[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Rules and Regulations]
[Pages 36020-36026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17014]




[[Page 36019]]

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Part V





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Secretary



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24 CFR Part 92



HOME Investment Partnerships Program; Interim Rule

  Federal Register / Vol. 60, No. 133 / Wednesday, July 12, 1995 / 
Rules and Regulations   

[[Page 36020]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Secretary

24 CFR Part 92

[Docket No. FR-3840-I-01]
RIN 2501-AB95


HOME Investment Partnerships Program

AGENCY: Office of the Secretary, HUD.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule amends the existing interim rule for the 
HOME Investment Partnerships Program by making a number of clarifying 
and conforming changes that include: extending the interim rule 
expiration date; permitting loan guarantees as an eligible form of HOME 
assistance; allowing fees waived by private entities to qualify for 
match credit; increasing the flexibility of HOME rents when HOME funds 
and project-based rental assistance are used to assist the same units; 
clarifying the match status of CHDO project-specific, pre-development 
loans for which repayment is waived; allowing the use of tenant-based 
rental assistance (TBRA) for special needs populations; and replacing 
references to OMB Circular A-110 with references to the HUD rule at 24 
CFR part 84 that adopted the revised OMB Circular.

DATES: Effective Date: August 11, 1995. Comments due date: September 
11, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Rules Docket Clerk, Office of General Counsel, 
Room 10276, Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Washington, D.C. 20410. Communications should refer to 
the above docket number and title. A copy of each communication 
submitted will be available for public inspection and copying between 
7:30 a.m. and 5:30 p.m. weekdays at the above address. FAXED comments 
will not be accepted.

FOR FURTHER INFORMATION CONTACT: Mary Kolesar, Director, Program Policy 
Division, Office of Affordable Housing Programs, 451 Seventh Street, 
S.W., Washington, D.C. 20410, telephone (202) 708-2470, TDD (202) 708-
2565. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements for the HOME Investment 
Partnerships Program have been approved by the Office of Management and 
Budget, under section 3504(h) of the Paperwork Reduction Act of 1980 
(44 U.S.C. 3501-3520), and assigned OMB control number 2501-0013. This 
interim rule does not contain additional information collection 
requirements.

II. Background

    The HOME Investment Partnerships Program (HOME) was enacted under 
Title II (42 U.S.C. 12701-12839) of the Cranston-Gonzalez National 
Affordable Housing Act (NAHA) (Pub. L. 101-625, approved November 28, 
1990). Implementing regulations for the HOME Program are at 24 CFR part 
92.
    The original statute has been amended three times since enactment. 
The Housing and Community Development Act of 1992 (HCDA 1992) (Pub. L. 
102-550, approved October 28, 1992) included a substantial number of 
amendments to the HOME Program. These amendments were implemented in 
rules published on December 22, 1992 (57 FR 60960), June 23, 1993 (58 
FR 34130), and April 19, 1994 (59 FR 18626). The HUD Demonstration Act 
(Pub. L. 103-120, approved October 27, 1993) provided additional 
authorization for HOME Program technical assistance. The Multifamily 
Housing Property Disposition Reform Act of 1994 (MHPDRA) (Pub. L. 103-
233, approved April 11, 1994) included an additional number of 
amendments to the HOME Program. These amendments were implemented in a 
rule published on August 26, 1994 (59 FR 44258).
    The purpose of this publication is twofold: (1) an interim rule 
which implements clarifying and conforming changes in several areas of 
the rule, including loan guarantees as an eligible activity, increased 
flexibility with regard to HOME rents when HOME funds and project-based 
rental assistance are used to assist the same units, replacing 
references to OMB Circular A-110 with references to the HUD rule at 24 
CFR part 84 that adopted the revised OMB Circular, and the amount of 
HOME subsidy subject to recapture in the sale of a homebuyer unit when 
net proceeds are insufficient to repay the full subsidy amount; and (2) 
a preamble which solicits comments on various policy issues in 
anticipation of preparing a final rule. The preamble will discuss the 
interim rule changes first before soliciting comments on a wide variety 
of issues by section of the rule. While comments are being solicited on 
specific sections of the rule, the Department welcomes comments on any 
part.

