[Federal Register Volume 60, Number 227 (Monday, November 27, 1995)]
[Rules and Regulations]
[Pages 58446-58454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28746]




[[Page 58445]]

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Part III





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 103 and 125



Fair Housing Initiatives Program; Final Rule

  Federal Register / Vol. 60, No. 227 / Monday, November 27, 1995 / 
Rules and Regulations  

[[Page 58446]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Fair Housing and Equal 
Opportunity

24 CFR Parts 103 and 125

[Docket No. FR-3480-F-03]
RIN 2529-AA62


Fair Housing Initiatives Program

AGENCY: Office of the Assistant Secretary for Fair Housing and Equal 
Opportunity, HUD.

ACTION: Final rule.

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SUMMARY: This final rule amends the Fair Housing Initiatives Program 
(FHIP) regulation at 24 CFR part 125 to provide for the implementation 
of statutory amendments pertaining to private enforcement initiatives; 
the funding of fair housing organizations; and the implementation of 
national (including national fair housing month), regional and local, 
and community-based education and outreach programs. In addition, it 
corrects a cross-reference contained in part 103.

DATES: Effective date: December 27, 1995.

FOR FURTHER INFORMATION CONTACT: Maxine Cunningham, Director, Office of 
Fair Housing Initiatives and Voluntary Programs, Room 5234, 451 Seventh 
Street, SW., Washington, DC 20410-2000. Telephone number (202) 708-
0800. A telecommunications device (TDD) for hearing and speech impaired 
persons is available at (202) 708-9300. (These are not toll-free 
numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

    The information collection requirements contained in Sec. 125.105 
of this rule have been approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520), and assigned OMB control number 2529-0033. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a valid 
control number.

II. Background

A. Program Authority and Description

    The Fair Housing Act--Title VIII of the Civil Rights Act of 1968, 
as amended, 42 U.S.C. 3601-19--charges the Secretary of Housing and 
Urban Development with responsibility to accept and investigate 
complaints alleging discrimination based on race, color, religion, sex, 
handicap, familial status or national origin in the sale, rental, or 
financing of most housing, and in other real estate-related 
transactions. In addition, the Fair Housing Act directs the Secretary 
to coordinate with State and local agencies administering fair housing 
laws, and to cooperate with and render technical assistance to public 
or private entities carrying out programs to prevent and eliminate 
discriminatory housing practices.
    Section 561 of the Housing and Community Development Act of 1987 
(1987 Act), 42 U.S.C. 3616 note, established the Fair Housing 
Initiatives Program (FHIP) to strengthen the Department's enforcement 
of the Fair Housing Act and to further fair housing. This program 
assists projects and activities designed to enhance compliance with the 
Fair Housing Act and substantially equivalent State and local fair 
housing laws. Implementing regulations are found at 24 CFR part 125.
    Section 905 of the Housing and Community Development Act of 1992 
(HCDA 1992) (Pub. L. 102-550, approved October 28, 1992), substantially 
amends section 561 of the Housing and Community Development Act of 
1987. On April 1, 1993, the Department published an Advance Notice of 
Proposed Rulemaking (ANPR) (58 FR 17172) requesting comment on HUD's 
implementation of section 905 of the Housing and Community Development 
Act of 1992. The Department received three comments in response to the 
ANPR.
    On August 29, 1994, HUD published a proposed rule to amend the Fair 
Housing Initiatives Program (59 FR 44596). HUD invited public comments 
for consideration in drafting a final rule. During the comment period, 
which ended October 28, 1994, HUD received 15 public comments, 7 from 
individuals (6 of these being identical form comments submitted in 
support of comments submitted by an individual broker), 5 from fair 
housing enforcement organizations, 1 from an organization representing 
realtors, 1 from an organization representing lenders, and 1 from a 
lending firm. These comments are discussed in the following section.

B. Public Comments on the Proposed Rule

    The public commenters focused on the following issues, listed with 
their proposed rule section numbers:
    1. Definition of Expert Witness: Sec. 125.103.
    2. Definition of Meritorious Claims: Sec. 125.103.
    3. Waivers: Sec. 125.106.
    3. Eligible Activities: Sec. 125.303.
    4. Funding for Regionally Produced and Locally Produced Media 
Programs: Secs. 125.303(b)(1) & 125.303(c).
    5. Additional Points for Cooperating with Real Estate Industry 
Organizations: Sec. 125.303(b)(2)(i).
    6. Community-based programs: Sec. 125.303(d).
    7. Coordination of Activities: Sec. 125.303(f).
    8. Multi-year Grants Subject to Annual Performance Evaluation: 
Sec. 125.401.
    9. Guidelines for Private Enforcement Testing: Sec. 125.405.
    10. Continued Development of Existing Organizations: Sec. 125.502.
    11. Operating Budget Limitations: Sec. 125.502(c).
    12. Establishing New Organizations: Sec. 125.503.
    13. Awarding Funding to Most Resource-Poor Applicant.
    14. Distribution of FHIP Funds According to an Allocation Formula.
    15. Impact on Small Entities--Regulatory Flexibility Act.
    16. Other Miscellaneous Comments.
Definitions of Expert Witness and (Qualified) Fair Housing 
Organization: Proposed Section 125.103
    One commenter supported the definition of expert witness that would 
permit reimbursement for expert witness fees in cases that settle 
before the experts testify, and the requirement in the definitions of 
fair housing enforcement organization and qualified fair housing 
enforcement organization that eligible organizations must have 
conducted complaint investigation, testing and enforcement activities 
for prescribed periods of time.
    Department's response: No response is necessary, since this comment 
agrees with the proposed rule.
Definition of Meritorious Claims: Proposed Section 125.103
    In Sec. 125.103 of the proposed rule, the Department defines 
meritorious claims to mean ``enforcement activities that resulted in 
lawsuits, consent decrees, legal settlements, HUD conciliations and 
agency initiated settlements with the outcome of monetary awards for 
compensatory and/or punitive damages to plaintiffs or complaining 
parties, or affirmative relief and monitoring.''
    Two commenters with six concurring commenters objected to the 
proposed rule replacing ``bona fide allegation'' with the ``meritorious 
claim'' standard. These commenters asserted that the proposed rule 
change will allow fair housing organizations to engage in harassing 
behavior, and that the 

