[Federal Register Volume 63, Number 169 (Tuesday, September 1, 1998)]
[Rules and Regulations]
[Pages 46566-46580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23421]



[[Page 46565]]

_______________________________________________________________________

Part VII





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 5, et al.



Uniform Physical Condition Standards and Physical Inspection 
Requirements for Certain HUD Housing; Final Rule

  Federal Register / Vol. 63, No. 169 / Tuesday, September 1, 1998 / 
Rules and Regulations  

[[Page 46566]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 207, 266, 880, 881, 882, 883, 884, 886, 891, 965, 
and 983

[Docket No. FR-4280-F-03]
RIN 2501-AC45


Uniform Physical Condition Standards and Physical Inspection 
Requirements for Certain HUD Housing

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

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

SUMMARY: This rule makes final a June 30, 1998 proposed rule that 
proposed to establish for housing insured and/or assisted under certain 
HUD programs uniform physical condition standards. These standards are 
intended to ensure that such housing is decent, safe, sanitary and in 
good repair. To the extent possible, HUD believes that its Section 8 
housing, public housing, HUD-insured multifamily housing, and other HUD 
assisted housing (collectively, HUD housing) should be subject to 
uniform physical standards. Additionally, to the extent feasible, HUD 
believes that the physical inspection procedures by which the standards 
will be assessed should be uniform in the covered programs. Therefore, 
this rule amends HUD's regulations to require that certain HUD housing, 
as defined in this rule, must meet uniform physical condition standards 
to ensure that the HUD housing is decent, safe, sanitary and in good 
repair. This rule also generally establishes new physical inspection 
procedures that will allow HUD to determine conformity with such 
standards. This rule does not change the requirement for annual 
physical inspections currently found in the covered HUD programs. 
Additionally, this rule does not affect the existing requirements in 
each covered HUD program regarding which entity is responsible for 
conducting the physical inspection. This rule takes into consideration 
public comment received on the June 30, 1998 proposed rule.

EFFECTIVE DATE: October 1, 1998.

FOR FURTHER INFORMATION CONTACT: For further information, contact the 
Real Estate Assessment Center, Attention: William Thorson, Director of 
Physical Inspection Management, Department of Housing and Urban 
Development, 4900 L'Enfant Plaza East, SW, Room 8204, Washington, DC 
20410; telephone (202) 755-0102. Persons with hearing and speech 
impairments may contact the Center via TTY by calling the Federal 
Information Relay Service at (800) 877-8399.

SUPPLEMENTARY INFORMATION:

I. The Proposed Rule

    On June 30, 1998 (63 FR 35650), HUD published a proposed rule that 
would establish for housing insured and/or assisted under certain HUD 
programs uniform physical condition standards. HUD proposed the 
standards in the June 30, 1998 proposed rule in an attempt to ensure 
that such housing is decent, safe, sanitary and in good repair. HUD's 
Section 8 housing, public housing, HUD-insured multifamily housing, and 
other HUD assisted housing (collectively, HUD housing) must meet 
certain standards and must undergo an annual physical inspection to 
determine that the housing qualifies as decent, safe, sanitary and in 
good repair. The description or components of what would constitute 
acceptable physical housing quality and the physical inspection 
procedures by which the standards are determined to be met, however, 
varied from HUD program to HUD program. To the extent possible, HUD 
believes that housing assisted under its programs should be subject to 
uniform physical standards, regardless of the source of the subsidy or 
assistance. Additionally, to the extent feasible, HUD believes that the 
physical inspection procedures by which the standards will be assessed 
should be uniform in the covered programs.

Proposed Standards and Inspection Process

    HUD proposed that certain HUD housing, as defined in the rule, must 
meet uniform physical condition standards to ensure that the HUD 
housing is decent, safe, sanitary and in good repair. The proposed rule 
also generally described new physical inspection procedures that would 
allow HUD to determine conformity with such standards. HUD proposed the 
standards and inspection process to achieve three significant 
objectives:
    (1) Consistency in physical condition standards for HUD housing;
    (2) Standardization of the inspection to be undertaken to determine 
compliance with the standards; and
    (3) Implementation of an electronically-based inspection system to 
evaluate, rate, and rank the physical condition of HUD housing 
objectively.
In proposing uniform physical condition standards, HUD did not propose 
to alter the statutory standard for maintaining HUD housing. Instead, 
the proposed rule, by using the statutory terminology, clearly 
acknowledged that the physical condition of the housing that is to be 
met is one of ``decent, safe, and sanitary.'' Furthermore, the rule did 
not propose to change the preexisting requirement for annual physical 
inspections currently found in the covered HUD programs, nor did it 
propose to affect the preexisting requirements in each covered HUD 
program regarding which entity is responsible for conducting the 
physical inspection.