Interim Rule Changes

    A change at Sec. 92.2, Definitions, would revise the definition of 
single room occupancy (SRO) to clarify neither food preparation nor 
sanitary facilities are required in the unit for an existing 
residential structure or hotel. This change clarifies that the 
Department does not consider a hotel a conversion of nonresidential 
space, which requires one or both facilities in the unit.
    Section 92.5 was added to implement a Department-wide policy for 
the expiration of interim rules within a set period of time if they are 
not issued in final form before the end of the period. The rule 
provides that the expiration period may be extended by notice published 
in the Federal Register. Because the expiration date for the HOME 
interim rule is currently June 30, 1995, and a final rule is not 
expected before that date, such a notice has been published extending 
the expiration date for an additional year. This rule makes the 
conforming change to Sec. 92.5.
    The Department, based on a number of comments it has already 
received in revising Sec. 92.205, Eligible activities: general, has 
added a new paragraph (b)(2) to specify that loan guarantees are 
included within the phrase ``other forms of assistance'' in 
Sec. 92.205(b) (the existing paragraph (b) is now designated (b)(1)). 
The addition of a loan guarantee feature was prompted by both HUD and 
participating jurisdictions' interest in effectively leveraging 
additional private funds to finance HOME projects. By expanding 
eligible activities to permit loan guarantees, it is the participating 
jurisdiction's choice and responsibility to properly underwrite and 
manage loans made under the guarantee. There is no implied Federal 
guarantee when a jurisdiction chooses to undertake this activity. The 
Department has considered how a loan guarantee could be structured and 
how to relate the expense involved to a specific HOME project. This 
will be done as follows: A PJ or its subrecipient would estimate the 
number of loans it potentially wants to guarantee and then establish 
the loan guarantee as a project in the HOME Cash and Management 
Information System (C/MIS). The amount of funding from HOME or other 
resources required for the loan guarantee would be based on the PJ's 
current default experience with its portfolio or, in the absence of 
empirical data, a reasonable estimate of the default rate. In general, 
the Department expects that the specific terms of the loan guarantee 
fund would be established by the PJ or subrecipient based on 
negotiations with local lenders and/or secondary market entities. The 

[[Page 36021]]
rule provides that the amount of HOME funds in the loan guarantee 
account may not exceed 20 percent of the total outstanding principal 
amount guaranteed, except that a minimum account balance may be 
maintained. A minimum balance is permitted to initiate the loan 
guarantee program and to meet varying local and secondary market 
requirements for loan guarantees. When a PJ has determined (1) the 
percentage of outstanding loan principal to be set aside in the loan 
guarantee account from HOME or other resources (referred to as the 
``fixed percentage''), and (2) a minimum balance needed to initiate the 
guarantee and ensure private sector financing (referred to as the 
``minimum balance''), PJ would draw down funds equal to the amounts 
guaranteed, at the time each loan is guaranteed, until the minimum 
balance is reached in the loan guarantee account, and additional funds 
would be drawn down when necessary to maintain the account at the fixed 
percentage of the outstanding amount guaranteed.
    For example, in establishing a loan guarantee amount for a pool 
totaling 200 loans (estimated principal value of $4.0 million), a PJ 
may determine that local and/or secondary market lenders require the 
project account to be maintained at a level of 10 percent of the 
outstanding balance of loans guaranteed, with a minimum balance amount 
of $100,000. The PJ would draw down funds into its loan guarantee 
account at the time the loan is guaranteed equal to the amount of each 
guaranteed loan until the minimum balance amount of $100,000 is 
deposited in the account (e.g., if five $20,000 loans are guaranteed, 
the loan guarantee account would be funded to the minimum balance 
amount of $100,000). Additional amounts of HOME funds could be added 
when the amount deposited is less than 10 percent of the loans 
outstanding. The number of loans initially planned for a loan guarantee 
project may not be increased. Housing projects financed with HOME 
guaranteed loans must meet HOME requirements. Once the planned number 
of loan guarantees is made, or if the loan guarantee activity ends 
before that number is reached, information must be reported in the C/
MIS on the units financed under the loan guarantee project. If a 
participating jurisdiction wishes to continue with loan guarantee 
activity, it would set up another loan guarantee project.
    Based on numerous requests to use tenant-based rental assistance 
for the special needs populations, the Department in this rule is 
making substantial alterations to Sec. 92.211, Tenant-based rental 
assistance, outlining under what circumstances that might be done. 
Conforming changes are made to Sec. 92.210, Tenant-based rental 
assistance: security deposits.
    With regard to match requirements, the Department is clarifying in 
this rule, at Sec. 92.218(f), that CHDO project specific pre-
development loans for which repayment is waived are not required to be 
matched.
    Another change amends paragraph (a)(2) in Sec. 92.220, Forms of 
match, to recognize as a matching contribution fees and charges, 
normally and customarily associated with real estate transactions or 
development, that are charged by private institutions or businesses but 
are being waived or reduced. Some examples of such fees or charges 
include lender origination or servicing fees; title examination, 
insurance or recordation fees; or private mortgage insurance fees.
    To permit Federal and State project-based assistance programs to 
work more effectively with the HOME Program, Sec. 92.252, Qualification 
as affordable housing and income targeting: Rental housing, now 
explicitly states that when HOME funds are combined with Federal or 
State project-based assistance, the rents may be set at the maximum 
rent allowable under the Federal or State programs. The Department is 
allowing this flexibility for those units occupied by families below 50 
percent of median income and paying not more than 30 percent of their 
adjusted income as a contribution toward rent, which are the provisions 
reflected in the ``low HOME rent'' provision of the rule at 
Sec. 92.252(a)(2). The Department is aware of State or local programs 
which provide ongoing ``shelter allowances'' or other rental subsidies 
to meet the needs of special populations. The Department invites 
commenters to describe these situations, whether HOME rents are an 
obstacle to overall project feasibility and possible solutions.
    A rule change at Sec. 92.254, Qualification as affordable housing: 
homeownership, offers participating jurisdictions additional 
flexibility to structure recapture provisions to meet local program 
design and market conditions. With this change, the Department is 
publishing three examples of recapture guidelines that it would find 
acceptable.
    The first example would authorize a PJ to forgive a portion of the 
HOME investment prorated over the time the homeowner has owned and 
occupied the unit measured against the required affordability period. 
For example: A homebuyer provides a $3,000 downpayment, and a 
participating jurisdiction provides a $10,000 second mortgage loan to 
defray the cost of acquisition and rehabilitation of the homebuyer 
unit, which triggers a five-year period of affordability when the 
property is subject to the resale or recapture provisions. Currently, 
the HOME regulation would require that the full $10,000 be subject to 
recapture and only if the net proceeds do not allow full recapture of 
the HOME subsidy plus the homeowner's investment, may the amount to be 
recaptured ($10,000) be reduced based on the period of occupancy by the 
homebuyer. With this change in the regulation, the PJ could allow the 
amount subject to recapture to be reduced during the period of 
occupancy. If the homebuyer had to sell after living in the property 
for two-years of the five-year affordability period, two fifths of the 
HOME subsidy ($4,000) could be written off. The amount subject to 
recapture would be $6,000 even when the net proceeds are sufficient to 
both recapture the full HOME investment and enable the homeowner to 
recover his/her investment. Examples two and three assume that net 
proceeds (sales price minus loan repayment and closing costs) are 
insufficient to both recapture the HOME investment and enable the 
homeowner to recover his/her investment. Example two shows how the PJ 
can share the proceeds with the homeowner based on their relative 
investment in the property. Example three authorizes the PJ to permit 
homebuyers to recapture all of their investment including downpayment 
and capital improvements first before any return to the jurisdiction.
    Alternatively, when net proceeds are insufficient, the 
participating jurisdiction could also permit homebuyers to recapture 
all their investment including downpayment and capital improvements 
first before any return to the jurisdiction.
    In this same section of the rule, a clarifying change is being made 
at Sec. 92.254(a)(4)(ii)(C) which describes the amounts of HOME funds 
provided per unit which trigger the periods that the property is 
subject to the recapture provision. The change being made would clarify 
that the amount in question is the per unit amount of HOME funds 
provided to the homebuyer. Many participating jurisdictions were 
counting both the direct subsidy to the homebuyer as well as the 
development subsidy when determining the affordability period. It 
should be noted that when resale provisions are used, the period of 
affordability is based on the total investment of HOME funds.

