[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Rules and Regulations]
[Pages 36016-36018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-17015]




[[Page 36015]]

_______________________________________________________________________

Part IV





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 572



HOPE for Homeownership of Single Family Homes Program (HOPE 3); Interim 
Rule

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

[[Page 36016]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Community Planning and 
Development

24 CFR Part 572

[Docket No. FR-3857-I-01]
RIN 2501-AB77


HOPE for Homeownership of Single Family Homes Program (HOPE 3)

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Interim rule.

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SUMMARY: This interim rule amends the HOPE for Homeownership of Single 
Family Homes Program (HOPE 3) by making a number of miscellaneous 
changes, generally based on comments by HOPE 3 Program grantees or 
statutory amendments.

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 10278, Department of Housing and Urban Development, 451 Seventh 
Street, SW., Washington, DC 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: Clifford Taffet, Office of Affordable 
Housing Programs, 451 Seventh Street SW, Washington, DC 20410; (202) 
708-3226, TDD (202) 708-2565. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements for the HOPE for 
Homeownership of Single Family Homes 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 2506-0128. This interim rule does not contain additional 
information collection requirements.

II. Background

    The HOPE for Homeownership of Single Family Homes Program (HOPE 3) 
is authorized by title IV, subtitle C, of the National Affordable 
Housing Act (NAHA), as amended by the Housing and Community Development 
Act of 1992. The purpose of the HOPE 3 program is to provide 
homeownership opportunities in certain single family housing for 
eligible families and individuals (generally, low-income first-time 
homebuyers). The Department published for public comment Guidelines for 
HOPE 3 on February 4, 1991 (56 FR 4458), revised Guidelines on January 
14, 1992 (57 FR 1592), and a final rule on July 7, 1993 (58 FR 36518).
    Changes to the final rule contained in this interim rule are in 
response to comments from HOPE 3 grant recipients and HUD's experience 
with the program during the first two funding rounds. The purpose of 
the changes is to correct provisions of the final rule which 
unnecessarily create operational difficulties and to streamline program 
implementation.
    Specifically, this interim rule implements the following changes to 
the HOPE 3 Program: Making conforming changes at Sec. 572.400 to 
reference the Consolidated Plan under part 91, rather than the CHAS; 
revising the requirements for how income eligibility and affordability 
are determined; counting the financing costs of program-required 
rehabilitation (whenever incurred) when determining whether a homebuyer 
can afford a HOPE 3 unit; eliminating the prohibition against the 
commingling of grant or match funds with sale and resale proceeds; 
adding a paragraph authorizing program closeout issuances; and reducing 
the match requirement from 33 to 25 percent for grants awarded after 
April 11, 1994. These changes are discussed individually in the 
discussion which follows.
    Section 572.120(a) is being revised to ensure that the same annual 
income used for the purpose of determining eligibility is used as the 
basis (divided by 12 to determine monthly income) for determining 
affordability except that, for the purposes of determining 
affordability, a recipient may, but is not required to, adjust downward 
the monthly incomes of eligible families using reasonable standards and 
procedures consistently applied. Previously, recipients were required 
to adjust the family income in accordance with 24 CFR part 813, part 
913 or part 905 to determine affordability which is not appropriate to 
homeownership activities.
    Therefore, under the interim rule, the grantee or its designee will 
determine whether an applicant family is an eligible family, defined in 
Sec. 572.5 as a low-income family who is a first-time homebuyer. The 
definition of low-income family in Sec. 572.5 directs the grantee to 
determine whether the family is a low-income family according to one of 
the parts of 24 CFR cited therein, e.g., 24 CFR part 813. If part 813 
is applicable, the family's annual income would be determined in 
accordance with 24 CFR 813.106. This annual income (with further 
reasonable adjustments by the grantee, if applicable) would then be 
compared with the applicable income limits published annually by HUD 
(based on 80 percent of area median income), with adjustments for high-
cost areas, if applicable, for the applicable family size. Then 
(assuming the two determinations are reasonably contemporaneous) one-
twelfth of the same annual income will be used as the basis for the 
affordability calculation required by Sec. 572.120(a).
    It should also be noted that the HOPE 3 regulations neither entitle 
an eligible family which meets the statutory affordability standard to 
receive a home under the program, nor mandate that lenders use the same 
income in determining whether a family qualifies for a mortgage. As to 
the former, whether a family actually receives a home may depend on 
entirely different factors, such as the sizes of homes available 
compared to the size of the family, and the other financial obligations 
the family may have in addition to a projected mortgage on the HOPE 3 
property. As to the latter point, while the maximum size of an eligible 
family's monthly PITI payment for its HOPE 3 acquisition/rehabilitation 
obligations is limited by the statutorily-required affordability 
determination, a mortgage lender is not necessarily required to use the 
same income base for determining affordability to repay a mortgage as 
is used by the grantee in making a statutory affordability 
determination.
    A clarification of the affordability requirements in 
Sec. 572.120(a) is also necessary to insure that families are not 
indebted with HOPE 3 program-related financing costs for acquisition 
and rehabilitation that exceed their means. The final regulation 
assumed that rehabilitation necessary to bring a property up to local 
code or housing quality standards would occur prior to closing or 
shortly thereafter, and the payments related to the rehabilitation 
would be considered in the family's affordability calculation at the 
time of closing. However, in certain situations, rehabilitation of 
properties required by the program has occurred after families have 
taken title to their properties and 

