
Homeownership Program have been submitted to OMB for review under 
section 3504(h) of the Paperwork Reduction Act of 1980. Information on 
these requirements is provided as follows:

                                         Section 8.--Homeownership Rule                                         
----------------------------------------------------------------------------------------------------------------
                                               Responses      Total                                             
          Description             Number of       per         annual     Hours per   Total hours    Regulatory  
                                 respondents   respondent   responses     response                   reference  
----------------------------------------------------------------------------------------------------------------
Homeownership vouchers and                                                                                      
 certificates..................   2,500 PHAs            7       17,500         0.08        1,400      982.632(b)
Request for authorization to                                                                                    
 purchase unit.................       10,500            1       10,500         0.08          840      982.632(c)
Statement of family                                                                                             
 responsibilities..............        7,500            1        7,500         0.25        1,875      982.632(e)
Mortgagee compliance letter....        7,500            1        7,500         0.08          600      982.632(h)
Request to draw-down FSS escrow                                                                                 
 funds.........................        1,875            1        1,875         0.25          470      982.634(b)
Mortgagee notification of                                                                                       
 default.......................          375            1          375         0.08           30      982.639(a)
                                --------------------------------------------------------------------------------
      Total Burden Hours.......  ...........  ...........  ...........  ...........        5,215  ..............
----------------------------------------------------------------------------------------------------------------

    NEPA. A Finding of No Significant Impact with respect to the 
environment has been made in accordance with HUD regulations at 24 CFR 
part 50 that implement 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 during regular 
business hours (7:30 a.m. to 5:00 p.m. weekdays) in the Office of the 
Rules Docket Clerk, Room 10276, 451 Seventh Street, S.W., Washington, 
DC 20410.
    Executive Order 12866. This proposed rule was reviewed by the 
Office of Management and Budget under Executive Order 12866 as a 
significant regulatory action. Any changes made in this proposed rule 
as a result of that review are clearly identified in the docket file, 
which is available for public inspection in the Office of HUD's Rules 
Docket Clerk, room 10276, 451 Seventh Street SW., Washington, DC.
    Semiannual Agenda. This proposed rule was listed as sequence number 
1686 in the Department's Semiannual Regulatory Agenda published on 
April 25, 1994 (59 FR 20424, 20469) under Executive Order 12866 and the 
Regulatory Flexibility Act.
    Regulatory Flexibility Act. Under 5 U.S.C. 605(b) (the Regulatory 
Flexibility Act), the undersigned hereby certifies that this proposed 
rule does not have a significant economic impact on a substantial 
number of small entities. The proposed rule does not purport to fund a 
new program of rental assistance, but rather adds an additional use to 
those already authorized under the section 8 rental certificate and 
voucher programs. Hence, HUD does not anticipate a significant economic 
impact on small entities since the amount of funding under the section 
8 rental certificate and voucher program will remain constant.
    Anti-lobbying provisions. On February 26, 1990, the Department 
published an interim rule (24 CFR part 87) advising recipients and 
subrecipients of Federal contracts, grants, cooperative agreements and 
loans of a new prohibition recently mandated by Congress. Section 319 
of the Department of the Interior Appropriations Act (Pub. L. 101-121, 
approved October 23, 1989) generally prohibits recipients of Federal 
contracts, grants, and loans from using appropriated funds for lobbying 
the Executive or Legislative branches of the Federal Government in 
connection with a specific contract, grant, or loan. The interim rule 
generally prohibits the awarding of contracts, grants, cooperative 
agreements, or loans unless the recipient has made an acceptable 
certification regarding lobbying. In addition, the recipient must also 
file a disclosure if it has made or has agreed to make any payment with 
nonappropriated funds that would be prohibited, if paid with 
appropriated funds. These requirements do not apply to IHAs organized 
under tribal law.
    The certification and disclosure requirements apply to all grants 
in excess of $100,000. All potential grantees are required to submit 
the certification, and to make the required disclosure if the grant 
amount exceeds $100,000. Potential grantees should refer to 24 CFR part 
87 for the language for the certification and disclosure. The law 
provides substantial monetary penalties for failure to file the 
required certification or disclosure.
    Executive Order 12612, Federalism. This proposed rule has been 
developed in accordance with Executive Order 12612, Federalism, and 
determined by the General Counsel not to have substantial, direct 
effects on PHAs. The section 8 homeownership program authorizes the use 
of section 8 rental certificates and vouchers to be used for 
homeownership purposes, but does not allocate additional funding for 
such purposes. The new program is consistent with federalism 
principles. In addition, since the changes in this proposed rule relate 
solely to the establishment of an alternative use of section 8 rental 
certificates and vouchers, the proposed rule lacks the direct and 
substantial effects on PHAs required for a policy with federalism 
implications under the Order.
    Executive Order 12606, the Family. This proposed rule has been 
developed in accordance with Executive Order 12606, the Family. The 
proposed rule does have the potential for significant positive impact 
on family formation, maintenance, and general well-being, since its 
effect will be to increase homeownership opportunities for low income 
families, which can be expected to yield numerous benefits, such as 
increased opportunities for affordable homeownership, strengthened 
family ties to the community, and increased personal empowerment.
    Catalog of Domestic Assistance Numbers. The Catalog of Domestic 
Assistance numbers for the programs affected by this proposed rule are 
14.146, 14.147, 14.850, 14.851, 14.852, and 15.141.

List of Subjects

24 CFR Part 203

    Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and 
recordkeeping requirements, Solar energy.

24 CFR Part 982

    Grant programs--housing and community development, Housing, Rent 
subsidies, Reporting and recordkeeping requirements.