[[Page 36022]]

    Finally, on September 13, 1994 (59 FR 47010), the Department 
published a final rule that adopted OMB's revised Circular A-110 at 24 
CFR part 84. This rule makes conforming changes to replace references 
to Circular A-110 with references to 24 CFR part 84 at Secs. 92.2 (in 
the definition of Community housing development organization), 92.356 
(a)(1) and (a)(2), and 92.505(b).

Solicitation of Comments for the Final Rule

    The Department is also taking this opportunity to solicit comments 
on the current interim rule in anticipation of preparing a final rule 
for the HOME Program. The current interim rule consists of all six 
interim rules which have been published for the program since its 
inception. The Department has received valuable public input on all 
those rules and has made many changes based on public comment. As the 
Department prepares the final HOME rule, it requests that commenters 
distinguish between issues that can be changed by regulation and those 
that would require legislative action.
    To facilitate public review, the Department has made available the 
HOME statute and consolidated interim rule through the American 
Communities Information Center at 1-800-998-9999. Commenters may obtain 
copies of both the statute and rule by calling the information center.
    The Department also presents a discussion of particular sections of 
the rule and raises specific questions which it requests that comments 
address, below:

Section 92.2  Definitions

    Community housing development organization (CHDO)--The Department 
has received numerous comments on the definition of CHDO, with regard 
to purpose, composition, experience, and history. The Department 
invites further comment from State and local officials based on the 
experience of qualifying CHDOs and from nonprofits who have 
participated in the qualification process and have competed for CHDO 
setaside funds.
    Homeownership--While ownership or membership in a cooperative has 
been included in the definition of homeownership, the Department is 
considering allowing participating jurisdictions to classify limited 
equity cooperative and/or mutual housing either as homeownership or 
rental housing based on State law. Comment is requested.
    Project--The Department is considering changes to include in the 
definition of project: (1) new construction subdivisions that cover 
more than a four block area, and (2) loan guarantee programs funded by 
the participating jurisdiction which by their nature cover loans to a 
number of units at diverse sites.

Sections 92.60-92.66  Insular Areas

    The Department invites comments from insular area participants, who 
now have three years of program experience, as to whether changes are 
needed in the provisions that guide insular applications and 
operations.

Section 92.202  Site and Neighborhood Standards

    The Department invites comment on the application of site and 
neighborhood standards and their effect on the siting of new 
construction projects.