[[Page 58447]]
meritorious claim standard will make any business that has made an 
economic decision to settle out of court an instant target of fair 
housing groups.
    One commenter also felt that the definition in the proposed rule is 
too broad since almost every claim falls into the proposed definition. 
This comment recommended that the Department change the definition of 
meritorious claim to read: ``enforcement activities that resulted in a 
monetary award for compensatory or punitive damages, or a settlement 
for an amount significantly in excess of the normal costs of defense.''
    In contrast, two commenters supported the Department's decision to 
define meritorious claims, but suggested that ``affirmative relief and 
monitoring'' require more than an agreement with a real estate company, 
lender or insurance company to ``promote'' Fair Housing. These 
commenters recommended that HUD define affirmative relief to mean 
developing an explicit marketing program to gain customers, building or 
renovating a branch office, providing below market rate loans to 
targeted neighborhoods, hiring minority employees, and changing the 
compensation basis for commissioned loan officers.
    Department's response: Some of these comments have misinterpreted 
the role of ``meritorious claims'' in the FHIP regulation. This 
definition is used for the purpose of defining the terms fair housing 
enforcement organization and qualified fair housing enforcement 
organization. To qualify as one of these organizations, it is 
necessary, under the statute, to be ``engaged in complaint intake, 
complaint investigation, testing for fair housing violations and 
enforcement of meritorious claims'' (emphasis added).
    As for the commenters that suggested additional definition of the 
phrase ``affirmative relief and monitoring'' as used in meritorious 
claims, the Department believes that, taken as a whole, the proposed 
rule's definitions of fair housing enforcement organization and 
qualified fair housing enforcement organization are sufficiently 
stringent to ensure that only experienced organizations qualify. 
Meritorious claims'' is only one element in these definitions, which 
also include the elements of complaint intake, complaint investigation, 
and testing for fair housing violations.
    This definition is clarified in the final rule to include 
conciliationsith substantially equivalent agencies (under 24 CFR 
115.6).
Waivers: Proposed Section 125.106
    Two commenters objected to the waiver provision of Sec. 125.106. 
One commenter recognized the need for flexibility, but suggested that 
any waiver to the rule should be subject to public comment.
    Department's response: The very purpose of the waiver provision is 
to provide needed flexibility that would be lost by subjecting each 
waiver to public comment. Such a waiver provision is a common feature 
of many HUD rulemakings (see the notice, ``Waiver of Regulations and 
Directives Issued by HUD; Supersession of Redelegations of Authority,'' 
at 56 FR 16337, April 22, 1991). The waiver provision at Sec. 125.106 
is modified by adding the phrase ``Upon determination of good cause,'' 
and provides that the waiver be issued by the Assistant Secretary.
    As part of its overall process of reinventing regulations, the 
Department is developing a separate waiver provision rule that would 
apply to every HUD regulation. When this cross-cutting regulation 
becomes effective, this program-specific waiver provision will be 
eliminated.
Eligible Activities: Proposed Section 125.203
    One commenter suggested adding the following activities to 
Sec. 125.203: (1) Linking fair housing organizations regionally in 
enforcement activities designed to combat broader housing market 
discriminatory practices; (2) discovering and providing remedies for 
discrimination in the public and private real estate markets and real 
estate related transactions, including, but not limited to, making or 
purchasing of loans or the provision of other financial assistance 
sales and rentals of housing and housing advertising; and (3) carrying 
out special projects, including the development of prototypes to 
respond to new or sophisticated forms of discrimination against persons 
protected under the Fair Housing Act.
    Department's response: Applications for the activities listed would 
not be excluded from consideration, even without being specifically 
listed. The preface to the list of eligible activities at Sec. 125.203 
stated that eligible activities ``may include (but are not limited to) 
the following:''. By only suggesting activities that would be 
acceptable without attempting to provide an exhaustive or exclusive 
list, this approach may have caused some confusion by seeming to confer 
exclusive status on the listed activities. To prevent such problems, 
and as a part of the Department's efforts to streamline its rules and 
eliminate unnecessary regulatory verbiage, such advisory, non-exclusive 
lists are being eliminated from the final rule. The final rule provides 
at Sec. 125.104(d) that eligible activities will be announced in 
Notices of Funding Availability published in the Federal Register.
Funding for Regionally Produced and Locally Produced Media Programs: 
Proposed Sections 125.303(b)(1) & 125.303(c)
    Two commenters objected to permitting regional and local education 
and outreach funds to be used to develop radio, television and print 
public service announcements. One of these argued that it is not an 
efficient expenditure of limited funds, since money will be wasted 
duplicating what should be developed and produced on a national level. 
This commenter suggested that funds should be used to develop a high 
quality national media campaign, and HUD should provide remaining 
resources to other groups to disseminate the campaign.
    Department's response: A complete ban on the development of 
regional and local media materials is not appropriate. The Department 
seeks to encourage innovation while avoiding duplication in its award 
of FHIP funds.
Additional Points for Cooperating with Real Estate Industry 
Organizations: Proposed Section 125.303(b)(2)(i)
    One commenter supported the proposed rule's giving an applicant 
preference points if the applicant demonstrates cooperation with real 
estate industry organizations.
    In contrast, two commenters objected to HUD encouraging cooperation 
with the real estate industry by awarding ``preference points'' to 
applicants which cooperate with the real estate industry. One of these 
commenters argued that industry would not cooperate or otherwise 
support an effort that would encourage people to file complaints 
against members of the industry.
    Department's response: Although HCDA 1992 section 905, the 
statutory amendment and expansion of FHIP, acknowledges (in subsection 
905(a), Findings) the evidence of continuing and pervasive 
discrimination in housing markets, it also recognizes that ``continuing 
educational efforts by the real estate industry are a useful way to 
increase understanding by the public of their fair housing rights and 
responsibilities''. Later, in subsection 905(d)(1), the statute 
provides that, ``The Secretary shall encourage cooperation with real 
estate industry organizations in the national education 