24 CFR Part 984

    Grant programs--housing and community development, Rent subsidies, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, 24 CFR parts 203 and 984 
would be amended and 24 CFR part 982, as it was proposed in the Federal 
Register on February 24, 1993 (58 FR 11292), would be further amended, 
as follows:

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

    1. The authority citation for 24 CFR Part 203 would continue to 
read as follows:

    Authority: 12 U.S.C. 1709, 1710, 1715b; 42 U.S.C. 3535(d). In 
addition, subpart C is also issued under 12 U.S.C. 1715u.

    2. Section 203.259a would be amended by redesignating paragraph (c) 
as paragraph (d), and by adding a new paragraph (c), to read as 
follows:


Sec. 203.259a  Scope.

* * * * *
    (c) The Commissioner shall charge an up-front MIP pursuant to 
Secs. 203.284 or 203.285 for any mortgage that is insured in connection 
with section 8 assistance provided under the undesignated subheading in 
24 CFR Part 982, Subpart M, entitled, ``Homeownership Program,'' if the 
mortgage would have been an obligation of the Mutual Mortgage Insurance 
Fund in the absence of section 8 assistance.
* * * * *
    3. Section 203.284 would be amended by revising paragraph (a) 
introductory text and paragraph (b) introductory text, to read as 
follows:


Sec. 203.284  Calculation of up-front and annual MIP on or after July 
1, 1991.

* * * * *
    (a) Permanent provisions. Any mortgage executed on or after October 
1, 1994 that is an obligation of the Mutual Mortgage Insurance Fund, or 
that is an obligation of the General Insurance Fund and insured in 
connection with section 8 assistance provided under the undesignated 
subheading in 24 CFR part 982, Subpart M, entitled, ``Homeownership 
Program,'' shall be subject to the following requirements:
* * * * *
    (b) Transition provisions. Mortgage insurance premiums on mortgages 
executed during fiscal years 1991 through 1994 that are obligations of 
the Mutual Mortgage Insurance Fund, or that are an obligation of the 
General Insurance Fund and insured in connection with section 8 
assistance provided under the undesignated subheading in 24 CFR Part 
982, Subpart M, entitled, ``Homeownership Program,'' shall be subject 
to the following requirements:
* * * * *
    4. Section 203.285 would be amended by revising the first sentence 
of paragraph (a), to read as follows:


Sec. 203.285  Fifteen-year mortgages: calculation of up-front and 
annual MIP on or after December 26, 1992.

    (a) Up Front. Any mortgage for a term of 15 or fewer years executed 
on or after December 26, 1992 that is an obligation of the Mutual 
Mortgage Insurance Fund, or that is an obligation of the General 
Insurance Fund and insured in connection with section 8 assistance 
provided under the undesignated subheading in 24 CFR part 982, Subpart 
M, entitled, ``Homeownership Program,'' shall be subject to a single 
up-front premium payment, established and collected by the Commissioner 
in an amount equal to 2.0 percent of the amount of the original insured 
principal obligation of the mortgage. * * *
* * * * *
    5. Section 203.391 would be amended by adding at the end of the 
section a new sentence, to read as follows:


Sec. 203.391  Title objection waiver with reduced insurance benefits.

    * * *In such instances, the claim will be paid if the mortgagee 
agrees to accept a reduction in insurance benefits considered adequate 
by the Commissioner to compensate for any anticipated loss to the 
appropriate insurance fund as a result of the existence of the title 
condition at the time of claim.
    6. A new Sec. 203.559 would be added to the end of the undesignated 
center heading ``GENERAL REQUIREMENTS'', to read as follows:


Sec. 203.559  Responsibilities of FHA-insured mortgagees accepting 
section 8 tenant-based assistance.

    A mortgagee accepting assistance payments from a public housing 
agency or Indian housing authority under a mortgage insured in 
connection with section 8 assistance provided under the undesignated 
subheading in 24 CFR Part 982, Subpart M (``Homeownership Program'') 
thereby agrees to comply with all of the responsibilities of a 
mortgagee, as set forth in that subheading.

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: UNIFIED RULE FOR 
TENANT-BASED ASSISTANCE UNDER THE SECTION 8 RENTAL CERTIFICATE 
PROGRAM AND THE SECTION 8 RENTAL VOUCHER PROGRAM

    7. The authority citation for 24 CFR Part 982 would be revised to 
read as follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, and 3535(d).

    8. Section 982.52 would be amended by adding a new paragraph (d), 
to read as follows:


Sec. 982.52  HUD requirements.

* * * * *
    (d) For the homeownership program under Subpart M of this part, HUD 
must comply with 24 CFR part 50 (Protection and Enhancement of 
Environmental Quality). HAs shall supply HUD with environmental 
threshold data to assist HUD in complying with applicable Federal 
environmental laws and authorities listed in 24 CFR Sec. 50.4.
    9. Section 982.552 would be amended by revising paragraphs (b) 
introductory text and (b)(1), to read as follows:


Sec. 982.552  HA denial or termination of assistance for family.