Section 92.203  Income Determinations

    Because continued affordability and eligibility were contemplated 
in HOME-assisted rental housing, the Department adopted the Section 8 
definitions of income in 24 CFR part 813 for use in the HOME program. 
Recently, in an August 10, 1994 proposed rule in the Federal Register, 
the Department invited comment on income definitions in the Community 
Development Block Grant Program. The Department will consider those 
comments for the final HOME rule, but also invites additional comments 
on this subject.
Section 92.205  Eligible Activities: General

    The Department has permitted the refinancing of single family 
properties under certain conditions but has not allowed refinancing of 
multifamily properties. Refinancing of multifamily projects has not 
generally been viewed as a net increase in the number of affordable 
housing units, a primary goal of the program. The Department would 
welcome comments regarding when and under what conditions multifamily 
refinancing might be permitted.

Sections 92.218-92.222  Match Requirements

    The Department in this interim rule recognizes the waiver of fees 
or charges by private or public institutions as a source of match. The 
Department is open to additional public comment about other possible 
sources of match which meet the statutory tests of not being derived 
from Federal funds and being a true contribution to affordable housing. 
Should the Department count State and local contributions to social 
services provided in HOME-assisted or HOME-eligible housing as a source 
of match? Another issue on which the Department requests comment is 
whether donated professional services should be valued at a higher rate 
than other volunteer labor currently valued at $10 per hour. Comment on 
these and other possible sources of match are invited.

Section 92.251  Property Standards

    The Department in implementing the HOME Program took note of the 
program's purpose to expand the supply of decent, safe, and sanitary 
housing, and adopted the Section 8 Housing Quality Standards as a 
minimum standard. The Department is open to suggestions as to whether a 
different standard might be more suitable, particularly as it relates 
to new construction. Should the Department adopt the Minimum Property 
Standards? Allow the PJ to adopt a written `decent, safe and sanitary' 
standard? Keep the Section 8 HQS for tenant based rental assistance 
units only? Continue to require the Cost Effective Energy Standards for 
units with over $25,000 in rehabilitation? Authorize emergency repairs 
to structures that may not meet housing quality standards? Comment is 
invited on the housing standards issue.

Section 92.254  Qualification as Affordable Housing: Homeownership

    The Department in this interim rule takes further steps to make the 
recapture provisions of the rule more flexible. In recognizing an 
owner's investment in the property, the rule permits a greater return 
from net proceeds to the homeowner.
    The Department also invites comment on the appraisal requirement to 
determine eligibility i.e. the property has an initial purchase price 
that does not exceed 95 percent of the median purchase price for the 
area. Alternative approaches to assure that HOME funds are invested 
only in modest housing are requested.
    The Department also wishes comment on the permanent foundation 
requirement for manufactured housing when the owner owns both the unit 
and the land on which it is situated.

Section 92.257  Religious Organizations

    In the August 26, 1994 interim rule, the Department modified this 
section to be more permissive with regard to control of a secular 
entity established by a religious organization. The Department invites 
further comment on this section of the rule. 

[[Page 36023]]


Section 92.258  Limitation on the Use of HOME Funds With FHA Mortgage 
Insurance

    When HOME funds are used in combination with FHA insurance, the 
period of affordability is extended to the term of the mortgage. The 
Department invites comments on this policy.

Subpart G, Sections 92.300-92.303  Community Housing Development 
Organizations

    The Department has tried to implement the CHDO setaside with a view 
of these funds as an entitlement for CHDOs who ``own, sponsor or 
develop'' HOME projects. The Department invites comments on the ``own, 
sponsor or develop'' provisions set out in the rule and discussed in 
CPD Notice 94-01.

Subpart H, Other Federal Requirements

    Over time the rule has been amended to reflect statutory changes 
with regard to environmental reviews and revised to reflect 
clarifications on other requirements. The Department invites comments 
on additional changes which might provide clarification or 
simplification of the requirements for PJs.

Subpart K, Program Administration

    In preparing a final rule, the Department will be reviewing this 
subpart paying special attention to the sections on the cash and 
management information system, written agreements and monitoring. 
Comments on these and other sections are welcome.

III. Findings and Certifications

Justification for Interim Rulemaking

    The Department has determined that this interim rule should be 
adopted without the delay occasioned by requiring prior notice and 
comment. This interim rule only makes a number of clarifying changes to 
existing provisions. As such, prior notice and comment are unnecessary 
under 24 CFR part 10. This rule is being published as an interim rule 
and not as a final rule because the HOME program regulation at 24 CFR 
part 92 has not yet been issued as a final rule.

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding of No Significant Impact is available for 
public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the 
Office of the Rules Docket Clerk.

Regulatory Planning and Review

    This interim rule has been reviewed in accordance with Executive 
Order 12866, issued by the President on September 30, 1993 (58 FR 
51735, October 4, 1993). Any changes to the interim rule resulting from 
this review are available for public inspection between 7:30 a.m. and 
5:30 p.m. weekdays in the Office of the Rules Docket Clerk.

Impact on Small Entities

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 
605(b)), the undersigned hereby certifies that this interim rule does 
not have a significant economic impact on a substantial number of small 
entities, because jurisdictions that are statutorily eligible to 
receive formula allocations are relatively larger cities, counties or 
States.