[[Page 58448]]
and outreach program.'' The Department wishes to encourage every effort 
to reach the goal of compliance with the letter and the spirit of the 
Fair Housing Act, and believes, along with the Congress, that the real 
estate industry can make valuable contributions to achieving this goal. 
The two comments disagreeing with the preference for cooperation with 
the industry assume, justifiably, that persons aware of their rights 
would more likely act to enforce those rights when they are violated. 
However, this assumption does not lead to the conclusion that the 
industry charged with observing those rights would be uncooperative in 
informing the public and its individual members of the industry's 
responsibilities. To the contrary, the industry would benefit through 
reduced compliance costs from active engagement in informing the public 
of their rights and the resulting greater awareness of its own 
responsibilities. Further, it would be fair to assume that the national 
goals of the Fair Housing Act can be more quickly and efficiently 
achieved with the active, positive participation of industry than 
without it.
Community-Based Programs: Proposed Section 125.303(d)
    One commenter objected to HUD's interpretation of the term 
``community based activities'' in the authorizing statute to allow HUD 
to set aside a special funding for community based neighborhood groups. 
This commenter argued that Congress intended the term ``community based 
activities'' to mean that education and outreach activities could be 
developed for local communities by fair housing organizations or other 
eligible applicants.
    Department's response: Although this comment is not relevant to the 
rule itself, which does not address special funding for community based 
groups, the Department agrees that education and outreach activities 
could be developed for local communities by fair housing organizations 
or other eligible applicants. However, this comment provides yet 
another opportunity for the Department to stress that in order to be 
flexible and responsive to diverse needs, the FHIP will be administered 
so as to permit the targeting of funds in NOFAs to specific types of 
activities, locations, and recipients.
    The description of activities that are ``community-based'' in scope 
is also modified in the final rule to use the more familiar term 
``neighborhood'' rather than ``geographic area.''
Coordination of Activities: Proposed Section 125.303(f)
    One commenter suggested expanding Sec. 125.303(f) to require that a 
private FHO provide evidence with the application that it has consulted 
with State and/or local public enforcement agencies to coordinate 
activities to be funded under the Private Enforcement Initiative with 
existing and/or planned public enforcement efforts.
    Department's response: The Department disagrees with this comment. 
Consultation and coordination of public and private efforts could have 
a negative impact on an applicant's ability to maintain the 
confidentiality of proposed testing targets and strategies.
Multi-Year Grants Subject to Annual Performance Evaluation: Proposed 
Section 125.401
    Five commenters supported making funding of PEI multi-year grants 
subject to a performance review of the previous year's activities. One 
of these commenters suggested that HUD solicit comments from interested 
parties, including those involved as defendants to FHIP funded testing 
complaints, when conducting the performance review. Two of these 
commenters also suggested that HUD continue funding if HUD fails to 
complete the review in a timely fashion since a recipient may not have 
the cash reserves to maintain staff until a review is completed. These 
two commenters also suggested that HUD consider four year funding 
cycles since many enforcement actions require up to four years or more 
to complete litigation, or monitor requirements of consent decrees or 
HUD conciliations.
    Department's response: Each of these comments may be implemented by 
the Department in a NOFA or through its own internal procedures. HUD 
has already initiated multi-year funding in its FHIP NOFAs and intends 
to continue to do so. HUD will not discontinue funding if it is at 
fault for not completing a performance review in a timely fashion, but 
if the Department is unable to complete its review due to recipient 
deficiencies (such as inadequate accounting for funds and activities), 
funds may be discontinued. Interested parties may contact the 
Department at any time with information relevant to its evaluation of 
FHIP-funded recipients. With respect to comments from those involved as 
defendants as a result of FHIP-funded testing, while these persons are 
free to comment, their status as defendants in a pending action would 
normally preclude the Department from acting on their comments while 
the action is pending.
Eligible Applicants Under the Private Enforcement Initiative: Proposed 
Section 125.402
    One commenter objected to awarding PEI funds to non-testing groups. 
Only groups with at least one year of experience in complaint intake, 
investigation, testing, and enforcement should get PEI awards.
    Department's response: The Department agrees with this and related 
comments. Please refer to the discussion under the heading, ``Continued 
Development of Existing Organizations: Proposed 125.502'', below.
Guidelines for Private Enforcement Testing: Proposed Section 125.405
    Section 125.405 is currently entitled, ``Guidelines for private 
enforcement testing.'' The proposed rule would remove the testing 
guidelines in Sec. 125.405, but a new Sec. 125.107 would prohibit 
testers from having prior felony convictions or convictions of crimes 
involving fraud or perjury, and would require that testers receive 
training or be experienced in testing procedures and techniques.
    Three commenters with six concurring commenters objected to the 
absence of a consistent standard for conducting testing under the 
proposed rule. In general, these commenters criticized the Department 
for removing most of Sec. 125.405, and stressed the need for regulatory 
controls to ensure that testers are objective and credible. These 
commenters also stressed the need for the Department to ensure that 
grantees do not have any conflicts of interest which might interfere 
with testing.
    One of these commenters with six concurring commenters asserted 
that HUD erroneously assumes that an established fair housing 
organization knows how to conduct valid testing and/or has the 
integrity to conduct valid testing. These commenters also alleged that 
not all reports are accurate and true, and recommended that HUD more 
closely scrutinize information submitted by fair housing organizations 
in grant applications and quarterly reports. They agreed the final rule 
should prohibit a fair housing organization receiving FHIP funding from 
owning a for-profit subsidiary which directly competes with licensed 
real estate brokers, and that at a minimum, a for-profit subsidiary of 
a fair housing organization should not have any access to the ``set-
aside'' apartments that are included in a settlement agreement with a 
fair housing organization. 