[[Page 36017]]
is financed through a separate rehabilitation loan. This rule change 
clarifies the requirement that monthly payments for HOPE 3 Program 
required rehabilitation, whether it occurs before or after the family 
takes title to the property, should be considered in the family's 
affordability calculation. Deferred payment loans due on sale do not 
need to be included, since they do not represent a monthly financial 
burden.
    Several grantees have requested a change to Sec. 572.115(a) 
concerning the deadline for property transfers. Those grantees felt 
that there was an inconsistency between Sec. 572.115(a) and 
Sec. 572.225(d) in the current regulation. Section 572.115(a) states 
that all units in eligible properties must be transferred to eligible 
families within two years of the effective date of the grant agreement, 
whereas Sec. 572.225(d) states that remedial action may be taken if a 
grantee fails to provide at least 70 percent of the number of 
homeownership opportunities proposed in the application within four 
years of the effective date of the grant agreement. After reviewing 
these sections, the Department has determined that an inconsistency 
does not exist between the requirements. Both Sec. 572.115(a) and 
Sec. 572.225(d) will be retained as program requirements. Section 
572.115(a) simply establishes a requirement to transfer properties to 
families within two years (which can be extended to three years by the 
Field Office). Section 572.115(a) does not deal at all with the 
grantee's program volume goals in its HUD-approved application. On the 
other hand, Sec. 572.225(d) is intended as a minimum performance 
standard in the event that grantees, due to unforeseen circumstances, 
such as unanticipated costs incurred by grantees in program 
implementation due to changes in market conditions, are unable to 
provide the total number of homeownership opportunities proposed in 
their applications. Remedial action may be taken under Sec. 572.225(d) 
at the time of program closeout. A change has been made in 
Sec. 572.210(f) to permit HUD Field Offices to approve a one year 
extension of the deadline for completion of activities, and the six-
month limit on extensions by Headquarters has been deleted.
    Section 572.135(c), which concerns the use of sale and resale 
proceeds, is changed to remove the prohibition against ``commingling'' 
of HOPE 3 grant or match funds with sale and resale proceeds. Under the 
current regulation, grantees have found it difficult to use their grant 
funds within the required timeframes if they are first required to 
utilize their sale and resale proceeds. The problem is compounded 
because grantees must use their sale proceeds within one year of 
receipt even though the accumulated amount of sale proceeds is often 
not sufficient to carry out a viable activity. This rule change will 
allow grantees to expeditiously use their resale and sale proceeds to 
carry out eligible activities by permitting the proceeds to be used at 
the same time on the same properties with grant or match funds. 
However, since eligible uses of grant or match funds are somewhat more 
limited than uses of sale/resale proceeds, grantees should assure that 
they maintain records sufficient to document the eligible use of both 
types of funds in accordance with the HOPE 3 Program regulations.
    In addition to the above change, the last sentence of 
Sec. 572.135(c) has been revised. This provision required that the 
grant recipient, or any other entity approved by HUD to administer the 
sale and resale proceeds, remain responsible to comply with the 
existing requirements of the HOPE 3 Program notwithstanding closeout of 
the HOPE 3 grant. The revision provides that HUD may specify 
alternative requirements, to the extent permitted by then applicable 
law, for the approved entity to follow.
    A new paragraph (g) has been added at Sec. 572.210 in reference to 
program closeout in anticipation of the issuance of additional guidance 
that is currently being developed.
    Finally, the references to the 33 percent match requirement in 
Sec. 572.210 and Sec. 572.220 are amended to reflect a legislative 
change established by the Multifamily Housing Disposition Reform Act of 
1994 (``1994 Act''), which reduced the match requirement from 33 
percent to 25 percent of the amount of the implementation grant. The 
language of the regulation reflects the fact that this legislation 
affects only grants awarded by HUD (based on the date of HUD obligation 
of funds) after April 11, 1994, the effective date of the 1994 Act. 
Therefore, all grants made pursuant to the FY 1995 HOPE 3 NOFA recently 
published will be governed by the 25 percent match requirement.