Regulatory Agenda

    This interim rule was not listed in the Department's Semiannual 
Agenda of Regulations published on May 8, 1995 (60 FR 23368, 23379) 
under Executive Order 12866 and the Regulatory Flexibility Act.

Federalism Impact

    The General Counsel has determined, as the Designated Official for 
HUD under section 6(a) of Executive Order 12612, Federalism, that this 
interim rule does not have federalism implications concerning the 
division of local, State, and federal responsibilities. While the HOME 
Program interim rule amended by this interim rule was determined to be 
a rule with federalism implications and the Department submitted a 
Federalism Assessment concerning the interim rule to OMB, this amending 
rule only makes limited adjustments to the interim rule and does not 
significantly affect any of the factors considered in the Federalism 
Assessment for the interim rule.
Impact on the Family

    The General Counsel, as the designated official under Executive 
Order 12606, The Family, has determined that this interim rule would 
not have significant impact on family formation, maintenance, and 
general well-being. Assistance provided under this interim rule can be 
expected to support family values, by helping families achieve security 
and independence; by enabling them to live in decent, safe, and 
sanitary housing; and by giving them the means to live independently in 
mainstream American society. This interim rule would not, however, 
affect the institution of the family, which is requisite to coverage by 
the Order.

    The Catalog of Federal Domestic Assistance Number for the HOME 
Program is 14.239.

List of Subjects in 24 CFR Part 92

    Administrative practice and procedure, Grant programs--housing and 
community development, Grant programs--Indians, Indians, Low and 
moderate income housing, Manufactured homes, Rent subsidies, Reporting 
and recordkeeping requirements.

    Accordingly, part 92 of title 24 of the Code of Federal 
Regulations, is amended as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

    1. The authority citation for part 92 continues to read as follows:

    Authority: 42 U.S.C. 3535(d) and 12701-12839.

    2. Section 92.2 is amended by revising paragraph (6) of the 
definition of ``Community housing development organization'', and by 
revising the definition of ``Single room occupancy (SRO) housing'', to 
read as follows:


Sec. 92.2  Definitions.

* * * * *
    Community housing development organization * * *
    (6) Has standards of financial accountability that conform to 24 
CFR 84.21, ``Standards for Financial Management Systems.''
* * * * *
    Single room occupancy (SRO) housing means housing (consisting of 
single room dwelling units) that is the primary residence of its 
occupant or occupants. The unit must contain either food preparation or 
sanitary facilities (and may contain both) if the project consists of 
new construction, conversion of non-residential space, or 
reconstruction. For acquisition or rehabilitation of an existing 
residential structure or hotel, neither food preparation nor sanitary 
facilities are required to be in the unit. If the units do not contain 
sanitary facilities, the building must contain sanitary facilities that 
are shared by tenants. SRO does not include facilities for students.
* * * * *
    3. Section 92.5 is revised to read as follows: 

[[Page 36024]]



Sec. 92.5  Expiration of interim rule.

    This part shall expire and shall not be in effect after June 30, 
1996, unless it is published as a final rule or the Department 
publishes a notice in the Federal Register to extend the effective 
date.
    4. In Sec. 92.205, paragraph (b) is revised to read as follows:


Sec. 92.205  Eligible activities: general.

* * * * *
    (b) Forms of assistance. (1) A participating jurisdiction may 
invest HOME funds as equity investments, interest-bearing loans or 
advances, noninterest-bearing loans or advances, interest subsidies 
consistent with the purposes of this part, deferred payment loans, 
grants, or other forms of assistance that HUD determines to be 
consistent with the purposes of this part. Each participating 
jurisdiction has the right to establish the terms of assistance, 
subject to the requirements of this part.
    (2) A participating jurisdiction may invest HOME funds to guarantee 
loans made by lenders and, if required, the participating jurisdiction 
may establish a loan guarantee account with HOME funds. The amount of 
the loan guarantee account must be based on a reasonable estimate of 
the default rate on the guaranteed loans, but under no circumstances 
may the amount on deposit exceed 20 percent of the total outstanding 
principal amount guaranteed; except that the account may include a 
reasonable minimum balance. While loan funds guaranteed with HOME funds 
are subject to all HOME requirements, funds which are used to repay the 
guaranteed loans are not.
* * * * *
    5. In Sec. 92.210, paragraph (f) is revised to read as follows:


Sec. 92.210  Tenant-based rental assistance: security deposits

* * * * *
    (f) The provisions at Sec. 92.211 (a), (b), (c), (d), (f), (g) and 
(i), applicable to tenant-based rental assistance, are applicable to 
HOME security deposit assistance.
    6. Section 92.211 is revised to read as follows:


Sec. 92.211  Tenant-based rental assistance.