[[Page 58449]]

    Three commenters made suggestions as to specific criteria which 
should be contained in the final rule. One commenter suggested that the 
final rule require the following: (1) Grantees of FHIP testing and 
enforcement funds must demonstrate that testers have the training or 
experience to properly conduct tests; (2) Testers must objectively 
report their findings; (3) Grantees may not compromise the integrity of 
tests and tester reports; (4) Grantees must ensure that potential 
conflicts of interest do not interfere with the design, conduct or 
evaluation of tests; and (5) Grantees will file complaints/lawsuits as 
a result of testing only if there is a reasonable cause to believe that 
a violation of the Fair Housing Act occurred.
    This commenter further objected to general testing where no bona 
fide allegation of discrimination exists, stating that general testing 
poses a hardship on the industry by taking valuable time for the 
testing to determine whether discrimination exists and takes resources 
away from testing those situations where there is an allegation of 
discrimination. This commenter opined that the purposes of the FHIP 
program support requiring a bona fide allegation prior to commencement 
of testing.
    One commenter with six concurring commenters recommended that HUD 
require the following before initiating any action: (1) Fair housing 
organizations submit for HUD review and approval detailed documentation 
concerning any ``bona fide'' allegation of fair housing violations; (2) 
HUD give written approval to a fair housing organization before 
commencement of testing; and (3) once the fair housing organization 
begins testing, the fair housing organization submits to HUD detailed 
activity logs and written test conclusions.
    Similarly, yet another commenter suggested that HUD maintain the 
following in the final rule: (1) Recipients of HUD FHIP funding may not 
have an economic interest in the outcome of the test for 
discrimination, have a specific bias toward the business tested, be a 
licensed competitor of the respondent, be related to one of the parties 
in the case, or have any other specific bias or conflict of interest 
which would prevent or limit his or her objectivity; (2) Testers may 
not communicate their test results with one another; and (3) Testers 
must report all relevant information.
    In contrast, three commenters supported the removal of testing 
guidelines. One of these commenters reasoned that federal courts and 
HUD ALJs are in the best position to determine the validity of testing 
procedures. This commenter also stated that testing is continually 
evolving to accommodate changing discriminatory practices identified in 
the market place, and suggested that the rule should be flexible enough 
to accommodate changing practices. However, the commenter suggested 
that the final rule provide that HUD will scrutinize applicants that 
have little or no legal administrative results for enforcement 
activities.
    Department's response: HUD agrees with the commenters who recommend 
conflict of interest provisions be maintained in the rule, and most of 
the conflict provisions at Sec. 125.405(c)(3) of the current rule are 
included with the tester provisions at Sec. 125.107 of this final rule.
    HUD also agrees with the commenter who stated that testing is 
continually evolving to accommodate changing discriminatory practices 
identified in the market place, and that the rule should be flexible 
enough to accommodate changing practices. For these reasons, the 
Department is not including additional specific requirements for 
testing in this final rule, including the requirement for a bona fide 
allegation prior to testing.
Continued Development of Existing Organizations: Proposed Section 
125.502
    Two commenters objected to HUD making the third category of 
applicants (``[n]onprofit groups organizing to build their capacity to 
provide fair housing enforcement'') eligible to receive FHIP funding 
under Sec. 125.502. One of the commenters suggested that funding for 
this category is already available under Sec. 125.503, Establishing New 
Organizations, and that funding for ``capacity building'' should only 
be used to assist existing groups. This commenter also felt that since 
all of the activities under private enforcement are eligible for 
funding, HUD is undermining the intent of the statute to promote high 
quality enforcement activities. The commenter warned that HUD should 
consider the practical risks of providing enforcement funds to 
organizations with no proven track record. This commenter further 
disagreed with HUD that making this category of nonprofit groups 
eligible for funding will increase the number of private non-profit 
fair housing organizations, and suggested that qualifications are more 
important than numbers. Finally, this commenter argued that mere status 
as a nonprofit organization should not qualify the organization to 
receive funds for fair housing enforcement since many nonprofits 
opposing fair housing efforts will be eligible.
    Department's response: The Department does not agree with these 
comments. Section 905 specifically includes nonprofit groups organizing 
to build their capacity to provide fair housing enforcement as eligible 
for continued development funding. If continued development funding 
were limited to fair housing organizations, it would not differ from 
the Private Enforcement Initiative, and there would be no need for this 
separate category of FHIP activities. As distinct from activities under 
proposed Sec. 125.503, which are specifically intended to result in the 
establishment of new organizations, the activities funded under 
proposed Sec. 125.502 are intended to permit existing organizations, 
whether or not they are already fair housing organizations, to build 
their capacity to provide fair housing enforcement. The argument that 
nonprofits opposing fair housing efforts will be funded is not valid, 
since funds are competitively awarded after an evaluation of the 
proposed activities. Activities that oppose fair housing efforts would 
not be funded, and any grantee who did engage in activities opposing 
fair housing activities would be liable for misuse of funds.
    To preserve the distinct characters of the Private Enforcement 
Initiative and the Fair Housing Organization Initiative highlighted by 
these comments, and in response to a comment discussed above (Eligible 
Applicants under the Private Enforcement Initiative: Proposed 
Sec. 125.402), the final rule limits eligible applicants for PEI 
funding to qualified fair housing organizations (QFHOs) and fair 
housing enforcement organizations with at least 1 year of experience in 
complaint intake, complaint investigation, testing for fair housing 
violations and enforcement of meritorious claims.
Establishing New Organizations: Proposed Section 125.503
    One commenter suggested that the final rule contain criteria that 
an applicant must satisfy to establish a new organization. The 
commenter suggested that an applicant should have a firm grasp of all 
federal, state and local fair housing laws, successful experience in 
investigating, testing, conciliating and litigating fair housing 
complaints or access to training to receive high quality assistance in 
the development of the new organization.
    With regard to targeted areas (Sec. 125.503(c)), this commenter 
also 