* * * * *
    (b) Grounds for denial or termination of assistance. The HA may at 
any time deny or terminate program assistance for a family for any of 
the following grounds:
    (1) If the family has violated any family obligations under the 
program (see Sec. 982.551 and, for the section 8 homeownership program 
under subpart M of this part, see also Secs. 982.631 through 982.633).
* * * * *
    10-11. Subpart M would be amended by adding at the end a new 
undesignated center heading entitled, ``Homeownership Program'' and 
under it sections Secs. 982.629 through 982.641, to read as follows:

Subpart M--Special Housing Types

* * * * *

Homeownership Program

Sec.
982.629  Homeownership Program: Purpose, implementation and 
applicability.
982.630  Homeownership Program: Definitions.
982.631  Homeownership Program: Initial family eligibility.
982.632  Homeownership Program: Actions after an HA determines that 
an interested family is eligible for the homeownership program.
982.633  Homeownership Program: Continued assistance requirements.
982.634  Homeownership Program: Use of Family Self Sufficiency 
escrow account.
982.635  Homeownership Program: Monthly housing assistance payment.
982.636  HA periodic unit inspections; HA remedies.
982.637  Homeownership Program: Prohibition on use of additional 
homeownership assistance.
982.638  Homeownership Program: Automatic termination of assistance.
982.639  Homeownership Program: Termination of assistance for 
mortgage default.
982.640  Homeownership Program: Effect of default on subsequent 
purchases.
982.641  Homeownership Program: Sale of homeownership unit; 
recapture.

Subpart M--Special Housing Types

* * * * *

Homeownership Program


Sec. 982.629  Homeownership Program: Purpose, implementation and 
applicability.

    (a) Purpose. The purpose of the section 8 homeownership program is 
to provide homeownership opportunities for low-income families. In lieu 
of providing rental subsidies to landlords, the monthly section 8 
certificate or voucher housing assistance payments, as determined under 
this section, will be used to enable eligible families to purchase a 
homeownership unit owned by one or more family members.
    (b) Implementation. Implementation of the homeownership program is 
mandatory for HAs administering certificate and voucher programs. 
Participation by families in the homeownership program is at the sole 
option of the family and is restricted to those families that meet the 
initial eligibility criteria and other requirements for homeownership 
assistance. HAs must inform families of the homeownership option during 
the briefing, or no later than the next regularly scheduled 
recertification for participants and families that have been issued 
certificates and vouchers. There is no separate funding designated for 
the homeownership program. Instead, the HA will use funds under the 
consolidated ACC for the rental certificate and rental voucher programs 
for this purpose.
    (c) Applicability. Provisions under this undesignated heading apply 
only to the sections under this subheading and do not apply to any 
other forms of special housing under subpart M of this part.
    (1) Applicability of other requirements. Except as otherwise 
modified by the provisions of this subpart or section, the requirements 
contained in the other subparts of 24 CFR part 982 apply to section 8 
homeownership assistance. The following provisions are not applicable 
to section 8 homeownership assistance:
    (i) All provisions or references relating to owners and to the 
housing assistance payment contract with the owner, including the 
amount a section 8 owner receives if the family moves from the assisted 
unit (Sec. 982.309); owner responsibility for maintaining the unit at 
HQS (Sec. 982.403); HA periodic unit inspections to determine whether 
an owner is complying with its obligations to maintain the unit at HQS 
(Sec. 982.404); and Subpart J--Housing Assistance Payments Contract and 
Owner Responsibilities of this part;
    (ii) All provisions governing the assisted tenancy, including the 
provisions concerning HA approval for assisted tenancy (Sec. 982.305); 
the assisted lease (Sec. 982.306); owner termination of tenancy 
(Sec. 982.307); and security deposits payable by tenants to the section 
8 owner (Sec. 982.308);
    (iii) The term of the certificate or voucher (Sec. 982.302); the 
prohibition against using a unit occupied by an owner or person with an 
interest in the unit (Sec. 982.304(a)(6)); and the prohibition against 
any unit receiving, or which has received in the past five years, a 
local or state mortgage interest subsidy, construction or 
rehabilitation subsidy, or project-based rent subsidy 
(Sec. 982.304(a)(8));
    (iv) The prohibition against selecting families based on 
participation in a Family Self Sufficiency program 
(Sec. 982.202(c)(3)(i)(F)); or based on income level (Sec. 982.202 
(c)(3)(ii));
    (v) All provisions and references relating to rent, including 
Subpart K--Rent and Housing Assistance Payment of this part (except for 
the provisions concerning HA examinations of family income and 
composition and utility allowances (Secs. 982.509 and 982.510));
    (vi) The provision at Sec. 982.551(c), HQS breach caused by family, 
since all HQS violations are the responsibility of the family; and the 
provision at Sec. 982.551(g) that prohibits the family from owning or 
having any interest in the unit;
    (vii) Subpart M--Special Housing Types of this part (except the 
portion of Subpart M beginning at Sec. 982.629); and
    (viii) Subpart G of Part 882 of this title--Project-Based 
Certificate Program.
    (2) [Reserved]


Sec. 982.630  Homeownership Program: Definitions.