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. The purpose of the changes is to correct 
provisions of the final rule which unnecessarily create operational 
difficulties and to streamline program implementation. As such, prior 
notice and comment are unnecessary under 24 CFR part 10.

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.

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. The rule governs the procedures under which HUD will make 
assistance available to applicants under a program designed to provide 
homeownership opportunities to low-income families and individuals.

Regulatory Agenda

    This interim rule was not listed in the Department's Semiannual 
Agenda of Regulations published on May 8, 1995 (60 FR 23368, 23394) 
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. This rule only 
clarifies existing requirements without significantly affecting the 
relationship between the Federal government and other public bodies or 
the distribution of power and responsibilities among various levels of 
government.

Impact on the Family

    The General Counsel, as the designated official under Executive 
Order 12606, The Family, has determined that this interim rule would 
have an indirect, though beneficial, impact on family formation, 
maintenance, and general well-being. Assistance provided under this 
rule can be expected to support family values, by helping families 
achieve security and independence; and by enabling them to live in 
decent, safe, and sanitary 

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housing. As such, it is not subject to further review under the Order.

    The Catalog of Federal Domestic Assistance Number for the HOPE 3 
Program is 14.240.

List of Subjects in 24 CFR Part 572

    Condominiums, Cooperatives, Fair housing, Government property, 
Grant programs-housing and community development, Low and moderate 
income housing, Nonprofit organizations, Reporting and recordkeeping 
requirements.

    Accordingly, part 572 of title 24 of the Code of Federal 
Regulations, is amended as follows:

PART 572--HOPE FOR HOMEOWNERSHIP OF SINGLE FAMILY HOMES PROGRAM 
(HOPE 3)

    1. The authority citation for part 572 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d) and 12891.

    2. In Sec. 572.5, the definition of ``Comprehensive Housing 
Affordability Strategy (CHAS)'' is removed, and the definition of 
``Consolidated plan'' is added in alphabetical order, to read as 
follows:


Sec. 572.5   Definitions.

* * * * *
    Consolidated plan means the document that is submitted to HUD that 
serves as the planning document of the jurisdiction, in accordance with 
24 CFR part 91.
* * * * *
    3. In Sec. 572.120, paragraph (a)(1) is revised to read as follows:


Sec. 572.120   Affordability standards.
    (a) Initial affordability. (1) The monthly expenditure for 
principal, interest, taxes, and insurance by an eligible family that is 
required under the financing both for the acquisition and for the 
rehabilitation in accordance with Sec. 572.100(d) of a unit (whether 
the required rehabilitation occurs before or after the family takes 
title) must be not less than 20 percent and not more than 30 percent of 
one-twelfth of the annual income of the family used for the purpose of 
determining eligibility under Sec. 572.110(a). (For the purpose of 
determining affordability of the family, the recipient may, at its 
option, adjust downward the annual incomes of eligible families using 
reasonable standards and procedures consistently applied.) HUD may 
approve a justified request for a floor lower than 20 percent to avoid 
undue hardship to families, such as where the cost of utilities is 
high.
* * * * *
    4. In Sec. 572.135, paragraph (c) is revised to read as follows:


Sec. 572.135   Use of proceeds from sales to eligible families, resale 
proceeds, and program income.