[[Page 58450]]
suggested that HUD should consider funding applicants if the applicant 
demonstrates the need--the existence of a FHAP or QFHO within the state 
should never outweigh the documented need for private enforcement 
activities.
    Department's response: The Department initially reasoned, in the 
proposed rule, that addressing the national need for private fair 
housing enforcement organizations would best be served by making this 
category of funding for establishing new organizations broadly 
available. The commenter emphasizes the broad range of specialized 
knowledge and experience that would be necessary to establish a 
successful, efficient enforcement organization, and the Department 
agrees with the validity of these observations. In order to accommodate 
both concerns (national need and specialized knowledge), the final rule 
provides that QFHOs, FHOs, and other organizations with at least three 
years of experience in complaint intake, complaint investigation, and 
enforcement of meritorious claims involving the use of testing evidence 
are eligible applicants for funding to establish new organizations. 
This will maximize the pool of eligible applicants, while still 
limiting it to those with substantial fair housing enforcement 
experience.
    The Department also agrees with the comment that the rule should 
permit funding applications for areas with a demonstrated need for a 
fair housing organization. The Department, in its FHIP NOFA published 
annually in the Federal Register, may identify targeted unserved and 
underserved areas that will receive priority for funding under the 
Establishing New Organizations component of the Fair Housing 
Organizations Initiative. The final rule provides that an applicant may 
also seek funding to establish a new organization in a locality not 
identified as a target area, but in such a case, the applicant must 
submit sufficient evidence to establish the proposed area as being 
currently underserved by fair housing enforcement organizations or as 
containing large concentrations of protected classes.
Awarding Funding to Most Resource-Poor Applicant
    In the preamble of the proposed rule, the Department specifically 
solicited public comment on whether it should award FHIP funds to the 
applicant that is most resource-poor when choosing between two 
otherwise equally deserving applicants. The Department received three 
public comments on this issue. All three commenters objected to using 
the ``resource-poor'' factor to award funding in the event of a tie 
between two applicants.
    Two commenters stated that a QFHO or FHO may have solid funding for 
particular activities, but the specific activity for which it seeks 
FHIP funds may be one that its local funder will not support. These 
commenters also suggested that HUD's objective should not be to 
distribute the funds in the most efficient manner, but rather in a 
manner that will have the greatest impact on fair housing enforcement.
    Another commenter supported funding resource-poor organizations, 
but felt that funding for more substantial organizations was more 
critical.
    Department's response: The Department will provide for tie-breaking 
criteria in individual NOFAs, and in that way, it will be able to use a 
variety of factors, such as the term of the proposed activities and the 
amount of funding requested, as appropriate in the context of the 
priorities identified for a particular funding round.
Distribution of FHIP Funds According to an Allocation Formula
    One comment in response to the ANPR suggested that HUD fund FHIP as 
a noncompetitive, entitlement category to provide general operating 
funds. In the proposed rule, HUD responded that with the present level 
of FHIP funding, entitlement funding would not be an efficient method 
of implementing FHIP. However, HUD stated that it might consider such 
an approach in the future, depending upon the amount of future 
appropriations, and the number of QFHOs. HUD also requested public 
comment on the issue of distributing FHIP funds according to an 
allocation formula, and on what criteria might be used to provide for 
the fair and equitable distribution of funds on such a basis.
    The Department received three comments from the public on this 
issue. One commenter recommended that FHIP funding should be an 
entitlement program, and that HUD should give preference to fair 
housing groups which have been in existence for more than 5 years, with 
a history of litigation.
    Two commenters supported the concept of FHIP as an entitlement 
program, and offered to work with HUD in developing an equitable 
formula. However, no criteria for distribution were suggested.
    Department's response: Although the comments received on this issue 
favored a formula distribution, the lack of suggestions for specific 
distribution criteria, and the continuing limiting factor of the 
amounts made available for funding require that funding continue on a 
competitive basis.
Miscellaneous Comments
    One commenter with six concurring commenters suggested that HUD 
adopt the following as part of the final rule: (1) The Department 
should provide an administrative procedure for members of the public to 
file complaints against fair housing organizations that engage in 
questionable practices, and if an ALJ determines that the litigation is 
baseless, then HUD should deny further FHIP funding to the offending 
fair housing group for 5 years from the date of the ALJ's 
determination; (2) HUD should require that each fair housing 
organization submit its entire budget to HUD to ensure that FHIP funds 
do not constitute more than 50% of its total budget pursuant to section 
125.502(c)(1); (3) Fair housing groups should have the same monetary 
award limitations as HUD has: $10,000 for the first offense, $25,000 
for the second offense, and $50,000 for the third offense; and (4) HUD 
should require that each fair housing organization file a detailed 
report with HUD on the disbursements of any settlement award, and that 
this report be available for public inspection.
    Department's response: (1) Aggrieved parties may call HUD's 
attention to misconduct on the part of its grantees at any time. 
However, as a general rule, the Department will not act on any matter 
which involves a pending action before a court or other tribunal. 
Because of the broad range of possible findings, the Department does 
not consider a funding ban for any fixed term an appropriate remedy to 
be set in a rule. In reviewing applications, the Department currently 
considers an applicant's experience in formulating and carrying out 
programs to prevent or eliminate discriminatory practices, including 
the applicant's management of past and current FHIP or other civil 
rights projects. Any past misconduct by an applicant is taken into 
account during this review.
    (2) The Department's FHIP NOFAs currently require applicants to 
submit an operating budget that describes the applicant's total planned 
expenditures from all sources, including the value of in-kind and 
monetary contributions, in the year for which funding is sought. This 
is required so that the 50% budget determination pursuant to proposed 
section 125.502(c)(1) may be made. To memorialize this requirement 
under a rule is not necessary.
    (3) Because the authorizing statute does not set monetary award 
limitations on fair housing groups, HUD will not 