    Average equity. The imputed equity amount accrued by the family in 
the homeownership unit during the ownership period. Average equity is 
calculated as one-half of the sum of:
    (1) The market value of the homeownership unit at the time of 
purchase, less any unpaid balance on the mortgage; and
    (2) The market value of the homeownership unit at the time of sale, 
less any unpaid balance on the mortgage.
    Average passbook savings rate. The imputed average passbook savings 
rate during the length of the ownership period. The average passbook 
savings rate is calculated as one-half of the sum of:
    (1) The passbook savings rate at the time of purchase; and
    (2) The passbook savings rate at the time of sale.
    Default. The point at which an eligible family breaches its 
obligations under a mortgage for a homeownership unit. For purposes of 
a FHA-insured mortgage, ``default'' means a default in accordance with 
24 CFR part 200. For purposes of a non-FHA-insured mortgage, 
``default'' means a default in accordance with the terms of the 
mortgage instrument.
    Down payment. The difference between the purchase price and the 
mortgage amount.
    First-time homeowner. A family, no member of which has had a 
present ownership interest in a principal residence during the 3 years 
preceding the date on which the family initially receives homeownership 
assistance. For a family to retain its eligibility as a first-time 
homeowner even after selling its homeownership unit, it must 
participate continuously in the section 8 homeownership program and not 
be in default on any previous section 8-assisted mortgage.
    Homeownership assistance. Monthly homeownership assistance payments 
provided by the HA to an eligible family pursuant to this undesignated 
heading.
    Homeownership unit. A unit for which section 8 certificate or 
voucher homeownership assistance is provided.
    Imputed amount of family contribution for assets. The amount of 
additional assistance provided by the HA to the family because the HA 
did not take into account the value of the family's equity in the 
homeownership unit when it calculated the family's monthly assistance 
payment. The imputed amount of family contribution for assets is equal 
to the average equity in the property (AE), multiplied by the average 
passbook savings rate (APSR), multiplied by the number of full years of 
family ownership, multiplied by 30 percent (i.e., AE  x  APSR  x  # of 
full years of ownership  x  30%).
    Major repairs and replacements. A capital expenditure (an 
expenditure, as approved by the HA, to acquire property having a useful 
life of more than one year, to increase the value of the property, or 
to prolong the property life) to repair or replace a major building 
system, equipment or component. Repairing or replacing a roof, 
repairing or replacing a heating system, replacing a hot water heater 
and rewiring are examples of major repairs and replacements.
    Monthly homeownership expenses. A family's total monthly expenses 
for the homeownership unit to cover the cost of the mortgage principal 
and interest (limited to the lesser of the initial first mortgage or 
any subsequent refinancing, but excluding any second mortgage, home 
equity loan, or cash-out refinancing), real estate taxes and special 
assessments, home insurance, imputed maintenance expenses equal to 5 
percent of the FMR for the size unit purchased at the time of move-in 
or at the regular re-examination, and an allowance for utilities using 
the HA's utility allowance schedule for the size unit purchased by the 
homebuyer.
    Mortgage. A first lien to secure the unpaid purchase price of real 
estate under the laws of the jurisdiction where the homeownership unit 
is located, and for which homeownership assistance is provided. A 
mortgage may refer both to a security instrument creating a lien 
(whether called a mortgage, deed of trust, security deed or another 
term used in a particular jurisdiction), as well as the credit 
instrument, or note, secured thereby. Unless otherwise stated, 
``mortgage'' does not include other mortgages assumed by the family, 
home equity loans, or cash-out refinancings.
    Mortgagee. The original lender under a mortgage and its successors 
and assigns.
    Net sales proceeds. The market value of the house when sold, less 
the sum of outstanding first mortgage indebtedness (limited to the 
lesser of the initial first mortgage or any subsequent refinancing, but 
excluding any other mortgage, home equity loan, or cash-out 
refinancing). Public assistance. Income assistance from Federal, state 
or local welfare programs, and includes assistance provided under the 
Aid to Families with Dependent Children (AFDC) Program; Supplemental 
Security Income (SSI) that is subject to an income eligibility test; 
food stamps, general assistance or other assistance provided under a 
Federal, state or local program directed to meeting general living 
expenses, such as food, health care, child care, but does not include 
assistance directed solely to meeting housing expenses (e.g., rent, 
mortgage or utilities payments), and does not include transitional 
welfare assistance (e.g., Medicaid) provided to JOBS participants.
    Statement of Family Responsibilities (SFR). A document executed by 
the family that evidences the family's agreement to comply with 
requirements under the homeownership program. The SFR, which must be in 
a form prescribed by HUD, is executed by the family before the HA 
begins housing assistance payments for the homeownership unit.


Sec. 982.631  Homeownership Program: Initial family eligibility.

    To be eligible initially to receive section 8 homeownership 
assistance, a family must:
    (a) Be a first-time homeowner;
    (b)(1) Be a participant of the HA's Family Self-Sufficiency (FSS) 
Program and be in compliance with the FSS contract of participation; or
    (2) Have a gross monthly income from sources other than public 
assistance that is not less than two and a half times the Existing 
Housing FMR for the area in which the homeownership unit is located; 
and
    (c) Demonstrate that one or more adult members of the family are 
currently employed on a full-time basis, and have been continuously so 
employed for at least one year prior to the date the HA determines 
family eligibility for homeownership assistance.


Sec. 982.632  Homeownership Program: Actions after an HA determines 
that an interested family is eligible for the homeownership program.