    (a) General. A participating jurisdiction may use HOME funds for 
tenant-based rental assistance only if the participating jurisdiction 
makes the certification about inclusion of this type of assistance in 
its consolidated plan in accordance with Secs. 91.225(d)(1), 
91.325(d)(1), or 91.425(a)(2)(i) of this title, and specifies local 
market conditions that lead to the choice of this option.
    (b) Tenant selection. A participating jurisdiction may use HOME 
funds for tenant-based rental assistance in the following manner:
    (1) Federal preferences. The participating jurisdiction selects 
families in accordance with written tenant selection policies and 
criteria that are consistent with the purposes of providing housing to 
very low- and low-income families and are reasonably related to 
preference rules established under section 6(c)(4)(A) of the Housing 
Act of 1937 (42 U.S.C. 1437 et seq.). Selection policies and criteria 
meet the ``reasonably related'' requirement if at least 50 percent of 
the families assisted qualify, or would qualify in the near future 
without tenant-based rental assistance, for one of the three Federal 
preferences under section 6(c)(4)(A) of the Housing Act of 1937. These 
are families that occupy substandard housing (including families that 
are homeless or living in a shelter for homeless families); families 
that are paying more than 50 percent of (gross) family income for rent; 
or families that are involuntarily displaced. [For FY 1995 only, a 
Federal preference is also given to families that include one or more 
adult members who are employed.]
    (2) Local Preferences for Individuals with Special Needs. (i) The 
participating jurisdiction may establish a preference for individuals 
with special needs. The participating jurisdiction may offer, in 
conjunction with a tenant-based rental assistance program, particular 
types of services that may be most appropriate for persons with a 
particular disability. Generally, tenant-based rental assistance and 
the related services should be made available to all persons with 
disabilities who can benefit from such services.
    (ii) The participating jurisdiction may also provide a preference 
for a specific category of individuals with disabilities (e.g., persons 
with HIV/AIDS or chronic mental illness) if the specific category is 
identified in the participating jurisdiction's housing strategy or 
consolidated plan as having unmet need and the preference is needed to 
narrow the gap in benefits and services received by such persons.
    (iii) Preferences cannot be administered in a manner that limits 
the opportunities of persons in a protected class. For example, a 
participating jurisdiction may not determine that persons given a 
preference under the program are therefore prohibited from applying for 
or participating in other programs or forms of assistance.
    (iv) To the extent that a participating jurisdiction is operating a 
tenant-based rental assistance program targeted exclusively to 
individuals with disabilities or to a specific category of individuals 
with disabilities, at least 50% of the individuals must qualify or 
would qualify in the near future for one of the three Federal 
preferences as described in paragraph (b)(1) of this section.
    (3) Existing tenants in the HOME-assisted projects. A participating 
jurisdiction may select low-income families currently residing in the 
units that are designated for rehabilitation or acquisition under the 
participating jurisdiction's HOME program without requiring that the 
family meet the written tenant selection policies and criteria. 
Families so selected may use the tenant-based assistance in the 
rehabilitated or acquired unit or in other qualified housing.
    (c) Portability of assistance. A participating jurisdiction may 
require the family to use the tenant-based assistance within the 
participating jurisdiction's boundaries or may permit the family to use 
the assistance outside its boundaries.
    (d) Program operation. A tenant-based rental assistance program 
must be operated consistently with the requirements of this section and 
Sec. 92.210, if applicable. The participating jurisdiction may operate 
the program itself, or may contract with a PHA or other entity with the 
capacity to operate a rental assistance program. The tenant-based 
rental assistance may be provided through an assistance contract to an 
owner that leases a unit to an assisted family or directly to the 
family.
    (e) Term of rental assistance contract. The term of the rental 
assistance contract providing assistance with HOME funds may not exceed 
24 months, but may be renewed, subject to the availability of HOME 
funds. The term of the rental assistance contract must begin on the 
first day of the term of the lease. For a rental assistance contract 
between a participating jurisdiction and an owner, the term of the 
contract must terminate on termination of the lease. For a rental 
assistance contract between a participating jurisdiction and a family, 
the term of the contract need not end on termination of the lease, but 
no payments may be made after termination of the lease until a family 
enters into a new lease.
    (f) Rent reasonableness. The participating jurisdiction must 
disapprove a lease if the rent is not reasonable, based on rents that 
are 