Covered Programs

    HUD proposed to apply the new physical condition standards to 
housing insured and/or assisted by HUD under the following programs:
1. Section 8 Project-Based and Other Assisted Housing
--Section 8 Project-Based Assistance, including the Section 8 New 
Construction, Substantial Rehabilitation, Loan Management Set-Aside, 
Property Disposition, Moderate Rehabilitation (including the Single 
Room Occupancy program for homeless individuals), and project-based 
Certificate programs;
--Section 202 Program of Supportive Housing for the Elderly;
--Section 811 Program of Supportive Housing for Persons with 
Disabilities; and
--Section 202 Program of Supportive Housing for the Elderly;
--Section 811 Program of Supportive Housing for Persons with 
Disabilities; and
--Section 202 Loan Program for Projects for the Elderly and Handicapped 
(including 202/8 projects and 202/162 projects).
2. Federal Housing Administration (FHA) Multifamily Housing
    HUD also proposed to apply the standards to multifamily housing 
with mortgages insured or held by HUD, or housing that is receiving 
assistance from HUD, under the following authorities:

--Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 et 
seq.) (Rental Housing Insurance);
--Section 213 of the NHA (Cooperative Housing Insurance);
--Section 220 of the NHA (Rehabilitation and Neighborhood Conservation 
Housing Insurance);
--Section 221(d)(3) and (5) of the NHA (Housing for Moderate Income and 
Displaced Families);
--Section 221(d)(4) of the NHA (Housing for Moderate Income and 
Displaced Families);
--Section 231 of the NHA (Housing for Elderly Persons);
--Section 232 of the NHA (Mortgage Insurance for Nursing Homes,

[[Page 46567]]

Intermediate Care Facilities, Board and Care Homes);
--Section 234(d) of the NHA (Rental) (Mortgage Insurance for 
Condominiums);
--Section 236 of the NHA (Rental and Cooperative Housing for Lower 
Income Families);
--Section 241 of the NHA (Supplemental Loans for Multifamily Projects); 
and
--Section 542(c) of the Housing and Community Development Act of 1992 
(12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing Program).
3. Public Housing
--Housing receiving assistance under the U.S. Housing Act of 1937, 
other than under section 8 of the Act (e.g., housing receiving 
assistance under sections 5, 9, and 14 of the Act).

    The proposed standards would address six major areas of the HUD 
housing:
    (1) Site;
    (2) Building exterior;
    (3) Building systems;
    (4) Dwelling units;
    (5) Common areas; and
    (6) Health and safety.

II. Changes at the Final Rule Stage

    HUD has made one change at the final rule stage in response to 
implementation concerns about the new inspection protocol. HUD will not 
require entities covered by this rule to conduct inspections in 
accordance with the uniform physical condition standards and procedures 
until HUD issues the final version of the inspection software and 
accompanying guidebook. When these two items have been issued, HUD will 
publish a notice in the Federal Register to inform the public when the 
software and guidebook are available. The notice will provide 30 days 
within which covered entities must prepare to conduct inspections in 
accordance with this rule. Until the date that is 30 days after HUD 
publishes the notice, any entity responsible for conducting a physical 
inspection of HUD housing, to determine compliance with the uniform 
physical condition standards in Sec. 5.703 of this rule, must continue 
to comply with inspection requirements in effect immediately prior to 
that date. The standards in Sec. 5.703 will become effective on the 
effective date of this final rule, however, so that owners and 
mortgagors of HUD housing will begin to bring such housing into 
compliance with those standards.

III. Discussion of Public Comments

    The initial deadline for the receipt of public comments on the 
proposed uniform physical condition standards and inspection 
requirements was July 30, 1998. HUD published a notice extending the 
deadline for public comments until August 13, 1998 (63 FR 41754). HUD 
received 77 comments on the proposed rule.

A. Qualified Support

    Many commenters expressed support for HUD's goals of ensuring the 
quality of housing, and streamlining and unifying its physical 
condition standards and physical inspection requirements. One commenter 
remarked that the new physical inspection system should help improve 
the image of housing authorities, and should help identify both the 
high performers and those in need of HUD intervention. The commenter 
also remarked favorably on the thoroughness of the inspections and the 
emphasis on safety. Another commenter remarked that the uniform 
physical condition standards would assist in promoting and 
strengthening a nationwide partnership of public and private 
institutions. That commenter also supported the electronic reporting of 
inspection information. The commenters who expressed support for the 
new standards, however, expressed certain reservations about the 
proposal, as discussed below.