    After an HA determines that an interested family is eligible for 
the homeownership program, the following actions must occur:
    (a) Counseling. The family must participate in a homeownership and 
housing counseling program provided by a HUD-approved counseling agency 
that covers areas such as: home maintenance; budgeting; money 
management; credit counseling; credit repair; negotiating purchase 
price; securing mortgage financing; transportation options and 
opportunities for housing and schools located throughout the 
metropolitan area; and the availability of multiple listing services 
through local realtors, so that families can explore the full range of 
housing options located throughout the metropolitan area. If a HUD-
approved housing counseling agency is not available, the counseling may 
be provided by the HA or another qualified entity.
    (b) Issuance of certificate or voucher. The HA must issue the 
family a certificate or voucher with a term of 120 days. The running of 
the term for the certificate or voucher stops from the time the family 
submits a Request for Authorization to Purchase a Homeownership Unit 
until the time when the HA completes the HQS inspection and either 
approves or denies the request. During the term of the homeownership 
certificate or voucher, the HA may require the family to report 
progress in purchasing a homeownership unit. Such reports may be 
required at such intervals or times as determined by the HA. During the 
term of the homeownership certificate or voucher, the family may 
request to exchange the homeownership certificate or voucher for a 
rental certificate or voucher. The HA must determine the term of the 
rental certificate or voucher in accordance with Sec. 982.302, except 
that the time period already used while searching for a homeownership 
unit under the homeownership certificate or voucher must be subtracted 
from the term of the rental certificate or voucher.
    (c) Request for Authorization to Purchase a Homeownership Unit. The 
family must submit to the HA a completed Request for Authorization to 
Purchase a Homeownership Unit and, during the term of the certificate 
or voucher, execute a contract or other agreement that demonstrates the 
owner's willingness to sell the homeownership unit. The family may only 
submit one Request for Authorization to Purchase a Homeownership Unit 
at a time. This request must include the information prescribed by HUD, 
such as the location of the homeownership unit and the name of the 
seller. The HA must notify promptly the family whether the Request for 
Authorization to Purchase a Homeownership Unit is approved or 
disapproved. The family has nine months (plus tolling, i.e., the time 
between when the family submits a Request for Authorization to Purchase 
a Homeownership Unit for HA approval and the time when the HA approves 
or denies the request) from the date of issuance of the homeownership 
certificate or voucher in which to secure mortgage financing and 
execute a second mortgage on behalf of the HA to secure the repayment 
of the recapture amount under Sec. 982.641; obtain title to the 
homeownership unit; and bring the unit into compliance with the HQS. In 
no event may monthly assistance payments be made to a family before 
these requirements are met.
    (d)(1) HQS requirements. Housing assistance payments may not 
commence until the HA determines that the unit meets the HQS 
requirements set forth in Sec. 982.401. It is the family's 
responsibility to ensure that the homeownership unit meets the HQS 
throughout the period when it is receiving monthly homeownership 
assistance payments from the HA. The family may use amounts in its FSS 
escrow account to pay for major repairs and replacements in the 
homeownership unit.
    (2) Before approving a Request for Authorization to Purchase a 
Homeownership Unit, the HA must inspect the homeownership unit to 
determine whether it meets the HQS. If the homeownership unit does not 
meet the HQS, the HA must provide the family with a list of 
deficiencies. The family is not required to wait for the HQS inspection 
before making an offer or executing a contract of sale, although the HA 
must inform the family that housing assistance payments will not 
commence until the unit is in compliance with the HQS. The HA may 
disapprove the Request for Authorization to Purchase a Homeownership 
Unit if the unit is structurally unsound or if there are many serious 
HQS violations and the HA determines that the family will be unable to 
have the HQS violations corrected within the time period set forth in 
paragraph (d)(3) of this section. If the HA disapproves the Request for 
Authorization to Purchase a Homeownership Unit, the family may lose any 
out of pocket costs it may have incurred at the time it made the offer 
to purchase the unit or executed the contract of sale, depending upon 
the contract terms with the seller.
    (3) Any HQS deficiencies must be corrected within nine months (plus 
tolling, i.e., the time when the family submits for HA approval a 
Request for Authorization to Purchase a Homeownership Unit and the time 
when the HA approves or denies the request) from the date of issuance 
of the homeownership certificate or voucher and the HA must reinspect 
the unit to determine whether housing assistance payments may commence.
    (e) Statement of Family Responsibilities. If the HA determines that 
the homeownership unit meets the HQS, and that the family has secured 
mortgage financing and obtained title to the homeownership unit, the 
family must execute a Statement of Family Responsibilities (SFR), in 
the form prescribed by HUD. Housing assistance payments may not 
commence until the family executes the SFR. In the SFR:
    (1) The family agrees to combine the HA's payment with its own 
required contributions toward the mortgage and utility payments, and to 
pay such amounts directly to the mortgagee and utility suppliers. The 
family also agrees that, if the HA determines that the family's past 
performance in making such payments so warrants, the HA may pay the 
housing assistance payment directly to the mortgagee and the utility 
suppliers.
    (2) The family agrees that it must comply with all applicable 
requirements pertaining to the section 8 program, in addition to 
special requirements established under the section 8 homeownership 
program.
    (f) Mortgage. Before commencement of homeownership assistance, the 
family must obtain and provide evidence to the HA that it has a 
mortgage to purchase the homeownership unit. Purchase-money mortgages 
(i.e., a mortgage taken back by the seller on the homeownership unit in 
exchange for its agreement to finance the family's purchase of the 
unit) and ``balloon'' mortgages are expressly prohibited. An exception 
to the prohibition on purchase-money mortgages is that a family may 
obtain such a mortgage from a seller that is a bona fide nonprofit 
entity. In addition, the family must execute on behalf of the HA a 
second mortgage to secure the repayment of the recapture amount under 
Sec. 982.641. The family must secure mortgage financing for the 
homeownership unit and execute the second mortgage within nine months 
(plus tolling) from the date of issuance of the homeownership 
certificate or voucher.
    (g) Title. Monthly housing assistance payments may not commence 
until such time as the family obtains title to the homeownership unit. 
Title may be held by any member or members of the family, and the 
family must furnish the HA with adequate evidence of its ownership. The 
family must obtain title to the homeownership unit within nine months 
(plus tolling) from the date of issuance of the homeownership 
certificate or voucher.
    (h) Submission of documents from mortgagee. Before commencement of 
homeownership assistance, the family must submit to the HA any 
documents prescribed by HUD, and executed by the mortgagee, indicating 
that the mortgagee agrees to comply with its responsibilities under 
Sec. 982.639.
    (i) Down payment requirement. The family must provide from its own 
resources (which may include cash resources obtained through a gift or 
inheritance, or from the family's personal savings) at least 80 percent 
of the down payment on a homeownership unit. The family may use up to 
50 percent of the amount contained in its FSS escrow account to meet 
this 80 percent down payment requirement. Not more than 20 percent of 
the down payment may be provided from other sources, such as funds 
provided by nonprofit entities or programs of states and units of 
general local government.
    (j)(1) Environmental review. HUD is responsible for complying with 
the applicable Federal environmental laws and authorities listed in 24 
CFR 50.4. HAs shall assist HUD by establishing procedures to assure 
that prior to approval of any ``Request for Authorization to Purchase a 
Homeownership Unit,'' full compliance is made with the following 
Federal environmental laws and authorities:
    (i) Site within designated coastal barrier resources: Pursuant to 
the Coastal Barrier Resources Act, as amended by the Coastal Barrier 
Improvement Act of 1990 (15 U.S.C. 3501), financial assistance under 
the homeownership program may not be used for activities undertaken in 
the Coastal Barrier Resources System.
    (ii)(A) Buildings requiring flood insurance protection: Under the 
Flood Disaster Protection Act of 1973, as amended (42 U.S.C. 4001-
4128), Federal financial assistance for acquisition and construction 
purposes (including repair and improvement) may not be used in an area 
identified by the Federal Emergency Management Agency (FEMA) as having 
special flood hazards, unless:
    (1) The community in which the area is situated is participating in 
the National Flood Insurance Program (see 44 CFR parts 59 through 79), 
or less than one year has passed since the FEMA notification regarding 
such hazards; and
    (2) Flood insurance protection is to be obtained as a condition of 
the HA's approval of financial assistance to the family.
    (B) HAs assisting acquisition and construction (including repair 
and improvement) located in an area identified by FEMA as having 
special flood hazards are responsible for assuring that flood insurance 
under the National Flood Insurance Program is obtained and maintained 
by the family.
    (iii) Site within runway clear zones of airports: In cases 
involving HUD assistance for the purchase or sale of an existing 
property in a Runway Clear Zone of a civil airport or Clear Zone of a 
military airfield, as defined in 24 CFR part 51, HAs shall advise the 
family that the property is in a runway clear zone or clear zone, what 
the implications of such a location are, and that there is a 
possibility that the property may, at a later date, be acquired by the 
airport operator. In these cases, the family must sign, as part of the 
Request for Authorization to Purchase a Homeownership Unit, a statement 
acknowledging receipt of this information from the HA.
    (2) Historic preservation. HAs shall supply HUD with threshold data 
to assist HUD in complying with the historic preservation requirements 
set forth in 24 CFR 50.4(a). HUD shall carry out a historic 
preservation review pursuant to Sec. 50.4(a) with respect to any 
property that requires rehabilitation to bring it up to HQS. If the HA 
determines during its HQS inspection of the unit that, as a condition 
of meeting the HQS, the family must undertake rehabilitation of the 
dwelling, it must so inform the family. Thereafter, until such time as 
HUD completes its environmental review, the family may not carry out 
any rehabilitation work on the dwelling.


