[Federal Register Volume 61, Number 180 (Monday, September 16, 1996)]
[Rules and Regulations]
[Pages 48736-48787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22864]



[[Page 48735]]


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Part II





Department of Housing and Urban Development





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24 CFR Parts 91 and 92



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HOME Investment Partnerships Program: Final Rule

  Federal Register / Vol. 61, No. 180 / Monday, September 16, 1996 / 
Rules and Regulations  

[[Page 48736]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91 and 92

[Docket No. FR-3962-F-02]
RIN 2501-AC06


Office of the Secretary; HOME Investment Partnerships Program: 
Final Rule

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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

SUMMARY: This final rule sets forth regulations to implement the HOME 
Investment Partnerships Program (the HOME program). The HOME program 
provides grants to States, units of general local government, 
consortia, and insular areas to implement local housing strategies 
designed to increase homeownership and affordable housing opportunities 
for low- and very low-income Americans.

EFFECTIVE DATE: October 16, 1996.

FOR FURTHER INFORMATION CONTACT: Mary Kolesar, Director, Program Policy 
Division, Office of Affordable Housing Programs, Room 7162, Department 
of Housing and Urban Development, 451 Seventh Street, SW, Washington, 
DC 20410, telephone number (202) 708-2470 (this is not a toll-free 
number). A telecommunications device for hearing- and speech-impaired 
persons (TTY) is available at 1-800-877-8339 (Federal Information Relay 
Service).

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    The HOME Investment Partnerships Act (the HOME Act) (Title II of 
the Cranston-Gonzalez National Affordable Housing Act) was signed into 
law on November 28, 1990 (Pub. L. 101-625), and created the HOME 
Investment Partnerships Program that provides funds to expand the 
supply of affordable housing for very low-income and low-income 
persons. Interim regulations for the HOME Investment Partnerships 
Program were first published on December 16, 1991 (56 FR 65313) and are 
codified 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).
    A proposed rule (60 FR 36012) to modify the HOME allocation formula 
and an interim rule (60 FR 36020) with clarifying changes to the HOME 
regulation and a request for additional comments before the issuance of 
a final rule were published on July 12, 1995. The proposed rule was 
issued as an interim rule on January 23, 1996 (61 FR 1824). Finally, on 
March 6, 1996 (61 FR 9036), an interim rule making a number of 
streamlining amendments to the HOME regulation was published.
    The preamble to the July 12, 1995 interim rule solicited comments 
on various specific policy issues, as well as on any other aspect of 
the HOME regulation, in anticipation of preparing a final rule. This 
rule addresses the comments that were received, and makes the interim 
HOME regulation a final rule.

II. Summary of Comments and Responses

Subpart A--General

    The Department is appreciative of all the public comment on both 
the proposed and interim rules published on July 12, 1995. Thirty seven 
(37) comments were received on the interim rule and twenty-one (21) 
comments were received on the proposed rule from State and local 
participating jurisdictions, nonprofit developers, public interest 
groups and community and nonprofit associations. This rule also 
furthers goals of reinventing government by incorporating public input 
in rulemaking and clarifying statutory language. The Department has 
reviewed every section of the program rules and believes that the rule 
has been substantially reinvented to be clearer and more user friendly.
    The Department in a succession of program rules has attempted to 
make the program rules more simple, and easier to understand and 
administer in adherence with the principles of reinventing government. 
The program experience of State and local participating jurisdictions 
has informed and shaped the program rules in many areas such as the 
recapture/resale provisions for new homebuyers, the nature and timing 
of match, the targeting and operation of tenant-based rental 
assistance.
    Fifteen comments were received on general policy. Twelve commenters 
supported the changes in the seventh interim rule and the growing 
flexibility and simplification of the HOME program. They were pleased 
with the open dialogue enjoyed with HUD staff in working out the 
technical details, as well as with the opportunity to comment on the 
entire body of regulations. One commenter found HOME to be flexible, 
responsive to local needs, and fostering true public/private/community 
collaboration. Another stated that HOME is now the single most 
important and used low-income housing program. However, this commenter 
was also concerned that HOME funds were being substituted for State and 
local funds and requested that the HOME rule specifically prohibit 
this.
    Three commenters felt that HOME was in need of major significant 
improvement, although they acknowledged that most of the needed changes 
were statutory. One commenter stated that the abundant and burdensome 
requirements do not provide an avenue for creative solutions to 
affordable housing. Another commenter was increasingly concerned that 
the original notion of a ``housing block grant'' with significant 
flexibility to support locally designed initiatives is being lost. 
Furthermore, the commenter noted that existing HOME restrictions are 
not compatible with those under the Low Income Housing Tax Credit or 
the Section 8 Certificate and Voucher programs.
    Among the statutory requirements identified as particularly 
burdensome by commenters were local match, income targeting, rent 
limitations, per unit subsidy limitations, the period of affordability, 
and wage rates. Requested statutory changes were: flexible treatment of 
over-income tenants; allowing for on-site monitoring every two years; 
excluding land acquisition and homeownership from Davis-Bacon 
requirements; restoring the funding threshold, removal of the per-unit 
subsidy limit; and conforming HOME to the Low Income Housing Tax Credit 
program.
    Requirements such as HOME rents, tiered income targeting, and match 
are statutory provisions which are not subject to regulatory revision. 
To the extent the Department has regulatory flexibility in the areas of 
monitoring and sources of local match, it has exercised that 
flexibility in this rule. For the convenience of the reader, the 
preamble does distinguish which provisions are

[[Page 48737]]

statutory and not subject to regulatory revision. In providing more 
local flexibility, the Department has created options which permit 
participating jurisdictions to make choices in how to define income, to 
expand eligible sources of match, to efficiently monitor rental 
housing, and to prepare written agreements which reflect the 
appropriate requirements.
    Additional requirements which commenters identified as burdensome, 
but which are actually regulatory, include: site and neighborhood 
standards, the capping of low-income at the national income ceiling and 
the use of HOME for project-based assistance.
    These issues will be discussed section by section in the balance of 
the preamble.

Section 92.2  Definitions

Commitment
    Three comments were received on this definition. Two commenters 
found the language under Sec. 92.2(i)(C) to be confusing. This section 
refers to the requirement for a legally binding agreement between the 
PJ and the project owner. The commenters noted that in a typical 
acquisition project, the PJ will enter into a contract with the 
purchaser who in turn will enter into a contract for sale with the 
owner. The purchaser (who is the recipient of HOME funds) will acquire 
title, rather than transfer title. The commenters recommended that new 
language be added to define ``project owner'' as an entity that will 
receive HOME assistance and will be the owner of the project not later 
than the completion of the project.
    Another commenter suggested that when land is being acquired for a 
HOME project that the expected start of construction should be extended 
from 12 to 24 months from the date of commitment.
    The Department agrees with the clarification on project owner and 
has made the change in the definition. The Department believes that 12 
months from the time of project commitment to construction start is a 
reasonable period of time and declines to make that change.
Community Housing Development Organization (CHDO)
    Eleven comments were received on the definition of a CHDO. Two 
commenters urged that the definition of a CHDO remain the same. Concern 
was expressed that tampering with the CHDO definition could be harmful 
to the development of local affordable housing delivery systems.
    Eight commenters found that the current definition is restrictive, 
targets a very narrow band of specific non-profit organizations, and 
often disqualifies accomplished and committed community organizations. 
Two commenters felt there needed to be additional avenues for groups 
just forming to access capacity building funds.
    Four commenters requested that the requirements concerning CHDO 
governing board membership be changed to include all legitimate non-
profit housing providers. One commenter stated that the CHDO set-aside 
should be a non-profit set-aside (statutory). State and local 
governments, through their consolidated plans, should be able to 
determine the appropriate CHDO organizational structure.
    One commenter urged that CHDO qualifications be consistent with 
requirements for non-profit participation in other federal housing 
programs and the Low Income Housing Tax Credit program. Another 
commenter found that the current regulations concerning demonstrated 
capacity need to be more specific, and should include such elements as 
a long term organizational plan and regulatory experience and 
knowledge. A third commenter requested that the requirement that CHDOs 
have a formal process for low-income beneficiaries to advise the CHDO, 
be made as flexible as possible. Under no circumstances should CHDOs be 
required to amend their bylaws if they can demonstrate a satisfactory 
community consultation process.
    One commenter found that the current CHDO model is purely urban and 
negatively impacts on rural areas whose non-profits are relatively 
young, primarily experienced in poverty programs and unfamiliar with 
labor standards, Section 3, Section 504 and rehabilitation/acquisition 
requirements. The same commenter urged that CHDOs be allowed to 
undertake all eligible HOME activities, instead of those where the CHDO 
acts in the riskier owner, developer or sponsor role.
    The Department declines to make any changes in the community 
housing development organization (CHDO) definition. The Department 
believes that there was specific statutory intent to create an 
entitlement for community-based nonprofit organizations who would own, 
sponsor or develop HOME-assisted housing. While partnerships with State 
and local government are critical to the development of affordable 
housing, these organizations are viewed as private, independent 
organizations separate and apart from State or local governments.
    One of the major objectives of the Department's technical 
assistance program is to increase the number of capable, successful 
CHDOs able and willing to use the CHDO set-aside, required by the 
statute.
Homeownership
    Two comments were received. Both commenters supported allowing a PJ 
to classify limited equity cooperatives and/or mutual housing as either 
homeownership or rental housing based on State law. This would ensure 
consistent treatment throughout a State's affordable housing programs. 
It was suggested that the regulations define both terms. It was 
recommended that the HOPE 2 definition of ``mutual housing'' be used.
    The Department has, in fact, been granting waivers in deferring to 
a participating jurisdiction's determination under State and local law 
as to whether a unit was rental or homeownership. It is clarifying this 
procedure in the final rule but is not defining the terms in deference 
to State and local law.
Housing
    The Department has expanded this definition to include all forms of 
housing which are eligible for assistance under the HOME program. The 
Department has also clarified that certain types of facilities do not 
qualify as housing under the HOME program. Such facilities are 
generally classified as ``public facilities'' and may be funded under 
the Community Development Block Grant program.
Program Income
    The Department has added a definition of program income to clarify 
what is included and considered as program income. The Department did 
this in response to many inquiries on the use and retention of program 
income from participating jurisdictions.
Project
    Thirteen comments were received. Commenters were unanimous in 
urging HUD to eliminate the ``4 block rule'' for defining a single 
project. Commenters stated that this requirement generates substantial, 
unnecessary paperwork and results in the arbitrary division of projects 
into four block segments. Commenters were unanimous in urging HUD to 
allow local flexibility in defining ``project''. One commenter felt the 
HUD Field Office should have this authority. All other commenters felt 
that the local participant jurisdictions should have this authority.

[[Page 48738]]

    Five commenters noted that scattered site housing projects which 
are part of neighborhood revitalization strategies are discouraged by 
the current requirement. Two commenters could see no compelling reason 
for the ``4 block rule''.
    Four commenters pointed out that the ``4 block rule'' is 
particularly inappropriate for rural areas which often do not have 
distinct neighborhoods, and are not divided into city blocks. One 
commenter noted that block size varies, and suggested that a \1/2\-mile 
radius be used instead.
    One commenter raised concerns about how any change in the 
definition would affect Davis-Bacon applicability.
    The Department is amending the definition of project by deleting 
the four block area provision. The Department recognizes the negative 
effect on scattered site projects, subdivisions and the 
inappropriateness of the standard in rural areas. However, the concept 
of a project as a site or sites together with any building or buildings 
located on the site(s) under common ownership, management and financing 
and assisted with HOME funds as a single undertaking under this part 
remains. To the extent twelve or more units are HOME-assisted and are 
constructed under one construction contract, Davis-Bacon provisions 
would apply, regardless of whether the contract covers units that 
comprise one or more projects. However, on larger projects that 
formerly comprised separate projects, Davis-Bacon applicability could 
now be affected by the prohibition in Sec. 92.354 on arranging multiple 
construction contracts within a single project for the purpose of 
avoiding the wage provisions.
Reconstruction
    One comment was received. The commenter expressed concern that 
``rehabilitation'' and ``reconstruction'' are held to different 
standards. It was recommended that the term ``reconstruction'' only 
apply to those cases where a very small percentage of the existing 
structure is maintained.
    The definition of reconstruction continues to read that it is 
considered rehabilitation for purposes of this part.
Single Room Occupancy (SRO) Housing
    Four comments were received. All commenters strongly supported the 
July 12, 1995 regulation clarifying that, for acquisition or 
rehabilitation of an existing residential structure or hotel, neither 
food preparation nor sanitary facilities are required within the units. 
One commenter stated that it would like this flexibility to extend to 
new construction and reconstruction projects as well.
    One commenter urged that the HOME's SRO definition continue to 
conform to the definition for other federal programs so the programs 
can work together.
    The HOME definition for SRO is adopted from a FHA multifamily 
insurance program and it is more permissive in its occupancy standard. 
The Department declines to eliminate the requirement to have either 
food preparation or sanitary facilities when buildings are newly 
constructed or converted from non-residential space. By creating new 
housing with some or all of the basic amenities, it is hoped that the 
units will be more marketable and livable in the future.

Subpart B--Allocation Formula

Section 92.50  Formula Allocation

    On July 12, 1995, the Department published a proposed rule to make 
a change in the operation of the HOME formula. It was proposed that 
Section 92.50(d)(3) would be revised to maximize the number of units of 
general local government which receive an initial allocation of HOME 
funds.
    Formerly, units of general local government, after an initial 
distribution of funds available for allocation, were eliminated at 
$250,000 and below. They were eliminated from the pool of eligible 
jurisdictions and their allocations were redistributed among other 
units of general local government. This redistribution technique 
continued until 95% of the funds had been distributed among units of 
general local government that received $500,000 or more. The new method 
would drop only one jurisdiction on each recalculation, and 
redistribute funds to all others, thus assuring that the maximum number 
of units of general local government receive an allocation.
    The Department received 12 comments on this section of the proposed 
rule.
    On the formula redistribution technique to maximize the number of 
participating jurisdictions, eight commenters favored the change while 
two did not. One of the two commenters felt that additional performance 
criteria should be added to the formula calculations rewarding good 
performance.
    Another commenter suggested that the Department establish a 
participation threshold of $500,000/$750,000 regardless of the annual 
appropriation. PJs who previously qualified under a lower threshold 
would be grandfathered (statutory change). The same commenter 
recommended that allocations for newly formed or expanded consortia 
come from the State set-aside rather than from the PJ set-aside 
(statutory change).
    The Department has adopted the proposed formula change and 
republished the rule on January 23, 1996 for effect in order to use the 
methodology for FY 1996 allocations. The two other suggested changes 
have not been made because they would require statutory changes.

Subpart E--Program Requirements

Section 92.201  Distribution of Assistance

    Two comments were received. Both commenters expressed concern that 
State participating jurisdictions can allocate funds to participating 
jurisdictions which receive their own direct funding allocation. This 
diverts HOME funds from smaller rural communities which are in great 
need of these funds. The commenters urged that the regulations be 
revised to prohibit this practice.
    The State's ability to distribute HOME funds to projects anywhere 
within the State is a statutory provision.

Section 92.202  Site and Neighborhood Standards

    Ten comments were received. The commenters were unanimous in 
recommending that site and neighborhood standards not apply to HOME new 
construction projects. Commenters felt that these standards inhibit 
investment in minority areas, discourage revitalization of the most 
needy areas and keep participating jurisdictions from assisting 
minority families who wish to move into racially mixed areas. 
Commenters considered the imposition of federal standards to be 
contrary to the basic notion of local control and discretion inherent 
in the HOME program.
    Five commenters stated that compliance with State and local 
standards should be sufficient. Therefore, Federal site and 
neighborhood requirements should be entirely eliminated. One commenter 
noted that the Federal standards often conflict with Court ordered 
housing plans.
    Five commenters recommended that participating jurisdictions be 
permitted to address the issues of concentration and impact as part of 
their consolidated plans. This would allow for public input and the 
adoption of standards which are appropriate for local needs.
    The Department is limiting the application of site and neighborhood 
standards to newly constructed rental

[[Page 48739]]

projects and excluding new construction homeowner projects. The 
Department believes that the creation of new homeowner opportunities is 
important to all neighborhoods.

Section 92.203  Income Determinations

    Five comments were received. Four commenters requested that 
participating jurisdictions have the option to define income in the 
same manner as the CDBG program. Current HOME requirements are unduly 
strict and labor intensive. Under CDBG, jurisdictions may select one of 
three criteria; (a) Section 8; (b) census long form; (c) IRS adjusted 
gross income. Since CDBG and HOME are often combined in the same 
project, allowing the same income definition to be used facilitates 
program administration.
    One commenter recommended retaining the Section 8 definition for 
income as a more accurate reflection of a person's income.
    Commenters also urged flexibility in obtaining income verification. 
One commenter recommended that participating jurisdictions be permitted 
to either directly obtain verification or accept the verification from 
another program with income requirements that are at least as strict. 
One commenter urged that occupants of HOME assisted units who do not 
receive Section 8 should simply be allowed to report income based on a 
pay stub or tax return. Two commenters requested that HOME 
participating jurisdictions be allowed to use the same ``presumed 
income eligibility'' approach for special needs populations that the 
CDBG program uses.
    Special needs populations may only be presumed income eligible in 
the CDBG Program for limited clientele, at least 51 percent of whom are 
low or moderate income persons. For housing, income eligibility must be 
established.
    One commenter requested that the Section 8 income qualification 
process not be used in determining eligibility for homeownership 
assistance. Section 8 criteria are designed for rental assistance and 
can penalize a person who has saved for a downpayment or home 
maintenance.
    One commenter requested that HUD eliminate the requirement that 
caps the 80% of median income level in high cost communities at the 
national median. This penalizes such communities.
    The Department has adopted the three options to define income 
currently permitted in the CDBG Program. For rental projects, the HOME 
statute requires that income be verified initially and during the 
period of affordability. However, the Department has also provided 
three ways to determine tenant eligibility before a tenant receives the 
benefit of HOME assistance. The options create greater flexibility in 
initial and subsequent income determinations for tenants occupying 
HOME-assisted rental units.
    In regard to the request to remove income limit caps in high cost 
areas, the Department recently reevaluated its policy of capping Low-
Income limits at the national median family income (currently $41,600 
for a family of four) in areas with unusually high income. It 
determined that it continues to make good policy sense to have an 
income limit cap in this era of increasingly scarce Federal housing 
assistance resources, and that it has legislative authority to set a 
cap. HUD also has determined, however, that the logic of the income 
limits calculation system suggested that higher income limits should be 
permitted for high-income areas with unusually high housing-cost-to-
income relationships. On May 2, 1996, HUD Notice 96-01 increased the 
Low-Income limits for 8 metropolitan and 12 nonmetropolitan areas based 
on this determination.

Section 92.205  Eligible Activities: General

    Fifteen comments were received concerning eligible activities.
Refinancing of Multifamily Properties
    Thirteen comments concerned the refinancing of multifamily 
properties. One commenter opposed using HOME funds for refinancing 
multifamily properties because it does not generally result in a net 
increase in affordable housing.
    Twelve commenters supported using HOME funds for refinancing 
multifamily properties. Refinancing was seen as an important tool in 
preserving affordable housing. Refinancing was also viewed as an 
effective way to leverage private funds. One commenter noted that in a 
soft market, refinancing is often the most cost effective way to 
increase the number of affordable units. Several commenters stated that 
refinancing ensures that existing affordable units are retained at a 
level of affordability and maintenance which would justify the HOME 
investment. Another commenter stated that it is often necessary to 
include the refinancing of debt in a rehabilitation financing package 
in order to attract conventional lenders. One commenter found that in 
rural areas where HOME rents are low, the refinancing of existing debt 
is needed to ensure project feasibility.
    Despite strong support for allowing multifamily refinancing, most 
commenters felt refinancing should only be permitted under certain 
circumstances. HUD was urged to move cautiously after further 
consultation with HOME participating jurisdictions and organizations. 
However, one commenter stated that HUD should allow participating 
jurisdictions to structure their own refinancing provisions subject to 
local HUD office approval (similar to resale/recapture provisions).
    One commenter would limit refinancing to properties where ownership 
has recently been, or is being transferred to a public entity, a non-
profit or resident owners. Another commenter would limit refinancing to 
projects owned by non-profits where refinancing would result in lowered 
rents and where code violations exist. Another commenter would limit 
refinancing to use in conjunction with receivership, provided continued 
affordability and stability of units is maintained. Another commenter 
would limit refinancing to buildings where either increased affordable 
units or reduced rents could be demonstrated. Another commenter would 
limit refinancing to debt incurred to improve property within the last 
twelve months, provided the debt service would be reduced and rents 
would be lowered. Another commenter would require that at least 49 
percent of the units must be HOME-assisted and the affordability period 
be 20 years regardless of the amount of HOME assistance.
    The Department recognizes the necessity of refinancing for some 
multifamily projects but is also aware that the use of HOME funds for 
this purpose reduces the amount of funds available for the development 
of additional affordable units. In developing guidance in the final 
rule at Sec. 92.206(b)(2), the Department felt refinancing should be 
permissible under certain circumstances according to guidelines 
developed by the participating jurisdiction as part of its consolidated 
plan. At minimum, the guidelines would require refinancing be done in 
connection with rehabilitation, reduce overall project costs when HOME 
funds are lent and subject multifamily rental projects be to a longer 
affordability period of at least 15 years. A participating jurisdiction 
would also identify whether refinancing would be permitted city wide or 
limited to a particular area such as a neighborhood identified in 
neighborhood revitalization strategy, an Empowerment Zone or Enterprise 
community. HOME funds cannot be

[[Page 48740]]

used to refinance a multifamily loan made with Federal funds or which 
is Federally insured.
Other Activities
    One commenter recommended that housing counseling be an eligible 
activity for households which are considering applying for HOME 
assistance, or households which have applied and been rejected. 
Currently, housing counseling is only eligible as a project soft cost 
for owners or tenants of funded projects.
    Participating jurisdictions may also use their administrative funds 
to cover the cost of homebuyer counseling programs.
    One commenter recommended that HOME be allowed to fund exterior 
painting, landscaping and clean-up in neighborhood revitalization 
areas, along with the development of affordable housing to further 
neighborhood stability.
    While the Department is providing additional flexibility with 
regard to housing standards, it is not permitting its use for emergency 
repair or neighborhood cleanup programs with HOME funds unless all 
assisted units are brought up to an established standard (see 
Sec. 92.251). The HOME Program was created to be a housing production 
program and has successfully assisted 184,000 units of standard 
housing.
Forms of Assistance
    Ten comments were received. Eight comments concerned loan 
guarantees.
Loan Guarantees
    Commenters were unanimous in supporting the July 12, 1995 
regulatory change establishing the eligibility of loan guarantees. 
Commenters considered loan guarantees to be an excellent way to 
leverage the use of private funds and welcomed this flexibility.
    However, most commenters felt that the loan guarantee requirements 
needed further revisions. One commenter requested that the regulations 
clarify that loan guarantees must be used to expand the availability of 
private financing or obtain more favorable terms. This same commenter 
found the 20% cap on the guarantee fund to be too rigid and recommended 
an increase to 50%, with the provision for additional waivers. Another 
commenter felt investor interest may be reduced by the requirement that 
all guaranteed loans must meet HOME requirements. The commenter 
suggested a less restrictive standard for projects which have no direct 
HOME subsidy, such as the project having at least 20% of the units 
affordable as long as the HOME funds guarantee the loan (statutory 
change).
    One commenter made numerous suggestions for revising the way a loan 
guarantee pool should be structured. The commenter was concerned that 
current language appears to require participating jurisdictions to 
underwrite and manage subrecipient loans, and urged that participating 
jurisdictions be given the authority to delegate this to the 
subrecipient. This commenter also noted that most loan pools are 
established by dollar amount, and not by the number of estimated loans. 
The commenter recommended that participating jurisdictions be given 
both options. The commenter was concerned with the prohibition on 
increasing the number of loans, and the fact that the current 
requirements result in guaranteeing initial loans at 100%. 
Recommendations include allowing the draw down of funds when there is a 
clear binding commitment in place with the lender; allowing non-
eligible HOME loans to be included in the loan pool, provided the loan 
guarantee is limited to HOME eligible loans; allowing HOME funds to 
subsidize interest on the loan pool; clarifying that repayment of non-
HOME funds are not subject to HOME eligibility restrictions; and 
providing for Secretarial approval of other loan guarantee models which 
meet the basic purpose of the regulations.
    The Department is open to additional suggestions concerning the way 
to structure loan guarantees as was indicated in the preamble to July 
12, 1995 rule. A participating jurisdiction may carry out a loan 
guarantee program through a subrecipient, with the duties and 
responsibilities detailed in a written agreement. However, the 
participating jurisdiction is ultimately responsible for the 
administration of all of its HOME funds. HOME funds may be drawn down 
for a loan guarantee at the point in time when HOME funds are invested 
in a project. While this may lead to 100 percent guarantee of earlier 
loans in order to establish a minimum balance in the guarantee fund, 
that will quickly diminish as successive loans are guaranteed. The 
Department in creating a ``project'' concept of a certain number of 
loans to be guaranteed did so in order to trigger the reporting of the 
units being assisted at the end of the project, regardless of whether 
all the projected loans were made. HOME funds can also be used to write 
down the interest rate of private loans in order to make the loan more 
affordable for new homebuyers or project owners. In the July 12, 1995 
rule, the Department at Sec. 92.205(b)(2) made it clear that while 
loans funds guaranteed with HOME funds are subject to all HOME 
requirements, funds which are used to repay the guaranteed loans are 
not.
Other
    One commenter requested that ``compensating balances'' be 
specifically allowed. Another commenter recommended that HOME provide 
bridge financing for tax credit projects, and for a long-term loan 
guarantee program like Section 108 (statutory change).
    The Department believes that the loan guarantee concept is a more 
efficient way to leverage private funds than the compensating balance 
approach. In a new section at Sec. 92.206(g), the Department has 
clarified that HOME funds may be used for construction or bridge 
financing. The Department does not currently have statutory authority 
to create a Section 108 type program for HOME but has suggested such an 
approach in its current legislative package.
    One commenter recommended that the regulations clarify the 
eligibility of equity investments which are part of the financial work-
out of an existing low-income housing project.
    Under existing rules, a participating jurisdiction may provide 
funds in the form of an equity investment. This means that the 
participating jurisdiction becomes part owner of the housing. The 
eligible cost would be acquisition.
Termination Before Completion
    Current regulations require the repayment of all funds expended on 
a project which does not go forward. One commenter proposed that 
participating jurisdictions be allowed to forgive such repayment where 
there are impediments to project development which are reasonably 
beyond the control of the owner. This approach is consistent with 
policy which forgives CHDO project-specific loans. There are instances 
where neither the owner nor the PJ can recover these funds. 
Participating jurisdictions should not be required to assume financial 
liability for such situations.
    The Department declines to change its policy with regard to 
reimbursement of funds when a project does not proceed, but will 
examine the facts relating to specific instances as they occur. The 
statute provides separate loan authority to cover CHDO predevelopment 
costs, which are not eligible for other HOME projects and may be 
forgiven if the project does not go forward.

[[Page 48741]]

Manufactured Housing
    Five comments were received on the requirement that HOME-assisted 
manufactured housing for rent or homeownership be situated on permanent 
foundations.
    One commenter suggested that State laws governing the taxation of 
manufactured housing as real property should be the standard for 
determining whether a unit is considered HOME-eligible.
    Four commenters recommended that the permanent foundation 
requirement be eliminated. All of these commenters cited the 
significant additional cost (estimated at about $7,500 by some 
commenters) as an obstacle to providing affordable housing in rural 
areas and as the primary reason for elimination. Three of the 
commenters questioned HUD's assumption that permanent foundations make 
manufactured housing units safer. One of the commenters pointed out 
that not all areas of the country experience the type of weather 
patterns that might justify the expense of installing manufactured 
housing units on permanent foundations.
    One commenter urged the Department to maintain its current 
requirements with respect to manufactured housing. The commenter cited 
safety and the need to develop a stock of permanently situated, 
standard manufactured housing in rural areas as the justification for 
this position.
    The Department has removed references to manufactured housing in 
Secs. 92.252 and 92.254. The Department has included under eligible 
activities, a new section at Sec. 92.205(a)(5) on manufactured housing 
in which it has eliminated the requirement for a permanent foundation 
in deference to local and State standards for this type of unit.

Section 92.206  Eligible Project Costs

    Three comments were received. Two commenters recommended that the 
rule be revised to permit initial operating reserves for new 
construction and all rehabilitation projects, not just substantial 
rehabilitation projects.
    The Department has made this change as well as clarifying that 
reserves for initial operating expenses (which include scheduled 
payments to project replacement reserves) permitted for the first 18 
months of a project may remain with the project after that period at 
the discretion of the participating jurisdiction.
    Another commenter suggested that all pre-environmental clearance 
activity costs be reimbursable activity delivery costs.
    The Department agrees that participating jurisdictions may incur 
costs which may be reimbursed with HOME funds, provided all HOME 
requirements have been met, including the environmental review 
requirements of Part 58. Under certain circumstances, costs may be 
incurred prior to the award of a fiscal year HOME allocation and 
charged to the HOME allocation after its award. This is discussed under 
the new Sec. 92.212. However, costs for activities covered by Part 58 
can not be reimbursed if the NEPA requirements are not met prior to 
incurring these costs. The costs of preparing environmental reviews and 
clearances may be charged to either administrative costs or project 
costs. This is clarified under Sec. 92.207(g).

Section 92.207  Eligible Administration and Planning Costs

    Four comments were received. Two commenters said that the 10 
percent administrative fee is insufficient and should be increased 
(statutory). They also recommended that participating jurisdictions be 
permitted to charge application and monitoring fees of developers of 
HOME-assisted projects. One commenter recommended that the Department 
return to its original regulatory language of permitting 10 percent of 
the HOME allocation to be spent on administration. They objected to the 
cost allocation methods suggested at Sec. 92.207(a)(1).
    Participating jurisdictions are permitted to charge nominal 
application fees to discourage frivolous applications. The HOME 
Program, however, provides a 10 percent administrative fee for ongoing 
administration of the program. The cost allocation methods detailed at 
Sec. 92.207(a)(1) are simply an amplification of the procedures 
required by OMB Circular A-87 revised and OASC-10, Cost Principles and 
Procedures for Establishing Cost Allocation Plans.
    The Department has also clarified that meeting the requirements 
under Subpart H, Other Federal Requirements, is an eligible 
administrative cost.
    The third commenter recommended that the Section 8 Housing Quality 
Standards inspection for a unit receiving tenant-based rental 
assistance be an eligible related soft cost chargeable to a TBRA 
project.
    The Department declines to make this change since it views the 
operation of a tenant-based rental assistance program as an 
administrative cost under the 10 percent administrative cost cap.
Assisted Units in Multi-unit Projects
    The Department in a new paragraph at Sec. 92.205(d) expressly 
permits HOME funds to assist less than all units in a project and 
addresses prorating costs in projects with less than 100 percent HOME-
assisted units. The regulation permits cost allocation when the units 
are not comparable in size, features or amenities. Guidance on 
attribution of eligible costs to the HOME program is detailed in CPD 
Notice-94-12, Allocating costs and identifying HOME-assisted units in 
multifamily projects.

Section 92.208  Eligible CHDO Operating Expense and Capacity Building 
Costs

    One commenter recommended that the 5 percent CHDO operating 
expenses be deducted from the CHDO set-aside.
    The statute provides that both the 10 percent administrative amount 
and the 5 percent CHDO operating fund be deducted from the 
participating jurisdiction's total allocation. A participating 
jurisdiction has discretion about whether to use either or both 
allowable percentages.

Section 92.211  Tenant-based Rental Assistance

    Six comments were received. All six commenters endorsed the interim 
rule change which permitted HOME tenant-based rental assistance to be 
targeted to special needs populations. One commenter asked whether 
special needs populations would be defined for this purpose, suggesting 
that complete local flexibility be permitted within the confines of 
existing civil rights and fair housing law.
    The Department declines to define special needs populations and 
defers to the priorities which participating jurisdictions establish in 
their consolidated plan under 24 CFR 91.
    Secs. 92.209, 210 and 211 on tenant-based rental assistance and 
security deposits have all been consolidated in Sec. 92.209. This 
section contains clarification of required income eligibility 
determinations and annual property inspections.

Section 92.212  Pre-award Costs

    The Department added a new section covering pre-award costs and the 
requirements which must be met.

Section 92.214  Prohibited Activities

    Six comments were received on this section of the rule. Five of the 
commenters recommended that the Department permit the funding of both 
operating reserves and reserves for replacement. To the extent the 
Department permits initial operating

[[Page 48742]]

reserves for the first eighteen months of a project, these funds can 
remain in the project at the discretion of the participating 
jurisdiction. Two of the five commenters suggested that the Department 
also permit operating subsidies.
    As discussed earlier under Sec. 92.206, Eligible project costs, the 
Department agrees that during the initial rentup of a project both 
operating reserves and reserves for replacement required for the first 
18 months of a project may be funded and retained by the project at the 
discretion of the participating jurisdiction.
    With the program emphasis on production, the Department declines to 
fund operating subsidies.
    Two commenters also requested that participating jurisdictions be 
permitted to add additional HOME funds to projects during the period of 
affordability, to handle unanticipated costs particularly during a 
twenty year affordability period.
    While the Department declines to make this a general policy, it 
would be willing to examine cases where it might be appropriate to 
permit additional funding.
Income Targeting

Section 92.216  Income Targeting: Tenant-based Rental Assistance and 
Rental Units

    Four comments were received on the overall targeting requirement 
for project and rental assistance under the HOME Program. Two of the 
commenters suggested that the targeting requirements be changed to 
parallel the requirements for the low-income housing tax credit i.e. 
that 20 percent of the units be reserved for households at 50 percent 
of median income or that 40 percent of the units be reserved for 
households at 60 percent of median income (statutory).
    One commenter suggested that the complex rent structure be 
eliminated while retaining a single targeting requirement that all 
assistance should benefit tenant households below 80 percent of median 
income (statutory).
    Another commenter objected to the requirement that family income 
and family size and composition be reexamined at least annually 
(statutory).
    Since all the changes require statutory amendments, the Department 
did not adopt any of these changes. See Sec. 92.203(a)(1) for options 
in determining tenant eligibility in HOME-assisted rental housing.
Matching Contribution Requirement
    The Department received comments from seventeen parties regarding 
match. Four of these commenters recommended that the HOME match 
requirements be eliminated (statutory). Two commenters suggested that 
the match concept be replaced by a leverage requirement (statutory). 
One of these commenters suggested a 50% to 75% non-Federal leverage 
requirement.
    Numerous other commenters made specific suggestions for changing 
the current match requirements.
    Sections 92.218-92.222, covering the match contribution 
requirements, have been revised to make the sections clearer, to 
reflect policy determinations gained through program operation and to 
expand the sources of match in response to public comment.

Section 92.218  Amount of Matching Contribution

    One commenter stated that the requirement that match liability and 
contributions be calculated on a fiscal year basis is cumbersome. The 
commenter suggested that, in light of the consolidated plan and the 
adoption of single program years that may not coincide with the Federal 
fiscal year, participating jurisdictions be permitted to count match on 
a program year basis.
    While the Department is sympathetic to the comment, the statute 
refers to funds expended ``during the fiscal year''.
    Another commenter suggested that match liability be incurred at the 
time of project completion, rather than as a PJ expends HOME funds. 
This, the commenter asserted, would simplify tracking and monitoring 
match.
    The statute specifies that match liability is incurred as HOME 
funds are expended.