[[Page 58451]]
impose them administratively without a clear mandate to do so.
    (4) The laws under which non-profits are organized require them to 
file annual reports, including financial information, which is a matter 
of public record. Beyond this extent, the Department will not require 
additional disclosure.
    One commenter suggested that all privately enforced Fair Housing 
Act actions be reviewed by the Attorney General through use of a 
similar declaration process as in qui tam litigation. This commenter 
further suggested some sort of governmental review/approval of FHIP-
funded litigation counsel and regulatory control/cap for FHIP-funded 
legal fees. In addition, the commenter suggested that the final rule 
address HUD's own liability for frivolous lawsuits brought by private 
litigants under Rule 11 of the Federal Rules of Civil Procedure, and 
contain regulatory protection of proprietary information disclosed with 
the expectation of confidence during the litigation process.
    Department's response: Review by the Attorney General through use 
of a declaration process is beyond the scope of the Department's 
rulemaking and would have to be pursued through a legislative 
amendment. The Department is not liable under Rule 11 of the Federal 
Rules of Civil Procedure for lawsuits brought by private litigants. 
Protection of proprietary information should be pursued under the rules 
of the forum in which an action is brought, and the Department declines 
to address this issue in its rule.
    One commenter supported the continued eligibility of real estate 
organizations to receive educational and outreach funds, but urged HUD 
to make real estate organizations eligible in their own right to 
receive FHIP Educational and Outreach funds. The commenter stated that 
real estate organizations do carry out programs to prevent and 
eliminate discriminatory housing practices. The commenter also asserted 
that real estate organizations provide essential education to both real 
estate professionals and the public on fair housing rights and 
responsibilities, and are in the unique position of having direct 
contact with members of the public at the time of sale, lease or 
purchase.
    Department's response: Real estate organizations are eligible to 
receive educational and outreach funds, in accordance with section 905, 
as ``public or private entities that are formulating or carrying out 
programs to prevent or eliminate discriminatory housing practices''. 
Section 905 recognized the value of real estate organizations in 
continuing educational efforts to increase understanding by the public 
of their fair housing rights and responsibilities, and the Department 
agrees.
    Finally, one commenter recommended that FHIP place emphasis on 
enforcement over education; that FHIP deadlines should be reasonable 
(90 days to apply and staggered for each Initiative); that NOFA 
criteria should be more explicit; and that non-funded proposals should 
be given feedback.
    Department's response: Because of the way the FHIP program is 
organized, it does place more emphasis on enforcement over education. 
Three of the Initiatives basically fund enforcement activities; only 
the Education and Outreach Initiative funds strictly educational 
activities. Issues as to deadlines and criteria are addressed in NOFAs, 
in which the Department makes every effort to assure the efficient and 
equitable distribution of funds. Feedback on proposals is a 
Departmental administrative issue that is outside the scope of this 
rule. Such a service is heavily dependent on the availability of 
resources to the Department.

III. Reinvention of the FHIP Final Rule

    As mentioned in the discussion of the comments on the proposed 
rule, the Department is taking advantage of the publication of this 
final rule to streamline the FHIP rule in accordance with its overall 
effort to reinvent regulations. Rather than amending individual 
sections within part 125, the entire part has been re-drafted to 
eliminate extraneous material such as language that only repeats the 
statutory language, or provisions that are only advisory (rather than 
binding) or non-exclusive, such as lists of suggested activities. The 
rule is not substantively changed beyond those issues addressed in the 
proposed rule and in response to the comments submitted on the proposed 
rule. The result sought is a program that will be more responsive and 
administratively flexible to address the needs recognized in the 
authorizing statute.

IV. Technical Correction to Part 103

    Presently, 24 CFR 103.405(b)(3) makes reference to actions that are 
to be taken ``in accordance with 24 CFR 104.40''. There is no such 
section, and the correct reference should be to 24 CFR 104.410(a). The 
correction is made in this final rule.

V. Findings and Certifications

Regulatory Planning and Review.

    This 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 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.

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 at the above address.

Impact on Small Entities.

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this final rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities. The purpose 
of the rule is to provide funding for fair housing investigation and 
enforcement, and education and outreach activities.

Federalism Impact.

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
states or their political subdivisions, or on the relationship between 
the federal government and the states, or on the distribution of power 
and responsibilities among the various levels of government. As a 
result, the rule is not subject to review under the order. The rule is 
limited to implementing statutorily required revisions to the existing 
Fair Housing Initiatives Program Regulation.

Impact on the Family.

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule has potential 
for a beneficial, although indirect, impact on family formation, 
maintenance, and general well-being. By promoting the values of fair 
housing, the rule would benefit families by seeking to end 
discrimination as a factor in the availability of housing. Accordingly, 


[[Page 58452]]
since the impact on the family is beneficial, although indirect, no 
further review is considered necessary.

List of Subjects

24 CFR Part 103

    Administrative practice and procedure, Aged, Fair housing, 
Individuals with disabilities, Intergovernmental relations, 
Investigations, Mortgages, Penalties, Reporting and recordkeeping 
requirements.

24 CFR Part 125

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

    The Catalog of Federal Domestic Assistance Numbers for the Fair 
Housing Initiatives Program are 14.408, 14.409, 14.410 and 14.413.
    Accordingly, the Department amends parts 103 and 125 of title 24 of 
the Code of Federal Regulations as follows:

PART 103--FAIR HOUSING-COMPLAINT PROCESSING

    1. The authority citation for part 103 continues to read as 
follows:

    Authority: 42 U.S.C. 3601-3619; 42 U.S.C. 3535(d).

    2. In Sec. 103.405, paragraph (b)(3) is revised to read as follows:


Sec. 103.405  Issuance of charge.

* * * * *
    (b) * * *
    (3) Serve the charge and notifications in accordance with 24 CFR 
104.410(a); and
* * * * *
    3. Part 125 is revised to read as follows:

PART 125--FAIR HOUSING INITIATIVES PROGRAM

Sec.
125.103  Definitions.
125.104  Program administration.
125.105  Applications requirements.
125.106  Waivers.
125.107  Testers.
125.201  Administrative Enforcement Initiative.
125.301  Education and Outreach Initiative.
125.401  Private Enforcement Initiative.
125.501  Fair Housing Organizations Initiative.

    Authority: 42 U.S.C. 3616 note; 42 U.S.C. 3535(d).