Sec. 982.633  Homeownership Program: Continued assistance requirements.

    To continue to receive homeownership assistance, a family must 
comply with the obligations set forth in Sec. 982.551, in addition to 
the following requirements:
    (a) Ongoing counseling. Attend homeownership and housing counseling 
on a continuing basis, as deemed appropriate by the HA;
    (b) Compliance with mortgage and Statement of Family 
Responsibilities. Comply with the terms of its mortgage with the 
mortgagee and its Statement of Family Responsibilities with the HA;
    (c) Notification to HA. Notify the HA before the family refinances 
the mortgage on the homeownership unit or sells the unit. In addition, 
the family must notify the HA of any change in the family's monthly 
homeownership expenses, and when the mortgage on the property is paid 
off. Failure to notify the HA of these changes shall be considered 
fraud by the family and will result in appropriate enforcement action 
by the HA.
    (d) HQS requirements. Maintain the homeownership unit in accordance 
with the HQS, including performance of ordinary and extraordinary 
maintenance. In addition, the family must allow the HA to inspect the 
unit at least annually, and at other times as needed, to determine if 
the family is meeting its obligation to maintain the unit in accordance 
with the HQS.
    (e) Timely monthly payments. Pay in a timely manner to the 
mortgagee the monthly mortgage installment, and to utility suppliers 
the amounts owed for utilities and services, using the HA's monthly 
contributions toward these expenditures.
    (f) Maintain unit as family's residence. Maintain the unit as the 
family's residence without leasing or sub-leasing any portion of the 
homeownership unit.
    (g) Insurance. Maintain all lender- or Federally-required insurance 
for the unit, including flood insurance.


Sec. 982.634  Homeownership Program: Use of Family Self Sufficiency 
escrow account.

    (a) Down payment assistance. A family that is in compliance with 
its FSS contract of participation may use up to 50 percent of the 
amount in its Family Self-Sufficiency escrow account toward the down 
payment on a homeownership unit.
    (b) Major repairs and replacements. After a family purchases a 
homeownership unit, a family that is in compliance with its FSS 
contract of participation may use any amounts in the FSS escrow account 
to cover the costs of major repairs and replacements in the 
homeownership unit. Before approving the use of FSS funds for this 
purpose, the HA shall require the family to submit evidence, as 
required by the HA, to substantiate that the proposed repairs and 
replacements are eligible work items, and that the amount proposed to 
be spent on such repairs and replacements is reasonable. Funds may not 
be drawn down from the FSS escrow account without the HA's approval.
    (c) Recapture. If the family defaults on a mortgage used to 
purchase the homeownership unit, and the mortgage is foreclosed, the 
family must reimburse the FSS escrow account for amounts obtained by 
the family pursuant to paragraphs (a) and (b) of this section by 
agreeing to a reduced section 8 rental subsidy paid by the HA on behalf 
of the family, and by paying a higher tenant contribution toward its 
monthly section 8 rental payment in accordance with a schedule 
established by the HA. In addition, any remaining amounts in its FSS 
escrow account will be recaptured by the HA and used by the HA as 
program receipts under the Consolidated ACC.