Section 92.219  Recognition of Matching Contribution

    Three commenters suggested that all State affordable housing 
resources be counted as match. Instead of tracking contributions to 
specific, eligible housing projects, States should be permitted to 
certify that they are committing resources to decent, safe and 
affordable housing for low-income persons. These three commenters and 
an additional commenter contended that other affordable housing (not 
assisted with HOME funds) should not be required to meet the criteria 
set out in the rule to qualify as match. One of the three commenters 
stated that State participating jurisdictions should not be required to 
have written agreements with the owners of other affordable housing 
counted as match to ensure that the projects meet the criteria to 
qualify as affordable housing.
    The statute requires other affordable housing counted as match to 
meet the qualifications of Section 215 of the statute. For projects 
containing both HOME-assisted and affordable housing units, there 
appeared to be confusion that contributions to affordable housing units 
could only be counted if at least 50% of the units were HOME assisted. 
The Department wants to clarify that contributions to affordable 
housing that meet the requirements in Sec. 92.219(b) should be 
recognized whether there are no, some or a majority of HOME-assisted 
units in the project. The Department also wishes to stress that 
contributions are counted only after a written agreement is executed.
    Two commenters asked the Department to clarify that housing that is 
``substantially equivalent'' to HOME-assisted housing may be counted as 
match.
    There is currently no such requirement in the HOME program. This 
was proposed statutory language that was never passed.

Section 92.220  Form of Matching Contribution

    Thirteen commenters requested that the Department expand the 
definition of match so that additional types of contributions would be 
deemed eligible.
    Five commenters suggested that sweat equity be counted as an 
eligible match. One of these commenters suggested that this provision 
be extended only to organized mutual self-help groups that can document 
shared labor requirements.
    The Department recognizes the value of a sweat equity contribution 
by homeowners as a source of match and has changed the rule 
accordingly.
    Five commenters suggested that owner equity in homeownership or 
rental projects be counted as an eligible match. One of these 
commenters suggested that this provision be extended only in cases 
where the equity is a ``permanent contribution'' to the affordable 
housing.
    By definition owner equity is not a permanent contribution to 
affordable housing because owners realize their equity upon sale of the 
unit or project. However, under cash contributions made from nonfederal 
sources, Sec. 92.220(a)(1)(i), the Department has clarified that cash 
contributions made to a nonprofit organization for use in a HOME 
project may be counted as match.
    Six commenters suggested that the value of social services provided 
to the residents of HOME-assisted and HOME-eligible housing be counted 
as matching contributions. Several of the

[[Page 48743]]

commenters pointed out that significant State and local resources are 
expended for this purpose. One of the commenters suggested that the 
value of all non-Federal services provided to the residents of HOME-
assisted or other affordable housing (i.e., whether the services are 
housing-based or provided to the general community) be permitted to be 
counted as match.
    The Department has changed the rule to recognize as match the 
direct costs related to supportive services necessary to facilitate 
independent living or required as part of self-sufficiency programs 
provided to residents of HOME-assisted units during the period of 
affordability. In addition, the Department has recognized the value of 
homebuyer counseling services provided to families who acquire 
properties with HOME funds.
    Two commenters requested that the rule be changed to count 100% of 
the value of tax-exempt bond financing for affordable housing, rather 
than the 25% per loan for single-family projects and 50% for 
multifamily projects currently permitted (statutory).
    Two commenters suggested that the rule be changed to permit donated 
professional services to be valued at their market value, rather than 
the labor rate established annually for the program.
    The rule has been changed to value skilled labor at the rate which 
is normally charged while unskilled labor will be valued at a rate set 
by the Secretary. The rate is currently $10 per hour.
    One commenter suggested that in-kind administrative services 
provided to State HOME programs by small local governments be counted 
as an eligible match contribution.
    Match credit derived from administrative expenses is not recognized 
statutorily as a source of match.
    Four commenters stated that funds lent to affordable housing 
projects (HOME and non-HOME) that are repaid to the original source, 
rather than the local HOME account, should be counted as match.
    This is currently permitted. However, the value of the match is the 
present value of the yield foregone on a below-market interest rate 
loan, not the full face value.
    Five commenters wrote in support of the two changes made in the 
July 12, 1995 rule to count fees and charges waived by nongovernmental 
entities as match and to permit match requirements for forgiven CHDO 
redevelopment loans to be waived.

Section 92.221  Match Credit

    Two commenters asserted that the requirement that match be credited 
in the year that it is made may cause compliance problems (i.e., 
inadequate match contributions in a given year) when a PJ relies upon 
multi-year match contributions such as property tax forgiveness.
    This may be true if there is a long delay in dedicating the match 
contribution. However, the current rule permits the present value of 
the tax-exemption over the period of forgiveness to be credited 
immediately, not year-by-year.
    One commenter recommended that States be permitted to accept 
resources from local participating jurisdictions to use for State match 
contributions.
    Although not explicitly stated in the regulation, for a HOME-
assisted project a State may count resources provided by a locality as 
match as described in Sec. 92.221(c).

Section 92.222  Match Reduction

    One commenter urged the Department to reduce the match requirement 
for CHDO activities.
    There is no statutory authority to permit this.
    Another commenter contended that match reductions granted to States 
for disasters and distress result in inequities that complicate the 
administration of the program. Specifically, this commenter stated 
that, when States can offer HOME funds without match requirements to 
jurisdictions within urban counties or consortia and the consortia or 
urban county itself must provide full match, the local PJ is put at a 
disadvantage in using its HOME funds.
    Match reduction based on disaster designation would be the same for 
both a State and a local jurisdiction, because a State match reduction 
applies only to funds the State uses in a disaster area. While the 
Department recognizes the different match liability between State and 
local HOME funds created by distress designations, it is clear that 
there is not sufficient HOME funds from either source to address the 
affordable housing needs and that HOME funds should not go unused in 
any community.

Subpart F--Project Requirements

Section 92.250  Maximum Per-Unit Subsidy Amount

    Two comments on the maximum per-unit subsidy limits were received. 
One commenter proposed that Congress eliminate the statutory provision 
requiring HUD to establish per-unit subsidy limits. This commenter 
contended that local governments are in the best position to establish 
limits based on knowledge of local construction costs and housing 
conditions.
    Section 212(e) of NAHA was specific that the Secretary shall 
establish limits on the amount of HOME funds which can be invested on a 
per unit basis, therefore, it would require a statutory change. The 
Department has also added a new paragraph to highlight the requirement 
for and use of locally-developed subsidy layering guidelines when HOME 
funds are combined with other governmental assistance.
    Another commenter suggested that the Department reconsider its 
decision to define group housing as being one unit to permit more HOME 
funds to be expended on such units.
    This is not a regulatory definition. See CPD Notice 94-01, Using 
HOME Funds for Single Room Occupancy and Group Housing, which provides 
great flexibility to participating jurisdictions in how they 
characterize SROs and group homes.

Section 92.251  Property Standards

    Thirteen parties commented on the property standards applicable to 
properties assisted with HOME program funds. Nearly all the commenters 
recommended some form of change to the existing requirement that all 
HOME-assisted properties meet the Section 8 Housing Quality Standards 
(HQS).
    Eleven commenters recommended that the Department, under some 
circumstances, permit HOME to be used for emergency repairs in which a 
unit will not be brought up to HQS. Five of the commenters suggested 
that the Department establish a maximum per unit dollar limit for 
emergency repairs where a unit would not be required to meet HQS or 
some other housing code. Another commenter suggested that the 
Department limit the percentage of each HOME allocation that could be 
used for such repairs.
    Two commenters, who supported emergency repairs, recommended that 
the Department maintain HQS as the standard for all other HOME assisted 
units.
    Three commenters suggested that the Department permit home repair, 
weatherization or handicapped accessibility that will not bring a unit 
up to code. Another commenter, who favored elimination of the HQS 
requirement, felt that, at a minimum, single family housing should be 
exempted from the requirement.
    Four commenters recommended that the Department require units to 
meet

[[Page 48744]]

locally-established housing codes. Two other commenters suggested that 
State participating jurisdictions that adopt national model codes be 
permitted to use those as the HOME property standard.
    One commenter suggested that the Department replace the HQS 
requirement with the FHA Minimum Property Standards, to prevent 
duplicative inspections where HOME and FHA insurance are being 
combined.
    Two commenters recommended that the Department continue to require 
substantially rehabilitated units to meet the cost-effective energy 
conservation standards. Another commenter requested that the Department 
make these standards optional.
    One commenter recommended that the Department continue to apply the 
Council of American Building Official's Model Energy Code to HOME-
funded new construction (statutory).
    Two commenters requested that the HQS requirement be eliminated for 
manufactured housing units.
    Many of these comments with regard to the use of HOME funds have 
been addressed in the preamble under eligible activities and project 
costs. With regard to the property standard that a HOME-assisted 
project must meet, the Department has revised the rule to permit newly 
constructed or rehabilitated housing to meet local codes, 
rehabilitation standards, ordinances, and zoning ordinances. In the 
absence of local code for new construction or rehabilitation, housing 
must meet one of the model codes cited in this section. All other HOME 
units including those occupied by tenants receiving HOME tenant-based 
rental assistance, must meet Section 8 Housing Quality Standards (HQS). 
During the affordability period, rental units must continue to meet the 
standard which was initially used when the unit was assisted. The cost 
effective energy conservation and effectiveness standards have been 
deleted as a requirement because they were deleted from 24 CFR Part 39 
although participating jurisdictions are encouraged to use them as 
guidelines in the rehabilitation of HOME-assisted housing. New 
guidelines will be issued shortly.

Section 92.252  Qualification as Affordable Housing: Rental Housing

    Nineteen parties provided comments on the HOME provisions for the 
qualification of affordable rental housing. Most of the commenters 
recommended changes to simplify the rental requirements or to conform 
the HOME requirements with those of the Low-Income Housing Tax Credit 
(LIHTC).
    The Department has revised this whole section to make the rental 
requirements easier to understand and clarified the procedures with 
regard to initial and subsequent tenant eligibility determinations.
    With the statutorily required two tier income targeting and annual 
income recertification requirements, the HOME statute differs from the 
LIHTC requirements. The rule spells out the options by which tenant 
income can be reviewed during the affordability period and offers a 
degree of flexibility for single-family rental properties. One option 
permits a tenant to submit a written statement of income, which may be 
actual income or income ranges which delineate when a tenant is below 
50 percent or above 80 percent of median income. The tenant submits 
this statement as well as a certification to its completeness and 
accuracy. For multifamily projects with longer periods of 
affordability, tenant income must be examined periodically using source 
documents indicating annual income.
    Two commenters recommended that the Department eliminate the 20-
year period of affordability for rental new construction and base 
affordability periods on the amount of HOME funds invested regardless 
of activity. One of these commenters felt that all HOME requirements 
should be eliminated once the HOME funds have been repaid (statutory). 
The other commenter suggested that the Department establish a de 
minimis threshold of $2,500. Units receiving less than this amount in 
HOME funds would have no HOME requirements.
    The Department is retaining the longer affordability period for new 
construction rental projects because of the substantial investment of 
HOME funds in these projects. The other recommendations can not be 
implemented because they are statutory.
    One commenter felt that the affordability periods established in 
the HOME rule were too short and did not accurately reflect the 
statutory provision that HOME-assisted properties remain affordable for 
their useful life. Another commenter suggested that participating 
jurisdictions be given the authority to waive affordability periods for 
rental projects in those instances where a tenant wishes to purchase 
the assisted unit. This commenter also felt that rental units in HOME-
assisted homeownership projects should not be subject to the rental 
requirements.
    The Department has made provision for the purchase of a rental unit 
by an existing tenant as a way to encourage homeownership. That 
provision is included at Sec. 92.255, which describes the affordability 
requirements depending upon whether additional HOME funds are invested 
to assist the existing tenant to become a homebuyer. In response to the 
last comment, the Department has reconsidered the automatic application 
of rental requirements to rental units in HOME-assisted homeownership 
projects. The new requirements are discussed in Sec. 92.254(a)(ii)(5).
    One commenter recommended that the separate program-wide and 
project-specific income targeting requirements be eliminated and 
replaced with a more flexible system. Specifically, the commenter 
suggested that all HOME rental units be initially occupied by families 
with incomes below 60% of area median income and carry rents not to 
exceed 30% of the income of a family at 80% of area median income 
(statutory).
    Ten commenters approved of the July 12, 1995 regulatory change with 
respect to rent levels when HOME is combined with State or Federal 
project-based assistance. Four commenters believed that the Department 
should extend this provision to HOME-assisted units occupied by 
families receiving tenant-based assistance. One commenter felt that the 
provision should be extended to include local project-based assistance.
    On the change in the threshold for the 20 percent very-low income 
occupancy requirement from a project with three units to a project with 
five units, the Department received fourteen comments. Twelve of those 
comments were supportive of the change citing an easing of 
administrative requirements for small rental properties. Three 
commenters, national public interest groups, opposed the change as a 
diminishment of the potential number of units occupied by very-low 
tenants.
    The Department because of language in Section 215(a)(1)(B) of the 
statute can not provide similar treatment for local project-based 
rental assistance as it did for Federal or State rental assistance.

Section 92.253  Tenant and Participant Protections

    Two parties commented on the HOME tenant and participant 
protections. One commenter recommended that the Department delete these 
provisions and permit participating jurisdictions to develop their own 
standards (statutory). Another commenter specifically objected to the 
requirement that tenants be given 30 days notice before tenancy can be 
terminated for cause. (statutory). The commenter states that the HOME 
requirements are inconsistent with other

[[Page 48745]]

HUD program requirements, which differentiate between ``good cause'' 
and ``material noncompliance.'' The effect of this provision, the 
commenter claims, is that owners must wait 30 days to begin eviction 
proceedings for a tenant that has failed to pay rent or has committed a 
violent crime on the premises. The commenter recommends eliminating the 
notice requirement.
    Because of the statutory nature of these items, the Department has 
not accepted these recommendations.

Section 92.254  Qualification as Affordable Housing: Homeownership

    Seventeen parties commented on the provisions that set out the 
qualifying criteria for affordable homeownership units. Three 
commenters objected to the requirement that the purchase-price or 
after-rehabilitation value of assisted homeownership units not exceed 
95% of the median purchase price for the area. One commenter pointed 
out that this requirement makes it difficult to assist low-income 
elderly persons who are ``house-rich.'' Another expressed the belief 
that this provision limited homebuyer assistance programs to areas of 
low-income concentration (statutory).
    In response to these comments but recognizing the need to carry out 
statutory intent, the Department is offering a participating 
jurisdiction the option of determining 95 percent of the median area 
purchase price locally and putting that information into its 
consolidated plan for approval by the Department. Alternatively, a 
participating jurisdiction can continue to use and may obtain the 
Single Family Mortgage Limits for Section 203(b) from the single 
housing family division in the field office. The information will no 
longer be distributed nationally by the Office of Affordable Housing 
Programs, CPD Headquarters.
    Four other commenters did not object to the limitation on purchase 
price, but recommended elimination of the limit on the appraised value 
of a unit at the time of acquisition. Two commenters contended that the 
purchase price limitation alone was sufficient to limit the use of HOME 
funds to suitable, modest housing. One commenter noted that the 
appraised value limitation has a negative impact on the use of newly 
constructed units, which typically have higher appraised value, in the 
HOME Program. Another commenter recommended that the Department permit 
participating jurisdictions to use alternate method to appraisals to 
determine after-rehabilitation value of properties.
    Whether using the Section 203(b) or locally derived 95 percent of 
median purchase price limits, a participating jurisdictions will be 
responsible for setting the limits, determining the property value of 
units which are acquired and rehabilitated, and demonstrating that HOME 
funds are used in keeping with statutory intent, that of subsidizing 
the purchase of modest housing. The requirement for an appraisal has 
been eliminated, however, PJs must have a reasonable method to 
determine property value.
    Twelve commenters expressed their approval of the changes made to 
the homebuyer assistance recapture provisions in the July 12, 1995 
interim rule. This rule provided participating jurisdictions additional 
flexibility in establishing recapture rules. The commenters felt that 
these changes would make the HOME Program easier to use in a variety of 
housing markets.
    Two commenters objected to the provision that applies the resale 
restrictions to homebuyer units for which no direct subsidy was 
provided to the homebuyer so that no HOME funds will be subject to 
recapture. One State commented that it uses its HOME funds to 
revitalize distressed areas by rehabilitating housing and selling it at 
market price. Because the area is distressed, demand is low, and the 
housing is available at affordable prices without the need for 
homebuyer assistance. Most of the homebuyers are low-income. The State 
urged that homebuyers who are buying housing rehabilitated or 
constructed with HOME funds in distressed neighborhoods not be burdened 
with deed restrictions which make the property even less desirable.
    The final rule contains a new provision under which resale deed or 
other restrictions are not required to be imposed. The provision 
permits the participating jurisdiction to do a market analysis which 
supports a presumption that the housing meets the resale requirements, 
i. e., the housing will be available to a subsequent low-income 
purchaser who will use the property as its principal residence and will 
be sold at a price which is affordable to a reasonable range of low-
income homebuyers and affords the homeowner a fair return on 
investment. The market analysis must include an evaluation of the 
location and characteristics of the housing and residents in the 
neighborhood in relation to housing and incomes in the housing market 
area. If a participating jurisdiction in preparing a neighborhood 
revitalization strategy or an Empowerment Zone or Enterprise Community 
application has developed this type of market data, those submissions 
may serve as the required analysis under this section.
    One commenter asked that the Department clarify that the net 
proceeds of a homebuyer unit resale include the original homebuyer's 
investment in capital improvements.
    The net proceeds, the sales price minus loan repayment other than 
HOME funds and closing costs, does not include capital improvements, 
except to the extent that these improvements would be reflected in the 
sales price. However, capital improvements are included in the 
calculation of the homebuyer's investment in the property and 
considered in determining the amount of HOME funds to be recaptured.
    The Department has added a new section on Special considerations 
for single family properties with more than one unit. This section 
clarifies the application of rental requirements when HOME funds are 
used to assist both the homeowners unit and one or more rental units. 
If HOME funds are used to assist only the rental units in such a 
property then the requirements of Sec. 92.252 would apply and the 
owner-occupied unit would not be subject to the income targeting or 
affordability provisions of Sec. 92.254.

Section 92.255  Mixed-income Projects

    One commenter contended that, in projects with units that are not 
HOME-assisted, incomes should be collected only for residents of units 
that are HOME-assisted.
    This section is retitled and the requirements previously in this 
section have been incorporated into the match section at 
Sec. 92.219(a). In response to the commenter, income information is not 
required to be collected for tenants occupying units that are not HOME-
assisted unless the units are HOME eligible and an investment in these 
units is being counted as a match contribution.

Section 92.256  Mixed-use Projects

    One commenter suggested that the Department eliminate the 
requirement that mixed use projects be at least 51% residential in 
order for contributions to the nonresidential portion to count as match 
(statutory).
    This section is being eliminated and the statutory requirement on 
match is being consolidated into the rule at Sec. 92.219(a)(4).

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

    Six commenters recommended elimination of the provision extending

[[Page 48746]]

the HOME period of affordability to match the term of the mortgage when 
HOME and FHA mortgage insurance are combined. Commenters noted that 
this placed a significant burden on owners receiving a small amount of 
HOME funds, especially homebuyers receiving downpayment assistance. 
Others characterized the requirement as unfairly penalizing projects 
that receive FHA mortgage insurance. An additional commenter suggested 
that the requirement apply only to projects receiving more than $15,000 
in HOME funds.
    One commenter supported the requirement and recommended that it be 
left intact.
    The Department agrees with the majority of commenters and has 
eliminated this provision.

Subpart G--Community Housing Development Organizations

    Thirteen comments were received relating to the CHDO set-aside, 
operating expenses, and redevelopment costs.

Section 92.300  Set-aside for Community Housing Development 
Organizations

    One commenter felt that the rule as it now stands is excellent but 
the unwillingness of certain participating jurisdictions to delegate 
authority to CHDOs is a significant issue. This view was echoed by a 
second commenter who criticized participating jurisdictions for their 
unwillingness to provide CHDO operating funds. This commenter 
recommends that the final rule elaborate on the extent to which CHDOs 
may retain funds repaid from set-aside projects and, by so doing, 
distinguish between these repayments and program income which must be 
returned to the PJ. The commenter also objects to participating 
jurisdictions requiring that local match provided to CHDO projects be 
returned to the local or State trust fund account upon repayment 
instead of being retained by the CHDO. In the commenter's view, this 
policy seriously undermines the ability of any CHDO to obtain local 
match.
    The Department is revising this section to permit participating 
jurisdictions to allow CHDOs, who are assisting homebuyers in 
connection with the development of homebuyer housing under Sec. 92.254, 
to retain the return of the investment of HOME funds (i.e. interest on 
HOME loans, the proceeds from permanent financing) for use for HOME-
eligible or other affordable housing activities. However, any recapture 
of HOME funds not meeting the affordability requirements is required to 
be used for HOME activities in accordance with the requirements of Part 
92.
    In the opinion of three commenters, owner-occupied housing 
rehabilitation should be included among eligible CHDO set-aside 
projects while a fourth supports allowing downpayment assistance to be 
included as well. One of these commenters goes further in recommending 
that any HOME-eligible activity undertaken by a CHDO, including tenant-
based assistance, be considered as a set-aside project. This view was 
also expressed by three other commenters. Yet another commenter 
proposed that a carry-over credit be instituted for funding provided in 
excess of the minimum 15 percent set-aside in any year (statutory).
    The statutory provisions established the CHDO set-aside exclusively 
for community-based nonprofits who would own, sponsor or develop 
affordable housing. It is in keeping with this special intent, that the 
Department declines to include other eligible activities for use of 
set-aside funds. The Department has also determined that the statute is 
clear that a minimum of 15 percent of each year's HOME allocation 
should be reserved and used by CHDOs.
    One commenter requested that the language in Sec. 92.300(a) 
relating to CHDO ownership of projects in partnership with other 
persons or entities should be changed to make clear that separate 
nonprofit subsidiaries as well as wholly owned for-profit subsidiaries 
can be a managing general partner. According to the commenter, it is 
common, particularly when using Low-Income Housing Tax Credits, for 
CHDOs to establish a separate, nonprofit subsidiary to be the managing 
general partner.
    The Department has made that clarification.
    One commenter strongly expressed their opposition to Federally 
mandated set-asides in general and the 15 percent CHDO set-aside in 
particular believing that the Federal government should not dictate 
which housing providers receive States fund. According to the 
commenter, States face the distressing prospect of losing scarce 
housing funds to reallocation because they have few qualified 
nonprofits and even fewer qualified CHDOs. This commenter recommends 
that, at a minimum, the set-aside should be transformed into a general 
nonprofit set-aside, using a reasonable definition such as that 
utilized under the Low-Income Housing Tax Credit (statutory).
    Another commenter objected to the CHDO set-aside, stating that it 
often must award funds to nonprofit groups that are less qualified than 
for-profit developers in order to meet this requirement. The commenter 
recommends that all references to CHDOs be deleted from the law and 
that the CHDO set-aside be transformed into a general non-profit set-
aside (statutory).
    With respect to CHDO operating expenses, one commenter believes 
that the requirement limiting availability to CHDOs expected to receive 
set-aside funds within 24 months should be eliminated. Instead, the 
agreement between the PJ and the CHDO should specify the expectations 
of the parties. In addition, the commenter feels that if the operating 
support is being used to strengthen a CHDO's asset or property 
management capacity, then the agreement should also set benchmarks for 
these efforts. Finally, the commenter suggests that language in the 
regulations describing eligible uses for operating support be changed 
to make clear that such support is not limited to the costs directly 
associated with the development of specific projects.
    Another commenter recommended that the provision of operating funds 
to CHDOs be made mandatory since participating jurisdictions seem 
unwilling to provide this support (statutory). The Department believes 
that CHDO operating funds are the means to permit CHDOs to successfully 
use HOME funds for projects in which they are owners, sponsors or 
developers. These operating funds may be used for general 
administrative and operating expenses as well as for project costs, but 
they are being provided in connection with the anticipated use of HOME 
funds, just as they are provided to participating jurisdictions for the 
production of HOME-assisted affordable housing. The Department has 
clarified at Sec. 92.300(f) that the limitation on the amount of HOME 
funding received by a CHDO in any fiscal year does not include 
administrative funds provided under Sec. 92.207 when a CHDO is acting 
in a subrecipient or contractor capacity.

Section 92.301  Project-specific Assistance to Community Housing 
Development Organizations

    One commenter recommends that the authority to use HOME as 
redevelopment funds that would not need to be repaid if the project did 
not go forward be extended to non-CHDO owners and developers 
(statutory).

[[Page 48747]]

Subpart H--Other Federal Requirements

Section 92.350  Equal Opportunity and Fair Housing

    Four comments were received on this section. Two commenters 
objected to the imposition of the Section 3 rule, which they contend 
goes substantially beyond local capacity to administer employment and 
training programs. They indicate that the rule requirements go far 
beyond the statutory requirement of employing local residents to the 
``greatest extent feasible''. They also contend that the Davis Bacon 
requirements impede Section 3 objectives in that small, local 
contractors do not have the administrative expertise to maintain 
compliance and reporting records.
    One commenter suggested that local minority and women's owned 
business programs should be given credit for meeting Section 3 
requirements. Another commenter complained that it is burdensome to 
apply Section 3 requirements to a whole project when Federal funds 
often represent a small portion of the financing.
    The Section 3 requirements were subject to separate rulemaking and 
comment and the Department has not altered the requirements in this 
section.
    One commenter suggested that affirmative marketing compliance 
monitoring should be done at the same time that HOME projects are 
monitored for rents, tenant incomes, and Housing Quality Standards.
    The Department believes examination of affirmative marketing 
records during on-site inspections and reviews of rents is a good 
suggestion, however, no change has been made to the regulation.

Section 92.352  Environmental Review

    Seven comments were received. Two commenters requested that 
participating jurisdictions be authorized to use substantially 
equivalent State or local environmental law and review procedures in 
place of NEPA (statutory). Four commenters requested that States be 
authorized to assume responsibility for the release of funds based on 
environmental reviews and certifications completed by State recipients 
and State CHDOs. The current procedure requiring States to request 
funds release from HUD delays projects.
    Four commenters requested that 1-4 unit projects and all owner-
occupied homeownership projects be exempt from environmental review 
(statutory). Two commenters requested that historic preservation 
reviews be waived for emergency repairs. Two commenters requested that 
one environmental review and funds release process be allowed for 
projects receiving both HOME and CDBG funds.
    One commenter found current requirements unduly restrictive 
concerning options. The commenter noted that the Department allows 
options to be undertaken prior to environmental review, when a full 
refund of the option fee is provided if the project does not go 
forward. However, the commenter noted that such a scenario is unlikely 
in real estate transactions. The commenter urged that options be 
treated as other initial feasibility actions, in that options allow the 
developer to secure the right, but not the obligation to purchase a 
site. The commenter also requested that options purchased with non-
federal funds be permitted prior to environmental review, even if HOME 
funds will be subsequently used.
    Environmental review requirements are subject to separate 
rulemaking under 24 CFR 58. Part 58 currently authorizes States to 
exercise HUD's responsibilities with respect to approval of a State 
recipient's environmental certification and RROF. However, when a State 
elects to directly undertake the HOME program, HUD provides the second 
level of review. Therefore, States must submit their certification and 
RROF to HUD. Part 58 has been revised to allow purchase options prior 
to the completion of an environmental review, if the option agreement 
is subject to a determination by the recipient of the desirability of 
the property following the environmental review and the option cost 
reflects a nominal portion of the purchase price. Participating 
jurisdictions may currently conduct a single environmental review and 
submit a single RROF for projects funded with both CDBG and HOME, 
provided the separate funding sources are identified.

Section 92.353  Displacement, Relocation and Acquisition

    Four comments were received on this section. Two commenters 
recommend altering the Uniform Relocation Act requirements for tenants 
displaced by HOME or CDBG-financed activity. They view benefits for a 
five year period as overly generous and suggest that the benefits be 
for two years and be paid once at the capitalized value of the 
benefits.
    The calculation of benefits is based on explicit statutory 
language. Persons whose displacement is subject to the Uniform 
Relocation Act (URA) are entitled to an amount that is 42 times the 
difference between their rent at the unit from which they are displaced 
and the comparable unit they are offered (or 42 times the difference 
between 30% of household income and the rent at the comparable unit, if 
that results in a larger payment). For low and moderate income persons 
whose displacement is subject to section 104(d) of the Housing and 
Community Development Act of 1974, the payment is calculated to assure 
that their post-relocation shelter costs do not exceed 30% of income 
for five years. Since these benefit levels are set by statute, the 
Department has no authority to change them.
    Two commenters strongly recommended that the URA requirements be 
simplified for homeownership situations. Current rules require that the 
participating jurisdiction notify the sellers of the property that the 
property is not being acquired under eminent domain and that they are 
not eligible for relocation benefits. Additionally, if the unit being 
offered for sale is occupied by a tenant, relocation benefits would be 
triggered. It was recommended that homebuyer programs be exempt from 
relocation requirements when the participating jurisdiction has no role 
in determining which house is selected by the buyer when it is offered 
for sale on the open market.
    When HOME funds are used for homeownership programs, the property 
purchased is a Federally-assisted acquisition. Thus, it is subject to 
the provisions of the URA, and sellers and displaced tenants must be 
accorded certain rights and benefits. Although the selling homeowner is 
not entitled to relocation benefits, it is necessary to inform the 
seller that the purchaser does not have the power of eminent domain and 
of the estimate of fair market value. These actions are necessary to 
meet the URA requirements of section 301 (2) and (3). If there are 
tenants in the home, they are entitled to the standard URA benefits. 
Since these are statutory requirements, the Department cannot change or 
waive them.

Section 92.354  Labor

    Nine comments were received on this section of the rule. Four 
commenters suggested eliminating the Davis-Bacon requirements for the 
HOME Program, and if not eliminated completely, at least conforming the 
requirements to CDBG in that land acquisition with HOME would not 
trigger Davis Bacon requirements. It was also suggested that some 
substantial dollar amount trigger Davis-Bacon (statutory).
    Two commenters suggested that Davis Bacon requirements not be 
applied to homeownership projects when the units are sold to individual 
homebuyers.

[[Page 48748]]

    Two commenters complained about the substantial administrative 
burden of the requirements and how that discourages small, local 
contractors from participating in contradiction to the Section 3 goals 
and requirements.
    Davis-Bacon requirements apply to twelve or more HOME-assisted 
units under one construction contract, whether rental or homeowner. 
Small, local contractors can work on single family units or small 
rental projects while gaining experience before taking on a larger 
project with Davis Bacon requirements.

Section 92.356  Conflict of Interest

    The third change in the July 12, 1995 proposed rule, the 
application of conflict of interest rules to developers, whether for 
profit or nonprofit, of projects receiving HOME funds elicited sixteen 
comments. Eleven commenters endorsed the application of the 
requirements either totally or with qualifications relating to 
occupancy of resident managers or income-qualified CHDO board members. 
Five commenters opposed the application of the requirements as too 
burdensome and intrusive on the participating jurisdiction's 
administration of the program.
    The Department believes that the positive comments outweigh the 
negative ones and has adopted the conflict of interest provisions for 
developers, both profit and nonprofit, that receive HOME funds. The 
determination of a conflict is made at the State or local level and 
does not involve the Department, unlike the procedure when the conflict 
involves an official or an employee of the participating jurisdictions, 
its State recipients or subrecipients.

Subpart K--Program Administration

Section 92.502  C/MIS: Disbursement of HOME Funds

    Five parties commented on C/MI and disbursement-related issues. All 
of the commenters suggested ways in which they believed the Department 
could simplify or streamline the current system. Three commenters 
recommended that the Department eliminate or relax the requirement that 
HOME funds drawn from the Treasury account be expended for eligible 
costs within 15 days (statutory). One of the commenters suggested 
extending the period to 30 days. Two commenters recommended that 
participating jurisdictions be allowed to draw lump sums for projects 
and place the funds in escrow accounts (statutory).
    Three commenters requested that participating jurisdictions be 
permitted to draw down lump sums of HOME funds for long-term relocation 
expenses. One commenter stated that long-term relocation obligations 
prevented it from sending in project completion forms. Both commenters 
believed that the five-year deadline for the expenditure of funds would 
elapse before participating jurisdictions had completed monthly 
payments for relocation.
    Existing policies should be adequate to permit required payments of 
relocation benefits without delaying project completion. Although 
relocation benefits to displaced tenants may be calculated to assist 
them with their shelter costs for as long as 5 years, the Department 
does not require that monthly payments be made for such a period. 
Although a single lump sum payment of benefits is prohibited by statute 
(except where down payment assistance is involved), the Department 
allows great latitude to displacing agencies in setting up the payout 
of the assistance. For example, quarterly or semi-annual payments could 
be made for a period deemed reasonable by the participating 
jurisdiction, at the end of which the balance could be paid to the 
displaced person.
    One commenter noted that the Department needs to reduce the 
complexity of drawing down funds and decrease the time that it takes 
project set-up forms faxed to HUD to be entered into the system. The 
commenter suggested that the Department adopt the Payment Management 
System used by the Department of Health and Human Services.
    Two commenters stated that the reports generated by the C/MIS 
should be useful and user friendly. One commenter suggested that the C/
MIS operating hours being changed to accommodate participating 
jurisdictions in western time zones.
    One commenter suggested that CHDOs be permitted to set up their own 
accounts in the C/MIS.
    The same commenter suggested that subrecipients be permitted to 
have their own U.S. Treasury accounts and draw HOME funds directly from 
the Treasury.
    Two commenters suggested that the new Integrated Data and 
Information System (IDIS) being developed by the Department for HOME 
and other programs allow participating jurisdictions to set up HOME 
funds for broad activities (e.g., rehabilitation) rather than on a 
project-by-project basis. One of these commenters recommended that 
information on families receiving HOME tenant-based rental assistance 
(i.e., social security number, tenant contribution, amount of subsidy) 
be included as part of a project completion report rather than at set-
up.
    There currently is no project completion form required for TBRA. 
The new Integrated Data and Information system (IDIS) will continue to 
collect data on a project basis. Only participating jurisdictions and 
state recipients are permitted to have HOME funds deposited directly 
into their own bank accounts (statutory).
    Three commenters requested that participating jurisdictions be 
permitted to accumulate significant amounts of program income in their 
local HOME accounts before being required to expend the funds. 
Currently, participating jurisdictions are required to disburse program 
income on hand before drawing any additional funds from the U.S. 
Treasury. The commenters contend that this results in administrative 
burden, particularly when only small amounts of program income are on 
hand.
    This is an OMB and Treasury Department requirement for all Federal 
programs under part 85, not a HOME regulatory requirement. Our current 
(nonregulatory) guidance to participating jurisdictions is that they 
may undertake a periodic accounting of program income whenever their 
financial reports are normally available and spend those funds before 
drawing additional Federal funds.
    One commenter objected to the requirement at Sec. 92.502(g) that 
requires States to designate the local PJ as a State recipient and 
suballocate its HOME funds when a State and local PJ undertake a 
jointly funded project.
    This requirement has been dropped and State and local participating 
jurisdictions can each set up a project for its share of the funds and 
report on the proportionate number of units.
    Another commenter expressed concern about jointly funded projects 
undertaken by CHDOs. The commenter believes that the State funds 
suballocated to a local participating jurisdiction is credited to that 
jurisdiction, rather than the State.
    This is not the case. The State funds retain their identity, so all 
expenditures and production information related to the State's share of 
the project are included in the State's report.