Sec. 125.103  Definitions.

    In addition to the definitions that appear at section 802 of title 
VIII (42 U.S.C. 3602), the following definitions apply to this part:
    Assistant Secretary means the Assistant Secretary for Fair Housing 
and Equal Opportunity in the Department of Housing and Urban 
Development.
    Department means the Department of Housing and Urban Development 
(HUD).
    Expert witness means a person who testifies, or who would have 
testified but for a resolution of the case before a verdict is entered, 
and who qualifies as an expert witness under the rules of the court 
where the litigation funded by this part is brought.
    Fair housing enforcement organization (FHO) means any organization, 
whether or not it is solely engaged in fair housing enforcement 
activities, that--
    (1) Is organized as a private, tax-exempt, nonprofit, charitable 
organization;
    (2) Is currently engaged in complaint intake, complaint 
investigation, testing for fair housing violations and enforcement of 
meritorious claims; and
    (3) Upon the receipt of FHIP funds will continue to be engaged in 
complaint intake, complaint investigation, testing for fair housing 
violations and enforcement of meritorious claims.
    The Department may request an organization to submit documentation 
to support its claimed status as an FHO.
    FHIP means the Fair Housing Initiatives Program authorized by 
section 561 of the Housing and Community Development Act of 1987 (42 
U.S.C. 3616 note).
    Meritorious claims means enforcement activities by an organization 
that resulted in lawsuits, consent decrees, legal settlements, HUD and/
or substantially equivalent agency (under 24 CFR 115.6) conciliations 
and organization initiated settlements with the outcome of monetary 
awards for compensatory and/or punitive damages to plaintiffs or 
complaining parties, or other affirmative relief, including the 
provision of housing.
    Qualified fair housing enforcement organization (QFHO) means any 
organization, whether or not it is solely engaged in fair housing 
enforcement activities, that--
    (1) Is organized as a private, tax-exempt, nonprofit, charitable 
organization;
    (2) Has at least 2 years experience in complaint intake, complaint 
investigation, testing for fair housing violations and enforcement of 
meritorious claims; and
    (3) Is engaged in complaint intake, complaint investigation, 
testing for fair housing violations and enforcement of meritorious 
claims at the time of application for FHIP assistance.
    For the purpose of meeting the 2-year qualification period for the 
activities included in paragraph (2) of this definition, it is not 
necessary that the activities were conducted simultaneously, as long as 
each activity was conducted for 2 years. It is also not necessary for 
the activities to have been conducted for 2 consecutive or continuous 
years. An organization may aggregate its experience in each activity 
over the 3 year period preceding its application to meet the 2-year 
qualification period requirement.
    The Department may request an organization to submit documentation 
to support its claimed status as a QFHO.
    Title VIII means title VIII of the Civil Rights Act of 1968, as 
amended (42 U.S.C. 3600-3620), commonly cited as the Fair Housing Act.


Sec. 125.104  Program administration.

    (a) FHIP is administered by the Assistant Secretary.
    (b) FHIP funding is made available under the following initiatives:
    (1) The Administrative Enforcement Initiative;
    (2) The Education and Outreach Initiative;
    (3) The Private Enforcement Initiative; and
    (4) The Fair Housing Organizations Initiative.
    (c) FHIP funding is made available in accordance with the 
requirements of the authorizing statute (42 U.S.C. 3616 note), the 
regulation in this part, and Notices of Funding Availability (NOFAs), 
and is awarded through a grant or other funding instrument.
    (d) Notices of Funding Availability under this program will be 
published periodically in the Federal Register. Such notices will 
announce amounts available for award, eligible applicants, and eligible 
activities, and may limit funding to one or more of the Initiatives. 
Notices of Funding Availability will include the specific selection 
criteria for awards, and will indicate the relative weight of each 
criterion. The selection criteria announced in Notices of Funding 
Availability will be designed to permit the Department to target and 
respond to areas of concern, and to promote the purposes of the FHIP in 
an equitable and cost efficient manner.
    (e) All recipients of FHIP funds must conform to reporting and 
record maintenance requirements determined appropriate by the Assistant 
Secretary. Each funding instrument will include provisions under which 
the Department may suspend, terminate or recapture 

[[Page 58453]]
funds if the recipient does not conform to these requirements.
    (f) Recipients of FHIP funds may not use such funds for the payment 
of expenses in connection with litigation against the United States.
    (g) All recipients of funds under this program must conduct audits 
in accordance with part 44 or part 45, as appropriate, of this title.


Sec. 125.105  Application requirements.

    Each application for funding under the FHIP must contain the 
following information, which will be assessed against the specific 
selection criteria set forth in a Notice of Funding Availability.
    (a) A description of the practice (or practices) that has affected 
adversely the achievement of the goal of fair housing, and that will be 
addressed by the applicant's proposed activities.
    (b) A description of the specific activities proposed to be 
conducted with FHIP funds including the final product(s) and/or any 
reports to be produced; the cost of each activity proposed; and a 
schedule for completion of the proposed activities.
    (c) A description of the applicant's experience in formulating or 
carrying out programs to prevent or eliminate discriminatory housing 
practices.
    (d) An estimate of public or private resources that may be 
available to assist the proposed activities.
    (e) A description of the procedures to be used for monitoring 
conduct and assessing results of the proposed activities.
    (f) A description of the benefits that successful completion of the 
project will produce to enhance fair housing, and the indicators by 
which these benefits are to be measured.
    (g) A description of the expected long term viability of project 
results.
    (h) Any additional information that may be required by a Notice of 
Funding Availability published in the Federal Register.

(Approved by the Office of Management and Budget under control 
number 2529-0033. An agency may not conduct or sponsor, and a person 
is not required to respond to, a collection of information unless 
the collection displays a valid control number.)


Sec. 125.106  Waivers.

    Upon determination of good cause, the Assistant Secretary may 
waive, in a published Notice of Funding Availability or other Federal 
Register notice, any requirement in this part that is not required by 
statute.


Sec. 125.107  Testers.