Sec. 982.635  Homeownership Program: Monthly housing assistance 
payment.

    (a) Amount of monthly housing assistance payment. The HA shall make 
a monthly housing assistance payment to the family that is equal to the 
lesser of:
    (1) The Existing Housing FMR for the family unit size for the area 
in which the homeownership unit is located, minus 30 percent of the 
family's monthly adjusted income; or
    (2) The family's monthly homeownership expenses minus 10 percent of 
the family's monthly gross income.
    (b) FMR used in subsidy calculation. In determining the monthly 
housing assistance payment, the HA will use the greater of the Existing 
Housing FMR in effect at the time of the regular re-examination for the 
area in which the homeownership unit is located, or the FMR in effect 
for the area in which the homeownership unit is located when the family 
initially received homeownership assistance for that unit.
    (c) Exclusion of equity from calculation of monthly income. In 
determining a family's monthly income for purposes of calculating the 
family's monthly assistance payment, the family's equity in the 
homeownership unit is excluded when applying Sec. 813.106(b)(3) of this 
title, which provides that where the family has net family assets in 
excess of $5,000, annual income includes the greater of the actual 
income derived from all net family assets or a percentage of the value 
of such assets based on the current passbook savings rate. Upon sale of 
the homeownership unit, the family shall be required to repay to HUD 
from the net sales proceeds the amount of additional assistance 
provided to the family because HUD did not consider the family's equity 
in calculating the monthly assistance payment.
    (d) Responsibility of mortgagee accepting section 8 payments. Any 
mortgagee accepting section 8 homeownership certificate or voucher 
housing assistance payments from a family or HA thereby agrees to 
comply with the responsibilities of a mortgagee, as set forth in 
Sec. 982.639.
    (e) Occupancy of homeownership unit. Housing assistance payments 
may only be paid for the period the homeownership unit is occupied by 
the family.
    (f) Administrative fees. The ongoing administrative fee described 
in Sec. 982.151(c) is paid to the HA for each month that a 
homeownership subsidy is paid on behalf of the family or until the 
family's participation in the program is terminated.


Sec. 982.636  HA periodic unit inspections; HA remedies.

    (a) (1) HA period inspections. The HA must inspect the 
homeownership unit at least annually, and at other times as needed, to 
determine if the family is meeting the obligation to maintain the unit 
in accordance with HQS.
    (2) In scheduling inspections, the HA must consider complaints and 
any other information brought to the attention of the HA.
    (b) (1) HA remedies. If the family fails to maintain the 
homeownership unit in compliance with HQS, the HA must take prompt and 
vigorous action to enforce the family obligations. HA rights and 
remedies include termination or reduction of housing assistance 
payments.
    (2) The HA must not make any housing assistance payments for a 
homeownership unit that fails to meet the HQS, unless the family 
corrects the defect within the period specified by the HA and the HA 
verifies the correction.


Sec. 982.637  Homeownership Program: Prohibition on use of additional 
homeownership assistance.

    A family receiving section 8 homeownership assistance may not 
receive additional assistance (e.g., mortgage principal or interest 
rate reduction subsidy) under other Federal homeownership assistance 
programs, including assistance under the HOME Investment Partnerships 
Act, the Homeownership and Opportunity Through HOPE Act, Emergency Low 
Income Housing Preservation Act of 1987, or financial assistance 
provided by the Farmers Home Administration pursuant to section 502 of 
the Housing Act of 1949 subsequent to the purchase date of the 
homeownership unit. Assistance under these programs may be used, 
however, to write down the initial purchase price, to complete pre-
purchase rehabilitation, provide down payment or closing cost funds, 
and for other pre-purchase activities. In addition, homeownership 
assistance may be used in combination with state or local tax-exempt 
bond financing programs, or with unsubsidized VA- or FmHA-guaranteed 
mortgages. Homeownership assistance can also be used to purchase a unit 
under the FHA Property Disposition Program, from the Resolution Trust 
Corporation or from the Federal Deposit Insurance Corporation.


Sec. 982.638  Homeownership Program: Automatic termination of 
assistance.

    A family will be terminated automatically from the section 8 
homeownership program when six months have elapsed since the date of 
the last housing assistance payment because assistance payments are no 
longer necessary, or when the first mortgage is paid off.


Sec. 982.639  Homeownership Program: Termination of assistance for 
mortgage default.