Section 92.503  Program Income, Repayments, and Recaptured Funds

    In response to many public comments and numerous requests for 
clarification, the Department has created a new section describing 
program income, repayments and funds that are recaptured. In prior 
rules, program

[[Page 48749]]

income has often been described as a return on the investment of HOME 
funds. This section hopefully will provide adequate guidance to 
participating jurisdiction on these issues.

Section 92.504  PJ Responsibilities; Written Agreements; Monitoring

    The Department has substantially revised this section to be more 
specific about the contents of the written agreement between the 
participating jurisdiction and the entity receiving the HOME funds. The 
revisions were done in response to many comments requesting 
clarification about the contents of the agreement.
    Six comments were received regarding the HOME monitoring 
requirements at Sec. 92.504(e). All of the commenters felt that the 
current requirements were too burdensome and should be changed.
    Two commenters suggested that the HOME monitoring requirements be 
changed to conform with the LIHTC monitoring requirements, which they 
felt offered more flexibility in determining the number of tenant files 
reviewed and the frequency of on-site visits. One commenter suggested 
that less information should be required from tenants whose rents are 
close to market rents than from those who receive a significant 
subsidy. The commenter suggests a single pay stub as proof of low-
income status.
    Two commenters felt that participating jurisdictions should be 
permitted to develop their own monitoring plans to assure project 
compliance with HOME requirements. One of these commenters suggested 
that these plans could be subject to HUD approval.
    Another commenter suggested that HUD, in place of the current 
monitoring provisions, require participating jurisdictions to develop 
monitoring plans that include an initial on-site inspection, biannual 
on-site financial and management reviews and remote monitoring of 
tenant files and financial statements in alternate years. One commenter 
recommended that HOME rental projects be monitored every two years 
rather than annually, regardless of the size of the project.
    The Department has provided options with regard to determining 
tenant income during the period of affordability which are discussed 
under the preamble comments at Sec. 92.203.
    With regard to monitoring requirements, the Department has created 
additional flexibility in the schedule for on-site inspections of 
smaller projects as permitted by the statute.
    One commenter stated that the Department should eliminate the 
requirement that, when a PJ applies a longer period of affordability 
period to a project than is required by HUD, monitoring of the project 
continue for the extended affordability period.
    There is no such requirement.
    One commenter suggested that, when a project is found to be out of 
compliance with HOME requirements and the participating jurisdiction is 
unable to obtain timely repayment from the owner, the Department reduce 
the participating jurisdictions future grants rather than require 
repayment to the HOME account.
    The Department declines to make this change because it reduces 
funds available to provide affordable housing but will review cases as 
necessary to determine appropriate action.

Section 92.506  Audits

    One commenter wrote in support of the Office of Management and 
Budget's efforts to increase the threshold for audits from $25,000 to 
$300,000.
    A bill has been proposed to make this change but has not been 
enacted.

Section 92.508  Recordkeeping

    The Department has revised this section to ensure consistency with 
the requirements of Part 92. In addition, the period for record 
retention has been extended to five years in keeping with the Part 91 
Consolidated Plan requirement. In response to comments, the Department 
has clarified the record retention period for various types of records. 
The Department has clarified that certain records do not have to be 
retained for the full period of affordability for rental projects.

Section 92.552  Notice and Opportunity for Hearing; Sanctions

    The Department recently published a proposed regulation at 61 FR 
18026 (April 23, 1996) setting forth hearing procedures for formal 
hearings according to the Administrative Procedures Act (5 U.S.C. 551 
et seq.). The Department intends to adopt these hearing procedures for 
the HOME program. Conforming changes to the HOME regulations will be 
made when the final rule for Part 26 is published.

Conforming Changes to Part 91

    The Department has made conforming changes to 24 CFR part 91, the 
Consolidated Plan. If a participating jurisdiction chooses to refinance 
existing debt in connection with the rehabilitation of multifamily 
properties, it would be required to develop guidelines which would 
describe under what conditions it would permit the use of HOME funds 
for refinancing. The guidelines would be made part of the participating 
jurisdiction's consolidated plan and be subject to public review and 
comment.

Extension of Interim Rule

    Section 92.5 of the interim rule 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. This section also provides that the expiration period may 
be extended by notice published in the Federal Register, and the 
Department is hereby providing notice that the interim rule remains in 
effect without interruption until the effective date of this final 
rule.

III. Findings and Certifications

    Paperwork Reduction Act. The information collection requirements 
for the HOME Investment Partnerships Program 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 2577-0191. This final rule does not contain additional mandatory 
information collection requirements, but does contain additional 
voluntary information collection requirements in Secs. 92.206 and 
92.254. When received, the OMB approval number for these information 
collection requirements will be published in a separate notice in the 
Federal Register. 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.
    Unfunded Mandates Reform Act. Title II of the Unfunded Mandates 
Reform Act of 1995 establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, local 
and tribal governments and the private sector. This rule does not 
impose any Federal mandates on any State, local or tribal governments 
or the private sector within the meaning of the Unfunded Mandates 
Reform Act of 1995.
    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

[[Page 48750]]

p.m. weekdays in the Office of the Rules Docket Clerk.
    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.
    Impact on Small Entities. The Secretary, in accordance with the 
Regulatory Flexibility Act (5 U.S.C. 605(b)) has reviewed and approved 
this rule, and in so doing certifies that this rule will 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.
    Federalism Impact. The General Counsel has determined, as the 
Designated Official for HUD under section 6(a) of Executive Order 
12612, Federalism, that this rule does not have federalism implications 
concerning the division of local, State, and federal responsibilities. 
While the HOME Program 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 final 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 rule would not have significant 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; 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 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

24 CFR Part 91

    Aged, Grant programs--housing and community development, Homeless, 
Individuals with disabilities, Low- and moderate-income housing, 
Reporting and recordkeeping requirements.

24 CFR Part 92

    Grant programs--housing and community development, Manufactured 
homes, Rent subsidies, Reporting and recordkeeping requirements.
    Accordingly, the Department amends parts 91 and 92 of title 24 of 
the Code of Federal Regulations as follows:

PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND 
DEVELOPMENT PROGRAMS

    1. The authority citation for part 91 continues to read as follows:

    Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388, 
12701-12711, 12741-12756, and 12901-12912.

    2. Section 91.220 is amended by adding a new paragraph (g)(2)(iii), 
to read as follows:


Sec. 91.220   Action plan.

* * * * *
    (g) * * *
    (2) * * *
    (iii) If the participating jurisdiction intends to use HOME funds 
to refinance existing debt secured by multifamily housing that is being 
rehabilitated with HOME funds, it must state its refinancing guidelines 
required under 24 CFR 92.206(b). The guidelines shall describe the 
conditions under which the participating jurisdictions will refinance 
existing debt. At minimum, the guidelines must:
    (A) Demonstrate that rehabilitation is the primary eligible 
activity and ensure that this requirement is met by establishing a 
minimum level of rehabilitation per unit or a required ratio between 
rehabilitation and refinancing.
    (B) Require a review of management practices to demonstrate that 
disinvestment in the property has not occurred; that the long term 
needs of the project can be met; and that the feasibility of serving 
the targeted population over an extended affordability period can be 
demonstrated.
    (C) State whether the new investment is being made to maintain 
current affordable units, create additional affordable units, or both.
    (D) Specify the required period of affordability, whether it is the 
minimum 15 years or longer.
    (E) Specify whether the investment of HOME funds may be 
jurisdiction-wide or limited to a specific geographic area, such as a 
neighborhood identified in a neighborhood revitalization strategy under 
24 CFR 91.215(e)(2) or a Federally designated Empowerment Zone or 
Enterprise Community.
    (F) State that HOME funds cannot be used to refinance multifamily 
loans made or insured by any Federal program, including CDBG.
    3. Section 91.320 is amended by adding a new paragraph (g)(2)(iii), 
to read as follows:


Sec. 91.320   Action plan.

* * * * *
    (g) * * *
    (2) * * *
    (iii) If the State intends to use HOME funds to refinance existing 
debt secured by multifamily housing that is being rehabilitated with 
HOME funds, it must state its refinancing guidelines required under 24 
CFR 92.206(b). The guidelines shall describe the conditions under which 
the State will refinance existing debt. At minimum, the guidelines 
must:
    (A) Demonstrate that rehabilitation is the primary eligible 
activity and ensure that this requirement is met by establishing a 
minimum level of rehabilitation per unit or a required ratio between 
rehabilitation and refinancing.
    (B) Require a review of management practices to demonstrate that 
disinvestment in the property has not occurred; that the long term 
needs of the project can be met; and that the feasibility of serving 
the targeted population over an extended affordability period can be 
demonstrated.
    (C) State whether the new investment is being made to maintain 
current affordable units, create additional affordable units or both.
    (D) Specify the required period of affordability, whether it is the 
minimum 15 years or longer.
    (E) Specify whether the investment of HOME funds may be 
jurisdiction-wide or limited to a specific geographic area, such as a 
neighborhood identified in a neighborhood revitalization strategy under 
24 CFR Sec. 91.215(e)(2) or a Federally designated Empowerment Zone or 
Enterprise Community.
    (F) State HOME funds cannot be used to refinance multifamily loans 
made or insured by any Federal program, including CDBG.
    4. Part 92 is revised to read as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

Subpart A--General

Sec.
92.1  Overview.
92.2  Definitions.
92.4  Waivers and suspension of requirements for disaster areas.

[[Page 48751]]

Subpart B--Allocation Formula

92.50  Formula allocation.

Insular Areas Program

92.60  Allocation amounts for insular areas.
92.61  Program description.
92.62  Review of program description and certifications.
92.63  Amendments to program description.
92.64  Applicability of requirements to insular areas.
92.65  Funding sanctions.
92.66  Reallocation.
Subpart C--Consortia; Designation and Revocation of Designation as a 
Participating Jurisdiction
92.100  [Reserved]
92.101  Consortia.
92.102  Participation threshold amount.
92.103  Notification of intent to participate.
92.104  Submission of a consolidated plan.
92.105  Designation as a participating jurisdiction.
92.106  Continuous designation as a participating jurisdiction.
92.107  Revocation of designation as a participating jurisdiction.

Subpart D--Submission Requirements

92.150  Submission requirements.

Subpart E--Program Requirements

92.200  Private-public partnership.
92.201  Distribution of assistance.
92.202  Site and neighborhood standards.
92.203  Income determinations.
92.204  Applicability of requirements to entities that receive a 
reallocation of HOME funds, other than participating jurisdictions.

Eligible and Prohibited Activities

92.205  Eligible activities: General.
92.206  Eligible project costs.
92.207  Eligible administrative and planning costs.
92.208  Eligible community housing development organization (CHDO) 
operating expense and capacity building costs.
92.209  Tenant-based rental assistance: Eligible costs and 
requirements.
92.212  Pre-award costs.
92.213  [Reserved]
92.214  Prohibited activities.
92.215  Limitation on jurisdictions under court order.

Income Targeting

92.216  Income targeting: Tenant-based rental assistance and rental 
units.
92.217  Income targeting: Homeownership.

Matching Contribution Requirement

92.218  Amount of matching contribution.
92.219  Recognition of matching contribution.
92.220  Form of matching contribution.
92.221  Match credit.
92.222  Reduction of matching contribution requirement.

Subpart F--Project Requirements

92.250  Maximum per-unit subsidy amount and subsidy layering.
92.251  Property standards.
92.252  Qualification as affordable housing: Rental housing.
92.253  Tenant and participant protections.
92.254  Qualification as affordable housing: Homeownership.
92.255  Converting rental units to homeownership units for existing 
tenants.
92.256  [Reserved].
92.257  Religious organizations.
92.258  Elder cottage housing opportunity (ECHO) units.

Subpart G--Community Housing Development Organizations

92.300  Set-aside for community housing development organizations 
(CHDOs).
92.301  Project-specific assistance to community housing development 
organizations.
92.302  Housing education and organizational support.
92.303  Tenant participation plan.

Subpart H--Other Federal Requirements

92.350  Other Federal requirements.
92.351  Affirmative marketing; minority outreach program.
92.352  Environmental review.
92.353  Displacement, relocation, and acquisition.
92.354  Labor.
92.355  Lead-based paint.
92.356  Conflict of interest.
92.357  Executive Order 12372.

Subpart I--Technical Assistance

92.400  Coordinated Federal support for housing strategies.

Subpart J--Reallocations

92.450  General.
92.451  Reallocation of HOME funds from a jurisdiction that is not 
designated a participating jurisdiction or has its designation 
revoked.
92.452  Reallocation of community housing development organization 
set-aside.
92.453  Criteria for competitive reallocations.
92.454  Reallocations by formula.

Subpart K--Program Administration

92.500  The HOME Investment Trust Fund.
92.501  HOME Investment Partnership Agreement.
92.502  Program disbursement and information system.
92.503  Program income, repayments, and recaptured funds.
92.504  Participating jurisdiction responsibilities; written 
agreements; on-site inspections.
92.505  Applicability of uniform administrative requirements.
92.506  Audit.
92.507  Closeout.
92.508  Recordkeeping.
92.509  Performance reports.

Subpart L--Performance Reviews and Sanctions

92.550  Performance reviews.
92.551  Corrective and remedial actions.
92.552  Notice and opportunity for hearing; sanctions.

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

Subpart A--General


Sec. 92.1  Overview.

    This part implements the HOME Investment Partnerships Act (the HOME 
Investment Partnerships Program). In general, under the HOME Investment 
Partnerships Program, HUD allocates funds by formula among eligible 
State and local governments to strengthen public-private partnerships 
and to expand the supply of decent, safe, sanitary, and affordable 
housing, with primary attention to rental housing, for very low-income 
and low-income families. Generally, HOME funds must be matched by 
nonfederal resources. State and local governments that become 
participating jurisdictions may use HOME funds to carry out multi-year 
housing strategies through acquisition, rehabilitation, and new 
construction of housing, and tenant-based rental assistance. 
Participating jurisdictions may provide assistance in a number of 
eligible forms, including loans, advances, equity investments, interest 
subsidies and other forms of investment that HUD approves.


Sec. 92.2  Definitions.

    The terms ``1937 Act'', ``ALJ'', ``Fair Housing Act'', ``HUD'', 
``Indian Housing Authority (IHA)'', ``Public Housing Agency (PHA)'', 
and ``Secretary'' are defined in 24 CFR 5.100.
    Act means the HOME Investment Partnerships Act at title II of the 
Cranston-Gonzalez National Affordable Housing Act, as amended, 42 
U.S.C. 12701 et seq.
    Adjusted income. See Sec. 92.203.
    Annual income. See Sec. 92.203.
    Certification shall have the meaning provided in section 104(21) of 
the Cranston-Gonzalez National Affordable Housing Act, as amended, 42 
U.S.C. 12704.
    Commitment means:
    (1) The participating jurisdiction has executed a legally binding 
agreement with a State recipient, a subrecipient or a contractor to use 
a specific amount of HOME funds to produce affordable housing or 
provide tenant-based rental assistance; or has executed a written 
agreement reserving a specific amount of funds to a community housing 
development organization; or has met the requirements to commit to a 
specific local project, as defined in paragraph (2), of this 
definition.
    (2) Commit to a specific local project means:
    (i) If the project consists of rehabilitation or new construction 
(with

[[Page 48752]]

or without acquisition) the participating jurisdiction (or State 
recipient or subrecipient) and project owner have executed a written 
legally binding agreement under which HOME assistance will be provided 
to the owner for an identifiable project under which construction can 
reasonably be expected to start within twelve months of the agreement 
date. If the project is owned by the participating jurisdiction or 
State recipient, the project has been set up in the disbursement and 
information system established by HUD, and construction can reasonably 
be expected to start within twelve months of the project set-up date.
    (ii)(A) If the project consists of acquisition of standard housing 
and the participating jurisdiction (or State recipient or subrecipient) 
is acquiring the property with HOME funds, the participating 
jurisdiction (or State recipient or subrecipient) and the property 
owner have executed a legally binding contract for sale of an 
identifiable property and the property title will be transferred to the 
participating jurisdiction (or State recipient or subrecipient) within 
six months of the date of the contract.
    (B) If the project consists of acquisition of standard housing and 
the participating jurisdiction (or State recipient or subrecipient) is 
providing HOME funds to a family to acquire single family housing for 
homeownership or to a purchaser to acquire rental housing, the 
participating jurisdiction (or State recipient or subrecipient) and the 
family or purchaser have executed a written agreement under which HOME 
assistance will be provided for the purchase of the single family 
housing or rental housing and the property title will be transferred to 
the family or purchaser within six months of the agreement date.
    (iii) If the project consists of tenant-based rental assistance, 
the participating jurisdiction (or State recipient, or subrecipient) 
has entered into a rental assistance contract with the owner or the 
tenant in accordance with the provisions of Sec. 92.209.
    Community housing development organization means a private 
nonprofit organization that:
    (1) Is organized under State or local laws;
    (2) Has no part of its net earnings inuring to the benefit of any 
member, founder, contributor, or individual;
    (3) Is neither controlled by, nor under the direction of, 
individuals or entities seeking to derive profit or gain from the 
organization. A community housing development organization may be 
sponsored or created by a for-profit entity, but:
    (i) The for-profit entity may not be an entity whose primary 
purpose is the development or management of housing, such as a builder, 
developer, or real estate management firm.
    (ii) The for-profit entity may not have the right to appoint more 
than one-third of the membership of the organization's governing body. 
Board members appointed by the for-profit entity may not appoint the 
remaining two-thirds of the board members; and
    (iii) The community housing development organization must be free 
to contract for goods and services from vendors of its own choosing;
    (4) Has a tax exemption ruling from the Internal Revenue Service 
under section 501(c) (3) or (4) of the Internal Revenue Code of 1986 
(26 CFR 1.501(c)(3)-1);
    (5) Does not include a public body (including the participating 
jurisdiction). An organization that is State or locally chartered may 
qualify as a community housing development organization; however, the 
State or local government may not have the right to appoint more than 
one-third of the membership of the organization's governing body and no 
more than one-third of the board members may be public officials or 
employees of the participating jurisdiction or State recipient. Board 
members appointed by the State or local government may not appoint the 
remaining two-thirds of the board members;
    (6) Has standards of financial accountability that conform to 24 
CFR 84.21, ``Standards for Financial Management Systems;''
    (7) Has among its purposes the provision of decent housing that is 
affordable to low-income and moderate-income persons, as evidenced in 
its charter, articles of incorporation, resolutions or by-laws;
    (8) Maintains accountability to low-income community residents by:
    (i) Maintaining at least one-third of its governing board's 
membership for residents of low-income neighborhoods, other low-income 
community residents, or elected representative of low-income 
neighborhood organizations. For urban areas, ``community'' may be a 
neighborhood or neighborhoods, city, county or metropolitan area; for 
rural areas, it may be a neighborhood or neighborhoods, town, village, 
county, or multi-county area (but not the entire State); and
    (ii) Providing a formal process for low-income program 
beneficiaries to advise the organization in its decisions regarding the 
design, siting, development, and management of affordable housing;
    (9) Has a demonstrated capacity for carrying out activities 
assisted with HOME funds. An organization may satisfy this requirement 
by hiring experienced key staff members who have successfully completed 
similar projects, or a consultant with the same type of experience and 
a plan to train appropriate key staff members of the organization; and
    (10) Has a history of serving the community within which housing to 
be assisted with HOME funds is to be located. In general, an 
organization must be able to show one year of serving the community 
before HOME funds are reserved for the organization. However, a newly 
created organization formed by local churches, service organizations or 
neighborhood organizations may meet this requirement by demonstrating 
that its parent organization has at least a year of serving the 
community.
    Family has the same meaning given that term in 24 CFR 5.403.
    HOME funds means funds made available under this part through 
allocations and reallocations, plus program income.
    Homeownership means ownership in fee simple title or a 99 year 
leasehold interest in a one- to four-unit dwelling or in a condominium 
unit, or equivalent form of ownership approved by HUD. The ownership 
interest may be subject only to the restrictions on resale required 
under Sec. 92.254(a); mortgages, deeds of trust, or other liens or 
instruments securing debt on the property as approved by the 
participating jurisdiction; or any other restrictions or encumbrances 
that do not impair the good and marketable nature of title to the 
ownership interest. For purposes of the insular areas, homeownership 
includes leases of 40 years or more. The participating jurisdiction 
must determine whether or not ownership or membership in a cooperative 
or mutual housing project constitutes homeownership under State law.
    Household means one or more persons occupying a housing unit.
    Housing includes manufactured housing and manufactured housing 
lots, permanent housing for disabled homeless persons, transitional 
housing, single-room occupancy housing, and group homes. Housing also 
includes elder cottage housing opportunity (ECHO) units that are small, 
free-standing, barrier-free, energy-efficient, removable, and designed 
to be installed adjacent to existing single-family dwellings. Housing 
does not include emergency shelters (including shelters

[[Page 48753]]

for disaster victims) or facilities such as nursing homes, convalescent 
homes, hospitals, residential treatment facilities, correctional 
facilities and student dormitories.
    Insular areas means Guam, the Northern Mariana Islands, the United 
States Virgin Islands, and American Samoa.
    Jurisdiction means a State or unit of general local government.
    Low-income families means families whose annual incomes do not 
exceed 80 percent of the median income for the area, as determined by 
HUD with adjustments for smaller and larger families, except that HUD 
may establish income ceilings higher or lower than 80 percent of the 
median for the area on the basis of HUD findings that such variations 
are necessary because of prevailing levels of construction costs or 
fair market rents, or unusually high or low family incomes.
    Metropolitan city has the meaning given the term in 24 CFR 570.3.
    Neighborhood means a geographic location designated in 
comprehensive plans, ordinances, or other local documents as a 
neighborhood, village, or similar geographical designation that is 
within the boundary but does not encompass the entire area of a unit of 
general local government; except that if the unit of general local 
government has a population under 25,000, the neighborhood may, but 
need not, encompass the entire area of a unit of general local 
government.
    Participating jurisdiction means a jurisdiction (as defined in this 
section) that has been so designated by HUD in accordance with 
Sec. 92.105.
    Person with disabilities means a household composed of one or more 
persons, at least one of whom is an adult, who has a disability.
    (1) A person is considered to have a disability if the person has a 
physical, mental, or emotional impairment that:
    (i) Is expected to be of long-continued and indefinite duration;
    (ii) Substantially impedes his or her ability to live 
independently; and
    (iii) Is of such a nature that such ability could be improved by 
more suitable housing conditions.
    (2) A person will also be considered to have a disability if he or 
she has a developmental disability, which is a severe, chronic 
disability that:
    (i) Is attributable to a mental or physical impairment or 
combination of mental and physical impairments;
    (ii) Is manifested before the person attains age 22;
    (iii) Is likely to continue indefinitely;
    (iv) Results in substantial functional limitations in three or more 
of the following areas of major life activity: self-care, receptive and 
expressive language, learning, mobility, self-direction, capacity for 
independent living, and economic self-sufficiency; and
    (v) Reflects the person's need for a combination and sequence of 
special, interdisciplinary, or generic care, treatment, or other 
services that are of lifelong or extended duration and are individually 
planned and coordinated. Notwithstanding the preceding provisions of 
this definition, the term ``person with disabilities'' includes two or 
more persons with disabilities living together, one or more such 
persons living with another person who is determined to be important to 
their care or well-being, and the surviving member or members of any 
household described in the first sentence of this definition who were 
living, in a unit assisted with HOME funds, with the deceased member of 
the household at the time of his or her death.
    Program income means gross income received by the participating 
jurisdiction, State recipient, or a subrecipient directly generated 
from the use of HOME funds or matching contributions. When program 
income is generated by housing that is only partially assisted with 
HOME funds or matching funds, the income shall be prorated to reflect 
the percentage of HOME funds used. Program income includes, but is not 
limited to, the following:
    (1) Proceeds from the disposition by sale or long-term lease of 
real property acquired, rehabilitated, or constructed with HOME funds 
or matching contributions;
    (2) Gross income from the use or rental of real property, owned by 
the participating jurisdiction, State recipient, or a subrecipient, 
that was acquired, rehabilitated, or constructed, with HOME funds or 
matching contributions, less costs incidental to generation of the 
income;
    (3) Payments of principal and interest on loans made using HOME 
funds or matching contributions;
    (4) Proceeds from the sale of loans made with HOME funds or 
matching contributions;
    (5) Proceeds from the sale of obligations secured by loans made 
with HOME funds or matching contributions;
    (6) Interest earned on program income pending its disposition; and
    (7) Any other interest or return on the investment permitted under 
Sec. 92.205(b) of HOME funds or matching contributions.
    Project means a site or sites together with any building (including 
a manufactured housing unit) or buildings located on the site(s) that 
are under common ownership, management, and financing and are to be 
assisted with HOME funds as a single undertaking under this part. The 
project includes all the activities associated with the site and 
building. For tenant-based rental assistance, project means assistance 
to one or more families.
    Project completion means that all necessary title transfer 
requirements and construction work have been performed; the project 
complies with the requirements of this part (including the property 
standards under Sec. 92.251); the final drawdown has been disbursed for 
the project; and the project completion information has been entered in 
the disbursement and information system established by HUD. For tenant-
based rental assistance, project completion means the final drawdown 
has been disbursed for the project.
    Reconstruction means the rebuilding, on the same lot, of housing 
standing on a site at the time of project commitment. The number of 
housing units on the lot may not be decreased or increased as part of a 
reconstruction project, but the number of rooms per unit may be 
increased or decreased. Reconstruction also includes replacing an 
existing substandard unit of manufactured housing with a new or 
standard unit of manufactured housing. Reconstruction is rehabilitation 
for purposes of this part.
    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.
    State means any State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, or any agency or 
instrumentality thereof that is established pursuant to legislation and 
designated by the chief executive officer to act on behalf of the State 
with regard to the provisions of this part.
    State recipient. See Sec. 92.201(b)(2).
    Subrecipient means a public agency or nonprofit organization 
selected by the participating jurisdiction to administer all or a 
portion of the participating jurisdiction's HOME program. A public

[[Page 48754]]

agency or nonprofit organization that receives HOME funds solely as a 
developer or owner of housing is not a subrecipient. The participating 
jurisdiction's selection of a subrecipient is not subject to the 
procurement procedures and requirements.
    Tenant-based rental assistance is a form of rental assistance in 
which the assisted tenant may move from a dwelling unit with a right to 
continued assistance. Tenant-based rental assistance under this part 
also includes security deposits for rental of dwelling units.
    Transitional housing means housing that:
    (1) Is designed to provide housing and appropriate supportive 
services to persons, including (but not limited to) deinstitutionalized 
individuals with disabilities, homeless individuals with disabilities, 
and homeless families with children; and
    (2) Has as its purpose facilitating the movement of individuals and 
families to independent living within a time period that is set by the 
participating jurisdiction or project owner before occupancy.
    Unit of general local government means a city, town, township, 
county, parish, village, or other general purpose political subdivision 
of a State; a consortium of such political subdivisions recognized by 
HUD in accordance with Sec. 92.101; and any agency or instrumentality 
thereof that is established pursuant to legislation and designated by 
the chief executive to act on behalf of the jurisdiction with regard to 
provisions of this part. When a county is an urban county, the urban 
county is the unit of general local government for purposes of the HOME 
Investment Partnerships Program.
    Urban county has the meaning given the term in 24 CFR 570.3.
    Very low-income families means low-income families whose annual 
incomes do not exceed 50 percent of the median family income for the 
area, as determined by HUD with adjustments 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 findings 
that such variations are necessary because of prevailing levels of 
construction costs or fair market rents, or unusually high or low 
family incomes.


Sec. 92.4  Waivers and suspension of requirements for disaster areas.

    HUD's authority for waiver of regulations and for the suspension of 
requirements to address damage in a Presidentially declared disaster 
area is described in 24 CFR 5.110 and in section 290 of the Act, 
respectively.

Subpart B--Allocation Formula


Sec. 92.50  Formula allocation.

    (a) Jurisdictions eligible for a formula allocation. HUD will 
provide allocations of funds in amounts determined by the formula 
described in this section to units of general local governments that, 
as of the end of the previous fiscal year, are metropolitan cities, 
urban counties, or consortia approved under Sec. 92.101; and States.
    (b) Amounts available for allocation; State and local share. The 
amount of funds that are available for allocation by the formula under 
this section is equal to the balance of funds remaining after reserving 
amounts for Indian tribes, insular areas, housing education and 
organizational support, other support for State and local housing 
strategies, and other purposes authorized by Congress, in accordance 
with the Act and appropriations.
    (c) Formula factors. The formula for determining allocations uses 
the following factors. The first and sixth factors are weighted 0.1; 
the other four factors are weighted 0.2.
    (1) Vacancy-adjusted rental units where the household head is at or 
below the poverty level. These rental units are multiplied by the ratio 
of the national rental vacancy rate over a jurisdiction's rental 
vacancy rate.
    (2) Occupied rental units with at least one of four problems 
(overcrowding, incomplete kitchen facilities, incomplete plumbing, or 
high rent costs). Overcrowding is a condition that exists if there is 
more than one person per room occupying the unit. Incomplete kitchen 
facilities means the unit lacks a sink with running water, a range, or 
a refrigerator. Incomplete plumbing means the unit lacks hot and cold 
piped water, a flush toilet, or a bathtub or shower inside the unit for 
the exclusive use of the occupants of the unit. High rent costs occur 
when more than 30 percent of household income is used for rent.
    (3) Rental units built before 1950 occupied by poor families.
    (4) Rental units described in paragraph (c)(2) of this section 
multiplied by the ratio of the cost of producing housing for a 
jurisdiction divided by the national cost.
    (5) Number of families at or below the poverty level.
    (6) Population of a jurisdiction multiplied by a net per capita 
income (pci). To compute net pci for a jurisdiction or for the nation, 
the pci of a three person family at the poverty threshold is subtracted 
from the pci of the jurisdiction or of the nation. The index is 
constructed by dividing the national net pci by the net pci of a 
jurisdiction.
    (d) Calculating formula allocations for units of general local 
government. (1) Initial allocation amounts for units of general local 
government described in paragraph (a)(1) of this section are determined 
by multiplying the sum of the shares of the six factors in paragraph 
(c) of this section by 60 percent of the amount available under 
paragraph (b) of this section for formula allocation. The shares are 
the ratio of the weighted factor for each jurisdiction over the 
corresponding factor for the total for all of these units of general 
local government.
    (2) If any of the initial amounts for such units of general local 
government in Puerto Rico exceeds twice the national average, on a per 
rental unit basis, that amount is capped at twice the national average.
    (3) To determine the maximum number of units of general local 
government that receive a formula allocation, only one jurisdiction 
(the unit of general local government with the smallest allocation of 
HOME funds) is dropped from the pool of eligible jurisdictions on each 
successive recalculation. Then the amount of funds available for units 
of general local government is redistributed to all others. This 
recalculation/redistribution continues until all remaining units of 
general local government receive an allocation of $500,000 or more. 
Only units of general local government which receive an allocation of 
$500,000 or more under the formula will be awarded an allocation. In 
fiscal years in which Congress appropriates less than $1.5 billion of 
HOME funds, $335,000 is substituted for $500,000.
    (4) The allocation amounts determined under paragraph (d)(3) of 
this section are reduced by any amounts that are necessary to provide 
increased allocations to States that have no unit of general local 
government receiving a formula allocation (see paragraph (e)(4) of this 
section). These reductions are made on a prorata basis, except that no 
unit of general local government allocation is reduced below $500,000 
(or $335,000 in fiscal years in which Congress appropriates less than 
$1.5 billion of HOME funds).
    (e) Calculating formula allocations for States. (1) Forty percent 
of the funds available for allocation under paragraph (b) of this 
section are allocated to States. The allocation amounts for States are 
calculated by determining initial amounts for each State, based on the

[[Page 48755]]

sum of the shares of the six factors. For 20 percent of the funds to be 
allocated to States, the shares are the ratio of the weighted factor 
for the entire State over the corresponding factor for the total for 
all States. For 80 percent of the funds to be allocated to States, the 
shares are the ratio of the weighted factor for all units of general 
local government within the State that do not receive a formula 
allocation over the corresponding factor for the total for all States.
    (2) If the initial amounts for Puerto Rico (based on either or both 
the 80 percent of funds or 20 percent of funds calculation) exceed 
twice the national average, on a per rental unit basis, each amount 
that exceeds the national average is capped at twice the national 
average, and the resultant funds are reallocated to other States on a 
prorata basis.
    (3) If the initial amounts when combined for any State are less 
than the $3,000,000, the allocation to that State is increased to the 
$3,000,000 and all other State allocations are reduced by an equal 
amount on a prorata basis, except that no State allocation is reduced 
below $3,000,000.
    (4) The allocation amount for each State that has no unit of 
general local government within the State receiving an allocation under 
paragraph (d) of this section is increased by $500,000. Funds for this 
increase are derived from the funds available for units of general 
local government, in accordance with paragraph (d)(4) of this section.

Insular Areas Program


Sec. 92.60  Allocation amounts for insular areas.

    (a) Initial allocation amount for each insular area. The initial 
allocation amount for each insular area is determined based upon the 
insular area's population and occupied rental units compared to all 
insular areas.
    (b) Threshold requirements. The HUD Field Office shall review each 
insular area's progress on outstanding allocations made under this 
section, based on the insular area's performance report, the timeliness 
of close-outs, and compliance with fund management requirements and 
regulations, taking into consideration the size of the allocation and 
the degree and complexity of the program. If HUD determines from this 
review that the insular area does not have the capacity to administer 
effectively a new allocation, or a portion of a new allocation, in 
addition to allocations currently under administration, HUD may reduce 
the insular area's initial allocation amount.
    (c) Previous audit findings and outstanding monetary obligations. 
HUD shall not make an allocation to an insular area that has either an 
outstanding audit finding for any HUD program, or an outstanding 
monetary obligation to HUD that is in arrears, or for which a repayment 
schedule has not been established. This restriction does not apply if 
the HUD Field Office finds that the insular area has made a good faith 
effort to clear the audit and, when there is an outstanding monetary 
obligation to HUD, the insular area has made a satisfactory arrangement 
for repayment of the funds due HUD and payments are current.
    (d) Increases to the initial allocation amount. If funds reserved 
for the insular areas are available because HUD has decreased the 
amount for one or more insular areas in accordance with paragraphs (b) 
or (c) of this section, or for any other reason, HUD may increase the 
allocation amount for one or more of the remaining insular areas based 
upon the insular area's performance in committing HOME funds within the 
24 month deadline, producing housing units described in its program 
description, and meeting HOME program requirements. Funds that become 
available but which are not used to increase the allocation amount for 
one or more of the remaining insular areas will be reallocated in 
accordance with Sec. 92.66.
    (e) Notice of allocation amounts. HUD will notify each insular 
area, in writing, as to the amount of its HOME allocation.


Sec. 92.61  Program description.