    The following requirements apply to testing activities funded under 
the FHIP:
    (a) Testers must not have prior felony convictions or convictions 
of crimes involving fraud or perjury.
    (b) Testers must receive training or be experienced in testing 
procedures and techniques.
    (c) Testers and the organizations conducting tests, and the 
employees and agents of these organizations may not:
    (1) Have an economic interest in the outcome of the test, without 
prejudice to the right of any person or entity to recover damages for 
any cognizable injury;
    (2) Be a relative of any party in a case;
    (3) Have had any employment or other affiliation, within one year, 
with the person or organization to be tested; or
    (4) Be a licensed competitor of the person or organization to be 
tested in the listing, rental, sale, or financing of real estate.


Sec. 125.201  Administrative Enforcement Initiative.

    The Administrative Enforcement Initiative provides funding to State 
and local fair housing agencies administering fair housing laws 
recognized by the Assistant Secretary under Sec. 115.6 of this 
subchapter as providing rights and remedies which are substantially 
equivalent to those provided in title VIII.


Sec. 125.301  Education and Outreach Initiative.

    (a) The Education and Outreach Initiative provides funding for the 
purpose of developing, implementing, carrying out, or coordinating 
education and outreach programs designed to inform members of the 
public concerning their rights and obligations under the provisions of 
fair housing laws.
    (b) Notices of Funding Availability published for the FHIP may 
divide Education and Outreach Initiative funding into separate 
competitions for each of the separate types of programs (i.e., 
national, regional and/or local, community-based) eligible under this 
Initiative.
    (c) National program applications, including those for Fair Housing 
Month funding, may be eligible to receive, as provided for in Notices 
of Funding Availability published in the Federal Register, a preference 
consisting of additional points if they:
    (1) Demonstrate cooperation with real estate industry 
organizations; and/or
    (2) Provide for the dissemination of educational information and 
technical assistance to support compliance with the housing 
adaptability and accessibility guidelines contained in the Fair Housing 
Amendments Act of 1988.
    (d) Activities that are regional are activities that are 
implemented in adjoining States or two or more units of general local 
government within a state. Activities that are local are activities 
whose implementation is limited to a single unit of general local 
government, meaning a city, town, township, county, parish, village, or 
other general purpose political subdivision of a State. Activities that 
are community-based in scope are those which are primarily focused on a 
particular neighborhood area within a unit of general local government.
    (e) Each non-governmental recipient of regional, local, or 
community-based funding for activities located within the jurisdiction 
of a State or local enforcement agency or agencies administering a 
substantially equivalent (under part 115 of this subchapter) fair 
housing law must consult with the agency or agencies to coordinate 
activities funded under FHIP.


Sec. 125.401  Private Enforcement Initiative.

    (a) The Private Enforcement Initiative provides funding on a 
single-year or multi-year basis, to investigate violations and obtain 
enforcement of the rights granted under the Fair Housing Act or State 
or local laws that provide rights and remedies for discriminatory 
housing practices that are substantially equivalent to the rights and 
remedies provided in the Fair Housing Act. Multi-year funding may be 
contingent upon annual performance reviews and annual appropriations.
    (b) Organizations that are eligible to receive assistance under the 
Private Enforcement Initiative are:
    (1) Qualified fair housing enforcement organizations.
    (2) Fair housing enforcement organizations with at least 1 year of 
experience in complaint intake, complaint investigation, testing for 
fair housing violations and enforcement of meritorious claims. For the 
purpose of meeting this 1 year qualification period, it is not 
necessary that the activities were conducted simultaneously, as long as 
each activity was conducted for 1 year. It is also not necessary for 
the activities to have been conducted for a continuous year. An 
organization may aggregate its experience in each activity over the 2-
year period preceding its application to meet this 1 year qualification 
period requirement.


Sec. 125.501  Fair Housing Organizations Initiative.

    (a) The Fair Housing Organizations Initiative of the FHIP provides 
funding to develop or expand the ability of existing eligible 
organizations to 

[[Page 58454]]
provide fair housing enforcement, and to establish, on a single-year or 
multi-year basis contingent upon annual performance reviews and annual 
appropriations, new fair housing enforcement organizations.
    (b) Continued development of existing organizations.
    (1) Eligible applicants. Eligible for funding under this component 
of the Fair Housing Organizations Initiative are:
    (i) Qualified fair housing enforcement organizations;
    (ii) Fair housing enforcement organizations; and
    (iii) Nonprofit groups organizing to build their capacity to 
provide fair housing enforcement.
    (2) Operating budget limitation. (i) Funding under this component 
of the Fair Housing Organizations Initiative may not be used to provide 
more than 50 percent of the operating budget of a recipient 
organization for any one year.
    (ii) For purposes of the limitation in this paragraph, operating 
budget means the applicant's total planned budget expenditures from all 
sources, including the value of in-kind and monetary contributions, in 
the year for which funding is sought.
    (c) Establishing new organizations.
    (1) Eligible applicants. Eligible for funding under this component 
of the Fair Housing Organizations Initiative are:
    (i) Qualified fair housing enforcement organizations;
    (ii) Fair housing enforcement organizations; and
    (iii) Organizations with at least three years of experience in 
complaint intake, complaint investigation, and enforcement of 
meritorious claims involving the use of testing evidence.
    (2) Targeted areas. FHIP Notices of Funding Availability may 
identify target areas of the country that may receive priority for 
funding under this component of the Fair Housing Organizations 
Initiative. An applicant may also seek funding to establish a new 
organization in a locality not identified as a target area, but in such 
a case, the applicant must submit sufficient evidence to establish the 
proposed area as being currently underserved by fair housing 
enforcement organizations or as containing large concentrations of 
protected classes.

    Dated: August 17, 1995.
Elizabeth K. Julian,
Acting Deputy, Assistant Secretary for Policy and Initiatives, Fair 
Housing and Equal Opportunity.
[FR Doc. 95-28746 Filed 11-24-95; 8:45 am]
BILLING CODE 4210-28-P