B. General Comments on the Proposed Rule

    The Public Comment Period for the Rule Was Not Sufficient. Several 
commenters responded that a 30-day comment period for the proposed rule 
was insufficient. The commenters stated that 30 days is inadequate for 
a rule that addresses such critically important responsibilities of 
housing providers.
    The public comment period for this rule was extended through August 
13, 1998 in response to commenters' requests. Additionally, this rule 
does not impose new or significantly different requirements on the 
owners and managers of HUD housing with respect to the maintenance of 
HUD insured or assisted properties. This rule does not alter the 
statutory standard for the maintenance of HUD housing, nor the 
requirement to conduct annual property inspections. This rule more 
clearly describes that statutory standard and makes that definition 
consistent across HUD's applicable programs. The rule also sets forth 
an inspection protocol that will be more objective and effective in 
producing a higher quality assessment of the housing.
    Before publication of the June 30, 1998 proposed rule, HUD sought 
and obtained the participation of its program participants, industry 
leaders, and industry experts with the development of: (1) physical 
condition standards that are appropriate, uniform, and consistent; and 
(2) an inspection protocol that is objective to the greatest degree 
possible. HUD received valuable input, suggestions, and recommendations 
from all these parties, as well as considerable support for replacing 
vague and inconsistent standards and inspection procedures with 
standards and a process that identifies housing deficiencies that make 
HUD housing substandard. HUD also involved some program participants in 
its testing of proposed inspection protocol. Given the importance of 
this mission--providing HUD housing that is decent, safe, and sanitary 
and in good repair--it is important for HUD and the Real Estate 
Assessment Center to move forward with this rulemaking with deliberate 
speed. While most housing developments that are assisted or insured by 
HUD are maintained in good physical condition, some developments are in 
deplorable condition and may even be unsafe or unhealthy. HUD must seek 
to ensure that all HUD housing is decent, safe, and sanitary as 
expeditiously as possible. Therefore, in light of the involvement of 
program participants, the degree of changes to the physical maintenance 
and inspection requirements, and the important benefits to be achieved 
in the implementation of the new inspection system, HUD believes that 
the comment period was adequate.
The Rule Needs to Provide Additional Information About the Physical 
Inspection Standards and Protocol
    Many commenters remarked that the proposed rule was too vague and 
uninformative. Specific areas about which commenters asked for 
additional details included how the inspection will be conducted; what 
due process procedures HUD will provide for disputing scores, 
correcting errors in reports, and enforcement; how scores will be 
calculated; and how HUD will determine a statistically valid sample of 
units.
    The preamble to the proposed rule generally described the new 
inspection protocol and the procedures by which the inspection would be 
conducted. It has been HUD's practice to date, with the agreement and 
support of its program participants, and consistent with Administrative 
Procedure Act principles, that the lengthy details of an

[[Page 46568]]