    (a) Submission requirement. Not later than 90 days after HUD 
notifies the insular area of the amount of its allocation, the insular 
area must submit a program description and certifications to HUD.
    (b) Content of program description. The program description must 
contain the following:
    (1) An executed Standard Form 424;
    (2) The estimated use of HOME funds and a description of projects 
and eligible activities, including number of units to be assisted, 
estimated costs, and tenure type (rental or owner occupied) and, for 
tenant assistance, number of households to be assisted;
    (3) A timetable for the implementation of the projects or eligible 
activities;
    (4) If the insular area intends to use HOME funds for homebuyers, 
the guidelines for resale or recapture as required in 
Sec. 92.254(a)(5);
    (5) If the insular area intends to use HOME funds for tenant-based 
rental assistance, a description of how the program will be 
administered consistent with the minimum guidelines described in 
Sec. 92.209;
    (6) If an insular area intends to use other forms of investment not 
described in Sec. 92.205(b), a description of the other forms of 
investment;
    (7) A statement of the policy and procedures to be followed by the 
insular area to meet the requirements for affirmative marketing, and 
establishing and overseeing a minority and women business outreach 
program under Sec. 92.351;
    (8) If the insular intends to use HOME funds for refinancing along 
with rehabilitation, the insular area's guidelines described in 
Sec. 92.206(b).
    (c) Certifications. The following certifications must accompany the 
program description:
    (1) A certification that, before committing funds to a project, the 
insular area will evaluate the project in accordance with guidelines 
that it adopts for this purpose and will not invest any more HOME funds 
in combination with other governmental assistance than is necessary to 
provide affordable housing;
    (2) If the insular area intends to provide tenant-based rental 
assistance, the certification required by Sec. 92.209;
    (3) A certification that the submission of the program description 
is authorized under applicable law and the insular area possesses the 
legal authority to carry out the HOME Investment Partnerships Program, 
in accordance with the HOME regulations;
    (4) A certification that it will comply with the acquisition and 
relocation requirements of the Uniform Relocation Assistance and Real 
Property Acquisition Policies Act of 1970, as amended, implementing 
regulations at 49 CFR part 24 and the requirements of Sec. 92.353;
    (5) A certification that the insular area will use HOME funds in 
compliance with all requirements of this part;
    (6) The certification with regard to the drug-free workplace 
required by 24 CFR part 24, subpart F; and
    (7) The certification required with regard to lobbying required by 
24 CFR part 87, together with disclosure forms, if required by 24 CFR 
part 87.


Sec. 92.62  Review of program description and certifications.

    (a) Review of program description. The responsible HUD Field Office 
will review an insular area's program description and will approve the 
description unless the insular area has failed to submit information 
sufficient to allow HUD to make the necessary determinations required 
for Sec. 92.61

[[Page 48756]]

(b)(4), (b)(6), and (b)(7), or the guidelines under (b)(8) are not 
satisfactory to HUD, if applicable; or if the level of proposed 
projects or eligible activities is not within the management capability 
demonstrated by past performance in housing and community development 
programs. If the insular area has not submitted information on 
Sec. 92.61 (b)(4), (b)(6), and (b)(7), or the guidelines under (b)(8) 
are not satisfactory to HUD, if applicable; or if the level of proposed 
projects or eligible activities is not within the management capability 
demonstrated by past performance in housing and community development 
programs, the insular area may be required to furnish such further 
information or assurances as HUD may consider necessary to find the 
program description and certifications satisfactory. The HUD Field 
Office shall work with the insular area to achieve a complete and 
satisfactory program description.
    (b) Review period. Within thirty days of receipt of the program 
description, the HUD Field Office will notify the insular area if 
determinations cannot be made under Sec. 92.61 (b)(4), (b)(6), (b)(7), 
or (b)(8) with the supporting information submitted, or if the proposed 
projects or activities are beyond currently demonstrated capability. 
The insular area will have a reasonable period of time, agreed upon 
mutually, to submit the necessary supporting information or to revise 
the proposed projects or activities in its program description.
    (c) HOME Investment Partnership Agreement. After HUD Field Office 
approval under this section, a HOME funds allocation is made by HUD 
execution of the agreement, subject to execution by the insular area. 
The funds are obligated on the date HUD notifies the insular area of 
HUD's execution of the agreement.


Sec. 92.63  Amendments to program description.

    An insular area must submit to HUD for approval any substantial 
change in its HUD-approved program description that it makes and must 
document any other changes in its file. A substantial change involves a 
change in the guidelines for resale or recapture (Sec. 92.61(b)(4)), 
other forms of investment (Sec. 92.61(b)(6)), minority and women 
business outreach program (Sec. 92.61(b)(7)) or refinancing 
(Sec. 92.61(b)(8)); or a change in the tenure type of the project or 
activities; or a funding increase to a project or activity of $100,000 
or 50% (whichever is greater). The HUD Field Office will notify the 
insular area if its program description, as amended, does not permit 
determinations to be made under Sec. 92.61 (b)(4), (b)(6), (b)(7), or 
(b)(8), or if the level of proposed projects or eligible activities is 
not within the management capability demonstrated by past performance 
in housing and community development programs, within 30 days of 
receipt. The insular area will have a reasonable period of time, agreed 
upon mutually, to submit the necessary supporting information to revise 
the proposed projects or activities in its program description.


Sec. 92.64  Applicability of requirements to insular areas.

    (a) Insular areas are subject to the same requirements in subpart E 
(Program Requirements), subpart F (Project Requirements), subpart K 
(Program Administration), and subpart L (Performance Reviews and 
Sanctions) of this part as participating jurisdictions, except for the 
following:
    (1) Subpart E (Program Requirements): Administrative costs, as 
described in Sec. 92.207, are eligible costs for insular areas in an 
amount not to exceed 15 percent of the HOME funds provided to the 
insular area. The matching contribution requirements in this part do 
not apply.
    (2) Subpart K (Program Administration):
    (i) Section 92.500 (The HOME Investment Trust Fund) does not apply. 
HUD will establish a HOME account in the United States Treasury for 
each insular area and the HOME funds must be used for approved 
activities. A local account must be established for program income. 
Each insular area may use either a separate local HOME account or a 
subsidiary account within its general fund (or other appropriate fund) 
as the local HOME account. HUD will recapture HOME funds in the HOME 
Treasury account by the amount of:
    (A) Any funds that are not committed within 24 months after the 
last day of the month in which HUD notifies the insular area of HUD's 
execution of the HOME Investment Partnership Agreement;
    (B) Any funds that are not expended within five years after the 
last day of the month in which HUD notifies the insular area of HUD's 
execution of the HOME Investment Partnership Agreement; and
    (C) Any penalties assessed by HUD under Sec. 92.552.
    (ii) Section 92.502 (Program disbursement and information system) 
applies, except that references to the HOME Investment Trust Fund mean 
HOME account. In addition, Sec. 92.502(c) does not apply, and instead 
compliance with Treasury Circular No. 1075 (31 CFR part 205) and 24 CFR 
85.21 is required.
    (iii) Section 92.503 (Program income, repayments, and recaptured 
funds) applies, except that the funds may be retained provided the 
funds are used for eligible activities in accordance with the 
requirements of this section.
    (3) Section 92.504 (Participating jurisdiction responsibilities; 
written agreements; on-site inspections) applies, except that the 
written agreement must ensure compliance with the requirements in this 
section.
    (4) Section 92.508 (Recordkeeping) applies with respect to the 
records that relate to the requirements of this section.
    (5) Section 92.509 (Performance reports) applies, except that a 
performance report is required for the fiscal year allocation only 
after completion of the approved projects funded by the allocation.
    (6) Subpart L (Performance Reviews and Sanctions): Section 92.552 
does not apply. Instead, Sec. 92.65 applies.
    (b) The requirements of subpart H (Other Federal Requirements) of 
this part apply as follows: Sec. 92.357 Executive Order 12372 applies 
as written, and the requirements of the remaining sections which apply 
to participating jurisdictions are applicable to the insular areas.
    (c) Subpart B (Allocation Formula), subpart C (Consortia; 
Designation and Revocation as a Participating Jurisdiction), subpart D 
(Submission Requirements), and subpart G (Community Housing Development 
Organizations) of this part do not apply.
    (d) Subpart A (General) applies, except that for the definitions of 
``commitment'', ``program income'', and ``subrecipient'', 
``participating jurisdiction'' means ``insular area.''


Sec. 92.65  Funding sanctions.

    Following notice and opportunity for informal consultation, HUD may 
withhold, reduce or terminate the assistance where any corrective or 
remedial actions taken under Sec. 92.551 fail to remedy an insular 
area's performance deficiencies, and the deficiencies are sufficiently 
substantial, in the judgment of HUD, to warrant sanctions.


Sec. 92.66  Reallocation.

    Any HOME funds which are reduced or recaptured from an insular 
area's allocation and which are not used to increase the allocation 
amount for one or more of the remaining insular areas as provided in 
Sec. 92.60 of this part, will be reallocated by HUD to the States in

[[Page 48757]]

accordance with the requirements in subpart J for reallocating funds 
initially allocated to a State.

Subpart C--Consortia; Designation and Revocation of Designation as 
a Participating Jurisdiction


Sec. 92.100  [Reserved]


Sec. 92.101  Consortia.

    (a) A consortium of geographically contiguous units of general 
local government is a unit of general local government for purposes of 
this part if the requirements of this section are met.
    (1) One or more members of a proposed consortium or an existing 
consortium whose consortium qualification terminates at the end of the 
fiscal year, must provide written notification by March 1 to the HUD 
Field Office of its intent to participate as a consortium in the HOME 
Program for the following fiscal year. Provided that subsequent 
deadlines could be met, the Field Office may accept notification at a 
later date.
    (2) The proposed consortium must provide, at such time and in a 
manner and form prescribed by HUD, the qualification documents, which 
will include submission of:
    (i) A written certification by the State that the consortium will 
direct its activities to alleviation of housing problems within the 
State; and
    (ii) Documentation which demonstrates that the consortium has 
executed one legally binding cooperation agreement among its members 
authorizing one member unit of general local government to act in a 
representative capacity for all member units of general local 
government for the purposes of this part and providing that the 
representative member assumes overall responsibility for ensuring that 
the consortium's HOME Program is carried out in compliance with the 
requirements of this part.
    (3) Before the end of the fiscal year in which the notice of intent 
and documentation are submitted, HUD must determine that the consortium 
has sufficient authority and administrative capability to carry out the 
purposes of this part on behalf of its member jurisdictions. HUD will 
endeavor to make its determination as quickly as practicable after 
receiving the consortium's documentation in order to provide the 
consortium an opportunity to correct its submission, if necessary. If 
the submission is deficient, HUD will work with the consortium to 
resolve the issue, but will not delay the formula allocations.
    (b) A metropolitan city or an urban county may be a member of a 
consortium. A unit of general local government that is included in an 
urban county may be part of a consortium, only if the urban county 
joins the consortium. The included local government cannot join the 
consortium except through participation in the urban county.
    (c) A non-urban county may be a member of a consortium. However, 
the county cannot on its own include the whole county in the 
consortium. A unit of local government located within the non-urban 
county that wishes to participate as a member of the consortium must 
sign the HOME consortium agreement.
    (d) If the representative unit of general local government 
distributes HOME funds to member units of general local government, the 
representative unit is responsible for applying to the member units of 
general local government the same requirements as are applicable to 
subrecipients.
    (e) The consortium's qualification as a unit of general local 
government continues for a period of three successive Federal fiscal 
years, or until HUD revokes its designation as a participating 
jurisdiction, or until an urban county member fails to requalify under 
the CDBG program as an urban county for a fiscal year included in the 
consortium's qualification period, or the consortium fails to receive a 
HOME allocation for the first Federal fiscal year of the consortium's 
qualification period and does not request to be considered to receive a 
HOME allocation in each of the subsequent two years. However, if a 
member urban county's three year CDBG qualification cycle is not the 
same as the consortium, the consortium may elect a shorter 
qualification period than three years to synchronize with the urban 
county's qualification period. During the period of qualification, 
additional units of general local government may join the consortium, 
but no included unit of general local government may withdraw from the 
consortium. See 24 CFR part 91, subpart E, for consolidated plan 
requirements for consortia, including the requirement that all members 
of the consortia must be on the same program year.


Sec. 92.102  Participation threshold amount.

    (a) To be eligible to become a participating jurisdiction, a unit 
of general local government must have a formula allocation under 
Sec. 92.50 that is equal to or greater than $750,000; or
    (b) If a unit of general local government's formula allocation is 
less than $750,000, HUD must find:
    (1) The unit of general local government has a local PHA and has 
demonstrated a capacity to carry out the provisions of this part, as 
evidenced by satisfactory performance under one or more HUD-
administered programs that provide assistance for activities comparable 
to the eligible activities under this part; and
    (2) The State has authorized HUD to transfer to the unit of general 
local government a portion of the State's allocation or the State, the 
unit of general local government, or both, has made available its own 
resources such that the sum of the amounts transferred or made 
available are equal to or greater than the difference between the unit 
of general local government's formula allocation and $750,000.
    (c) In fiscal years in which Congress appropriates less than $1.5 
billion for this part, $500,000 is substituted for $750,000 each time 
it appears in this section.


Sec. 92.103  Notification of intent to participate.

    (a) Not later than 30 days after receiving notice of its formula 
allocation amount, a jurisdiction must notify HUD in writing of its 
intention to become a participating jurisdiction.
    (b) A unit of general local government that has a formula 
allocation of less than $750,000, or less than $500,000 in fiscal years 
in which Congress appropriates less than $1.5 billion for this part, 
must submit, with its notice, one or more of the following, as 
appropriate, as evidence that it has met the threshold allocation 
requirements in Sec. 92.102(b):
    (1) Authorization from the State to transfer a portion of its 
allocation to the unit of general local government;
    (2) A letter from the governor or designee indicating that the 
required funds have been approved and budgeted for the unit of general 
local government;
    (3) A letter from the chief executive officer of the unit of 
general local government indicating that the required funds have been 
approved and budgeted.


Sec. 92.104  Submission of a consolidated plan.

    A jurisdiction that has not submitted a consolidated plan to HUD 
must submit to HUD, not later than 90 days after providing notification 
under Sec. 92.103, a consolidated plan in accordance with 24 CFR part 
91.


Sec. 92.105  Designation as a participating jurisdiction.

    When a jurisdiction has complied with the requirements of 
Secs. 92.102 through 92.104 and HUD has approved the jurisdiction's 
consolidated plan in accordance with 24 CFR part 91, HUD

[[Page 48758]]

will designate the jurisdiction as a participating jurisdiction.


Sec. 92.106  Continuous designation as a participating jurisdiction.

    Once a State or unit of general local government is designated a 
participating jurisdiction, it remains a participating jurisdiction for 
subsequent fiscal years and the requirements of Secs. 92.102 through 
92.105 do not apply, unless HUD revokes the designation in accordance 
with Sec. 92.107.


Sec. 92.107  Revocation of designation as a participating jurisdiction.

    HUD may revoke a jurisdiction's designation as a participating 
jurisdiction if:
    (a) HUD finds, after reasonable notice and opportunity for hearing 
as provided in Sec. 92.552(b) that the jurisdiction is unwilling or 
unable to carry out the provisions of this part, including failure to 
meet matching contribution requirements; or
    (b) The jurisdiction's formula allocation falls below $750,000 (or 
below $500,000 in fiscal years in which Congress appropriates less than 
$1.5 billion for this part) for three consecutive years, below $625,000 
(or below $410,000 in fiscal years in which Congress appropriates less 
than $1.5 billion for this part) for two consecutive years, or the 
jurisdiction does not receive a formula allocation in any one year.
    (c) When HUD revokes a participating jurisdiction's designation as 
a participating jurisdiction, HUD will reallocate any remaining funds 
in the jurisdiction's HOME Investment Trust Fund established under 
Sec. 92.500 in accordance with Sec. 92.451.

Subpart D--Submission Requirements


Sec. 92.150  Submission requirements.

    In order to receive its HOME allocation, a participating 
jurisdiction must submit a consolidated plan in accordance with 24 CFR 
part 91. That part includes requirements for the content of the 
consolidated plan, the process of developing the consolidated plan, 
including citizen participation, the submission date, HUD approval, and 
amendments.

Subpart E--Program Requirements


Sec. 92.200  Private-public partnership.

    Each participating jurisdiction must make all reasonable efforts to 
maximize participation by the private sector in accordance with section 
221 of the Act.


Sec. 92.201  Distribution of assistance.

    (a) Local. (1) Each local participating jurisdiction must, insofar 
as is feasible, distribute HOME funds geographically within its 
boundaries and among different categories of housing need, according to 
the priorities of housing need identified in its approved consolidated 
plan.
    (2) The participating jurisdiction may only invest its HOME funds 
in eligible projects within its boundaries, or in joint projects within 
the boundaries of contiguous local jurisdictions which serve residents 
from both jurisdictions.
    (b) State. (1) Each State participating jurisdiction is responsible 
for distributing HOME funds throughout the State according to the 
State's assessment of the geographical distribution of the housing 
needs within the State, as identified in the State's approved 
consolidated plan. The State must distribute HOME funds to rural areas 
in amounts that take into account the non-metropolitan share of the 
State's total population and objective measures of rural housing need, 
such as poverty and substandard housing, as set forth in the State's 
approved consolidated plan. To the extent the need is within the 
boundaries of a participating unit of general local government, the 
State and the unit of general local government shall coordinate 
activities to address that need.
    (2) A State may carry out its own HOME program without active 
participation of units of general local government or may distribute 
HOME funds to units of general local government to carry out HOME 
programs in which both the State and all or some of the units of 
general local government perform specified program functions. A unit of 
general local government designated by a State to receive HOME funds 
from a State is a State recipient.
    (3) (i) A State that uses State recipients to perform program 
functions shall ensure that the State recipients use HOME funds in 
accordance with the requirements of this part and other applicable 
laws. The State may require the State recipient to comply with 
requirements established by the State or may permit the State recipient 
to establish its own requirements to comply with this part.
    (ii) The State shall conduct such reviews and audit of its State 
recipients as may be necessary or appropriate to determine whether the 
State recipient has committed and expended the HOME funds in the United 
States Treasury account as required by Sec. 92.500, and has met the 
requirements of this part, particularly eligible activities, income 
targeting, affordability, and matching contribution requirements.
    (4) A State and local participating jurisdiction may jointly fund a 
project within the boundaries of the local participating jurisdiction. 
The State may provide the HOME funds to the project or it may provide 
the HOME funds to the local participating jurisdiction to fund the 
project.
    (5) A State may fund projects on Indian reservations located within 
the State provided that the State includes Indian reservations in its 
consolidated plan.


Sec. 92.202  Site and neighborhood standards.

    (a) General. A participating jurisdiction must administer its HOME 
program in a manner that provides housing that is suitable from the 
standpoint of facilitating and furthering full compliance with the 
applicable provisions of title VI of the Civil Rights Act of 1964 (42 
U.S.C. 2000d--2000d-4), the Fair Housing Act (42 U.S.C. 3601 et seq., 
E.O. 11063 (3 CFR, 1959-1963 Comp., p. 652), and HUD regulations issued 
pursuant thereto; and promotes greater choice of housing opportunities.
    (b) New rental housing. In carrying out these requirements with 
respect to new construction of rental housing, a participating 
jurisdiction must follow 24 CFR 893.6(b).


Sec. 92.203  Income determinations.

    (a) The HOME program has income targeting requirements for the HOME 
program and for HOME projects. Therefore, the participating 
jurisdiction must determine each family is income eligible by 
determining the family's annual income.
    (1) For families who are tenants in HOME-assisted housing and not 
receiving HOME tenant-based rental assistance, the participating 
jurisdiction must determine annual income by one of the following 
methods:
    (i) Examine the source documents evidencing annual income (e.g., 
wage statement, interest statement, unemployment compensation 
statement) for the family.
    (ii) Obtain from the family a written statement of the amount of 
the family's annual income and family size, along with a certification 
that the information is complete and accurate. The certification must 
state that the family will provide source documents upon request.
    (iii) Obtain a written statement from the administrator of a 
government program under which the family receives benefits and which 
examines each year the annual income of the family. The statement must 
indicate the tenant's family size and state the amount of the family's 
annual income;

[[Page 48759]]

or alternatively, the statement must indicate the current dollar limit 
for very low- or low-income families for the family size of the tenant 
and state that the tenant's annual income does not exceed this limit.
    (2) For all other families, the participating jurisdiction must 
determine annual income by examining the source documents evidencing 
annual income (e.g., wage statement, interest statement, unemployment 
compensation statement) for the family.
    (b) When determining whether a family is income eligible, the 
participating jurisdiction must use one of the following three 
definitions of ``annual income'':
    (1) ``Annual income'' as defined under the Section 8 Housing 
Assistance Payments programs in 24 CFR part 813 (except when 
determining the income of a homeowner for an owner-occupied 
rehabilitation project, the value of the homeowner's principal 
residence may be excluded from the calculation of Net Family Assets); 
or
    (2) Annual Income as reported under the Census long-form for the 
most recent available decennial Census. This definition includes:
    (i) Wages, salaries, tips, commissions, etc.;
    (ii) Self-employment income from owned non-farm business, including 
proprietorships and partnerships;
    (iii) Farm self-employment income;
    (iv) Interest, dividends, net rental income, or income from estates 
or trusts;
    (v) Social Security or railroad retirement;
    (vi) Supplemental Security Income, Aid to Families with Dependent 
Children, or other public assistance or public welfare programs;
    (vii) Retirement, survivor, or disability pensions; and
    (viii) Any other sources of income received regularly, including 
Veterans' (VA) payments, unemployment compensation, and alimony; or
    (3) Adjusted gross income as defined for purposes of reporting 
under Internal Revenue Service (IRS) Form 1040 series for individual 
Federal annual income tax purposes.
    (c) When determining the adjusted income of a family, the 
participating jurisdiction must use the definition of ``adjusted 
income'' for the Section 8 Housing Assistance Payments programs in 24 
CFR part 813, except that the participating jurisdiction may use any of 
the three definitions of ``annual income'' permitted in paragraph (a) 
of this section. The HOME rents for very low-income families are based 
on adjusted income. See Sec. 92.252. In addition, the participating 
jurisdiction may base the amount of tenant-based rental assistance on 
the adjusted income of the family.
    (d) (1) The participating jurisdiction must calculate the annual 
income of the family by projecting the prevailing rate of income of the 
family at the time the participating jurisdiction determines that the 
family is income eligible. Annual income shall include income from all 
family members. Income or asset enhancement derived from the HOME-
assisted project shall not be considered in calculating annual income.
    (2) The participating jurisdiction is not required to re-examine 
the family's income at the time the HOME assistance is provided, unless 
more than six months has elapsed since the participating jurisdiction 
determined that the family qualified as income eligible.


Sec. 92.204  Applicability of requirements to entities that receive a 
reallocation of HOME funds, other than participating jurisdictions.

    (a) Jurisdictions other than participating jurisdictions and 
community housing development organizations receiving competitive 
reallocations from HUD are subject to the same requirements in subpart 
E (Program Requirements), subpart F (Project Requirements), subpart K 
(Program Administration), and subpart L (Performance Reviews and 
Sanctions) of this part as participating jurisdictions, except for the 
following:
    (1) Subpart E (Program Requirements): the matching contribution 
requirements in Sec. 92.218 through Sec. 92.221 do not apply.
    (2) Subpart K (Program Administration):
    (i) Section 92.500 (The HOME Investment Trust Fund) does not apply. 
HUD will establish a HOME account in the United States Treasury and the 
HOME funds must be used for approved activities. A local account must 
be established for program income. HUD will recapture HOME funds in the 
HOME Treasury account by the amount of:
    (A) Any funds that are not committed within 24 months after the 
last day of the month in which HUD notifies the entity of HUD's 
execution of the HOME Investment Partnership Agreement;
    (B) Any funds that are not expended within five years after the 
last day of the month in which HUD notifies the entity of HUD's 
execution of the HOME Investment Partnership Agreement; and
    (C) Any penalties assessed by HUD under Sec. 92.552.
    (ii) Section 92.502 (Program disbursement and information system) 
applies, except that references to the HOME Investment Trust Fund mean 
HOME account and the reference to 24 CFR part 58 does not apply. In 
addition, Sec. 92.502(c) does not apply, and instead, compliance with 
Treasury Circular No. 1075 (31 CFR part 205) and 24 CFR 85.21 is 
required.
    (iii) Section 92.503 (Program income, repayments, and recaptured 
funds) applies, except that program income may be retained provided the 
funds are used for eligible activities in accordance with the 
requirements of this section.
    (3) Section 92.504 (Participating jurisdiction responsibilities; 
written agreements; on-site inspections) applies, except that the 
written agreement must ensure compliance with the requirements in this 
section.
    (4) Section 92.508 (Recordkeeping) applies with respect to the 
records that relate to the requirements of this section.
    (5) Section 92.509 (Performance reports) applies, except that a 
performance report is required only after completion of the approved 
projects.
    (b) The requirements in subpart H (Other Federal Requirements) of 
this part apply as written, except that jurisdictions and community 
housing development organizations receiving reallocations from HUD must 
comply with affirmative marketing requirements, labor requirements, and 
lead-based paint requirements, applicable to participating 
jurisdictions.
    (c) Subpart B (Allocation Formula), subpart C (Consortia; 
Designation and Revocation of Designation as a Participating 
Jurisdiction), and subpart G (Community Housing Development 
Organizations) of this part do not apply.
    (d) Subpart A (General) applies, except that for the definitions of 
commitment, program income, and subrecipient, ``participating 
jurisdiction'' means jurisdiction or community housing development 
organization receiving the competitive reallocation.

Eligible and Prohibited Activities


Sec. 92.205  Eligible activities: general.

    (a) Eligible activities. (1) HOME funds may be used by a 
participating jurisdiction to provide incentives to develop and support 
affordable rental housing and homeownership affordability through the 
acquisition (including assistance to homebuyers), new construction, 
reconstruction, or rehabilitation of non-luxury housing with suitable 
amenities, including real property acquisition, site improvements, 
conversion, demolition, and other

[[Page 48760]]

expenses, including financing costs, relocation expenses of any 
displaced persons, families, businesses, or organizations; to provide 
tenant-based rental assistance, including security deposits; to provide 
payment of reasonable administrative and planning costs; and to provide 
for the payment of operating expenses of community housing development 
organizations. The housing must be permanent or transitional housing. 
The specific eligible costs for these activities are set forth in 
Secs. 92.206 through 92.209.
    (2) Acquisition of vacant land or demolition must be undertaken 
only with respect to a particular housing project intended to provide 
affordable housing.
    (3) Conversion of an existing structure to affordable housing is 
rehabilitation, unless the conversion entails adding one or more units 
beyond the existing walls, in which case, the project is new 
construction for purposes of this part.
    (4) Manufactured housing. HOME funds may be used to purchase and/or 
rehabilitate a manufactured housing unit, or purchase the land upon 
which a manufactured housing unit is located. Except for existing, 
owner-occupied manufactured housing that is rehabilitated with HOME 
funds, the manufactured housing unit must, at the time of project 
completion, be connected to permanent utility hook-ups and be located 
on land that is owned by the manufactured housing unit owner or land 
for which the manufactured housing owner has a lease for a period at 
least equal to the applicable period of affordability.
    (b) Forms of assistance. (1) A participating jurisdiction may 
invest HOME funds as equity investments, interest-bearing loans or 
advances, non-interest-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 HOME funds 
may be used to guarantee the timely payment of principal and interest 
or payment of the outstanding principal and interest upon foreclosure 
of the loan. 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.
    (c) Minimum amount of assistance. The minimum amount of HOME funds 
that must be invested in a project involving rental housing or 
homeownership is $1,000 times the number of HOME-assisted units in the 
project.
    (d) Multi-unit projects. HOME funds may be used to assist one or 
more housing units in a multi-unit project. Only the actual HOME 
eligible development costs (i.e. costs eligible under Sec. 92.206(a), 
(b) or (c) of the assisted units may be charged to the HOME program. If 
the assisted and non-assisted units are not comparable, the actual 
costs may be determined based on a method of cost allocation. If the 
assisted and non-assisted units are comparable in terms of size, 
features and number of bedrooms, the actual cost of the HOME-assisted 
units can be determined by pro-rating the total HOME eligible 
development costs of the project so that the proportion of the total 
development costs charged to the HOME program does not exceed the 
proportion of the HOME-assisted units in the project.
    (e) Terminated projects. A HOME assisted project that is terminated 
before completion, either voluntarily or otherwise, constitutes an 
ineligible activity and any HOME funds invested in the project must be 
repaid to the participating jurisdiction's HOME Investment Trust Fund 
in accordance with Sec. 92.503(b) (except for project-specific 
assistance to community housing development organizations as provided 
in Sec. 92.301(a)(3) and Sec. 92.301(b)(3)).


Sec. 92.206  Eligible project costs.

    HOME funds may be used to pay the following eligible costs:
    (a) Development hard costs. The actual cost of constructing or 
rehabilitating housing. These costs include the following:
    (1) For new construction, costs to meet the applicable new 
construction standards of the participating jurisdiction and the Model 
Energy Code referred to in Sec. 92.251;
    (2) For rehabilitation, costs:
    (i) To meet the property standards in Sec. 92.251;
    (ii) To make essential improvements, including energy-related 
repairs or improvements, improvements necessary to permit use by 
persons with disabilities, and the abatement of lead-based paint 
hazards, as required by Sec. 92.355, and to repair or replace major 
housing systems in danger of failure; and
    (3) For both new construction and rehabilitation, costs:
    (i) To demolish existing structures;
    (ii) To make utility connections including off-site connections 
from the property line to the adjacent street; and
    (iii) To make improvements to the project site that are in keeping 
with improvements of surrounding, standard projects. Site improvements 
may include on-site roads and sewer and water lines necessary to the 
development of the project. The project site is the property, owned by 
the project owner, upon which the project is located.
    (4) For both new construction and rehabilitation of multifamily 
rental housing, costs to construct or rehabilitate laundry and 
community facilities which are located within the same building as the 
housing and which are for the use of the project residents and their 
guests.
    (b) Refinancing costs. The cost to refinance existing debt secured 
by housing that is being rehabilitated with HOME funds:
    (1) For single-family (1- to 4-family) owner-occupied housing when 
loaning HOME funds to rehabilitate the housing, if the refinancing is 
necessary to reduce the overall housing costs to the borrower and make 
the housing more affordable.
    (2) For multifamily projects, when loaning HOME funds to 
rehabilitate the units if refinancing is necessary to permit or 
continue affordability under Sec. 92.252. The participating 
jurisdiction must establish refinancing guidelines and state them in 
its consolidated plan described in 24 CFR part 91. Regardless of the 
amount of HOME funds invested, the minimum affordability period shall 
be 15 years. The guidelines shall describe the conditions under which 
the participating jurisdictions will refinance existing debt. At 
minimum, the guidelines must:
    (i) Demonstrate that rehabilitation is the primary eligible 
activity and ensure that this requirement is met by establishing a 
minimum level of rehabilitation per unit or a required ratio between 
rehabilitation and refinancing;
    (ii) Require a review of management practices to demonstrate that 
disinvestment in the property has not occurred, that the long term 
needs of the project can be met and that the

[[Page 48761]]

feasibility of serving the targeted population over an extended 
affordability period can be demonstrated;
    (iii) State whether the new investment is being made to maintain 
current affordable units, create additional affordable units, or both;
    (iv) Specify the required period of affordability, whether it is 
the minimum 15 years or longer;
    (v) Specify whether the investment of HOME funds may be 
jurisdiction-wide or limited to a specific geographic area, such as a 
neighborhood identified in a neighborhood revitalization strategy under 
24 CFR 91.215(e)(2) or a Federally designated Empowerment Zone or 
Enterprise Community; and
    (vi) State that HOME funds cannot be used to refinance multifamily 
loans made or insured by any Federal program, including CDBG.
    (c) Acquisition costs. Costs of acquiring improved or unimproved 
real property, including acquisition by homebuyers.
    (d) Related soft costs. Other reasonable and necessary costs 
incurred by the owner or participating jurisdiction and associated with 
the financing, or development (or both) of new construction, 
rehabilitation or acquisition of housing assisted with HOME funds. 
These costs include, but are not limited to:
    (1) Architectural, engineering or related professional services 
required to prepare plans, drawings, specifications, or work write-ups.
    (2) Costs to process and settle the financing for a project, such 
as private lender origination fees, credit reports, fees for title 
evidence, fees for recordation and filing of legal documents, building 
permits, attorneys fees, private appraisal fees and fees for an 
independent cost estimate, builders or developers fees.
    (3) Costs of a project audit that the participating jurisdiction 
may require with respect to the development of the project.
    (4) Costs to provide information services such as affirmative 
marketing and fair housing information to prospective homeowners and 
tenants as required by Sec. 92.351.
    (5) For new construction or rehabilitation, the cost of funding an 
initial operating deficit reserve, which is a reserve to meet any 
shortfall in project income during the period of project rent-up (not 
to exceed 18 months) and which may only be used to pay project 
operating expenses, scheduled payments to a replacement reserve, and 
debt service. Any HOME funds placed in an operating deficit reserve 
that remain unexpended after the period of project rent-up may be 
retained for project reserves if permitted by the participating 
jurisdiction.
    (6) Staff and overhead costs directly related to carrying out the 
project, such as work specifications preparation, loan processing 
inspections, and other services related to assisting potential owners, 
tenants, and homebuyers, e.g., housing counseling, may be charged to 
project costs only if the project is funded and the individual becomes 
the owner or tenant of the HOME-assisted project. For multi-unit 
projects, such costs must be allocated among HOME-assisted units in a 
reasonable manner and documented.
    (7) For both new construction and rehabilitation, costs for the 
payment of impact fees that are charged for all projects within a 
jurisdiction.
    (8) Costs of environmental review and release of funds in 
accordance with 24 CFR Part 58 which are directly related to the 
project.
    (e) Community housing development organization costs. Eligible 
costs of project-specific assistance are set forth in Sec. 92.301.
    (f) Relocation costs. The cost of relocation payments and other 
relocation assistance to persons displaced by the project are eligible 
costs.
    (1) Relocation payments include replacement housing payments, 
payments for moving expenses, and payments for reasonable out-of-pocket 
costs incurred in the temporary relocation of persons.
    (2) Other relocation assistance means staff and overhead costs 
directly related to providing advisory and other relocation services to 
persons displaced by the project, including timely written notices to 
occupants, referrals to comparable and suitable replacement property, 
property inspections, counseling, and other assistance necessary to 
minimize hardship.
    (g) Costs relating to payment of loans. If the HOME funds are not 
used to directly pay a cost specified in this section, but are used to 
pay off a construction loan, bridge financing loan, or guaranteed loan, 
the payment of principal and interest for such loan is an eligible cost 
only if:
    (1) The loan was used for eligible costs specified in this section, 
and
    (2) The HOME assistance is part of the original financing for the 
project and the project meets the requirements of this part.


Sec. 92.207  Eligible administrative and planning costs.