* * * * *
    (c) Requirements for use of sale and resale proceeds. Sale and 
resale proceeds must be committed for approved activities within one 
year of receipt. All sale and resale proceeds must be accounted for by 
the recipient, and 50 percent of all resale proceeds received by the 
recipient must be returned to HUD, as described in paragraph (b) of 
this section. Recipients may use up to 15 percent of their sale and 
resale proceeds for administrative expenses to expand their HOPE 3 
program and provide additional homeownership opportunities. Recipients 
must retain records on the use of these funds to the same level of 
detail as required of grant funds under the HOPE 3 system or whatever 
records HUD otherwise prescribes. The recipient, and any other entity 
approved by HUD to administer the sale and resale proceeds, remain 
responsible to comply with the requirements of this part, or such other 
requirements as HUD may prescribe (consistent with then applicable law) 
in closeout procedures or agreements.
* * * * *
    5. Section 572.210 is amended by revising the first sentence of 
paragraph (e)(1) and paragraph (f), and by adding a new paragraph (g), 
to read as follows:


Sec. 572.210   Implementation grants.

* * * * *
    (e) Matching requirement. (1) Except as provided in paragraph 
(e)(2) of this section, recipients of implementation grants must assure 
that matching contributions equal to not less than 33 percent (or 25 
percent for grants awarded by HUD after April 11, 1994) of the amount 
of the implementation grant will be provided from non-Federal sources 
to carry out the homeownership program. * * *
    (f) Deadline for Completion. A recipient must spend all 
implementation grant amounts within four years from the effective date 
of the grant agreement. The HUD Field Office may approve a request to 
extend the deadline not to exceed one year. HUD Headquarters may 
approve a further request to extend the deadline where it determines an 
extension is warranted under the circumstances.
    (g) Program closeout. Recipients will comply with closeout 
procedures as issued by HUD.
    6. Section 572.220 is amended by revising the first sentence of 
paragraph (a)(1), and the example following paragraph (b)(2)(ii), to 
read as follows:


Sec. 572.220   Implementation grants--matching requirements.

    (a) General Requirements. (1) Each recipient must assure that 
matching contributions equal to not less than 33 percent (or 25 percent 
for grants awarded after April 11, 1994) of the amount of the 
implementation grant shall be provided from non-Federal sources to 
carry out the homeownership program. * * *
* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *

    Example: If the grant amount is $600,000, the recipient must 
assure the provision of at least $198,000 (33 percent of grant) or 
$150,000 (25 percent of the grant, if awarded after April 11, 1994) 
from non-Federal sources, as applicable. Contributions for 
administrative costs that may be counted toward the match may not 
exceed $42,000 (7 percent of the grant amount of $600,000). Although 
a recipient can spend more than this on administrative costs, it may 
not be counted towards the match. In addition, the recipient must 
provide contributions covering the remaining $156,000 
($198,000-$42,000) or the remaining $108,000 ($150,000-$42,000 for 
grants awarded after April 11, 1994) required for the match from 
non-Federal sources.
* * * * *
    7. Section 572.400 is revised to read as follows:


Sec. 572.400   Consolidated plan.

    Applicants must provide a certification of consistency with the 
approved consolidated plan, in accordance with 24 CFR 91.510.

    Dated: June 13, 1995.
Andrew Cuomo,
Assistant Secretary for Community Planning and Development.
[FR Doc. 95-17015 Filed 7-11-95; 8:45 am]
BILLING CODE 4210-29-P