[[Page 36025]]
charged for comparable unassisted rental units.
    (g) Lease requirements. The lease must comply with the requirements 
in Sec. 92.253 (a) and (b).
    (h) Maximum subsidy. (1) The amount of the monthly assistance that 
a participating jurisdiction may pay to, or on behalf of, a family may 
not exceed the difference between a rent standard for the unit size 
established by the participating jurisdiction and 30 percent of the 
family's monthly adjusted income.
    (2) The participating jurisdiction must establish a minimum tenant 
contribution to rent.
    (3) The participating jurisdiction's rent standard for a unit size 
must be based on:
    (i) Local market conditions; or
    (ii) May not be less, for each unit size, than 80 percent of the 
published Section 8 Existing Housing fair market rent (in effect when 
the payment standard amount is adopted) nor more than the fair market 
rent or HUD-approved community-wide exception rent (in effect when the 
participating jurisdiction adopts its rent standard amount). 
(Community-wide exception rents are maximum gross rents approved by HUD 
for the Rental Certificate Program under Sec. 882.106(a)(3) of this 
title for a designated municipality, county, or similar locality, which 
apply to the whole PHA jurisdiction.) A participating jurisdiction may 
approve on a unit-by-unit basis a subsidy based on a rent standard that 
exceeds the applicable fair market rent by up to 10 percent for 20 
percent of units assisted.
    (i) Housing quality standards. Housing occupied by a family 
receiving tenant-based assistance under this section must meet the 
performance requirements set forth in Sec. 882.109 of this title. In 
addition, the housing must meet the acceptability criteria set forth in 
Sec. 882.109 of this title, except for such variations as are proposed 
by the participating jurisdiction and approved by HUD. Local climatic 
or geological conditions or local codes are examples which may justify 
such variations.
    (j) Use of Section 8 assistance. In any case where assistance under 
section 8 of the United States Housing Act of 1937 becomes available to 
a participating jurisdiction, recipients of tenant-based rental 
assistance under this part will qualify for tenant selection 
preferences to the same extent as when they received the tenant-based 
rental assistance under this part.
    7. In Sec. 92.218, a new paragraph (f) is added to read as follows:


Sec. 92.218  Amount of matching contribution.

* * * * *
    (f) HOME funds made available as project-specific assistance to 
community housing development organizations pursuant to Sec. 92.301 are 
subject to matching requirements. HOME funds used for such assistance 
for which repayment is waived under the provisions of Sec. 92.301(a)(3) 
or Sec. 92.301(b)(3) are not required to be matched.
    8. In Sec. 92.220, paragraphs (a)(1)(ii)(A), (a)(2), and (a)(5) 
introductory text, are revised to read as follows:


Sec. 92.220  Form of matching contribution.

    (a) * * *
    (1) * * *
    (ii) * * *
    (A) If the loan is made from funds borrowed by a jurisdiction or 
public agency or corporation (including proceeds from general 
obligation debt), the contribution is the present discounted cash value 
of the difference between the payments to be made on the borrowed funds 
and payments to be received from the loan to the project based on a 
discount rate equal to the interest rate on the borrowed funds.
* * * * *
    (2) Forbearance of fees. (i) State and local taxes, charges or 
fees. The value, based on customary and reasonable means for 
establishing value, of State or local taxes, fees, or other charges 
that are normally and customarily imposed or charged by a State or 
local government on all transactions or projects in the conduct of 
State or local government operations but are waived, foregone, or 
deferred (including State low-income housing tax credits) in a manner 
that achieves affordability of housing assisted with HOME funds. Fees 
or charges that are associated with the HOME Program only (rather than 
normally and customarily imposed or charged on all transactions or 
projects) are not eligible forms of matching contributions. The amount 
of any real estate taxes may be based on post-improvement property 
value, using customary and reasonable means of establishing value. For 
taxes, fees, or charges that are given for future years, the value is 
the present discounted cash value, based on a rate equal to the rate 
for the Treasury security with a maturity closest to the number of 
years for which the taxes, fees, or charges are waived, foregone, or 
deferred.
    (ii) Other charges or fees. Amount of fees or charges normally and 
customarily imposed or charged by public or private institutions 
associated with the transfer or development of real estate but are 
waived or foregone, in whole or in part, in a manner that achieves 
affordability of housing assisted with HOME funds. Fees or charges that 
are associated with the HOME Program only (rather than normally and 
customarily imposed or charged on all transactions or projects) are not 
eligible forms of matching contributions.
* * * * *
    (5) Proceeds from multi-family and single family affordable housing 
project bond financing validly issued by a State or local government, 
or an agency, instrumentality, or political subdivision of a State and 
repayable with revenues from the affordable housing project financed, 
as follows:
* * * * *
    9. In Sec. 92.252, paragraph (a)(2) is revised to read as follows:


Sec. 92.252  Qualification as affordable housing and income targeting: 
Rental housing.

    (a) * * *
    (2) * * *
    (i)(A) Occupied by very low-income families whose rent does not 
exceed 30 percent of the family's monthly adjusted income as determined 
by HUD. To obtain the maximum monthly rent that may be charged for a 
unit (in a project that does not receive Federal or State project-based 
rental subsidy) that is subject to this limitation, the owner or 
participating jurisdiction multiplies the annual adjusted income of the 
tenant family by 30 percent and divides by 12 and, if applicable, 
subtracts a monthly allowance for any utilities and services (excluding 
telephone) to be paid by the tenant; or
    (B) Occupied by very low-income families who pay as a contribution 
toward rent not more than 30 percent of the family's monthly adjusted 
income as determined by HUD if the units receive Federal or State 
project-based rental subsidy. The maximum rent (i.e., tenant 
contribution plus project-based rental subsidy) is the rent allowable 
under the Federal or State project-based rental subsidy program; or
    (ii) Occupied by very low-income families and bearing rents not 
greater than 30 percent of the gross income of a family whose income 
equals 50 percent of the median income for the area, as determined by 
HUD, with adjustment for smaller and larger families, except that HUD 
may establish income ceilings higher or lower than 50 percent of the 
median for the area on the basis of HUD's findings that such variations 
are necessary because of prevailing levels of construction costs or 
fair market rents, or unusually high or low family incomes. In 
determining the 