    A participating jurisdiction may expend, for payment of reasonable 
administrative and planning costs of the HOME program, an amount of 
HOME funds that is not more than ten percent of the fiscal year HOME 
basic formula allocation plus any funds received in accordance with 
Sec. 92.102(b) to meet or exceed participation threshold requirements 
that fiscal year. A State that transfers any HOME funds in accordance 
with Sec. 92.102(b) must exclude these funds in calculating the amount 
it may expend for administrative and planning costs. A participating 
jurisdiction may also use up to ten percent of the program income 
deposited in its local HOME account during the program year, for 
administrative and planning costs. Reasonable administrative and 
planning costs include:
    (a) General management, oversight and coordination. Reasonable 
costs of overall program management, coordination, monitoring, and 
evaluation. Such costs include, but are not limited to, necessary 
expenditures for the following:
    (1) Salaries, wages, and related costs of the participating 
jurisdiction's staff. In charging costs to this category the 
participating jurisdiction may either include the entire salary, wages, 
and related costs allocable to the program of each person whose primary 
responsibilities with regard to the program involves program 
administration assignments, or the prorated share of the salary, wages, 
and related costs of each person whose job includes any program 
administration assignments. The participating jurisdiction may use only 
one of these methods. Program administration includes the following 
types of assignments:
    (i) Developing systems and schedules for ensuring compliance with 
program requirements;
    (ii) Developing interagency agreements and agreements with entities 
receiving HOME funds;
    (iii) Monitoring HOME-assisted housing for progress and compliance 
with program requirements;
    (iv) Developing agreements and monitoring housing not assisted with 
HOME funds that the participating jurisdiction designates as a matching 
contribution in accordance with Sec. 92.219(b) for compliance with 
applicable program requirements;
    (v) Preparing reports and other documents related to the program 
for submission to HUD;

[[Page 48762]]

    (vi) Coordinating the resolution of audit and monitoring findings;
    (vii) Evaluating program results against stated objectives; and
    (viii) Managing or supervising persons whose primary 
responsibilities with regard to the program include such assignments as 
those described in paragraphs (a)(1)(i) through (vii) of this section;
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services performed under third party contracts 
or agreements, including such services as general legal services, 
accounting services, and audit services;
    (4) Other costs for goods and services required for administration 
of the program, including such goods and services as rental or purchase 
of equipment, insurance, utilities, office supplies, and rental and 
maintenance (but not purchase) of office space; and
    (5) Costs of administering tenant-based rental assistance programs.
    (b) Staff and overhead. Staff and overhead costs directly related 
to carrying out the project, such as work specifications preparation, 
loan processing, inspections, and other services related to assisting 
potential owners, tenants, and homebuyers (e.g., housing counseling); 
and staff and overhead costs directly related to providing advisory and 
other relocation services to persons displaced by the project, 
including timely written notices to occupants, referrals to comparable 
and suitable replacement property, property inspections, counseling, 
and other assistance necessary to minimize hardship. These costs may be 
charged as administrative costs or as project costs under Sec. 92.206 
(d)(6) and (f)(2), at the discretion of the participating jurisdiction.
    (c) Public information. The provision of information and other 
resources to residents and citizen organizations participating in the 
planning, implementation, or assessment of projects being assisted with 
HOME funds.
    (d) Fair housing. Activities to affirmatively further fair housing 
in accordance with the participating jurisdiction's certification under 
24 CFR part 91.
    (e) Indirect Costs. Indirect costs may be charged to the HOME 
program under a cost allocation plan prepared in accordance with OMB 
Circulars A-87 or A-122 as applicable.
    (f) Preparation of the consolidated plan. Preparation of the 
consolidated plan required under 24 CFR part 91. Preparation includes 
the costs of public hearings, consultations, and publication.
    (g) Other Federal requirements. Costs of complying with the Federal 
requirements in subpart H of this part. Project-specific environmental 
review costs may be charged as administrative costs or as project costs 
in accordance with Sec. 92.206(d)(8), at the discretion of the 
participating jurisdiction.


Sec. 92.208  Eligible community housing development organization (CHDO) 
operating expense and capacity building costs.

    (a) Up to 5 percent of a participating jurisdiction's fiscal year 
HOME allocation may be used for the operating expenses of community 
housing development organizations (CHDOs). These funds may not be used 
to pay operating expenses incurred by a CHDO acting as a subrecipient 
or contractor under the HOME Program. Operating expenses means 
reasonable and necessary costs for the operation of the community 
housing development organization. Such costs include salaries, wages, 
and other employee compensation and benefits; employee education, 
training, and travel; rent; utilities; communication costs; taxes; 
insurance; equipment; materials and supplies. The requirements and 
limitations on the receipt of these funds by CHDOs are set forth in 
Sec. 92.300 (e) and (f).
    (b) HOME funds may be used for capacity building costs under 
Sec. 92.300(b).


Sec. 92.209  Tenant-based rental assistance: Eligible costs and 
requirements.

    (a) Eligible costs. Eligible costs are the rental assistance and 
security deposit payments made to provide tenant-based rental 
assistance for a family pursuant to this section. Administration of 
tenant-based rental assistance is eligible only under general 
management oversight and coordination at Sec. 92.207(a).
    (b) General requirement. 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 24 CFR 
91.225(d)(1), 91.325(d)(1), or 91.425(a)(2)(i), and specifies local 
market conditions that lead to the choice of this option.
    (c) Tenant selection. The participating jurisdiction must select 
families in accordance with written tenant selection policies and 
criteria that are consistent with the following:
    (1) Low-income families. Tenant-based rental assistance may only be 
provided to very low- and low-income families. The participating 
jurisdiction must determine that the family is very low- or low-income 
before the assistance is provided. During the period of assistance, the 
participating jurisdiction must annually determine that the family 
continues to be low-income.
    (2) Federal preferences. At least 50 percent of the families 
assisted must 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 1937 Act. 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 their annual 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. For FY 1996 only, the Federal preferences do 
not apply.]
    (3) 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 non-mandatory services that may be most appropriate for 
persons with a special need or a particular disability. Generally, 
tenant-based rental assistance and the related services should be made 
available to all persons with special needs or 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 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 on any basis prohibited by the laws listed 
under 24 CFR 5.105(a). 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 special needs or disabilities or to a specific 
category of individuals with special

[[Page 48763]]

needs or 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 (c)(2) of this section.
    (4) Existing tenants in the HOME-assisted projects. A participating 
jurisdiction may select low-income families currently residing in 
housing units that are designated for rehabilitation or acquisition 
under the participating jurisdiction's HOME program without requiring 
that the family meet the requirements of paragraph (c)(2) of this 
section. Families so selected may use the tenant-based assistance in 
the rehabilitated or acquired housing unit or in other qualified 
housing.
    (d) 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.
    (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 charged for comparable unassisted rental units.
    (g) Tenant protections. 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) For each unit size, may not be less 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 24 CFR 882.106(a)(3) 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 
requirements set forth in 24 CFR 982.401. The participating 
jurisdiction must inspect the housing initially and re-inspect it 
annually.
    (j) Security deposits. (1) A participating jurisdiction may use 
HOME funds provided for tenant-based rental assistance to provide loans 
or grants to very low- and low-income families for security deposits 
for rental of dwelling units whether or not the participating 
jurisdiction provides any other tenant-based rental assistance under 
this section.
    (2) The relevant State or local definition of ``security deposit'' 
in the jurisdiction where the unit is located is applicable for the 
purposes of this part, except that the amount of HOME funds that may be 
provided for a security deposit may not exceed the equivalent of two 
month's rent for the unit.
    (3) Only the prospective tenant may apply for HOME security deposit 
assistance, although the participating jurisdiction may pay the funds 
directly to the tenant or to the landlord.
    (4) HOME funds for security deposits may be provided as a grant or 
as a loan. If they are provided as a loan, the loan repayments are 
program income to be used in accordance with Sec. 92.503.
    (5) Paragraphs (b), (c), (d), (f), (g), and (i) of this section are 
applicable to HOME security deposit assistance.
    (k) Program operation. A tenant-based rental assistance program 
must be operated consistent with the requirements of this section. 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. In either case, the 
participating jurisdiction (or entity operating the program) must 
approve the lease.
    (l) Use of Section 8 assistance. In any case where assistance under 
section 8 of the 1937 Act 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.


Sec. 92.212   Pre-award costs.

    (a) General. Before the effective date of the HOME Investment 
Partnership Agreement, the participating jurisdiction may incur costs 
which may be charged to the HOME allocation after the award of the HOME 
allocation, provided the costs are in compliance with the requirements 
of this part (including environmental review requirements) and with the 
statutory and regulatory requirements in effect at the time the costs 
are charged to the HOME allocation.
    (b) Administrative and planning costs. Eligible administrative and 
planning costs may be incurred as of the beginning of the participating 
jurisdiction's consolidated program year (see 24 CFR 91.10) or the date 
the consolidated plan describing the HOME allocation to which the costs 
will be charged is received by HUD, whichever is later.
    (c) Project costs. Eligible project costs may be incurred during 
the current program year in an amount not to exceed 25% of the current 
HOME allocation amount, to be charged to the following year's HOME 
allocation. Before incurring the pre-award costs, the participating 
jurisdiction must comply with its citizen participation plan 
requirements addressing 24 CFR 91.105(b)(2), (4), (5) and (g) (local 
governments) or 24 CFR 91.115(b)(2), (4), (5) and (f) (States). In lieu 
of a full action plan, the participating jurisdiction may develop a 
mini-action plan which describes the proposed pre-award projects and 
costs in accordance with 24 CFR 91.220(c) and includes, if applicable, 
24 CFR 91.220(g)(2) (local governments) or 24 CFR 91.320(c) and, if 
applicable, 24 CFR 91.320(g)(2) (States). The mini-action plan must 
state that HOME funding for the project(s) is subject to the future 
availability of HOME funds. The subsequent action

[[Page 48764]]

plan (i.e., action plan for the HOME allocation to which the costs will 
be charged) must also include the use of HOME funds contained in the 
mini-action plan.
    (d) Subrecipient or State recipient costs. The participating 
jurisdiction may authorize its subrecipient or State recipient to incur 
pre-award costs in accordance with the requirements of this section. 
The authorization must be in writing.
    (e) Other pre-agreement costs. Pre-agreement costs in excess of the 
amount set forth in paragraph (c) of this section must be approved, in 
writing, by the HUD Field Office before the costs are incurred.


Sec. 92.213   [Reserved]


Sec. 92.214   Prohibited activities.

    (a) HOME funds may not be used to:
    (1) Provide project reserve accounts, except as provided in 
Sec. 92.206(d)(5), or operating subsidies;
    (2) Provide tenant-based rental assistance for the special purposes 
of the existing section 8 program, in accordance with section 212(d) of 
the Act;
    (3) Provide non-federal matching contributions required under any 
other Federal program;
    (4) Provide assistance authorized under section 9 of the 1937 Act 
(annual contributions for operation of public housing);
    (5) Carry out activities authorized under 24 CFR part 968 (Public 
Housing Modernization);
    (6) Provide assistance to eligible low-income housing under 24 CFR 
part 248 (Prepayment of Low Income Housing Mortgages);
    (7) Provide assistance (other than tenant-based rental assistance 
or assistance to a homebuyer to acquire housing previously assisted 
with HOME funds) to a project previously assisted with HOME funds 
during the period of affordability established by the participating 
jurisdiction in the written agreement under Sec. 92.504. However, 
additional HOME funds may be committed to a project up to one year 
after project completion (see Sec. 92.502), but the amount of HOME 
funds in the project may not exceed the maximum per-unit subsidy amount 
established under Sec. 92.250.
    (8) Pay for the acquisition of property owned by the participating 
jurisdiction, except for property acquired by the participating 
jurisdiction with HOME funds, or property acquired in anticipation of 
carrying out a HOME project; or
    (9) Pay for any cost that is not eligible under Secs. 92.206 
through 92.209.
    (b) Participating jurisdictions may not charge monitoring, 
servicing and origination fees in HOME-assisted projects. However, 
participating jurisdictions may charge nominal application fees 
(although these fees are not an eligible HOME cost) to project owners 
to discourage frivolous applications. Such fees are applicable credits 
under OMB Circular A-87.


Sec. 92.215   Limitation on jurisdictions under court order.

    Limitations on the use of HOME funds in connection with litigation 
involving discrimination or fair housing are set forth in section 224 
of the Act.

Income Targeting


Sec. 92.216   Income targeting: Tenant-based rental assistance and 
rental units.

    Each participating jurisdiction must invest HOME funds made 
available during a fiscal year so that, with respect to tenant-based 
rental assistance and rental units:
    (a) Not less than 90 percent of:
    (1) The families receiving such rental assistance are families 
whose annual incomes do not exceed 60 percent of the median family 
income for the area, as determined and made available by HUD with 
adjustments for smaller and larger families (except that HUD may 
establish income ceilings higher or lower than 60 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 cost or fair 
market rent, or unusually high or low family income) at the time of 
occupancy or at the time funds are invested, whichever is later; or
    (2) The dwelling units assisted with such funds are occupied by 
families having such incomes; and
    (b) The remainder of:
    (1) The families receiving such rental assistance are households 
that qualify as low-income families (other than families described in 
paragraph (a)(1) of this section) at the time of occupancy or at the 
time funds are invested, whichever is later; or
    (2) The dwelling units assisted with such funds are occupied by 
such households.


Sec. 92.217   Income targeting: Homeownership.

    Each participating jurisdiction must invest HOME funds made 
available during a fiscal year so that with respect to homeownership 
assistance, 100 percent of these funds are invested in dwelling units 
that are occupied by households that qualify as low-income families at 
the time of occupancy or at the time funds are invested, whichever is 
later.

Matching Contribution Requirement


Sec. 92.218   Amount of matching contribution.

    (a) General. Each participating jurisdiction must make 
contributions to housing that qualifies as affordable housing under the 
HOME program, throughout a fiscal year. The contributions must total 
not less than 25 percent of the funds drawn from the jurisdiction's 
HOME Investment Trust Fund Treasury account in that fiscal year, 
excluding funds drawn for purposes identified in paragraph (c) of this 
section.
    (b) Shortfall amount from State or local resources. Amounts made 
available under Sec. 92.102(b)(2) from the resources of a State (other 
than a transfer of the State's formula allocation), the local 
participating jurisdiction, or both, to enable the local participating 
jurisdiction to meet the participation threshold amount are not 
required to be matched and do not constitute matching contributions.
    (c) HOME funds not required to be matched. HOME funds used for 
administrative and planning costs (pursuant to Sec. 92.207); community 
housing development organization operating expenses (pursuant to 
Sec. 92.208); capacity building (pursuant to Sec. 92.300(b)) of 
community housing development organizations; and project specific 
assistance to community housing development organizations (pursuant to 
Sec. 92.301) when the participating jurisdiction waives repayment under 
the provisions of Sec. 92.301(a)(3) or Sec. 92.301(b)(3) are not 
required to be matched.
    (d) Match contribution for other programs. Contributions that have 
been or will be counted as satisfying a matching requirement of another 
Federal grant or award may not count as satisfying the matching 
contribution requirement for the HOME program.


Sec. 92.219   Recognition of matching contribution.

    (a) Match contribution to HOME-assisted housing. A contribution is 
recognized as a matching contribution if it is made with respect to:
    (1) A tenant who is assisted with HOME funds;
    (2) A HOME-assisted unit;
    (3) The portion of a project that is not HOME-assisted provided 
that at least 50 percent of the housing units in the project are HOME-
assisted. If the match contribution to the portion of the project that 
is not HOME-assisted meets the affordable housing requirements of 
Sec. 92.219(b)(2), the percentage

[[Page 48765]]

requirement for HOME-assisted units does not apply; or
    (4) The commercial space in a mixed-use project in which at least 
51 percent of the floor space is residential provided that at least 50 
percent of the dwelling units are HOME-assisted.
    (b) Match contribution to affordable housing that is not HOME-
assisted. The following requirements apply for recognition of matching 
contributions made to affordable housing that is not HOME-assisted:
    (1) For tenant-based rental assistance that is not HOME-assisted:
    (i) The contribution must be made with respect to a tenant who is 
assisted with tenant-based rental assistance that meets the 
requirements of Secs. 92.203 (Income determinations) and 92.209 
(Tenant-based rental assistance, except for Sec. 92.209(e) Term of 
rental assistance contract); and
    (ii) The participating jurisdiction must demonstrate in writing 
that such assistance meets the provisions of Secs. 92.203 and 92.209 
(except Sec. 92.209(e)).
    (2) For affordable housing that is not HOME-assisted:
    (i) The contribution must be made with respect to housing that 
qualifies as affordable housing under Sec. 92.252 or Sec. 92.254.
    (ii) The participating jurisdiction or its instrumentality must 
execute, with the owner of the housing (or, if the participating 
jurisdiction is the owner, with the manager or developer), a written 
agreement that imposes and enumerates all of the affordability 
requirements from Sec. 92.252 and Sec. 92.253(a) and (b) (Tenant 
protections), or Sec. 92.254, whichever are applicable; the property 
standards requirements of Sec. 92.251; and income determinations made 
in accordance with Sec. 92.203. This written agreement must be executed 
before any match contributions may be made.
    (iii) A participating jurisdiction must establish a procedure to 
monitor HOME match-eligible housing to ensure continued compliance with 
the requirements of Secs. 92.203 (Income determinations), 92.252 
(Qualification as affordable housing: Rental housing), 92.253(a) and 
(b) (Tenant protections) and 92.254 (Qualification as affordable 
housing: Homeownership). No other HOME requirements apply.
    (iv) The match contribution may be in any eligible form of match 
except those in Sec. 92.220(a)(2) (forbearance of fees) and (4) (on-
site and off-site infrastructure).
    (v) Match contributions to mixed-use or mixed-income projects that 
contain affordable housing units will be recognized only if the 
contribution is made to the project's affordable housing units.


Sec. 92.220   Form of matching contribution.

    (a) Eligible forms. Matching contributions must be made from 
nonfederal resources and may be in the form of one or more of the 
following:
    (1) Cash contributions from nonfederal sources. To be recognized as 
a cash contribution, funds must be contributed permanently to the HOME 
program (or to affordable housing not assisted with HOME funds), 
regardless of the form of investment provided to the project. 
Therefore, to receive match credit for the full amount of a loan to a 
HOME project, all repayment, interest, or other return on investment of 
the contribution must be deposited in the local account of the 
participating jurisdiction's HOME Investment Trust Fund to be used for 
eligible HOME activities in accordance with the requirements of this 
part. A cash contribution to affordable housing that is not assisted 
with HOME funds must be contributed permanently to the project. 
Repayments of matching contributions in affordable housing projects, as 
defined in Sec. 92.219(b), that are not HOME-assisted, must be made to 
the local account of the participating jurisdiction's HOME Investment 
Trust Fund to get match credit for the full loan amount.
    (i) A cash contribution may be made by the participating 
jurisdiction, non-Federal public entities, private entities, or 
individuals, except as prohibited under paragraph (b)(4) of this 
section. A cash contribution made to a nonprofit organization for use 
in a HOME project may be counted as a matching contribution.
    (ii) A cash contribution may be made from program income (as 
defined by 24 CFR Sec. 85.25(b)) from a Federal grant earned after the 
end of the award period if no Federal requirements govern the 
disposition of the program income. Included in this category are 
repayments from closed out grants under the Urban Development Action 
Grant Program (24 CFR part 570, subpart G) and the Housing Development 
Grant Program (24 CFR part 850), and from the Rental Rehabilitation 
Grant Program (24 CFR part 511) after all fiscal year Rental 
Rehabilitation grants have been closed out.
    (iii) The grant equivalent of a below-market interest rate loan to 
the project that is not repayable to the participating jurisdiction's 
HOME Investment Trust Fund may be counted as a cash contribution, as 
follows:
    (A) If the loan is made from funds borrowed by a jurisdiction or 
public agency or corporation 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.
    (B) If the loan is made from funds other than funds borrowed by a 
jurisdiction or public agency or corporation, the contribution is the 
present discounted cash value of the yield foregone. In determining the 
yield foregone, the participating jurisdiction must use as a measure of 
a market rate yield one of the following, as appropriate:
    (1) With respect to one- to four-unit housing financed with a fixed 
interest rate mortgage, a rate equal to the 10-year Treasury note rate 
plus 200 basis points;
    (2) With respect to one- to four-unit housing financed with an 
adjustable interest rate mortgage, a rate equal to the one-year 
Treasury bill rate plus 250 basis points; or
    (3) With respect to a multifamily project, a rate equal to the 10-
year Treasury note rate plus 300 basis points.
    (iv) Proceeds of bonds that are not repaid with revenue from an 
affordable housing project (e.g., general obligation bonds) and that 
are loaned to a HOME-assisted or other qualified affordable housing 
project constitute a cash contribution under this paragraph.
    (v) A cash contribution may be counted as a matching contribution 
only if it is used for costs eligible under Secs. 92.206 or 92.209, or 
for the following (which are not HOME eligible costs): the cost of 
removing and relocating an ECHO housing unit during the period of 
affordability in accordance with Sec. 92.258(d)(3)(ii), payments to a 
project reserve account beyond payments permitted by Sec. 92.206(d)(5), 
operating subsidies, or costs relating to the portion of a mixed-income 
or mixed-use HOME-assisted project not related to the affordable 
housing units.
    (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 its 
operations, which are waived, foregone, or deferred (including State 
low-income housing tax credits) in a manner that achieves affordability 
of HOME-assisted projects, may be counted as match. The amount of any 
real estate taxes may be based on

[[Page 48766]]

post-improvement property value. For taxes, fees, or charges that are 
forgiven 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. The value of fees or charges associated 
with the transfer or development of real estate that are normally and 
customarily imposed or charged by public or private entities, which are 
waived or foregone, in whole or in part, in a manner that achieves 
affordability of HOME-assisted projects, may be counted as match. Fees 
and charges under this paragraph do not include fees or charges for 
legal or other professional services; professional services which are 
donated, in whole or in part, are an eligible matching contribution in 
accordance with paragraph (a)(7) of this section.
    (iii) 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.
    (3) Donated Real Property. The value, before the HOME assistance is 
provided and minus any debt burden, lien, or other encumbrance, of 
donated land or other real property may be counted as match. The 
donation may be made by the participating jurisdiction, non-Federal 
public entities, private entities, or individuals, except as prohibited 
under paragraph (b)(4) of this section.
    (i) Donated property not acquired with Federal resources is a 
contribution in the amount of 100% of the value.
    (ii) Donated property acquired with Federal assistance may provide 
a partial contribution as follows. The property must be acquired with 
Federal assistance specifically for a HOME project (or for affordable 
housing that will be counted as match pursuant to Sec. 92.219(b)(2)). 
The property must be acquired with the Federal assistance at 
demonstrably below the appraised value and must be acknowledged by the 
seller as a donation to affordable housing at the time of the 
acquisition with the Federal assistance. The amount of the contribution 
is the difference between the acquisition price and the appraised value 
at the time of acquisition with the Federal assistance. If the property 
is acquired with the Federal assistance by someone other than the HOME 
project (or affordable housing) owner, to continue to qualify as a 
contribution, the property must be given to the HOME project (or 
affordable housing) owner at a price that does not exceed the amount of 
the Federal assistance used to acquire the property.
    (iii) Property must be appraised in conformance with established 
and generally recognized appraisal practice and procedures in common 
use by professional appraisers. Opinions of value must be based on the 
best available data properly analyzed and interpreted. The appraisal of 
land and structures must be performed by an independent, certified 
appraiser.
    (4) The cost, not paid with Federal resources, of on-site and off-
site infrastructure that the participating jurisdiction documents are 
directly required for HOME-assisted projects. The infrastructure must 
have been completed no earlier than 12 months before HOME funds are 
committed to the project.
    (5) Proceeds from multifamily and single family affordable housing 
project bond financing validly issued by a State or local government, 
or an agency or instrumentality of a State or local government or a 
political subdivision of a State and repayable with revenues from the 
affordable housing project financed as follows:
    (i) Fifty percent of the loan amount made from bond proceeds to a 
multifamily affordable housing project owner may qualify as match.
    (ii) Twenty-five percent of the loan amount from bond proceeds made 
to a single-family affordable housing project owner may qualify as 
match.
    (iii) Loans made from bond proceeds may not constitute more than 25 
percent of a participating jurisdiction's total annual match 
contribution.
    (6) The reasonable value of donated site-preparation and 
construction materials, not acquired with Federal resources. The value 
of site-preparation and construction materials is to be determined in 
accordance with the participating jurisdiction's cost estimate 
procedures.
    (7) The reasonable rental value of the donated use of site 
preparation or construction equipment.
    (8) The value of donated or voluntary labor or professional 
services (see Sec. 92.354(b)) in connection with the provision of 
affordable housing. A single rate established by HUD shall be 
applicable for determining the value of unskilled labor. The value of 
skilled labor or professional services shall be determined by the rate 
that the individual or entity performing the labor or service normally 
charges.
    (9) The value of sweat equity (see Sec. 92.354(c)) provided to a 
homeownership project, under an established component of a 
participating jurisdiction's program, up until the time of project 
completion (i.e., submission of a project completion form). Such labor 
shall be valued at the rate established for unskilled labor at 
paragraph (a)(8) of this section.
    (10) The direct cost of supportive services provided to families 
residing in HOME-assisted units during the period of affordability. The 
supportive services must be necessary to facilitate independent living 
or be required as part of a self-sufficiency program. Examples of 
supportive services include: case management, mental health services, 
assistance with the tasks of daily living, substance abuse treatment 
and counseling, day care, and job training and counseling.
    (11) The direct cost of homebuyer counseling services provided to 
families that acquire properties with HOME funds under the provisions 
of Sec. 92.254(a), including ongoing counseling services provided 
during the period of affordability. These services may be provided as 
part of a homebuyer counseling program that is not specific to the HOME 
Program, but only the cost of services to families that complete 
purchases with HOME assistance may be counted as match.
    (b) Ineligible forms. The following are examples that do not meet 
the requirements of paragraph (a) of this section and do not count 
toward meeting a participating jurisdiction's matching contribution 
requirement:
    (1) Contributions made with or derived from Federal resources or 
funds, regardless of when the Federal resources or funds were received 
or expended. CDBG funds (defined in 24 CFR 570.3) are Federal funds for 
this purpose;
    (2) The interest rate subsidy attributable to the Federal tax-
exemption on financing or the value attributable to Federal tax 
credits;
    (3) Owner equity or investment in a project; and
    (4) Cash or other forms of contributions from applicants for or 
recipients of HOME assistance or contracts, or investors who own, are 
working on, or are proposing to apply for, assistance for a HOME-
assisted project, except as permitted under paragraph (a)(9) of this 
section.


Sec. 92.221  Match credit.

    (a) When credit is given. Contributions are credited on a fiscal 
year basis at the time the contribution is made, as follows:
    (1) A cash contribution is credited when the funds are expended.
    (2) The grant equivalent of a below-market interest rate loan is 
credited at the time of the loan closing.

[[Page 48767]]

    (3) The value of state or local taxes, fees, or other charges that 
are normally and customarily imposed but are waived, foregone, or 
deferred is credited at the time the state or local government or other 
public or private entity officially waives, forgoes, or defers the 
taxes, fees, or other charges and notifies the project owner.
    (4) The value of donated land or other real property is credited at 
the time ownership of the property is transferred to the HOME project 
(or affordable housing) owner.
    (5) The cost of investment in infrastructure directly required for 
HOME-assisted projects is credited at the time funds are expended for 
the infrastructure or at the time the HOME funds are committed to the 
project if the infrastructure was completed before the commitment of 
HOME funds.
    (6) The value of donated material is credited as match at the time 
it is used for affordable housing.
    (7) The value of the donate use of site preparation or construction 
equipment is credited as match at the time the equipment is used for 
affordable housing.
    (8) The value of donated or voluntary labor or professional 
services is credited at the time the work is performed.
    (9) A loan made from bond proceeds under Sec. 92.220(a)(5) is 
credited at the time of the loan closing.
    (10) The direct cost of social services provided to residents of 
HOME-assisted units is credited at the time that the social services 
are provided during the period of affordability.
    (11) The direct cost of homebuyer counseling services provided to 
families that purchase HOME-assisted units is credited at the time that 
the homebuyer purchases the unit or for post-purchase counseling 
services, at the time the counseling services are provided.
    (b) Excess match. Contributions made in a fiscal year that exceed 
the participating jurisdiction's match liability for the fiscal year in 
which they were made may be carried over and applied to future fiscal 
years' match liability. Loans made from bond proceeds in excess of 25 
percent of a participating jurisdiction's total annual match 
contribution may be carried over to subsequent fiscal years as excess 
match, subject to the annual 25 percent limitation.
    (c) Credit for match contributions shall be assigned as follows:
    (1) For HOME-assisted projects involving more than one 
participating jurisdiction, the participating jurisdiction that makes 
the match contribution may decide to retain the match credit or permit 
the other participating jurisdiction to claim the credit.
    (2) For HOME match contributions to affordable housing that is not 
HOME-assisted (match pursuant to Sec. 92.219(b)) involving more than 
one participating jurisdiction, the participating jurisdiction that 
makes the match contribution receives the match credit.
    (3) A State that provides non-Federal funds to a local 
participating jurisdiction to be used for a contribution to affordable 
housing, whether or not HOME-assisted, may take the match credit for 
itself or may permit the local participating jurisdiction to receive 
the match credit.


Sec. 92.222  Reduction of matching contribution requirement.

    (a) Reduction for fiscal distress. HUD will determine match 
reductions annually.
    (1) Distress criteria for local government participating 
jurisdictions. If a local government participating jurisdiction 
satisfies both of the distress factors in paragraphs (a)(1)(i) and (ii) 
of this section, it is in severe fiscal distress and its match 
requirement will be reduced by 100% for the period specified in 
paragraph (a)(3) of this section. If a local government participating 
jurisdiction satisfies either distress factor in paragraphs (a)(1)(i) 
or (ii) of this section, it is in fiscal distress and its match 
requirement will be reduced by 50 percent, for the period specified in 
paragraph (a)(4) of this section.
    (i) Poverty rate. The average poverty rate in the participating 
jurisdiction was equal to or greater than 125 percent of the average 
national poverty rate during the calendar year for which the most 
recent data are available, as determined according to information of 
the Bureau of the Census.
    (ii) Per capita income. The average per capita income in the 
participating jurisdiction was less than 75 percent of the average 
national per capita income, during the calendar year for which the most 
recent data are available, as determined according to information from 
the Bureau of the Census.
    (2) Distress criteria for participating jurisdictions that are 
States. If a State satisfies at least 2 of the 3 distress factors in 
paragraphs (a)(2)(i) through (iii) of this section, it is in severe 
fiscal distress and its match requirement will be reduced by 100% for 
the period specified in paragraph (a)(3) of this section. If a State 
satisfies any 1 of the 3 distress factors in paragraphs (a)(2)(i) 
through (iii) of this section, it is in fiscal distress and its match 
requirement will be reduced by 50 percent, for the period specified in 
paragraph (a)(4) of this section.
    (i) Poverty rate. The average poverty rate in the State was equal 
to or greater than 125 percent of the average national poverty rate 
during the calendar year for which the most recent data are available, 
as determined according to information from the Bureau of the Census.
    (ii) Per capita income. The average per capita income in the State 
was less than 75 percent of the average national per capita income, 
during the calendar year for which the most recent data are available, 
as determined according to information from the Bureau of the Census.
    (iii) Personal income growth. The average personal income growth 
rate in the State over the most recent four quarters for which the data 
are available was less than 75 percent of the average national personal 
income growth rate during that period, as determined according to 
information from the Bureau of Economic Analysis.
    (3) Period of match reduction for severe fiscal distress. A 100% 
match reduction is effective for the fiscal year in which the severe 
fiscal distress determination is made and for the following fiscal 
year.
    (4) Period of match reduction for fiscal distress. A 50% match 
reduction is effective for the fiscal year in which the fiscal distress 
determination is made and for the following fiscal year, except that if 
a severe fiscal distress determination is published in that following 
fiscal year, the participating jurisdiction starts a new two-year match 
reduction period in accordance with the provisions of paragraph (a)(3) 
of this section.
    (b) Reduction of match for participating jurisdictions in disaster 
areas. If a participating jurisdiction is located in an area in which a 
declaration of major disaster pursuant to the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act is made, it may request a 
reduction of its matching requirement. For a local participating 
jurisdiction, the HUD Field office may reduce the matching requirement 
specified in Sec. 92.218 by up to 100 percent for the fiscal year in 
which the declaration of major disaster is made and the following 
fiscal year. For a State participating jurisdiction, the HUD Field 
office may reduce the matching requirement specified in Sec. 92.218, by 
up to 100 percent for the fiscal year in which the declaration of major 
disaster is made and the following fiscal year with respect to any HOME 
funds expended in an area to which the declaration of a major disaster 
applies.

[[Page 48768]]

At its discretion and upon request of the participating jurisdiction, 
the HUD Field Office may extend the reduction for an additional year.

Subpart F--Project Requirements


Sec. 92.250  Maximum per-unit subsidy amount and subsidy layering.

    (a) Maximum per-unit subsidy amount. The amount of HOME funds that 
a participating jurisdiction may invest on a per-unit basis in 
affordable housing may not exceed the per-unit dollar limits 
established by HUD under 24 CFR 221.514(b)(1) and (c) for elevator-type 
projects, involving nonprofit mortgagors, insured under section 
221(d)(3) of the National Housing Act (12 U.S.C. 1715l(d)(3)) that 
apply to the area in which the housing is located. These limits are 
available from the Multifamily Division in the HUD Field Office. If the 
participating jurisdiction's per-unit subsidy amount has already been 
increased to 210% as permitted in 24 CFR 221.514(c), upon request to 
the Field Office, HUD will allow the per-unit subsidy amount to be 
increased on a program-wide basis to an amount, up to 240% of the 
original per unit limits.
    (b) Subsidy layering. Before committing funds to a project, the 
participating jurisdiction must evaluate the project in accordance with 
guidelines that it has adopted for this purpose and will not invest any 
more HOME funds, in combination with other governmental assistance, 
than is necessary to provide affordable housing.


Sec. 92.251  Property standards.

    (a) (1) Housing that is constructed or rehabilitated with HOME 
funds must meet all applicable local codes, rehabilitation standards, 
ordinances, and zoning ordinances at the time of project completion, 
except as provided in paragraph (b) of this section. The participating 
jurisdiction must have written standards for rehabilitation that ensure 
that HOME-assisted housing is decent, safe, and sanitary. In the 
absence of a local code for new construction or rehabilitation, HOME-
assisted new construction or rehabilitation must meet, as applicable: 
one of three model codes (Uniform Building Code (ICBO), National 
Building Code (BOCA), Standard Building Code (SBCCI)); or the Council 
of American Building Officials (CABO) one or two family code; or the 
Minimum Property Standards (MPS) in 24 CFR 200.925 or 200.926. To avoid 
duplicative inspections when FHA financing is involved in a HOME-
assisted property, a participating jurisdiction may rely on a Minimum 
Property Standards (MPS) inspection performed by a qualified person. 
Newly constructed housing must meet the current edition of the Model 
Energy Code published by the Council of American Building Officials.
    (2) All other HOME-assisted housing must meet all applicable State 
and local housing quality standards and code requirements and if there 
are no such standards or code requirements, the housing must meet the 
housing quality standards in 24 CFR 982.401.
    (3) The housing must meet the accessibility requirements in the 
regulations referenced in 24 CFR 5.105(a) which implement the Fair 
Housing Act (42 U.S.C. 3601-19) and Section 504 of the Rehabilitation 
Act of 1973 (29 U.S.C. 794).
    (b) The following requirements apply to housing for homeownership 
that is to be rehabilitated after transfer of the ownership interest:
    (1) Before the transfer of the homeownership interest, the 
participating jurisdiction must:
    (i) Inspect the housing for any defects that pose a danger to 
health; and
    (ii) Notify the prospective purchaser of the work needed to cure 
the defects and the time by which defects must be cured and applicable 
property standards met.
    (2) The housing must be free from all noted health and safety 
defects before occupancy and not later than 6 months after the 
transfer.
    (3) The housing must meet the property standards in paragraph 
(a)(1) of this section not later than 2 years after transfer of the 
ownership interest.
    (c) An owner of rental housing assisted with HOME funds must 
maintain the housing in compliance with all applicable State and local 
housing quality standards and code requirements and if there are no 
such standards or code requirements, the housing must meet the housing 
quality standards in 24 CFR 982.401.
    (d) All housing occupied by tenants receiving HOME tenant-based 
rental assistance must meet the housing quality standards in 24 CFR 
982.401.