    If a family defaults on the mortgage, the following procedures 
apply:
    (a) Mortgagee obligations. The mortgagee must inform the HA in 
writing of the family's default. In addition, a FHA-insured mortgagee 
must comply with 24 CFR part 203, subpart C, before acquiring the 
property through foreclosure or deed in lieu of foreclosure, and must 
inform the HA in writing as to whether the family has elected to 
participate in, and has qualified for, the HUD Assignment Program under 
24 CFR part 203, subpart C. In the case of a family that has defaulted 
on an assigned FHA-insured mortgage, HUD shall notify the HA of the 
family's default.
    (b) When assistance is terminated. The HA must take steps to 
terminate promptly homeownership assistance on behalf of a family that 
has defaulted on its mortgage if the HA receives written notice from 
the mortgagee (or HUD) that:
    (1) For a family that has defaulted on a FHA-insured mortgage, the 
family has elected not to participate in, or has failed to qualify for, 
the HUD Assignment Program; or
    (2) The family has defaulted on a non-FHA insured mortgage; or
    (3) In the case of a mortgage held by HUD, when HUD determines that 
the family has defaulted on the assigned mortgage.
    (c) Notice to family. If the family defaults on the mortgage, the 
HA must include in the required notice of termination of assistance 
(see Sec. 982.553(c)) a statement that the family can move from the 
homeownership unit with continued section 8 certificate or voucher 
assistance for a rental unit if the family:
    (1) Transfers to the mortgagee or HUD marketable title to the 
homeownership unit in lieu of foreclosure within the period established 
or approved by the mortgagee or HUD;
    (2) Moves from the homeownership unit within the period established 
by the HA; and
    (3) Agrees in writing that any amounts the family is required to 
pay to reimburse the FSS escrow account for amounts expended by the 
family pursuant to Sec. 982.634 may be deducted by the HA from the 
section 8 rental assistance payment otherwise payable on behalf of the 
family, and that the family will accordingly pay a higher monthly 
tenant contribution in accordance with a schedule established by the HA 
until such time as the account is fully reimbursed.
    (d) Continuation or termination of section 8 rental assistance. The 
family will be issued a rental certificate or voucher to locate 
suitable rental housing if the family demonstrates that it has conveyed 
title to the property either to the mortgagee or to HUD within the 
period established or approved by the mortgagee or HUD, and certifies 
it will move from the homeownership unit within the period established 
by the HA and agrees to reimburse the FSS escrow account for all 
amounts expended by the family pursuant to Sec. 982.634 for the 
homeownership unit in accordance with the schedule established by the 
HA. If the family is unable to demonstrate within the period specified 
by the HA that it has met the conditions for continuing section 8 
rental certificate or voucher assistance (or if the HA otherwise has a 
basis for terminating assistance on behalf of the family in accordance 
with Sec. 982.552), the HA shall terminate promptly section 8 
assistance on behalf of the family.


Sec. 982.640  Homeownership Program: Effect of default on subsequent 
purchases.

    A family receiving homeownership assistance that defaults under a 
mortgage may not receive homeownership assistance for occupancy of 
another dwelling owned by one or more members of the family. 
Additionally, the family will be required to reimburse the FSS account 
for all amounts that it expended pursuant to Sec. 982.634, and to 
forfeit any remaining FSS escrow account balance.


Sec. 982.641  Homeownership Program: Sale of homeownership unit; 
recapture.

    (a) General. Upon the sale of the homeownership unit, the HA shall 
recapture from any net sales proceeds the amount of additional 
assistance paid to or on behalf of the eligible family because the HA 
did not take into account the value of the family's equity in the 
homeownership unit for purposes of calculating the monthly assistance 
payment.
    (b) Calculation of recapture amount. The amount of additional 
assistance to be recovered by the HA pursuant to paragraph (a) of this 
section is the lesser of:
    (1) The net sales proceeds; or
    (2) the imputed amount of family contribution for assets. If there 
are insufficient cash proceeds generated by the sale to repay HUD for 
the recapture amount, the family shall continue to owe the HA the 
remaining recapture amount. The HA may elect, as one option, to recover 
this amount by deducting from any future section 8 rental payments 
otherwise payable on behalf of the family the full amount required 
under this paragraph (b). Such deductions shall be made in accordance 
with a schedule established by the HA, and shall result in the family's 
making a higher tenant contribution toward the monthly rental on the 
unit until such time as the full recapture amount is paid off. 
Recaptured amounts shall be used by the HA as program receipts under 
the Consolidated ACC.

PART 984--SECTION 8 FAMILY SELF-SUFFICIENCY PROGRAM

    12. The authority citation for part 984 would be revised to read as 
follows:

    Authority: 42 U.S.C. 1437f, 1437u, and 3535(d).

    13. Section 984.305 would be amended by redesignating paragraph (e) 
as paragraph (f), and by adding a new paragraph (e), to read as 
follows:


Sec. 984.305  FSS account.

* * * * *
    (e) Use of FSS account for section 8 homeownership. Notwithstanding 
paragraphs (c) and (f)(l)(ii) of this section, a family that is in 
compliance with the FSS contract of participation may use up to 50 
percent of the amount in its FSS escrow account for a down payment on a 
homeownership unit receiving section 8 homeownership assistance under 
24 CFR part 982, subpart M (``Homeownership Program''). In addition, 
after the family purchases the homeownership unit, a family that is in 
compliance with the FSS contract of participation may use any amounts 
in the FSS escrow account to cover major repairs and replacements in 
the homeownership unit, as those terms are defined at Sec. 982.630 of 
this chapter. If the family defaults on the mortgage for which section 
8 homeownership certificate or voucher assistance is being provided 
under 24 CFR part 982, subpart M, it must reimburse the FSS escrow 
account for all amounts expended by the family pursuant to Sec. 982.634 
of this chapter by agreeing to a reduced section 8 rental subsidy paid 
by the HA on behalf of the family, and by paying a higher tenant 
contribution toward its monthly section 8 rental payment in accordance 
with a schedule established by the HA. In addition, any remaining 
amounts in its FSS escrow account will be recaptured in accordance with 
paragraph (f)(2) of this section. A PHA may use recaptured amounts as 
program receipts under the Consolidated ACC.
* * * * *
    Dated: July 7, 1994.
Henry G. Cisneros,
Secretary.
[FR Doc. 94-17152 Filed 7-18-94; 8:45 am]
BILLING CODE 4210-32-P