[[Page 36026]]
maximum monthly rent that may be charged for a unit that is subject to 
this limitation, the owner or participating jurisdiction must subtract 
a monthly allowance for any utilities and services (excluding 
telephone) to be paid by the tenant. HUD will provide average occupancy 
per unit assumptions to be used in calculating the maximum rent allowed 
under paragraph (a)(2)(ii) of this section;
    (iii) If the rent determined under this paragraph (a)(2) is higher 
than the applicable rent under paragraph (a)(1) of this section, then 
the applicable maximum rent for units under this paragraph would be 
that calculated under paragraph (a)(1) of this section except for units 
that receive Federal or state project-based rental assistance.
* * * * *
    10. In Sec. 92.254, paragraph (a)(4)(ii) is revised to read as 
follows:
Sec. 92.254  Qualification as affordable housing: homeownership.

    (a) * * *
    (4) * * *
    (ii) A participating jurisdiction may structure the recapture 
provisions, subject to HUD approval, based on its program design and 
market conditions.
    (A) The following methods of recapture would be acceptable to the 
Department:
    (1) Recapture the entire amount of the HOME investment, except that 
the HOME investment amount may be reduced prorata based on the time the 
homeowner has owned and occupied the unit measured against the required 
affordability period.
    (2) If the net proceeds (i.e., the sales price minus loan 
repayment, other than HOME funds, and closing costs) are not sufficient 
to recapture the full (or a reduced amount as provided for in paragraph 
(a)(4)(ii)(A)(1) of this section) HOME investment plus enable the 
homeowner to recover the amount of the homeowner's downpayment and any 
capital improvement investment, the participating jurisdiction's 
recapture provisions may share the net proceeds. The net proceeds may 
be divided proportionally as set forth in the following mathematical 
formulas:
[GRAPHIC][TIFF OMITTED]TR12JY95.003

    (3) Alternatively, the PJ may also allow the homebuyer to recover 
all the homebuyer's investment (downpayment and capital improvements) 
first before recapturing the HOME investment.
    (B) The HOME investment that is subject to recapture is based on 
the amount of HOME assistance that enabled the homebuyer to buy the 
dwelling unit. This is also the amount upon which the affordability 
period is based. This includes any HOME assistance that reduced the 
purchase price from fair market value to an affordable price, but 
excludes the amount between the cost of producing the unit and the 
market value of the property (i.e., the development subsidy). The 
recaptured funds must be used to carry out HOME-eligible activities. If 
no HOME funds will be subject to recapture, the provisions at 
Sec. 92.254(a)(4)(i) apply.
    (C) Upon recapture of the HOME funds used in a single-family, 
homebuyer project with two to four units, the affordability period on 
the rental units may be terminated at the discretion of the 
participating jurisdiction.
* * * * *
    11. In Sec. 92.356, paragraphs (a)(1) and (a)(2) are revised to 
read as follows:


Sec. 92.356  Conflict of interest.

    (a) * * *
    (1) In the procurement of property and services by participating 
jurisdictions, state recipients, and subrecipients, the conflict of 
interest provisions in 24 CFR 85.36 and 24 CFR 84.42, respectively, 
apply.
    (2) In all cases not governed by 24 CFR 85.36 and 24 CFR 84.42, the 
provisions of this section apply. These cases include the acquisition 
and disposition of real property and the provision of assistance by the 
participating jurisdiction, by the state recipient, by subrecipients, 
or to individuals, housing developers, and other private entities under 
eligible activities which authorize such assistance (e.g., 
rehabilitation of housing).\4\

    \4\ See Sec. 92.505 concerning the availability of OMB 
Circulars.
---------------------------------------------------------------------------

* * * * *
    12. Section 92.505, is revised to read as follows:


Sec. 92.505  Applicability of uniform administrative requirements.

    (a) Governmental entities. The requirements of OMB Circular No. A-
87 and the following requirements of 24 CFR part 85 apply to the 
participating jurisdiction, state recipients, and any governmental 
subrecipient receiving HOME funds: Secs. 85.6, 85.12, 85.20, 85.22, 
85.26, 85.32-85.34, 85.36, 85.44, 85.51, and 85.52, of this title.
    (b) Non-profit organizations. The requirements of OMB Circular No. 
A-122 and the following requirements of 24 CFR part 84 apply to 
subrecipients receiving HOME funds that are private nonprofit 
organizations: Secs. 84.2, 84.5, 84.13-84.16, 84.21, 84.22, 84.26-
84.28, 84.30, 84.31, 84.34-84.37, 84.40-84.48, 84.51, 84.60-84.62, 
84.72, and 84.73, of this title.

    Dated: May 16, 1995.
Henry G. Cisneros,
Secretary.
[FR Doc. 95-17014 Filed 7-11-95; 8:45 am]
BILLING CODE 4210-32-P