Sec. 92.252  Qualification as affordable housing: Rental housing.

    The HOME-assisted units in a rental housing project must be 
occupied only by households that are eligible as low-income families 
and must meet the following requirements to qualify as affordable 
housing. The affordability requirements also apply to the HOME-assisted 
non-owner-occupied units in single-family housing purchased with HOME 
funds in accordance with Sec. 92.254.
    (a) Rent limitation. HUD provides the following maximum HOME rent 
limits. The maximum HOME rents are the lesser of:
    (1) The fair market rent for existing housing for comparable units 
in the area as established by HUD under 24 CFR 888.111; or
    (2) A rent that does not exceed 30 percent of the adjusted income 
of a family whose annual income equals 65 percent of the median income 
for the area, as determined by HUD, with adjustments for number of 
bedrooms in the unit. The HOME rent limits provided by HUD will include 
average occupancy per unit and adjusted income assumptions.
    (b) Additional Rent limitations. In rental projects with five or 
more HOME-assisted rental units, twenty (20) percent of the HOME-
assisted units must be occupied by very low-income families and meet 
one of following rent requirements:
    (1) The rent does not exceed 30 percent of the annual income of a 
family whose income equals 50 percent of the median income for the 
area, as determined by HUD, with adjustments for smaller and larger 
families. HUD provides the HOME rent limits which include average 
occupancy per unit and adjusted income assumptions. However, if the 
rent determined under this paragraph is higher than the applicable rent 
under paragraph (a) of this section, then the maximum rent for units 
under this paragraph is that calculated under paragraph (a) of this 
section.
    (2) The rent does not exceed 30 percent of the family's adjusted 
income. If the unit receives Federal or State project-based rental 
subsidy and the very low-income family pays as a contribution toward 
rent not more than 30 percent of the family's adjusted income, then 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.
    (c) Initial rent schedule and utility allowances. The participating 
jurisdiction must establish maximum monthly allowances for utilities 
and services (excluding telephone). The participating jurisdiction must 
review and approve rents proposed by the owner for units subject to the 
maximum rent limitations in paragraphs (a) or (b) of this section. For 
all units subject to the maximum rent limitations in paragraphs (a) or 
(b) of this section for which the tenant is paying utilities and 
services, the participating jurisdiction must ensure that the rents do 
not exceed

[[Page 48769]]

the maximum rent minus the monthly allowances for utilities and 
services.
    (d) Nondiscrimination against rental assistance subsidy holders. 
The owner cannot refuse to lease HOME-assisted units to a certificate 
or voucher holder under 24 CFR part 982--Section 8 Tenant-Based 
Assistance: Unified Rule for Tenant-Based Assistance under the Section 
8 Rental Certificate Program and the Section 8 Rental Voucher Program 
or to the holder of a comparable document evidencing participation in a 
HOME tenant-based rental assistance program because of the status of 
the prospective tenant as a holder of such certificate, voucher, or 
comparable HOME tenant-based assistance document.
    (e) Periods of Affordability. The HOME-assisted units must meet the 
affordability requirements for not less than the applicable period 
specified in the following table, beginning after project completion. 
The affordability requirements apply without regard to the term of any 
loan or mortgage or the transfer of ownership. They must be imposed by 
deed restrictions, covenants running with the land, or other mechanisms 
approved by HUD, except that the affordability restrictions may 
terminate upon foreclosure or transfer in lieu of foreclosure. The 
participating jurisdiction may use purchase options, rights of first 
refusal or other preemptive rights to purchase the housing before 
foreclosure or deed in lieu of foreclosure to preserve affordability. 
The affordability restrictions shall be revived according to the 
original terms if, during the original affordability period, the owner 
of record before the foreclosure, or deed in lieu of foreclosure, or 
any entity that includes the former owner or those with whom the former 
owner has or had family or business ties, obtains an ownership interest 
in the project or property.

------------------------------------------------------------------------
                                                              Minimum   
                                                             period of  
                 Rental housing activity                   affordability
                                                              in years  
------------------------------------------------------------------------
Rehabilitation or acquisition of existing housing per                   
 unit amount of HOME funds: Under $15,000................           5   
$15,000 to $40,000.......................................          10   
Over $40,000 or rehabilitation involving refinancing.....          15   
New construction or acquisition of newly constructed                    
 housing.................................................          20   
------------------------------------------------------------------------

    (f) Subsequent rents during the affordability period. (1) The 
maximum HOME rent limits are recalculated on a periodic basis after HUD 
determines fair market rents and median incomes. HUD then provides the 
new maximum HOME rent limits to participating jurisdictions. Regardless 
of changes in fair market rents and in median income over time, the 
HOME rents for a project are not required to be lower than the HOME 
rent limits for the project in effect at the time of project 
commitment.
    (2) The participating jurisdiction must provide project owners with 
information on updated HOME rent limits so that rents may be adjusted 
(not to exceed the maximum HOME rent limits in paragraph (f)(1) of this 
section) in accordance with the written agreement between the 
participating jurisdiction and the owner. Owners must annually provide 
the participating jurisdiction with information on rents and occupancy 
of HOME-assisted units to demonstrate compliance with this section.
    (3) Any increase in rents for HOME-assisted units is subject to the 
provisions of outstanding leases, and in any event, the owner must 
provide tenants of those units not less than 30 days prior written 
notice before implementing any increase in rents.
    (g) Adjustment of HOME rent limits for a particular project. (1) 
Changes in fair market rents and in median income over time should be 
sufficient to maintain the financial viability of a project within the 
HOME rent limits in this section.
    (2) HUD may adjust the HOME rent limits for a project, only if HUD 
finds that an adjustment is necessary to support the continued 
financial viability of the project and only by an amount that HUD 
determines is necessary to maintain continued financial viability of 
the project. HUD expects that this authority will be used sparingly.
    (h) Tenant income. The income of each tenant must be determined 
initially in accordance with Sec. 92.203. In addition, each year during 
the period of affordability the project owner must re-examine each 
tenant's annual income in accordance with one of the options in 
Sec. 92.203 selected by the participating jurisdiction. An owner of a 
multifamily project with an affordability period of 10 years or more 
who re-examines tenant's annual income through a statement and 
certification in accordance with Sec. 92.203(a)(1)(ii), must examine 
the income of each tenant, in accordance with Sec. 92.203(a)(1)(i), 
every sixth year of the affordability period. Otherwise, an owner who 
accepts the tenant's statement and certification in accordance with 
Sec. 92.203(a)(1)(ii) is not required to examine the income of tenants 
in multifamily or single-family projects unless there is evidence that 
the tenant's written statement failed to completely and accurately 
state information about the family's size or income.
    (i) Over-income tenants. (1) HOME-assisted units continue to 
qualify as affordable housing despite a temporary noncompliance caused 
by increases in the incomes of existing tenants if actions satisfactory 
to HUD are being taken to ensure that all vacancies are filled in 
accordance with this section until the noncompliance is corrected.
    (2) Tenants who no longer qualify as low-income families must pay 
as rent the lesser of the amount payable by the tenant under State or 
local law or 30 percent of the family's adjusted income, except that 
tenants of HOME-assisted units that have been allocated low-income 
housing tax credits by a housing credit agency pursuant to section 42 
of the Internal Revenue Code of 1986 (26 U.S.C. 42) must pay rent 
governed by section 42.
    (j) Fixed and floating HOME units. In a project containing HOME-
assisted and other units, the participating jurisdiction may designate 
fixed or floating HOME units. This designation must be made at the time 
of project commitment. Fixed units remain the same throughout the 
period of affordability. Floating units are changed to maintain 
conformity with the requirements of this section during the period of 
affordability so that the total number of housing units meeting the 
requirements of this section remains the same, and each substituted 
unit is comparable in terms of size, features, and number of bedrooms 
to the originally designated HOME-assisted unit.


Sec. 92.253  Tenant and participant protections.

    (a) Lease. The lease between a tenant and an owner of rental 
housing assisted with HOME funds must be for not less than one year, 
unless by mutual agreement between the tenant and the owner.
    (b) Prohibited lease terms. The lease may not contain any of the 
following provisions:
    (1) Agreement to be sued. Agreement by the tenant to be sued, to 
admit guilt, or to a judgment in favor of the owner in a lawsuit 
brought in connection with the lease;
    (2) Treatment of property. Agreement by the tenant that the owner 
may take, hold, or sell personal property of household members without 
notice to the tenant and a court decision on the rights of the parties. 
This prohibition, however, does not apply to an

[[Page 48770]]

agreement by the tenant concerning disposition of personal property 
remaining in the housing unit after the tenant has moved out of the 
unit. The owner may dispose of this personal property in accordance 
with State law;
    (3) Excusing owner from responsibility. Agreement by the tenant not 
to hold the owner or the owner's agents legally responsible for any 
action or failure to act, whether intentional or negligent;
    (4) Waiver of notice. Agreement of the tenant that the owner may 
institute a lawsuit without notice to the tenant;
    (5) Waiver of legal proceedings. Agreement by the tenant that the 
owner may evict the tenant or household members without instituting a 
civil court proceeding in which the tenant has the opportunity to 
present a defense, or before a court decision on the rights of the 
parties;
    (6) Waiver of a jury trial. Agreement by the tenant to waive any 
right to a trial by jury;
    (7) Waiver of right to appeal court decision. Agreement by the 
tenant to waive the tenant's right to appeal, or to otherwise challenge 
in court, a court decision in connection with the lease; and
    (8) Tenant chargeable with cost of legal actions regardless of 
outcome. Agreement by the tenant to pay attorney's fees or other legal 
costs even if the tenant wins in a court proceeding by the owner 
against the tenant. The tenant, however, may be obligated to pay costs 
if the tenant loses.
    (c) Termination of tenancy. An owner may not terminate the tenancy 
or refuse to renew the lease of a tenant of rental housing assisted 
with HOME funds except for serious or repeated violation of the terms 
and conditions of the lease; for violation of applicable Federal, 
State, or local law; for completion of the tenancy period for 
transitional housing; or for other good cause. To terminate or refuse 
to renew tenancy, the owner must serve written notice upon the tenant 
specifying the grounds for the action at least 30 days before the 
termination of tenancy.
    (d) Tenant selection. An owner of rental housing assisted with HOME 
funds must adopt written tenant selection policies and criteria that:
    (1) Are consistent with the purpose of providing housing for very 
low-income and low-income families;
    (2) Are reasonably related to program eligibility and the 
applicants' ability to perform the obligations of the lease;
    (3) Give reasonable consideration to the housing needs of families 
that would have a Federal preference under section 6(c)(4)(A) of the 
1937 Act (see Sec. 92.209(c)(2)) ;
    (4) Provide for the selection of tenants from a written waiting 
list in the chronological order of their application, insofar as is 
practicable; and
    (5) Give prompt written notification to any rejected applicant of 
the grounds for any rejection.


Sec. 92.254   Qualification as affordable housing: homeownership.

    (a) Acquisition with or without rehabilitation. Housing that is for 
acquisition by a family must meet the affordability requirements of 
this paragraph (a).
    (1) The housing must be single-family housing (1- to 4-family 
residence, condominium unit, cooperative unit, combination manufactured 
home and lot, or manufactured home lot) .
    (2) The housing must be modest housing as follows:
    (i) In the case of acquisition of newly constructed housing or 
standard housing, the housing has a purchase price for the type of 
single family housing that does not exceed 95 percent of the median 
purchase price for the area, as described in paragraph (a)(2)(iii) of 
this section.
    (ii) In the case of acquisition with rehabilitation, the housing 
has an estimated value after rehabilitation that does not exceed 95 
percent of the median purchase price for the area, described in 
paragraph (a)(2)(iii) of this section.
    (iii) If a participating jurisdiction intends to use HOME funds for 
homebuyer assistance or for rehabilitation of owner-occupied single-
family properties, the participating jurisdiction may use the Single 
Family Mortgage Limits under Section 203(b) of the National Housing Act 
(12 U.S.C. 1709(b)) (which may be obtained from the HUD Field Office) 
or it may determine 95 percent of the median area purchase price for 
single family housing in the jurisdiction, as follows. The 
participating jurisdiction must set forth the price for different types 
of single family housing (1- to 4-unit family residence, condominium 
unit, cooperative unit, combination of manufactured housing and lot or 
manufactured housing lot) for the jurisdiction. The 95 percent of 
median area purchase price must be established in accordance with a 
market analysis which ensured that a sufficient number of recent 
housing sales are included in the survey. Sales must cover the 
requisite number of months based on volume: For 500 or more sales per 
month, a one-month reporting period; for 250 through 499 sales per 
month, a two-month reporting period; for less than 250 sales per month, 
at least a three-month reporting period. The data must be listed in 
ascending order of sales price. The address of the listed properties 
must include the location within the participating jurisdiction. Lot, 
square and subdivision data may be substituted for the street address. 
The housing sales data must reflect all, or nearly all, of the one-
family house sales in the entire participating jurisdiction. To 
determine the median, take the middle sale on the list if an odd number 
of sales and if an even number, take the higher of the middle numbers 
and consider it the median. After identifying the median sales price, 
the amount should be multiplied by .95 to determine the 95 percent of 
the median area purchase price. This information must be submitted to 
the HUD Field Office for review.
    (3) The housing must be acquired by a homebuyer whose family 
qualifies as a low-income family and the housing must be the principal 
residence of the family throughout the period described in paragraph 
(a)(4) of this section.
    (4) Periods of affordability. The HOME-assisted housing must meet 
the affordability requirements for not less than the applicable period 
specified in the following table, beginning after project completion. 
The per unit amount of HOME funds and the affordability period that 
they trigger are described more fully in paragraphs (a)(5)(i) (resale) 
and (ii) (recapture) of this section.

------------------------------------------------------------------------
                                                              Minimum   
                                                             period of  
      Homeownership assistance HOME amount per-unit        affordability
                                                              in years  
------------------------------------------------------------------------
Under $15,000............................................           5   
$15,000 to $40,000.......................................          10   
Over $40,000.............................................          15   
------------------------------------------------------------------------

    (5) Resale and recapture. To ensure affordability, the 
participating jurisdiction must impose either resale or recapture 
requirements, at its option. The participating jurisdiction must 
establish the resale or recapture requirements that comply with the 
standards of this section and set forth the requirements in its 
consolidated plan. HUD must determine that they are appropriate.
    (i) Resale. Resale requirements must ensure, if the housing does 
not continue to be the principal residence of the family for the 
duration of the period of affordability, that the housing is made 
available for subsequent purchase only

[[Page 48771]]

to a buyer whose family qualifies as a low-income family and will use 
the property as its principal residence. The resale requirement must 
also ensure that the price at resale provides the original HOME-
assisted owner a fair return on investment (including the homeowner's 
investment and any capital improvement) and ensure that the housing 
will remain affordable to a reasonable range of low-income homebuyers. 
The period of affordability is based on the total amount of HOME funds 
invested in the housing.
    (A) Except as provided in paragraph (a)(5)(i)(B) of this section, 
deed restrictions, covenants running with the land, or other similar 
mechanisms must be used as the mechanism to impose the resale 
requirements. The affordability restrictions may terminate upon 
occurrence of any of the following termination events: foreclosure, 
transfer in lieu of foreclosure or assignment of an FHA insured 
mortgage to HUD. The participating jurisdiction may use purchase 
options, rights of first refusal or other preemptive rights to purchase 
the housing before foreclosure to preserve affordability. The 
affordability restrictions shall be revived according to the original 
terms if, during the original affordability period, the owner of record 
before the termination event, obtains an ownership interest in the 
housing.
    (B) Certain housing may be presumed to meet the resale restrictions 
(i.e., the housing will be available and affordable to a reasonable 
range of low-income homebuyers; a low-income homebuyer will occupy the 
housing as the family's principal residence; and the original owner 
will be afforded a fair return on investment) during the period of 
affordability without the imposition of enforcement mechanisms by the 
participating jurisdiction. The presumption must be based upon a market 
analysis of the neighborhood in which the housing is located. The 
market analysis must include an evaluation of the location and 
characteristics of the housing and residents in the neighborhood (e.g., 
sale prices, age and amenities of the housing stock, incomes of 
residents, percentage of owner-occupants) in relation to housing and 
incomes in the housing market area. An analysis of the current and 
projected incomes of neighborhood residents for an average period of 
affordability for homebuyers in the neighborhood must support the 
conclusion that a reasonable range of low-income families will continue 
to qualify for mortgage financing. For example, an analysis shows that 
the housing is modestly priced within the housing market area and that 
families with incomes of 65% to 80% of area median can afford monthly 
payments under average FHA terms without other government assistance 
and housing will remain affordable at least during the next five to 
seven years compared to other housing in the market area; the size and 
amenities of the housing are modest and substantial rehabilitation will 
not significantly increase the market value; the neighborhood has 
housing that is not currently owned by the occupants, but the 
participating jurisdiction is encouraging homeownership in the 
neighborhood by providing homeownership assistance and by making 
improvements to the streets, sidewalks, and other public facilities and 
services. If a participating jurisdiction in preparing a neighborhood 
revitalization strategy under Sec. 91.215(e)(2) of its consolidated 
plan or Empowerment Zone or Enterprise Community application under 24 
CFR part 597 has incorporated the type of market data described above, 
that submission may serve as the required analysis under this section. 
If the participating jurisdiction continues to provide homeownership 
assistance for housing in the neighborhood, it must periodically update 
the market analysis to verify the original presumption of continued 
affordability.
    (ii) Recapture. Recapture provisions must ensure that the 
participating jurisdiction recoups all or a portion of the HOME 
assistance to the homebuyers, if the housing does not continue to be 
the principal residence of the family for the duration of the period of 
affordability. The participating jurisdiction may structure its 
recapture provisions based on its program design and market conditions. 
The period of affordability is based upon the total amount of HOME 
funds subject to recapture described in paragraph (a)(5)(ii)(A)(5) of 
this section.
    (A) The following options for recapture requirements are acceptable 
to HUD. The participating jurisdiction may adopt, modify or develop its 
own recapture requirements for HUD approval.
    (1) Recapture entire amount. The participating jurisdiction may 
recapture the entire amount of the HOME investment from the homeowner.
    (2) Reduction during affordability period. The participating 
jurisdiction may reduce the HOME investment amount to be recaptured on 
a prorata basis for the time the homeowner has owned and occupied the 
housing measured against the required affordability period.
    (3) Shared net proceeds. If the net proceeds are not sufficient to 
recapture the full HOME investment (or a reduced amount as provided for 
in paragraph (a)(5)(ii)(A)(2) of this section) plus enable the 
homeowner to recover the amount of the homeowner's downpayment and any 
capital improvement investment made by the owner since purchase, the 
participating jurisdiction may share the net proceeds. The net proceeds 
are the sales price minus loan repayment (other than HOME funds) and 
closing costs. The net proceeds may be divided proportionally as set 
forth in the following mathematical formulas:
[GRAPHIC] [TIFF OMITTED] TR16SE96.000

    (4) Owner investment returned first. The participating jurisdiction 
may permit the homebuyer to recover the homebuyer's entire investment 
(downpayment and capital improvements made by the owner since purchase) 
before recapturing the HOME investment.
    (5) Amount subject to recapture. 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 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

[[Page 48772]]

used to carry out HOME-eligible activities in accordance with the 
requirements of this part. If the HOME assistance is only used for the 
development subsidy and therefore not subject to recapture, the resale 
option must be used.
    (6) Special considerations for single-family properties with more 
than one unit. If the HOME funds are only used to assist a low-income 
homebuyer to acquire one unit in single-family housing containing more 
than one unit and the assisted unit will be the principal residence of 
the homebuyer, the affordability requirements of this section apply 
only to the assisted unit. If HOME funds are also used to assist the 
low-income homebuyer to acquire one or more of the rental units in the 
single-family housing, the affordability requirements of Sec. 92.252 
apply to assisted rental units, except that the participating 
jurisdiction may impose resale or recapture restrictions on all 
assisted units (owner-occupied and rental units) in the single family 
housing. If resale restrictions are used, the affordability 
requirements on all assisted units continue for the period of 
affordability. If recapture restrictions are used, the affordability 
requirements on the assisted rental units may be terminated, at the 
discretion of the participating jurisdiction, upon recapture of the 
HOME investment. (If HOME funds are used to assist only the rental 
units in such a property then the requirements of Sec. 92.252 would 
apply and the owner-occupied unit would not be subject to the income 
targeting or affordability provisions of Sec. 92.254.)
    (7) Lease-purchase. HOME funds may be used to assist homebuyers 
through lease-purchase programs. The housing must be purchased by a 
homebuyer within 36 months of signing the lease-purchase agreement. The 
homebuyer must qualify as a low-income family at the time the lease-
purchase agreement is signed and at the time the housing is transferred 
if more than six months have elapsed since the participating 
jurisdiction determined that the family was income eligible. If HOME 
funds are used to acquire housing that will be resold to a homebuyer 
through a lease-purchase program, the HOME affordability requirements 
for rental housing in Sec. 92.252 shall apply if the housing is not 
transferred to a homebuyer within forty-two months after project 
completion.
    (b) Rehabilitation not involving acquisition. Housing that is 
currently owned by a family qualifies as affordable housing only if:
    (1) The estimated value of the property, after rehabilitation, does 
not exceed 95 percent of the median purchase price for the area, 
described in paragraph (a)(2)(iii) of this section; and
    (2) The housing is the principal residence of an owner whose family 
qualifies as a low-income family at the time HOME funds are committed 
to the housing.
    (c) Ownership interest. The ownership in the housing assisted under 
this section must meet the definition of ``homeownership'' in 
Sec. 92.2.
    (d) New construction without acquisition. Newly constructed housing 
that is built on property currently owned by a family which will occupy 
the housing upon completion, qualifies as affordable housing if it 
meets the requirements under paragraph (a) of this section.


Sec. 92.255  Converting rental units to homeownership units for 
existing tenants.

    The participating jurisdiction may permit the owner of HOME-
assisted rental units to convert the rental units to homeownership 
units by selling, donating, or otherwise conveying the units to the 
existing tenants to enable the tenants to become homeowners in 
accordance with the requirements of Sec. 92.254. If no additional HOME 
funds are used to enable the tenants to become homeowners, the 
homeownership units are subject to a minimum period of affordability 
equal to the remaining affordable period if the units continued as 
rental units. If additional HOME funds are used to directly assist the 
tenants to become homeowners, the minimum period of affordability is 
the affordability period under Sec. 92.254(a)(4), based on the amount 
of direct homeownership assistance provided.


Sec. 92.256  [Reserved]


Sec. 92.257  Religious organizations.

    HOME funds may not be provided to primarily religious 
organizations, such as churches, for any activity including secular 
activities. In addition, HOME funds may not be used to rehabilitate or 
construct housing owned by primarily religious organizations or to 
assist primarily religious organizations in acquiring housing. However, 
HOME funds may be used by a secular entity to acquire housing from a 
primarily religious organization, and a primarily religious entity may 
transfer title to its property to a wholly secular entity and the 
entity may participate in the HOME program in accordance with the 
requirements of this part. The entity may be an existing or newly 
established entity, which may be an entity established by the religious 
organization. The completed housing project must be used exclusively by 
the owner entity for secular purposes, available to all persons 
regardless of religion. In particular, there must be no religious or 
membership criteria for tenants of the property.


Sec. 92.258  Elder cottage housing opportunity (ECHO) units.

    (a) General. HOME funds may be used for the initial purchase and 
initial placement costs of elder cottage housing opportunity (ECHO) 
units that meet the requirements of this section, and that are small, 
free-standing, barrier-free, energy-efficient, removable, and designed 
to be installed adjacent to existing single-family dwellings.
    (b) Eligible owners. The owner of a HOME-assisted ECHO unit may be:
    (1) The owner-occupant of the single-family host property on which 
the ECHO unit will be located;
    (2) A participating jurisdiction; or
    (3) A non-profit organization.
    (c) Eligible tenants. During the affordability period, the tenant 
of a HOME-assisted ECHO unit must be an elderly or disabled family as 
defined in 24 CFR 5.403 and must also be a low-income family.
    (d) Applicable requirements. The requirements of Sec. 92.252 apply 
to HOME-assisted ECHO units, with the following modifications:
    (1) Only one ECHO unit may be provided per host property.
    (2) The ECHO unit owner may choose whether or not to charge the 
tenant of the ECHO unit rent, but if a rent is charged, it must meet 
the requirements of Sec. 92.252.
    (3) The ECHO housing must remain affordable for the period 
specified in Sec. 92.252(e). If within the affordability period the 
original occupant no longer occupies the unit, the ECHO unit owner 
must:
    (i) Rent the unit to another eligible occupant on site;
    (ii) Move the ECHO unit to another site for occupancy by an 
eligible occupant; or
    (iii) If the owner of the ECHO unit is the host property owner-
occupant, the owner may repay the HOME funds in accordance with the 
recapture provisions imposed by the participating jurisdiction 
consistent with Sec. 92.254(a)(5)(ii). The participating jurisdiction 
must use the recaptured HOME funds for additional HOME activities.
    (4) The participating jurisdiction has the responsibility to 
enforce the project requirements applicable to ECHO units.

[[Page 48773]]

Subpart G--Community Housing Development Organizations


Sec. 92.300  Set-aside for community housing development organizations 
(CHDOs).

    (a)(1) Within 24 months after HUD notifies the participating 
jurisdiction of HUD's execution of the HOME Investment Partnerships 
Agreement, the participating jurisdiction must reserve not less than 15 
percent of the HOME allocation for investment only in housing to be 
developed, sponsored, or owned by community housing development 
organizations. For a State, the HOME allocation includes funds 
reallocated under Sec. 92.451(c)(2)(i) and, for a unit of general local 
government, funds transferred from a State under Sec. 92.102(b). The 
funds are reserved when a participating jurisdiction enters into a 
written agreement with the community housing development organization. 
The funds must be provided to a community housing development 
organization or its subsidiary. If a CHDO owns the project in 
partnership, it or its wholly owned for-profit or non-profit subsidiary 
must be the managing general partner. In acting in any of the 
capacities specified, the community housing development organization 
must have effective project control. In addition, a community housing 
development organization, in connection with housing it develops, 
sponsors or owns with HOME funds provided under this section, may 
provide direct homeownership assistance (e.g. downpayment assistance) 
and not be considered a subrecipient.
    (2) The participating jurisdiction determines the form of 
assistance, e.g., grant or loan, that the community housing development 
organization receives and whether any proceeds must be returned to the 
participating jurisdiction or may be retained by the community housing 
development organization. While the proceeds the participating 
jurisdiction permits the community housing development organization to 
retain are not subject to the requirements of this part, the 
participating jurisdiction must specify in the written agreement with 
the community housing development organization whether they are to be 
used for HOME-eligible or other housing activities to benefit low-
income families. However, funds recaptured because housing no longer 
meets the affordability requirements under Sec. 92.254(a)(5)(ii) are 
subject to the requirements of this part in accordance with 
Sec. 92.503.
    (b) Each participating jurisdiction must make reasonable efforts to 
identify community housing development organizations that are capable, 
or can reasonably be expected to become capable, of carrying out 
elements of the jurisdiction's approved consolidated plan and to 
encourage such community housing development organizations to do so. If 
during the first 24 months of its participation in the HOME Program a 
participating jurisdiction cannot identify a sufficient number of 
capable community housing development organizations, up to 20 percent 
of the minimum community housing development organization setaside of 
15 percent specified in paragraph (a) of this section, above, (but not 
more than $150,000 during the 24 month period) may be committed to 
develop the capacity of community housing development organizations in 
the jurisdiction.
    (c) Up to 10 percent of the HOME funds reserved under this section 
may be used for activities specified under Sec. 92.301.
    (d) HOME funds required to be reserved under this section are 
subject to reduction, as provided in Sec. 92.500(d).
    (e) If funds for operating expenses are provided under Sec. 92.208 
to a community housing development organization that is not also 
receiving funds under paragraph (a) of this section for housing to be 
developed, sponsored or owned by the community housing development 
organization, the participating jurisdiction must enter into a written 
agreement with the community housing development organization that 
provides that the community housing development organization is 
expected to receive funds under paragraph (a) of this section within 24 
months of receiving the funds for operating expenses, and specifies the 
terms and conditions upon which this expectation is based.
    (f) Limitation. A community housing development organization may 
not receive HOME funding for any fiscal year in an amount that provides 
more than 50 percent or $50,000, whichever is greater, of the community 
housing development organization's total operating expenses in that 
fiscal year. This also includes organizational support and housing 
education provided under section 233(b)(1), (2), and (6) of the Act, as 
well as funds for operating expenses provided under Sec. 92.208.


Sec. 92.301  Project-specific assistance to community housing 
development organizations.

    (a) Project-specific technical assistance and site control loans. 
(1) General. Within the percentage specified in Sec. 92.300(c), HOME 
funds may be used by a participating jurisdiction to provide technical 
assistance and site control loans to community housing development 
organizations in the early stages of site development for an eligible 
project. These loans may not exceed amounts that the participating 
jurisdiction determines to be customary and reasonable project 
preparation costs allowable under paragraph (a)(2) of this section. All 
costs must be related to a specific eligible project or projects.
    (2) Allowable costs. A loan may be provided to cover project costs 
necessary to determine project feasibility (including costs of an 
initial feasibility study), consulting fees, costs of preliminary 
financial applications, legal fees, architectural fees, engineering 
fees, engagement of a development team, option to acquire property, 
site control and title clearance. General operational expenses of the 
community housing development organization are not allowable costs.
    (3) Repayment. The community housing development organization must 
repay the loan to the participating jurisdiction from construction loan 
proceeds or other project income. The participating jurisdiction may 
waive repayment of the loan, in part or in whole, if there are 
impediments to project development that the participating jurisdiction 
determines are reasonably beyond the control of the borrower.
    (b) Project-specific seed money loans. (1) General. Within the 
percentage specified in Sec. 92.300(c), HOME funds may be used to 
provide loans to community housing development organizations to cover 
preconstruction project costs that the participating jurisdiction 
determines to be customary and reasonable, including, but not limited 
to the costs of obtaining firm construction loan commitments, 
architectural plans and specifications, zoning approvals, engineering 
studies, and legal fees.
    (2) Eligible sponsors. A loan may be provided only to a community 
housing development organization that has, with respect to the project 
concerned, site control (evidenced by a deed, a sales contract, or an 
option contract to acquire the property), a preliminary financial 
commitment, and a capable development team.
    (3) Repayment. The community housing development organization must 
repay the loan to the participating jurisdiction from construction loan 
proceeds or other project income. The participating jurisdiction may 
waive repayment of the loan, in whole or in

[[Page 48774]]

part, if there are impediments to project development that the 
participating jurisdiction determines are reasonably beyond the control 
of the community housing development organization.


Sec. 92.302  Housing education and organizational support.

    HUD is authorized to provide education and organizational support 
assistance, in conjunction with HOME funds made available to community 
housing development organizations in accordance with section 233 of the 
Act. HUD will publish a notice in the Federal Register announcing the 
availability of funding under this section, as appropriate. The notice 
need not include funding for each of the eligible activities, but may 
target funding from among the eligible activities.


Sec. 92.303  Tenant participation plan.

    A community housing development organization that receives 
assistance under this part must adhere to a fair lease and grievance 
procedure approved by the participating jurisdiction and provide a plan 
for and follow a program of tenant participation in management 
decisions.

Subpart H--Other Federal Requirements


Sec. 92.350  Other Federal requirements.

    (a) The Federal requirements set forth in 24 CFR 5.105(a), 
Nondiscrimination and equal opportunity, are applicable to participants 
in the HOME program.
    (b) OMB Circulars referenced in this part may be obtained from: 
Executive Office of the President, Publication Service, 725 17th 
Street, N.W., Suite G-2200, Washington, DC 20503; telephone: (202) 395-
7332.


Sec. 92.351  Affirmative marketing; minority outreach program.

    (a) Affirmative marketing. (1) Each participating jurisdiction must 
adopt affirmative marketing procedures and requirements for rental and 
homebuyer projects containing 5 or more HOME-assisted housing units. 
Affirmative marketing steps consist of actions to provide information 
and otherwise attract eligible persons in the housing market area to 
the available housing without regard to race, color, national origin, 
sex, religion, familial status or disability. (The affirmative 
marketing procedures do not apply to families with Section 8 tenant-
based rental housing assistance or families with tenant-based rental 
assistance provided with HOME funds.)
    (2) The affirmative marketing requirements and procedures adopted 
must include:
    (i) Methods for informing the public, owners, and potential tenants 
about Federal fair housing laws and the participating jurisdiction's 
affirmative marketing policy (e.g., the use of the Equal Housing 
Opportunity logotype or slogan in press releases and solicitations for 
owners, and written communication to fair housing and other groups);
    (ii) Requirements and practices each owner must adhere to in order 
to carry out the participating jurisdiction's affirmative marketing 
procedures and requirements (e.g., use of commercial media, use of 
community contacts, use of the Equal Housing Opportunity logotype or 
slogan, and display of fair housing poster);
    (iii) Procedures to be used by owners to inform and solicit 
applications from persons in the housing market area who are not likely 
to apply for the housing without special outreach (e.g., use of 
community organizations, places of worship, employment centers, fair 
housing groups, or housing counseling agencies);
    (iv) Records that will be kept describing actions taken by the 
participating jurisdiction and by owners to affirmatively market units 
and records to assess the results of these actions; and
    (v) A description of how the participating jurisdiction will 
annually assess the success of affirmative marketing actions and what 
corrective actions will be taken where affirmative marketing 
requirements are not met.
    (3) A State that distributes HOME funds to units of general local 
government must require each unit of general local government to adopt 
affirmative marketing procedures and requirements that meet the 
requirement in paragraphs (a) and (b) of this section.
    (b) Minority outreach. A participating jurisdiction must prescribe 
procedures acceptable to HUD to establish and oversee a minority 
outreach program within its jurisdiction to ensure the inclusion, to 
the maximum extent possible, of minorities and women, and entities 
owned by minorities and women, including, without limitation, real 
estate firms, construction firms, appraisal firms, management firms, 
financial institutions, investment banking firms, underwriters, 
accountants, and providers of legal services, in all contracts entered 
into by the participating jurisdiction with such persons or entities, 
public and private, in order to facilitate the activities of the 
participating jurisdiction to provide affordable housing authorized 
under this Act or any other Federal housing law applicable to such 
jurisdiction. Section 85.36(e) of this title describes actions to be 
taken by a participating jurisdiction to assure that minority business 
enterprises and women business enterprises are used when possible in 
the procurement of property and services.


Sec. 92.352  Environmental review.

    (a) General. The environmental effects of each activity carried out 
with HOME funds must be assessed in accordance with the provisions of 
the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321) 
and the related authorities listed in HUD's implementing regulations at 
24 CFR parts 50 and 58.
    (b) Responsibility for review. (1) The jurisdiction (e.g., the 
participating jurisdiction or State recipient) or insular area must 
assume responsibility for environmental review, decisionmaking, and 
action for each activity that it carries out with HOME funds, in 
accordance with the requirements imposed on a recipient under 24 CFR 
part 58. No funds may be committed to a HOME activity or project before 
the completion of the environmental review and approval of the request 
for release of funds and related certification, except as authorized by 
24 CFR part 58.
    (2) A State participating jurisdiction must also assume 
responsibility for approval of requests for release of HOME funds 
submitted by State recipients.
    (3) HUD will perform the environmental review, in accordance with 
24 CFR part 50, for a competitively awarded application for HOME funds 
submitted to HUD by an entity that is not a jurisdiction.


Sec. 92.353  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, the participating jurisdiction must ensure 
that it has taken all reasonable steps to minimize the displacement of 
persons (families, individuals, businesses, nonprofit organizations, 
and farms) as a result of a project assisted with HOME funds. To the 
extent feasible, residential tenants must be provided a reasonable 
opportunity to lease and occupy a suitable, decent, safe, sanitary, and 
affordable dwelling unit in the building/complex upon completion of the 
project.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must

[[Page 48775]]

relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation, including the 
cost of moving to and from the temporarily occupied housing and any 
increase in monthly rent/utility costs.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex upon completion of the project; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons. (1) General. A 
displaced person (defined in paragraph (c)(2) of this section) must be 
provided relocation assistance at the levels described in, and in 
accordance with the requirements of the Uniform Relocation Assistance 
and Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C. 
4201-4655) and 49 CFR part 24. A ``displaced person'' must be advised 
of his or her rights under the Fair Housing Act and, if the comparable 
replacement dwelling used to establish the amount of the replacement 
housing payment to be provided to a minority person is located in an 
area of minority concentration, the minority person also must be given, 
if possible, referrals to comparable and suitable, decent, safe, and 
sanitary replacement dwellings not located in such areas.
    (2) Displaced Person. (i) For purposes of paragraph (c) of this 
section, the term displaced person means a person (family individual, 
business, nonprofit organization, or farm, including any corporation, 
partnership or association) that moves from real property or moves 
personal property from real property, permanently, as a direct result 
of acquisition, rehabilitation, or demolition for a project assisted 
with HOME funds. This includes any permanent, involuntary move for an 
assisted project, including any permanent move from the real property 
that is made:
    (A) After notice by the owner to move permanently from the 
property, if the move occurs on or after:
    (1) The date of the submission of an application to the 
participating jurisdiction or HUD, if the applicant has site control 
and the application is later approved; or
    (2) The date the jurisdiction approves the applicable site, if the 
applicant does not have site control at the time of the application; or
    (B) Before the date described in paragraph (c)(2)(i)(A) of this 
section, if the jurisdiction or HUD determines that the displacement 
resulted directly from acquisition, rehabilitation, or demolition for 
the project; or
    (C) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs:
    (1) The tenant moves after execution of the agreement covering the 
acquisition, rehabilitation, or demolition and the move occurs before 
the tenant is provided written notice offering the tenant the 
opportunity to lease and occupy a suitable, decent, safe, and sanitary 
dwelling in the same building/complex upon completion of the project 
under reasonable terms and conditions. Such reasonable terms and 
conditions must include a term of at least one year at a monthly rent 
and estimated average monthly utility costs that do not exceed the 
greater of:
    (i) The tenant's monthly rent before such agreement and estimated 
average monthly utility costs; or
    (ii) The total tenant payment, as determined under 24 CFR 813.107, 
if the tenant is low-income, or 30 percent of gross household income, 
if the tenant is not low-income; or
    (2) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either
    (i) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; 
or
    (ii) Other conditions of the temporary relocation are not 
reasonable; or
    (3) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable.
    (ii) Notwithstanding paragraph (c)(2)(i) of this section, a person 
does not qualify as a displaced person if:
    (A) The person has been evicted for cause based upon a serious or 
repeated violation of the terms and conditions of the lease or 
occupancy agreement, violation of applicable federal, State or local 
law, or other good cause, and the participating jurisdiction determines 
that the eviction was not undertaken for the purpose of evading the 
obligation to provide relocation assistance. The effective date of any 
termination or refusal to renew must be preceded by at least 30 days 
advance written notice to the tenant specifying the grounds for the 
action.
    (B) The person moved into the property after the submission of the 
application but, before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced, temporarily relocated, incur 
a rent increase), and the fact that the person would not qualify as a 
``displaced person'' (or for any assistance under this section) as a 
result of the project;
    (C) The person is ineligible under 49 CFR 24.2(g)(2); or
    (D) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (iii) The jurisdiction may, at any time, ask HUD to determine 
whether a displacement is or would be covered by this rule.
    (3) Initiation of negotiations. For purposes of determining the 
formula for computing replacement housing assistance to be provided 
under paragraph (c) of this section to a tenant displaced from a 
dwelling as a direct result of private-owner rehabilitation, demolition 
or acquisition of the real property, the term initiation of 
negotiations means the execution of the agreement covering the 
acquisition, rehabilitation, or demolition.
    (d) Optional relocation assistance. The participating jurisdiction 
may provide relocation payments and other relocation assistance to 
families, individuals, businesses, nonprofit organizations, and farms 
displaced by a project assisted with HOME funds where the displacement 
is not subject to paragraph (c) of this section. The jurisdiction may 
also provide relocation assistance to persons covered under paragraph 
(c) of this section beyond that required. For any such assistance that 
is not required by State or local law, the jurisdiction must adopt a 
written policy available to the public that describes the optional 
relocation assistance that it has elected to furnish and provides for 
equal relocation assistance within each class of displaced persons.
    (e) Residential antidisplacement and relocation assistance plan. 
The participating jurisdiction shall comply with the requirements of 24 
CFR part 42, subpart B.
    (f) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements of 49 
CFR part 24, subpart B.
    (g) Appeals. A person who disagrees with the participating 
jurisdiction's

[[Page 48776]]

determination concerning whether the person qualifies as a displaced 
person, or the amount of relocation assistance for which the person may 
be eligible, may file a written appeal of that determination with the 
jurisdiction. A low-income person who is dissatisfied with the 
jurisdiction's determination on his or her appeal may submit a written 
request for review of that determination to the HUD Field Office.


Sec. 92.354  Labor.

    (a) General. (1) Every contract for the construction 
(rehabilitation or new construction) of housing that includes 12 or 
more units assisted with HOME funds must contain a provision requiring 
the payment of not less than the wages prevailing in the locality, as 
predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act 
(40 U.S.C. 276a-276a-5), to all laborers and mechanics employed in the 
development of any part of the housing. Such contracts must also be 
subject to the overtime provisions, as applicable, of the Contract Work 
Hours and Safety Standards Act (40 U.S.C. 327-332).
    (2) The contract for construction must contain these wage 
provisions if HOME funds are used for any project costs in Sec. 92.206, 
including construction or nonconstruction costs, of housing with 12 or 
more HOME-assisted units. When HOME funds are only used to assist 
homebuyers to acquire single-family housing, and not for any other 
project costs, the wage provisions apply to the construction of the 
housing if there is a written agreement with the owner or developer of 
the housing that HOME funds will be used to assist homebuyers to buy 
the housing and the construction contract covers 12 or more housing 
units to be purchased with HOME assistance. The wage provisions apply 
to any construction contract that includes a total of 12 or more HOME-
assisted units, whether one or more than one project is covered by the 
construction contract. Once they are determined to be applicable, the 
wage provisions must be contained in the construction contract so as to 
cover all laborers and mechanics employed in the development of the 
entire project, including portions other than the assisted units. 
Arranging multiple construction contracts within a single project for 
the purpose of avoiding the wage provisions is not permitted.
    (3) Participating jurisdictions, contractors, subcontractors, and 
other participants must comply with regulations issued under these acts 
and with other Federal laws and regulations pertaining to labor 
standards and HUD Handbook 1344.1 (Federal Labor Standards Compliance 
in Housing and Community Development Programs), as applicable. 
Participating jurisdictions must require certification as to compliance 
with the provisions of this section before making any payment under 
such contract.
    (b) Volunteers. The prevailing wage provisions of paragraph (a) of 
this section do not apply to an individual who receives no compensation 
or is paid expenses, reasonable benefits, or a nominal fee to perform 
the services for which the individual volunteered and who is not 
otherwise employed at any time in the construction work. See 24 CFR 
part 70.
    (c) Sweat equity. The prevailing wage provisions of paragraph (a) 
of this section do not apply to members of an eligible family who 
provide labor in exchange for acquisition of a property for 
homeownership or provide labor in lieu of, or as a supplement to, rent 
payments.


Sec. 92.355  Lead-based paint.

    Housing assisted with HOME funds is subject to the Lead-Based Paint 
Poisoning Prevention Act (42 U.S.C. 4821 et seq.) and 24 CFR part 35. 
The lead-based paint provisions of 24 CFR 982.401(j) also apply, 
irrespective of the applicable property standard under Sec. 92.251. In 
a project in which not all units are assisted with HOME funds, the 
lead-based paint requirements apply to all units and common areas in 
the project. Unless otherwise provided, the participating jurisdiction 
is responsible for testing and abatement activities.


Sec. 92.356  Conflict of interest.

    (a) Applicability. 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. In all cases not governed by 24 CFR 85.36 and 24 
CFR 84.42, the provisions of this section apply.
    (b) Conflicts prohibited. No persons described in paragraph (c) of 
this section who exercise or have exercised any functions or 
responsibilities with respect to activities assisted with HOME funds or 
who are in a position to participate in a decisionmaking process or 
gain inside information with regard to these activities, may obtain a 
financial interest or benefit from a HOME-assisted activity, or have an 
interest in any contract, subcontract or agreement with respect 
thereto, or the proceeds thereunder, either for themselves or those 
with whom they have family or business ties, during their tenure or for 
one year thereafter.
    (c) Persons covered. The conflict of interest provisions of 
paragraph (b) of this section apply to any person who is an employee, 
agent, consultant, officer, or elected official or appointed official 
of the participating jurisdiction, State recipient, or subrecipient 
which are receiving HOME funds.
    (d) Exceptions: Threshold requirements. Upon the written request of 
the participating jurisdiction, HUD may grant an exception to the 
provisions of paragraph (b) of this section on a case-by-case basis 
when it determines that the exception will serve to further the 
purposes of the HOME Investment Partnerships Program and the effective 
and efficient administration of the participating jurisdiction's 
program or project. An exception may be considered only after the 
participating jurisdiction has provided the following:
    (1) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict and a 
description of how the public disclosure was made; and
    (2) An opinion of the participating jurisdiction's or State 
recipient's attorney that the interest for which the exception is 
sought would not violate State or local law.
    (e) Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the participating jurisdiction has 
satisfactorily met the requirements of paragraph (d) of this section, 
HUD will consider the cumulative effect of the following factors, where 
applicable:
    (1) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project which 
would otherwise not be available;
    (2) Whether the person affected is a member of a group or class of 
low-income persons intended to be the beneficiaries of the assisted 
activity, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (3) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    (4) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (c) of this section;
    (5) Whether undue hardship will result either to the participating 
jurisdiction or the person affected when weighed against the public 
interest served by avoiding the prohibited conflict; and

[[Page 48777]]

    (6) Any other relevant considerations.
    (f) Owners and Developers. (1) No owner, developer or sponsor of a 
project assisted with HOME funds (or officer, employee, agent or 
consultant of the owner, developer or sponsor) whether private, for 
profit or non-profit (including a community housing development 
organization (CHDO) when acting as an owner, developer or sponsor) may 
occupy a HOME-assisted affordable housing unit in a project. This 
provision does not apply to an owner-occupant of single-family housing 
or to an employee or agent of the owner or developer of a rental 
housing project who occupies a HOME assisted unit as the project 
manager or maintenance worker.
    (2) Exceptions. Upon written request of a housing owner or 
developer, the participating jurisdiction (or State recipient, if 
authorized by the State participating jurisdiction) may grant an 
exception to the provisions of paragraph (f)(1) of this section on a 
case-by-case basis when it determines that the exception will serve to 
further the purposes of the HOME program and the effective and 
efficient administration of the owner's or developer's HOME-assisted 
project. In determining whether to grant a requested exception, the 
participating jurisdiction shall consider the following factors:
    (i) Whether the person receiving the benefit is a member of a group 
or class of low-income persons intended to be the beneficiaries of the 
assisted housing, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (ii) Whether the person has withdrawn from his or her functions or 
responsibilities, or the decisionmaking process with respect to the 
specific assisted housing in question;
    (iii) Whether the tenant protection requirements of Sec. 92.253 are 
being observed;
    (iv) Whether the affirmative marketing requirements of Sec. 92.351 
are being observed and followed; and
    (v) Any other factor relevant to the participating jurisdiction's 
determination, including the timing of the requested exception.


Sec. 92.357  Executive Order 12372.

    (a) General. Executive Order 12372, as amended by Executive Order 
12416 (3 CFR, 1982 Comp., p. 197 and 3 CFR, 1983 Comp., p. 186) 
(Intergovernmental Review of Federal Programs) and HUD's implementing 
regulations at 24 CFR part 52, allow each State to establish its own 
process for review and comment on proposed Federal financial assistance 
programs.
    (b) Applicability. Executive Order 12372 applies to applications 
submitted with respect to HOME funds being competitively reallocated 
under subpart J of this part to units of general local government.

Subpart I--Technical Assistance


Sec. 92.400  Coordinated Federal support for housing strategies.

    (a) General. HUD will provide assistance in accordance with 
Subtitle C of the Act.
    (b) Notice of funding. HUD will publish a notice in the Federal 
Register announcing the availability of funding under this section as 
appropriate.

Subpart J--Reallocations


Sec. 92.450  General.

    (a) This subpart J sets out the conditions under which HUD 
reallocates HOME funds that have been allocated, reserved, or placed in 
a HOME Investment Trust Fund.
    (b) A jurisdiction that is not a participating jurisdiction but is 
meeting the requirements of Secs. 92.102, 92.103, and 92.104, 
(participation threshold, notice of intent, and submission of 
consolidated plan) is treated as a participating jurisdiction for 
purposes of receiving a reallocation under subpart J of this part.


Sec. 92.451  Reallocation of HOME funds from a jurisdiction that is not 
designated a participating jurisdiction or has its designation revoked.

    (a) Failure to be designated a participating jurisdiction. HUD will 
reallocate, under this section, any HOME funds allocated to or reserved 
for a jurisdiction that is not a participating jurisdiction if:
    (1) HUD determines that the jurisdiction has failed to:
    (i) Meet the participation threshold amount in Sec. 92.102;
    (ii) Provide notice of its intent to become a participating 
jurisdiction in accordance with Sec. 92.103; or
    (iii) Submit its consolidated plan, in accordance with 24 CFR part 
91; or
    (2) HUD after providing for amendments and resubmissions in 
accordance with 24 CFR part 91 disapproves the jurisdiction's 
consolidated plan.
    (b) Designation revoked. HUD will reallocate, under this section, 
any funds remaining in a jurisdiction's HOME Investment Trust Fund 
after HUD has revoked the jurisdiction's designation as a participating 
jurisdiction under Sec. 92.107.
    (c) Manner of reallocation. HUD will reallocate funds that are 
subject to reallocation under this section in the following manner:
    (1) If the funds to be reallocated under this section are from a 
State, HUD will:
    (i) Make the funds available by competition in accordance with 
criteria in Sec. 92.453 among applications submitted by units of 
general local government within the State and with preference being 
given to applications from units of general local government that are 
not participating jurisdictions, and
    (ii) Reallocate the remainder by formula in accordance with 
Sec. 92.454.
    (2) If the funds to be reallocated are from a unit of general local 
government:
    (i) Located in a State that is participating jurisdiction, HUD will 
reallocate the funds to that State. The State, in distributing these 
funds, must give preference to the provision of affordable housing 
within the unit of general local government; or
    (ii) Located in a State that is not a participating jurisdiction, 
HUD will reallocate the funds by competition among units of general 
local government and community housing development organizations within 
the State, with priority going to applications for affordable housing 
within the unit of general local government; and reallocate the 
remainder by formula in accordance with Sec. 92.454.


Sec. 92.452  Reallocation of community housing development organization 
set-aside.

    HUD will reallocate, under this section, any HOME funds reduced or 
recaptured by HUD from a participating jurisdiction's HOME Investment 
Trust Fund under Sec. 92.300(d). HUD will reallocate these funds by 
competition in accordance with criteria in Sec. 92.453 to other 
participating jurisdictions for affordable housing developed, 
sponsored, or owned by community housing development organizations.


Sec. 92.453  Criteria for competitive reallocations.

    (a) General. HUD will invite applications through Federal Register 
notice for HOME funds that become available for competitive 
reallocation under Sec. 92.451 or Sec. 92.452, or both. The notice will 
describe the application requirements and procedures, including the 
deadline for the submission of applications of at least 30 days, the 
total funding available for the competition and any maximum amount of 
individual awards. The notice will describe the selection criteria and 
any special factors to be evaluated in awarding points

[[Page 48778]]

under the selection criteria. The selection criteria are those set 
forth in this section and any additional requirements in Secs. 92.451 
and 92.452. The notice will also state whether HUD will make selections 
based on the application for a project or activities.
    (b) Threshold factors. To be considered for a competitive 
reallocation, an application submitted by a jurisdiction must 
demonstrate to the satisfaction of HUD that:
    (1) Cooperative efforts. The jurisdiction is engaged, or has made 
good faith efforts to engage, in cooperative efforts between the State 
and appropriate participating jurisdictions within the State to 
develop, coordinate, and implement housing strategies under the Act; 
and
    (2) Barrier removal. (i) The jurisdiction is implementing, or has 
plans to implement, a strategy to remove or ameliorate negative effects 
of public policies which raise the cost of housing or constrain 
incentives to develop, maintain, or improve affordable housing; or 
demonstrate the absence of these policies.
    (ii) A local jurisdiction must provide a satisfactory explanation 
(based on its approved consolidated plan, or based on the State's 
approved consolidated plan, if the jurisdiction is not required to 
submit a consolidated plan) of whether the cost of housing or the 
incentives to develop, maintain, or improve affordable housing in the 
jurisdiction are affected by State and local policies, statutes, 
ordinances, regulations, and administrative procedures and processes. 
Of particular concern are policies such as tax policies affecting land 
and other property, land use controls, zoning ordinances, building 
codes, fees and charges, growth limits, and policies that affect the 
return on residential investment. The jurisdiction must also provide a 
satisfactory description of its strategy to remove or ameliorate 
negative effects, if any, of such policies.
    (iii) A State must provide a satisfactory explanation of whether 
the cost of housing or the incentives to develop, maintain, or improve 
affordable housing in the State are affected by State, as well as local 
policies, statutes, ordinances, regulations, and administrative 
procedures and processes. Of particular concern are policies such as 
tax policies affecting land and other property, land use controls, 
zoning ordinances, building codes, fees and charges, growth limits, and 
policies that affect the return on residential investment. A State must 
also provide a satisfactory description of its strategy to remove or 
ameliorate directly any negative effects, as well as to work with units 
of general local government involved to remove or ameliorate such 
negative effects of such policies. The strategy should propose, as 
appropriate, a program of State enabling reforms, direct State action 
as well as model codes, standards, and technical assistance for local 
governments.
    (c) Evaluation criteria. Each applicant jurisdiction meeting the 
threshold factors in paragraph (b) of this section and each applicant 
that is not a jurisdiction will be evaluated and ranked in accordance 
with criteria contained in the notice that are consistent with the 
following factors and take into account selection preferences and other 
requirements in Sec. 92.450 through Sec. 92.452 that may apply, based 
on the source of the HOME funds being competitively reallocated.
    (1) Policies (25 Points). The degree to which the applicant is 
pursuing policies that:
    (i) Make existing housing more affordable;
    (ii) Preserve the affordability of privately owned housing that is 
vulnerable to conversion, demolition, disinvestment, or abandonment;
    (iii) Increase the supply of housing that is affordable to very 
low-income and low-income persons, particularly in areas that are 
accessible to expanding job opportunities; and,
    (iv) Remedy the effects of discrimination and improve the housing 
opportunities for disadvantaged minorities.
    (2) Actions (50 points). The applicant's actions that:
    (i) Direct HOME funds to benefit very low-income families, to a 
greater extent than required by Sec. 92.252(b). Extra consideration 
will be given for activities that expand the supply of affordable 
housing for very low-income families whose annual incomes do not exceed 
30 percent of the median family income for the area;
    (ii) Apply the tenant selection preference categories applicable 
under section 8 of the 1937 Act to the selection of tenants for housing 
assisted with HOME funds;
    (iii) Provide matching resources in excess of funds required under 
Sec. 92.218; and
    (iv) Stimulate a high degree of investment and participation by the 
private sector, including nonprofit organizations.
    (3) Commitment (25 points). The applicant's demonstrated commitment 
to expand the supply of affordable rental housing, including units 
developed by public housing agencies, as indicated by the additional 
number of units of affordable housing made available through new 
construction or rehabilitation within the previous two years, making 
adjustments for regional variations in construction and rehabilitation 
costs and giving special consideration to the number of additional 
units made available under this part through new construction or 
rehabilitation, including units developed by public housing agencies, 
in relation to the amounts made available under this program.


Sec. 92.454  Reallocations by formula.

    (a) HUD will reallocate under this section:
    (1) Any HOME funds remaining available for reallocation after HUD 
has made competitive reallocations under Sec. 92.451 and Sec. 92.452;
    (2) Any HOME funds available for reallocation because HUD reduced 
or recaptured funds from participating jurisdiction under 
Sec. 92.500(d) for failure to commit the funds within the time 
specified;
    (3) Any HOME funds withdrawn by HUD from a participating 
jurisdiction under 24 CFR 91.520(f) for failure to submit in a timely 
manner a performance report required by 24 CFR 91.520 that is 
satisfactory to HUD; and
    (4) Any HOME funds remitted to HUD under Sec. 92.503(b) when a 
jurisdiction ceases to be a participating jurisdiction.
    (b) Any reallocation of funds from a State must be made only among 
all participating States, and any reallocation of funds from units of 
general local government must be made only among all participating 
units of general local government, except those participating 
jurisdictions that HUD has removed from participating in reallocations 
under Sec. 92.552.
    (c) A local participating jurisdiction's share of a reallocation is 
calculated by multiplying the amount available for reallocation to 
units of general local government by a factor that is that ratio of the 
participating jurisdiction's formula allocation provided under 
Sec. 92.50 to the total of the formula allocations provided for all 
local participating jurisdictions sharing in the reallocation. A State 
participating jurisdiction's share is comparably determined using the 
amount available for reallocation to States.
    (d) HUD will make reallocations under this section quarterly, 
unless the amount available for such reallocation is insufficient to 
warrant making a reallocation. In any event, HUD will make a 
reallocation under this section at least once a year. The minimum 
amount of a reallocation is $1000.

[[Page 48779]]

Subpart K--Program Administration


Sec. 92.500  The HOME Investment Trust Fund.

    (a) General. A HOME Investment Trust Fund consists of the accounts 
described in this section solely for investment in accordance with the 
provisions of this part. HUD will establish a HOME Investment Trust 
Fund United States Treasury account for each participating 
jurisdiction. Each participating jurisdiction may use either a separate 
local HOME Investment Trust Fund account or, a subsidiary account 
within its general fund (or other appropriate fund) as the local HOME 
Investment Trust Fund account.
    (b) Treasury Account. The United States Treasury account of the 
HOME Investment Trust Fund includes funds allocated to the 
participating jurisdiction under Sec. 92.50 (including for a local 
participating jurisdiction, any transfer of the State's allocation 
pursuant to Sec. 92.102(b)(2)) and funds reallocated to the 
participating jurisdiction, either by formula or by competition, under 
subpart J of this part; and
    (c) Local Account. (1) The local account of the HOME Investment 
Trust Fund includes deposits of HOME funds disbursed from the Treasury 
account; the deposit of any State funds (other than HOME funds 
transferred pursuant to Sec. 92.102(b)(2)) or local funds that enable 
the jurisdiction to meet the participating threshold amount in 
Sec. 92.102; any program income (from both the allocated funds and 
matching contributions in accordance with the definition of program 
income); and any repayments or recaptured funds as required by 
Sec. 92.503.
    (2) The participating jurisdiction may establish a second local 
account of the HOME Investment Trust Funds if:
    (i) The participating jurisdiction has its own affordable housing 
trust fund that the participating jurisdiction will use for matching 
contributions to the HOME program;
    (ii) The statute or local ordinance requires repayments from its 
own trust fund to be made to the trust fund;
    (iii) The participating jurisdiction establishes a separate account 
within its own trust fund for repayments of the matching contributions; 
and
    (iv) The funds in the account are used solely for investment in 
eligible activities within the participating jurisdiction's boundaries 
in accordance with the provisions of this part, except as provided 
under Sec. 92.201(a)(2).
    (3) The funds in the local account cannot be used for the matching 
contribution and do not need to be matched.
    (d) Reductions. HUD will reduce or recapture HOME funds in the HOME 
Investment Trust Fund by the amount of:
    (1) Any funds in the United States Treasury account that are 
required to be reserved (i.e., 15 percent of the funds) by a 
participating jurisdiction under Sec. 92.300 that are not reserved for 
a community housing development organization pursuant to a written 
agreement within 24 months after the last day of the month in which HUD 
notifies the participating jurisdiction of HUD's execution of the HOME 
Investment Partnership Agreement (HUD will make the notification on the 
date HUD executes the agreement);
    (2) Any funds in the United States Treasury account that are not 
committed within 24 months after the last day of the month in which HUD 
notifies the participating jurisdiction of HUD's execution of the HOME 
Investment Partnership Agreement (HUD will make the notification on the 
date HUD executes the agreement);
    (3) Any funds in the United States Treasury account that are not 
expended within five years after the last day of the month in which HUD 
notifies the participating jurisdiction of HUD's execution of the HOME 
Investment Partnership Agreement (HUD will make the notification on the 
date HUD executes the agreement); and
    (4) Any penalties assessed by HUD under Sec. 92.552.


Sec. 92.501  HOME Investment Partnership Agreement.

    Allocated and reallocated funds will be made available pursuant to 
a HOME Investment Partnership Agreement. The agreement ensures that 
HOME funds invested in affordable housing are repayable if the housing 
ceases to qualify as affordable housing before the period of 
affordability expires.


Sec. 92.502  Program disbursement and information system.

    (a) General. The Home Investment Trust Fund account established in 
the United States Treasury is managed through a computerized 
disbursement and information system established by HUD. The system 
disburses HOME funds that are allocated or reallocated, and collects 
and reports information on the use of HOME funds in the United States 
Treasury account. [For purposes of reporting in the Integrated 
Disbursement and Information System, a HOME project is an activity.]
    (b) Project set-up. (1) After the participating jurisdiction 
executes the HOME Investment Partnership Agreement, submits the 
applicable banking and security documents, complies with the 
environmental requirements under 24 CFR part 58 for release of funds 
and commits funds to a specific local project, the participating 
jurisdiction may identify (set up) specific investments in the 
disbursement and information system. Investments that require the set-
up of projects in the system are the acquisition, new construction, or 
rehabilitation of housing, and the provision of tenant-based rental 
assistance. The participating jurisdiction is required to enter 
complete project set-up information at the time of project set-up.
    (2) If the project set-up information is not completed within 20 
days of the project set-up call, the project may be cancelled by the 
system. In addition, a project which has been committed in the system 
for 12 months without an initial disbursement of funds may be cancelled 
by the system.
    (c) Disbursement of HOME funds. (1) After complete project set-up 
information is entered into the disbursement and information system, 
HOME funds for the project may be drawn down from the United States 
Treasury account by the participating jurisdiction by electronic funds 
transfer. The funds will be deposited in the local account of the HOME 
Investment Trust Fund of the participating jurisdiction within 48 to 72 
hours of the disbursement request. Any drawdown of HOME funds from the 
United States Treasury account is conditioned upon the provision of 
satisfactory information by the participating jurisdiction about the 
project or tenant-based rental assistance and compliance with other 
procedures, as specified by HUD.
    (2) HOME funds drawn from the United States Treasury account must 
be expended for eligible costs within 15 days. Any interest earned 
within the 15 day period may be retained by the participating 
jurisdiction as HOME funds. Any funds that are drawn down and not 
expended for eligible costs within 15 days of the disbursement must be 
returned to HUD for deposit in the participating jurisdiction's United 
States Treasury account of the HOME Investment Trust Fund. Interest 
earned after 15 days belongs to the United States and must be remitted 
promptly, but at least quarterly, to HUD, except that a local 
participating jurisdiction may retain interest amounts up to $100 per 
year for administrative expenses and States are subject to the 
Intergovernmental Cooperation Act (31 U.S.C. 6501 et seq.).

[[Page 48780]]

    (3) HOME funds in the local account of the HOME Investment Trust 
Fund must be disbursed before requests are made for HOME funds in the 
United States Treasury account.
    (4) A participating jurisdiction will be paid on an advance basis 
provided it complies with the requirements of this part.
    (d) Project completion.
    (1) Complete project completion information must be entered into 
the disbursement and information system, or otherwise provided, within 
120 days of the final project drawdown. If satisfactory project 
completion information is not provided, HUD may suspend further project 
set-ups or take other corrective actions.
    (2) Additional HOME funds may be committed to a project up to one 
year after project completion, but the amount of HOME funds in the 
project may not exceed the maximum per-unit subsidy amount established 
under Sec. 92.250.
    (e) Access by other participants. Access to the disbursement and 
information system by other entities participating in the HOME program 
(e.g., State recipients) will be governed by procedures established by 
HUD.


Sec. 92.503  Program income, repayments, and recaptured funds.

    (a) Program income. (1) Program income must be used in accordance 
with the requirements of this part. Program income must be deposited in 
the participating jurisdiction's HOME Investment Trust Fund local 
account unless the participating jurisdiction permits the State 
recipient or subrecipient to retain the program income for additional 
HOME projects pursuant to the written agreement required by 
Sec. 92.504.
    (2) If the jurisdiction is not a participating jurisdiction when 
the program income is received, the funds are not subject to the 
requirements of this part.
    (3) Program income derived from consortium activities undertaken by 
or within a member unit of general local government which thereafter 
terminates its participation in the consortium continues to be program 
income of the consortium.
    (b) Repayments. (1) Any HOME funds invested in housing that does 
not meet the affordability requirements for the period specified in 
Sec. 92.252 or Sec. 92.254, as applicable, must be repaid by the 
participating jurisdiction in accordance with paragraph (b)(3) of this 
section.
    (2) Any HOME funds invested in a project that is terminated before 
completion, either voluntarily or otherwise, must be repaid by the 
participating jurisdiction in accordance with paragraph (b)(3) of this 
section except for repayments of project specific community housing 
development organization loans which are waived in accordance with 
Secs. 92.301(a)(3) and 92.301(b)(3).
    (3) If the HOME funds were disbursed from the participating 
jurisdiction's HOME Investment Trust Fund Treasury account, they must 
be repaid to the Treasury account. If the HOME funds were disbursed 
from the participating jurisdiction's HOME Investment Trust Fund local 
account, they must be repaid to the local account. If the jurisdiction 
is not a participating jurisdiction when the repayment is made, the 
funds must be remitted to HUD and reallocated in accordance with 
Sec. 92.454.
    (c) Recaptures. HOME funds recaptured in accordance with 
Sec. 92.254(a)(5)(ii) must be used in accordance with the requirements 
of this part. Recaptured funds must be deposited in the participating 
jurisdiction's HOME Investment Trust Fund local account unless the 
participating jurisdiction permits the State recipient, subrecipient, 
or community housing development organization to retain the recaptured 
funds for additional HOME projects pursuant to the written agreement 
required by Sec. 92.504. If the jurisdiction is not a participating 
jurisdiction when the recaptured funds are received, the funds must be 
remitted to HUD and reallocated in accordance with Sec. 92.454.


Sec. 92.504  Participating jurisdiction responsibilities; written 
agreements; on-site inspection.

    (a) Responsibilities. The participating jurisdiction is responsible 
for managing the day to day operations of its HOME program, ensuring 
that HOME funds are used in accordance with all program requirements 
and written agreements, and taking appropriate action when performance 
problems arise. The use of State recipients, subrecipients, or 
contractors does not relieve the participating jurisdiction of this 
responsibility. The performance of each contractor and subrecipient 
must be reviewed at least annually.
    (b) Executing a written agreement. Before disbursing any HOME funds 
to any entity, the participating jurisdiction must enter into a written 
agreement with that entity. Before disbursing any HOME funds to any 
entity, a State recipient, subrecipient, or contractor which is 
administering all or a part of the HOME program on behalf of the 
participating jurisdiction, must also enter into a written agreement 
with that entity. The written agreement must ensure compliance with the 
requirements of this part.
    (c) Provisions in written agreements. The contents of the agreement 
may vary depending upon the role the entity is asked to assume or the 
type of project undertaken. This section details basic requirements by 
role and the minimum provisions that must be included in a written 
agreement.
    (1) State recipient. The provisions in the written agreement 
between the State and a State recipient will depend on the program 
functions that the State specifies the State recipient will carry out 
in accordance with Sec. 92.201(b).
    (i) Use of the HOME funds. The agreement must describe the use of 
the HOME funds, including the tasks to be performed, a schedule for 
completing the tasks, and a budget. These items must be in sufficient 
detail to provide a sound basis for the State to effectively monitor 
performance under the agreement.
    (ii) Affordability. The agreement must require housing assisted 
with HOME funds to meet the affordability requirements of Sec. 92.252 
or Sec. 92.254, as applicable, and must require repayment of the funds 
if the housing does not meet the affordability requirements for the 
specified time period.
    (iii) Program income. The agreement must state if program income is 
to be remitted to the State or to be retained by the State recipient 
for additional eligible activities.
    (iv) Uniform administrative requirements. The agreement must 
require the State recipient to comply with applicable uniform 
administrative requirements, as described in Sec. 92.505.
    (v) Project requirement. The agreement must require compliance with 
project requirements in subpart F of this part, as applicable in 
accordance with the type of project assisted.
    (vi) Other program requirements. The agreement must require the 
State recipient to carry out each activity in compliance with all 
Federal laws and regulations described in subpart H of this part, 
except that the State recipient does not assume the State's 
responsibilities for release of funds under Sec. 92.352 and the 
intergovernmental review process in Sec. 92.357 does not apply to the 
State recipient.
    (vii) Affirmative marketing. The agreement must specify the State 
recipient's affirmative marketing responsibilities in accordance with 
Sec. 92.351, if the HOME funds received by the State recipient will be 
used for housing containing five or more assisted units.

[[Page 48781]]

    (viii) Requests for disbursement of funds. The agreement must 
specify that the State recipient may not request disbursement of HOME 
funds under this agreement until the funds are needed for payment of 
eligible costs. The amount of each request must be limited to the 
amount needed. Program income must be disbursed before the State 
recipient requests funds from the State.
    (ix) Records and reports. The agreement must specify the particular 
records that must be maintained and the information or reports that 
must be submitted in order to assist the State in meeting its 
recordkeeping and reporting requirements.
    (x) Enforcement of the agreement. The agreement must provide for a 
means of enforcement of affordable housing requirements by the State or 
the intended beneficiaries, if the State recipient will be the owner at 
project completion of the affordable housing. The means of enforcement 
may include liens on real property, deed restrictions, or covenants 
running with the land. The affordability requirements in Sec. 92.252 
must be enforced by deed restriction. In addition, the agreement must 
specify remedies for breach of the HOME requirements. The agreement 
must specify that, in accordance with 24 CFR 85.43, suspension or 
termination may occur if the State recipient materially fails to comply 
with any term of the agreement. The State may permit the agreement to 
be terminated for convenience in accordance with 24 CFR 85.44.
    (xi) If the State recipient provides funds to for-profit owners or 
developers, nonprofit owners or developers, subrecipients, homeowners, 
homebuyers, tenants receiving tenant-based rental assistance, or 
contractors who are providing services to the State recipient, the 
State recipient must have a written agreement with such entities which 
meets the requirements of this section.
    (xii) Duration of the agreement. The duration of the agreement will 
depend on which functions the State recipient performs (e.g., whether 
the State recipient or the State has responsibility for monitoring 
rental projects for the period of affordability) and which activities 
are funded under the agreement.
    (2) Subrecipient. A subrecipient is a public agency or nonprofit 
selected by the participating jurisdiction to administer all or a 
portion of the participating jurisdiction's HOME Program. The agreement 
between the participating jurisdiction and the subrecipient must 
include:
    (i) Use of the HOME funds. The agreement must describe the use of 
the HOME funds, including the tasks to be performed, a schedule for 
completing the tasks, a budget, and the period of the agreement. These 
items must be in sufficient detail to provide a sound basis for the 
participating jurisdiction effectively to monitor performance under the 
agreement.
    (ii) Program income. The agreement must state if program income is 
to be remitted to the participating jurisdiction or to be retained by 
the subrecipient for additional eligible activities.
    (iii) Uniform administrative requirements. The agreement must 
require the subrecipient to comply with applicable uniform 
administrative requirements, as described in Sec. 92.505.
    (iv) Other program requirements. The agreement must require the 
subrecipient to carry out each activity in compliance with all Federal 
laws and regulations described in subpart H of this part, except that 
the subrecipient does not assume the participating jurisdiction's 
responsibilities for environmental review under Sec. 92.352 and the 
intergovernmental review process in Sec. 92.357 does not apply.
    (v) Affirmative marketing. The agreement must specify the 
subrecipient's affirmative marketing responsibilities in accordance 
with Sec. 92.351, if the HOME funds administered by the subrecipient 
will be used for housing containing five or more assisted units.
    (vi) Requests for disbursement of funds. The agreement must specify 
that the subrecipient may not request disbursement of funds under the 
agreement until the funds are needed for payment of eligible costs. The 
amount of each request must be limited to the amount needed. Program 
income must be disbursed before the subrecipient requests funds from 
the participating jurisdiction.
    (vii) Reversion of assets. The agreement must specify that upon 
expiration of the agreement, the subrecipient must transfer to the 
participating jurisdiction any HOME funds on hand at the time of 
expiration and any accounts receivable attributable to the use of HOME 
funds.
    (viii) Records and reports. The agreement must specify the 
particular records that must be maintained and the information or 
reports that must be submitted in order to assist the participating 
jurisdiction in meeting its recordkeeping and reporting requirements.
    (ix) Enforcement of the agreement. The agreement must specify 
remedies for breach of the provisions of the agreement. The agreement 
must specify that, in accordance with 24 CFR 85.43, suspension or 
termination may occur if the subrecipient materially fails to comply 
with any term of the agreement. The participating jurisdiction may 
permit the agreement to be terminated for convenience in accordance 
with 24 CFR 85.44.
    (x) If the subrecipient provides HOME funds to for-profit owners or 
developers, nonprofit owners or developers, subrecipients, homeowners, 
homebuyers, tenants receiving tenant-based rental assistance, or 
contractors, the subrecipient must have a written agreement which meets 
the requirements of this section.
    (3) For-profit or nonprofit housing owner, sponsor or developer 
(other than single-family owner-occupant).
    (i) Use of the HOME funds. The agreement between the participating 
jurisdiction and a for-profit or non-profit housing owner, sponsor or 
developer must describe the use of the HOME funds, including the tasks 
to be performed, a schedule for completing the tasks, and a budget. 
These items must be in sufficient detail to provide a sound basis for 
the participating jurisdiction to effectively monitor performance under 
the agreement.
    (ii) Affordability. The agreement must require housing assisted 
with HOME funds to meet the affordability requirements of Sec. 92.252 
or Sec. 92.254, as applicable, and must require repayment of the funds 
if the housing does not meet the affordability requirements for the 
specified time period. If the owner or developer is undertaking rental 
projects, the agreement must establish the initial rents and the 
procedures for rent increases. If the owner or developer is undertaking 
homeownership projects for sale to homebuyers in accordance with 
Sec. 92.254(a), the agreement must set forth the resale or recapture 
requirements which must be imposed on the housing.
    (iii) Project requirements. The agreement must require compliance 
with project requirements in subpart F of this part, as applicable in 
accordance with the type of project assisted.
    (iv) Property standards. The agreement must require the housing to 
meet the property standards in Sec. 92.251 and the lead-based paint 
requirements in Sec. 92.355 upon project completion. The agreement must 
also require owners of rental housing assisted with HOME funds to 
maintain the housing in compliance with Sec. 92.251 for the duration of 
the affordability period.
    (v) Affirmative marketing. If the project contains 5 or more HOME-
assisted units, the agreement must

[[Page 48782]]

specify the owner or developer's affirmative marketing responsibilities 
as enumerated by the participating jurisdiction in accordance with 
Sec. 92.351.
    (vi) Records and reports. The agreement must specify the particular 
records that must be maintained and the information or reports that 
must be submitted in order to assist the participating jurisdiction in 
meeting its recordkeeping and reporting requirements.
    (vii) Enforcement of the agreement. The agreement must provide for 
a means of enforcement of the affordable housing requirements by the 
participating jurisdiction or the intended beneficiaries. This means of 
enforcement may include liens on real property, deed restrictions or 
covenants running with the land. The affordability requirements in 
Sec. 92.252 must be enforced by deed restriction. In addition, the 
agreement must specify remedies for breach of the provisions of the 
agreement.
    (viii) Requests for disbursement of funds. The agreement must 
specify that the developer may not request disbursement of funds under 
the agreement until the funds are needed for payment of eligible costs. 
The amount of each request must be limited to the amount needed.
    (ix) Duration of the agreement. The agreement must specify the 
duration of the agreement. If the housing assisted under this agreement 
is rental housing, the agreement must be in effect through the 
affordability period required by the participating jurisdiction under 
Sec. 92.252. If the housing assisted under this agreement is 
homeownership housing, the agreement must be in effect at least until 
completion of the project and ownership by the low-income family.
    (x) Conditions for religious organizations. Where applicable, the 
agreement must include the conditions prescribed in Sec. 92.257 for the 
use of HOME funds by religious organizations.
    (xi) Community housing development organization provisions. If the 
nonprofit owner or developer is a community housing development 
organization and is using set-aside funds under Sec. 92.300, the 
agreement must include the appropriate provisions under Secs. 92.300 
and 92.301.
    (4) Contractor. The participating jurisdiction selects a contractor 
through applicable procurement procedures and requirements. The 
contractor provides goods or services in accordance with a written 
agreement (the contract). For contractors who are administering all or 
a portion of the HOME program, the contract must include at a minimum 
the following provisions:
    (i) Use of the HOME funds. The agreement must describe the use of 
the HOME funds, including the tasks to be performed, a schedule for 
completing the tasks, a budget, and the length of the agreement.
    (ii) Program requirements. The agreement must provide that the 
contractor is subject to the requirements in Part 92 that are 
applicable to the participating jurisdiction, except Secs. 92.505 and 
92.506 do not apply, and the contractor cannot assume the participating 
jurisdiction responsibilities for environmental review, decisionmaking, 
and action under Sec. 92.352. Where the contractor is administering 
only a portion of the program, the agreement must list the requirements 
applicable to the activities the contractor is administering.
    (iii) Duration of agreement. The agreement must specify the 
duration of the contract. Generally, the duration of a contract should 
not exceed two years.
    (5) Homebuyer, homeowner or tenant receiving tenant-based rental or 
security deposit assistance. When a participating jurisdiction provides 
assistance to a homebuyer, homeowner or tenant the written agreement 
may take many forms depending upon the nature of assistance. As 
appropriate, it must include as a minimum:
    (i) For homebuyers, the agreement must conform to the requirements 
in Sec. 92.254(a), the value of the property, principal residence, 
lease-purchase, if applicable, and the resale or recapture provisions. 
The agreement must specify the amount of HOME funds, the form of 
assistance, e.g., grant, amortizing loan, deferred payment loan, the 
use of the funds (e.g., down-payment, closing costs, rehabilitation) 
and the time by which the housing must be acquired.
    (ii) For homeowners, the agreement must conform to the requirements 
in Sec. 92.254(b) and specify the amount and form of HOME assistance, 
rehabilitation work to be undertaken, date for completion, and property 
standards to be met.
    (iii) For tenants, the rental assistance contract or the security 
deposit contract must conform to Secs. 92.209 and 92.253.
    (d) On site inspections--(1) HOME assisted rental housing. During 
the period of affordability, the participating jurisdiction must 
perform on-site inspections of HOME-assisted rental housing to 
determine compliance with the property standards of Sec. 92.251 and to 
verify the information submitted by the owners in accordance with the 
requirements of Sec. 92.252 no less than: every three years for 
projects containing 1 to 4 units; every two years for projects 
containing 5 to 25 units; and every year for projects containing 26 or 
more units. Inspections must be based on a sufficient sample of units.
    (2) Tenant-based rental assistance. The participating jurisdiction 
must perform annual on-site inspections of rental housing occupied by 
tenants receiving HOME-assisted TBRA to determine compliance with the 
property standards of Sec. 92.251.


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 through 85.34, 85.36, 85.44, 85.51, and 85.52.
    (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 nonprofit organizations 
that are not governmental subrecipients: Secs. 84.2, 84.5, 84.13 
through 84.16, 84.21, 84.22, 84.26 through 84.28, 84.30, 84.31, 84.34 
through 84.37, 84.40 through 84.48, 84.51, 84.60 through 84.62, 84.72, 
and 84.73.


Sec. 92.506  Audit.

    Audits of the participating jurisdiction, State recipients, and 
subrecipients must be conducted in accordance with 24 CFR parts 44 and 
45, as applicable.


Sec. 92.507  Closeout.

    (a) HOME funds from each individual Federal fiscal year (i.e., the 
allocation and any reallocated funds from the particular federal fiscal 
year appropriation) will be closed out when all the following criteria 
have been met:
    (1) All funds to be closed out have been drawn down and expended 
for completed project costs, or funds not drawn down and expended have 
been deobligated by HUD;
    (2) The matching requirements in Sec. 92.218 have been met;
    (3) Project Completion Reports for all projects using funds to be 
closed out have been submitted and project completion information has 
been entered into the program disbursement and information system 
established by HUD;
    (4) The participating jurisdiction has been reviewed and audited 
and HUD has determined that all requirements, except for affordability, 
have been met

[[Page 48783]]

or all monitoring and audit findings have been resolved.
    (i) The participating jurisdiction's most recent audit report and 
audit reports of state recipients, where applicable, must be received 
by HUD. If the audit does not cover all funds to be closed out, the 
closeout may proceed, provided the participating jurisdiction agrees in 
the Closeout Report that any costs paid with the funds that were not 
audited must be subject to the participating jurisdiction's next single 
audit and that the participating jurisdiction may be required to repay 
to HUD any disallowed costs based on the results of the audit.
    (ii) The on-site monitoring of the participating jurisdiction by 
the HUD Field Office must include verification of data reflected in the 
Closeout Report and reconciliation of any discrepancies which may exist 
between program disbursement and information system data and 
participating jurisdiction or state recipient records.
    (b) The Closeout Report contains the final data on the funds and 
must be signed by the participating jurisdiction and HUD. In addition, 
the report must contain:
    (1) A provision regarding unaudited funds, required by paragraph 
(a)(4)(i) of this section; and
    (2) A provision requiring the participating jurisdiction to 
continue to meet the requirements applicable to housing projects for 
the period of affordability specified in Sec. 92.252 or Sec. 92.254, to 
keep records demonstrating that the requirements have been met and to 
repay the HOME funds, as required by Sec. 92.503, if the housing fails 
to remain affordable for the required period.


Sec. 92.508  Recordkeeping.

    (a) General. Each participating jurisdiction must establish and 
maintain sufficient records to enable HUD to determine whether the 
participating jurisdiction has met the requirements of this part. At a 
minimum, the following records are needed:
    (1) Records concerning designation as a participating jurisdiction.
    (i) For a consortium, the consortium agreement among the 
participating member units of general local government as required by 
Sec. 92.101.
    (ii) For a unit of general local government receiving a formula 
allocation of less than $750,000 (or less than $500,000 in fiscal years 
in which Congress appropriates less than $1.5 billion for this part), 
records demonstrating that funds have been made available (either by 
the State or the unit of general local government, or both) equal to or 
greater than the difference between its formula allocation and $750,000 
(or $500,000 in fiscal years in which Congress appropriates less than 
$1.5 billion) as required by Sec. 92.102(b).
    (2) Program records. (i) Records of the efforts to maximize 
participation by the private sector as required by Sec. 92.200.
    (ii) The forms of HOME assistance used in the program, including 
any forms of investment described in the Consolidated Plan under 24 CFR 
part 91 which are not identified in Sec. 92.205(b).
    (iii) The subsidy layering guidelines adopted in accordance with 
Sec. 92.250 which support the participating jurisdiction's Consolidated 
Plan certification.
    (iv) If existing debt is refinanced for multi-family rehabilitation 
projects, the refinancing guidelines established in accordance with 
Sec. 92.206(b), described in the Consolidated Plan.
    (v) If HOME funds are used for tenant-based rental assistance, 
records supporting the participating jurisdiction's Consolidated Plan 
certification in accordance with Sec. 92.209(b), including 
documentation of the local market conditions that led to the choice of 
this option; written selection policies and criteria; supporting 
documentation for preferences for specific categories of individuals 
with disabilities; and records supporting the rent standard and minimum 
tenant contribution established in accordance with Sec. 92.209(h).
    (vi) If HOME funds are used for tenant-based rental assistance or 
rental housing, records evidencing that not less than 90 percent of the 
families receiving such rental assistance meet the income requirements 
of Sec. 92.216.
    (vii) If HOME funds are used for homeownership housing, the 
procedures used for establishing 95 percent of the median purchase 
price for the area in accordance with Sec. 92.254(a)(2), in the 
Consolidated Plan.
    (viii) If HOME funds are used for acquisition of housing for 
homeownership, the resale or recapture guidelines established in 
accordance with Sec. 92.254(a)(5), in the Consolidated Plan.
    (ix) Records demonstrating compliance with the matching 
requirements of Sec. 92.218 through Sec. 92.222 including a running log 
and project records documenting the type and amount of match 
contributions by project.
    (x) Records documenting compliance with the 24 month commitment 
deadline of Sec. 92.500(d).
    (xi) Records demonstrating compliance with the fifteen percent CHDO 
set-aside requirement of Sec. 92.300(a).
    (xii) Records documenting compliance with the ten percent 
limitation on administrative and planning costs in accordance with 
Sec. 92.207.
    (3) Project records. (i) A full description of each project 
assisted with HOME funds, including the location, form of HOME 
assistance, and the units or tenants assisted with HOME funds.
    (ii) The source and application of funds for each project, 
including supporting documentation in accordance with 24 CFR 85.20.
    (iii) Records demonstrating that each rental housing or 
homeownership project meets the minimum per-unit subsidy amount of 
Sec. 92.205(c), the maximum per-unit subsidy amount of Sec. 92.250(a) 
and the subsidy layering guidelines adopted in accordance with 
Sec. 92.250(b).
    (iv) Records demonstrating that each project meets the property 
standards of Sec. 92.251 and the lead based paint requirements of 
Sec. 92.355.
    (v) Records demonstrating that each family is income eligible in 
accordance with Sec. 92.203.
    (vi) Records demonstrating that each tenant-based rental assistance 
project meets the written tenant selection policies and criteria of 
Sec. 92.209(c), including the tenant preference requirements, the rent 
reasonableness requirements of Sec. 92.209(f), the maximum subsidy 
provisions of Sec. 92.209(h), HQS inspection reports, and calculation 
of the HOME subsidy.
    (vii) Records demonstrating that each rental housing project meets 
the affordability and income targeting requirements of Sec. 92.252 for 
the required period. Records must be kept for each family assisted.
    (viii) Records demonstrating that each multifamily rental housing 
project involving rehabilitation with refinancing complies with the 
refinancing guidelines established in accordance with Sec. 92.206(b).
    (ix) Records demonstrating that each lease for a tenant receiving 
tenant-based rental assistance and for an assisted rental housing unit 
complies with the tenant and participant protections of Sec. 92.253. 
Records must be kept for each family.
    (x) Records demonstrating that the purchase price or estimated 
value after rehabilitation for each homeownership housing project does 
not exceed 95 percent of the median purchase price for the area in 
accordance with Sec. 92.254(a)(2). The records must

[[Page 48784]]

demonstrate how the estimated value was determined.
    (xi) Records demonstrating that each homeownership project meets 
the affordability requirements of Sec. 92.254 for the required period.
    (xii) Records demonstrating that any pre-award costs charged to the 
HOME allocation meet the requirements of Sec. 92.212.
    (4) Community Housing Development Organizations (CHDOs) Records. 
(i) Written agreements reserving HOME funds to CHDOs in accordance with 
Sec. 92.300(a).
    (ii) Records setting forth the efforts made to identify and 
encourage CHDOs, as required by Sec. 92.300(b).
    (iii) The name and qualifications of each CHDO and amount of HOME 
CHDO set-aside funds reserved and committed.
    (iv) Records demonstrating that each CHDO complies with the written 
agreements required by Sec. 92.504.
    (v) Records concerning the use of CHDO setaside funds, including 
funds used to develop CHDO capacity pursuant to Sec. 92.300(b).
    (vi) Records concerning the use of funds for CHDO operating 
expenses and demonstrating compliance with the requirements of 
Sec. 92.208, Sec. 92.300(e) and Sec. 92.300(f).
    (vii) Records concerning the tenant participation plan required by 
Sec. 92.303.
    (viii) Records concerning project-specific assistance to CHDOs 
pursuant to Sec. 92.301, including the impediments to repayment, if 
repayment is waived.
    (5) Financial records. (i) Records identifying the source and 
application of funds for each fiscal year, including the formula 
allocation, any reallocation (identified by federal fiscal year 
appropriation), and any State or local funds provided under 
Sec. 92.102(b).
    (ii) Records concerning the HOME Investment Trust Fund Treasury 
account and local account required to be established and maintained by 
Sec. 92.500, including deposits, disbursements, balances, supporting 
documentation and any other information required by the program 
disbursement and information system established by HUD.
    (iii) Records identifying the source and application of program 
income, repayments and recaptured funds.
    (iv) Records demonstrating adequate budget control, in accordance 
with 24 CFR 85.20, including evidence of periodic account 
reconciliations.
    (6) Program administration records. (i) Records demonstrating 
compliance with the written agreements required by Sec. 92.504.
    (ii) Records demonstrating compliance with the applicable uniform 
administrative requirements required by Sec. 92.505.
    (iii) Records documenting required inspections, monitoring reviews 
and audits, and the resolution of any findings or concerns.
    (7) Records concerning other Federal requirements. (i) Equal 
opportunity and fair housing records.
    (A) Data on the extent to which each racial and ethnic group and 
single-headed households (by gender of household head) have applied 
for, participated in, or benefited from, any program or activity funded 
in whole or in part with HOME funds.
    (B) Documentation of actions undertaken to meet the requirements of 
24 CFR Part 135 which implements section 3 of the Housing Development 
Act of 1968, as amended (12 U.S.C. 1701u).
    (C) Documentation of the actions the participating jurisdiction has 
taken to affirmatively further fair housing.
    (ii) Affirmative marketing and MBE/WBE records.
    (A) Records demonstrating compliance with the affirmative marketing 
procedures and requirements of Sec. 92.351.
    (B) Documentation and data on the steps taken to implement the 
jurisdiction's outreach programs to minority-owned (MBE) and female-
owned (WBE) businesses including data indicating the racial/ethnic or 
gender character of each business entity receiving a contract or 
subcontract of $25,000 or more paid, or to be paid, with HOME funds; 
the amount of the contract or subcontract, and documentation of 
participating jurisdiction's affirmative steps to assure that minority 
business and women's business enterprises have an equal opportunity to 
obtain or compete for contracts and subcontracts as sources of 
supplies, equipment, construction, and services.
    (iii) Records demonstrating compliance with the environmental 
review requirements of Sec. 92.352 and 24 CFR part 58, including flood 
insurance requirements.
    (iv) Records demonstrating compliance with the requirements of 
Sec. 92.353 regarding displacement, relocation, and real property 
acquisition, including project occupancy lists identifying the name and 
address of all persons occupying the real property on the date 
described in Sec. 92.353(c)(2)(i)(A), moving into the property on or 
after the date described in Sec. 92.353(c)(2)(i)(A), and occupying the 
property upon completion of the project.
    (v) Records demonstrating compliance with the labor requirements of 
Sec. 92.354, including contract provisions and payroll records.
    (vi) Records demonstrating compliance with the lead-based paint 
requirements of Sec. 92.355.
    (vii) Records supporting exceptions to the conflict of interest 
prohibition pursuant to Sec. 92.356.
    (viii) Debarment and suspension certifications required by 24 CFR 
parts 24 and 91.
    (ix) Records concerning intergovernmental review, as required by 
Sec. 92.357.
    (b) States with State Recipients. A State that distributes HOME 
funds to State recipients must require State recipients to keep the 
records required by paragraphs (a)(2), (a)(3), (a)(5), (a)(6) and 
(a)(7) of this section, and such other records as the State determines 
to be necessary to enable the State to carry out its responsibilities 
under this part. The State need not duplicate the records kept by the 
State recipients. The State must keep records concerning its review of 
State recipients required under Sec. 92.201(b)(3).
    (c) Period of record retention. All records pertaining to each 
fiscal year of HOME funds must be retained for the most recent five 
year period, except as provided below.
    (1) For rental housing projects, records may be retained for five 
years after the project completion date; except that records of 
individual tenant income verifications, project rents and project 
inspections must be retained for the most recent five year period, 
until five years after the affordability period terminates.
    (2) For homeownership housing projects, records may be retained for 
five years after the project completion date, except for documents 
imposing recapture/resale restrictions which must be retained for five 
years after the affordability period terminates.
    (3) For tenant-based rental assistance projects, records must be 
retained for five years after the period of rental assistance 
terminates.
    (4) Written agreements must be retained for five years after the 
agreement terminates.
    (5) Records covering displacements and acquisition must be retained 
for five years after the date by which all persons displaced from the 
property and all persons whose property is acquired for the project 
have received the final payment to which they are entitled in 
accordance with Sec. 92.353.
    (6) If any litigation, claim, negotiation, audit, monitoring, 
inspection or other action has been started before the

[[Page 48785]]

expiration of the required record retention period records must be 
retained until completion of the action and resolution of all issues 
which arise from it, or until the end of the required period, whichever 
is later.
    (d) Access to records. (1) The participating jurisdiction must 
provide citizens, public agencies, and other interested parties with 
reasonable access to records, consistent with applicable state and 
local laws regarding privacy and obligations of confidentiality.
    (2) HUD and the Comptroller General of the United States, any of 
their representatives, have the right of access to any pertinent books, 
documents, papers or other records of the participating jurisdiction, 
state recipients, and subrecipients, in order to make audits, 
examinations, excerpts, and transcripts.


Sec. 92.509  Performance reports.

    (a) Management reports. Each participating jurisdiction must submit 
management reports on its HOME Investment Partnerships Program in such 
format and at such time as HUD may prescribe.
    (b) Annual performance report. For annual performance report 
requirements, see 24 CFR part 91.

Subpart L--Performance Reviews and Sanctions


Sec. 92.550  Performance reviews.

    (a) General. HUD will review the performance of each participating 
jurisdiction in carrying out its responsibilities under this part 
whenever determined necessary by HUD, but at least annually. In 
conducting performance reviews, HUD will rely primarily on information 
obtained from the participating jurisdiction's and, as appropriate, the 
State recipient's records and reports, findings from on-site 
monitoring, audit reports, and information generated from the 
disbursement and information system established by HUD. Where 
applicable, HUD may also consider relevant information pertaining to a 
participating jurisdiction's or State recipient's performance gained 
from other sources, including citizen comments, complaint 
determinations, and litigation. Reviews to determine compliance with 
specific requirements of this part will be conducted as necessary, with 
or without prior notice to the participating jurisdiction or State 
recipient. Comprehensive performance reviews under the standards in 
paragraph (b) of this section will be conducted after prior notice to 
the participating jurisdiction.
    (b) Standards for comprehensive performance review. A participating 
jurisdiction's performance will be comprehensively reviewed 
periodically, as prescribed by HUD, to determine:
    (1) For local participating jurisdictions and State participating 
jurisdictions administering their own HOME programs, whether the 
participating jurisdiction has committed the HOME funds in the United 
States Treasury account as required by Sec. 92.500 and expended the 
funds in the United States Treasury account as required by Sec. 92.500, 
and has met the requirements of this part, particularly eligible 
activities, income targeting, affordability, and matching requirements; 
or
    (2) For State participating jurisdictions distributing HOME funds 
to State recipients, whether the State has met the matching 
contribution and other requirements of this part; has distributed the 
funds in accordance with the requirements of this part; and has made 
such reviews and audits of its State recipients as may be appropriate 
to determine whether they have satisfied the requirements of paragraph 
(b)(1) of this section.


Sec. 92.551  Corrective and remedial actions.

    (a) General. HUD will use the procedures in this section in 
conducting the performance review as provided in Sec. 92.550 and in 
taking corrective and remedial actions.
    (b) Performance review.
    (1) If HUD determines preliminarily that the participating 
jurisdiction has not met a requirement of this part, the participating 
jurisdiction will be given notice of this determination and an 
opportunity to demonstrate, within the time prescribed by HUD (not to 
exceed 30 days) and on the basis of substantial facts and data, that it 
has done so.
    (2) If the participating jurisdiction fails to demonstrate to HUD's 
satisfaction that it has met the requirement, HUD will take corrective 
or remedial action in accordance with this section or Sec. 92.552.
    (c) Corrective and remedial actions. Corrective or remedial actions 
for a performance deficiency (failure to meet a provision of this part) 
will be designed to prevent a continuation of the deficiency; mitigate, 
to the extent possible, its adverse effects or consequences; and 
prevent its recurrence.
    (1) HUD may instruct the participating jurisdiction to submit and 
comply with proposals for action to correct, mitigate and prevent a 
performance deficiency, including:
    (i) Preparing and following a schedule of actions for carrying out 
the affected activities, consisting of schedules, timetables, and 
milestones necessary to implement the affected activities;
    (ii) Establishing and following a management plan that assigns 
responsibilities for carrying out the remedial actions;
    (iii) Canceling or revising activities likely to be affected by the 
performance deficiency, before expending HOME funds for the activities;
    (iv) Reprogramming HOME funds that have not yet been expended from 
affected activities to other eligible activities;
    (v) Reimbursing its HOME Investment Trust Fund in any amount not 
used in accordance with the requirements of this part;
    (vi) Suspending disbursement of HOME funds for affected activities; 
and
    (vii) Making matching contributions as draws are made from the 
participating jurisdiction's HOME Investment Trust Fund United States 
Treasury Account.
    (2) HUD may also change the method of payment from an advance to 
reimbursement basis; and take other remedies that may be legally 
available.


Sec. 92.552  Notice and opportunity for hearing; sanctions.

    (a) If HUD finds after reasonable notice and opportunity for 
hearing that a participating jurisdiction has failed to comply with any 
provision of this part and until HUD is satisfied that there is no 
longer any such failure to comply:
    (1) HUD shall reduce the funds in the participating jurisdiction's 
HOME Investment Trust Fund by the amount of any expenditures that were 
not in accordance with the requirements of this part; and
    (2) HUD may do one or more of the following:
    (i) Prevent withdrawals from the participating jurisdiction's HOME 
Investment Trust Fund for activities affected by the failure to comply;
    (ii) Restrict the participating jurisdiction's activities under 
this part to activities that conform to one or more model programs 
which HUD has developed in accordance with section 213 of the Act;
    (iii) Remove the participating jurisdiction from participation in 
allocations or reallocations of funds made available under subpart B or 
J of this part;
    (iv) Require the participating jurisdiction to make matching 
contributions in amounts required by Sec. 92.218(a) as HOME funds are 
drawn from the participating jurisdiction's

[[Page 48786]]

HOME Investment Trust Fund United States Treasury Account. Provided, 
however, that HUD may on due notice suspend payments at any time after 
the issuance of a notice of opportunity for hearing pursuant to 
paragraph (b)(1) of this section, pending such hearing and a final 
decision, to the extent HUD determines such action necessary to 
preclude the further expenditure of funds for activities affected by 
the failure to comply.
    (b) Proceedings. When HUD proposes to take action pursuant to this 
section, the respondent in the proceedings will be the participating 
jurisdiction, or at HUD's option, the State recipient.
    (1) Notice of opportunity for hearing. HUD shall notify the 
respondent in writing of the proposed action and of the opportunity for 
a hearing. The notice shall be sent by first class mail. The notice 
shall specify:
    (i) In a manner which is adequate to allow the respondent to 
prepare its response, the basis upon which HUD determined that the 
respondent failed to comply with a provision of this part;
    (ii) That the hearing procedures are governed by these rules;
    (iii) That the respondent has 14 days from receipt of the notice 
within which to provide a written request for a hearing to the Chief 
Docket Clerk, Office of Administrative Law Judges, and the address and 
telephone number of the Chief Docket Clerk;
    (iv) The action HUD proposes to take and that the authority for 
this action is Sec. 92.552; and
    (v) That if the respondent fails to request a hearing within the 
time specified, HUD's determination that the respondent failed to 
comply with a provision of this part shall be final and HUD may proceed 
to take the proposed action.
    (2) Initiation of hearing. The respondent shall be allowed 14 days 
from receipt of the notice within which to notify the Chief Docket 
Clerk, Office of Administrative Law Judges, of its request for a 
hearing. If no request is received within the time specified, HUD's 
determination that the respondent failed to comply with a provision of 
this part shall be final and HUD may proceed to take the proposed 
action.
    (3) Administrative Law Judge. Proceedings conducted under these 
rules shall be presided over by an ALJ. The case shall be referred to 
the ALJ at the time a hearing is requested. The ALJ shall promptly 
notify the parties of the time and place at which the hearing will be 
held. The ALJ shall conduct a fair and impartial hearing and take all 
action necessary to avoid delay in the disposition of proceedings and 
to maintain order. The ALJ shall have all powers necessary to those 
ends, including but not limited to the power to:
    (i) Administer oaths and affirmations;
    (ii) Issue subpoenas as authorized by law;
    (iii) Rule upon offers of proof and receive relevant evidence;
    (iv) Order or limit discovery before the hearing as the interests 
of justice may require;
    (v) Regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (vi) Hold conferences for the settlement or simplification of the 
issues by consent of the parties;
    (vii) Consider and rule upon all procedural and other motions 
appropriate in adjudicative proceedings; and
    (viii) Make and file initial determinations.
    (4) Ex parte communications. An ex parte communication is any 
communication with an ALJ, direct or indirect, oral or written, 
concerning the merits or procedures of any pending proceeding which is 
made by a party in the absence of any other party. Ex parte 
communications are prohibited except where the purpose and content of 
the communication have been disclosed in advance or simultaneously to 
all parties, or the communication is a request for information 
concerning the status of the case. Any ALJ who receives an ex parte 
communication which the ALJ knows or has reason to believe is 
unauthorized shall promptly place the communication, or its substance, 
in all files and shall furnish copies to all parties. Unauthorized ex 
parte communications shall not be taken into consideration in deciding 
any matter in issue.
    (5) The hearing. All parties shall have the right to be represented 
at the hearing by counsel. The ALJ shall conduct the proceedings in an 
expeditious manner while allowing the parties to present all oral and 
written evidence which tends to support their respective positions, but 
the ALJ shall exclude irrelevant, immaterial or unduly repetitious 
evidence. HUD has the burden of proof in showing by a preponderance of 
the evidence that the respondent failed to comply with a provision of 
this part. Each party shall be allowed to cross-examine adverse 
witnesses and to rebut and comment upon evidence presented by the other 
party. Hearings shall be open to the public. So far as the orderly 
conduct of the hearing permits, interested persons other than the 
parties may appear and participate in the hearing.
    (6) Transcripts. Hearings shall be recorded and transcribed only by 
a reporter under the supervision of the ALJ. The original transcript 
shall be a part of the record and shall constitute the sole official 
transcript. Respondents and the public, at their own expense, may 
obtain copies of the transcript.
    (7) The ALJ's decision. At the conclusion of the hearing, the ALJ 
shall give the parties a reasonable opportunity to submit proposed 
findings and conclusions and supporting reasons therefor. Generally 
within 60 days after the conclusion of the hearing, the ALJ shall 
prepare a written decision which includes a statement of findings and 
conclusions, and the reasons or basis therefor, on all the material 
issues of fact, law or discretion presented on the record and the 
appropriate sanction or denial thereof. The decision shall be based on 
consideration of the whole record or those parts thereof cited by a 
party and supported by and in accordance with the reliable, probative, 
and substantial evidence. A copy of the decision shall be furnished to 
the parties immediately by first class mail and shall include a notice 
that any requests for review by the Secretary must be made in writing 
to the Secretary within 30 days of the receipt of the decision.
    (8) The record. The transcript of testimony and exhibits, together 
with the decision of the ALJ and all papers and requests filed in the 
proceeding, constitutes the exclusive record for decision and, on 
payment of its reasonable cost, shall be made available to the parties. 
After reaching the initial decision, the ALJ shall certify to the 
complete record and forward the record to the Secretary.
    (9) Review by the Secretary. The decision by the ALJ shall 
constitute the final decision of the Secretary unless, within 30 days 
after the receipt of the decision, either the respondent or the 
Assistant Secretary files an exception and request for review by the 
Secretary. The excepting party must transmit simultaneously to the 
Secretary and the other party the request for review and the basis of 
the party's exceptions to the findings of the ALJ. The other party 
shall be allowed 30 days from receipt of the exception to provide the 
Secretary and the excepting party with a written reply. The Secretary 
shall then review the record of the case, including the exceptions and 
the reply. On the basis of such review, the Secretary shall issue a 
written determination, including a statement of the rationale therefor, 
affirming, modifying or revoking the

[[Page 48787]]

decision of the ALJ. The Secretary's decision shall be made and 
transmitted to the parties within 60 days after the decision of the ALJ 
was furnished to the parties.

    Dated: August 28, 1996.
Henry G. Cisneros,
Secretary.
[FR Doc. 96-22864 Filed 9-13-96; 8:45 am]
BILLING CODE 4210-33-P