inspection process, and the multiple examples of deficiencies (e.g., 
when the various types of electrical systems, heating systems, and 
ventilation systems may be found to be seriously defective or in 
disrepair) are provided through guidebooks, handbooks, and other 
supplementary materials. Unlike the Code of Federal Regulations, which 
is updated only annually, such guidance materials are easier for 
program participants and other interested parties to obtain, and can be 
easily and quickly supplemented as need may arise with charts and 
additional examples. HUD followed this practice of providing more 
detailed information through HUD handbooks with its Housing Quality 
Standards (HQS) and with its FHA multifamily housing program 
participants. (See, e.g., HUD Handbook 4350.5 and Form HUD-9602 for 
HQS/contract administrator inspections; HUD Handbook 7420.7 for PHA HQS 
inspections; HUD Handbook 4350.4 and Form HUD-9822 for FHA multifamily 
housing mortgagee inspections.) HUD will continue to follow this 
practice with the uniform physical condition standards. Handbooks and 
other supplementary materials are the best vehicles to provide its 
program participants with the materials that they need to serve as 
guidance for the standards and inspection protocols. The following, 
however, provides additional information on how HUD intends for the 
inspections to be conducted under this new protocol.
    All inspectors must be trained and certified in the use of HUD's 
software. As an inspector prepares to inspect a property, the HUD-
certified inspector will download property profile information from HUD 
databases. The inspector will arrive at the site to be inspected at the 
predetermined date and time. The inspector will meet with a 
representative of the owner/management agent or housing authority (HA), 
who must accompany the inspector throughout the inspection. As 
described in the proposed rule, the inspector will conduct the 
inspection using a portable computer and HUD software, which will 
prompt the inspector to make necessary observations regarding the 
condition of the property. The inspector will inspect a randomly 
selected, statistically valid sample of the units in the project. 
Neither the inspector nor the owner will know exactly which units will 
be inspected until the time of the inspection. The statistically valid 
sample is generated by the software based on a determination of the 
number and configuration of the dwelling units on the property, with a 
high degree of confidence (95 percent) and a low margin for error (plus 
or minus approximately 2 or 3 percentage points).
    If the inspection results in the identification of any life 
threatening health or safety deficiencies (e.g., electrical hazards, 
blocked emergency exits, inoperative or missing smoke detectors), the 
inspector will immediately note such deficiencies on a form, require 
the owner or HA representative to sign the form, and leave a copy of 
the form on site with the representative. The inspector will then 
immediately transmit the form to the Real Estate Assessment Center 
(REAC). All of the data obtained during the inspection will be 
electronically transferred to the REAC, which will perform quality 
assurance measures on the raw data (e.g., to ensure that the data 
transmission was complete, to verify certain information about the 
development, etc.). The REAC will then score the data and make an 
inspection report available electronically via a HUD Web page to the 
owner or HA, as well as to HUD's relevant field office. HUD expects 
that the inspection report will be made available very quickly--
optimally within 48 hours of the inspection. HUD field offices will 
review the results and work with the owner to ensure the timely 
correction of any deficiencies.
    HUD intends that all owners, housing authorities, mortgagees, or 
contract administrators will receive notification of the inspection 
results electronically via a HUD Web page. The entities' retrieval of 
the inspection results from the Web page will trigger an electronic 
receipt acknowledgement to HUD. However, HUD recognizes that not all 
entities currently have the capability to receive information in this 
manner. Therefore, for a limited interim period, if HUD does not 
receive an electronic acknowledgement for a particular inspection 
report after 10 business days, it will send the inspection report to 
the owner or housing authority via certified mail.
    If the owner or housing authority detects a technical error in the 
inspection report, that entity is responsible for notifying HUD and for 
providing HUD with sufficient justifying information. If HUD determines 
that the owner or housing authority provided reasonable substantiation 
regarding the error, HUD will allow for a full reinspection, which 
would produce a whole new score.
    As described in the proposed rule, the computer program will record 
observations for the major areas (the site, the building exterior, the 
building systems, the dwelling units, the common areas, and health and 
safety factors) and their respective elements. The computer system will 
then create a composite score for the physical condition of the housing 
by calculating the component scores on a weighted average basis that is 
sensitive to the relative importance of the individual inspectable 
areas and the relative severity of the deficiencies observed. HUD 
expects to examine and improve the detailed scoring methodology 
continuously and to make improvements based on the cumulative results 
of inspections. The values may also be subject to change based on the 
extent to which a given property does not have a certain inspectable 
element. For example, a property may not have any common areas such as 
community rooms. The available weights for the other inspectable areas 
would then automatically and proportionately increase. HUD does not 
believe that it would be appropriate to include extensive details 
regarding the calculations of the weighted scores. By not revealing 
specific details of the calculations, property owners will be required 
to provide a comprehensive approach to property maintenance--to 
maintain their entire property in a decent, safe, and sanitary 
condition and in good repair, in accordance with the standards in this 
rule.
    As described more fully in the rulemaking for the Public Housing 
Assessment System (PHAS), the scores generated by the computer-based 
inspection for public housing will allow HUD to rank the PHAs' public 
housing developments objectively according to physical condition. 
However, many owners and managers of multifamily HUD housing other than 
public housing expressed concern about the implications of the rule. 
HUD reminds such entities that this rule does not change the 
responsibilities of the owners to maintain the housing, nor does it 
change the responsibilities of the mortgagees to inspect the housing. 
This rule simply sets forth a description of the statutory and 
contractual standard with which the physical condition of the housing 
must always comply, and makes that definition consistent across HUD's 
applicable programs. The inspection protocol established in this rule 
is simply the mechanism for gathering and transmitting the physical 
inspection data to HUD more objectively and in a manner that will allow 
HUD to assess more effectively the physical condition of the housing. 
Similar to the new Public Housing Assessment System, HUD will use the 
data obtained

[[Page 46569]]

through the inspections and the calculated scores for internal 
monitoring purposes and as a way to determine how best to focus its 
resources where they are most needed.
    HUD will make the inspection software and the guidebook available 
through the REAC Customer Service Center at no cost (besides the 
nominal cost of shipping) by calling (888) 245-4860 or by writing to 
the REAC at the following address: Real Estate Assessment Center, 
Department of Housing and Urban Development, 4900 L'Enfant Plaza East, 
SW, Washington, DC 20410.
    Many commenters expressed concern with regard to inspections that 
may result in a referral to HUD's new Enforcement Center. The 
Enforcement Center is a fundamental programmatic reform measure that 
will help restore public trust in HUD's fulfillment of its mission to 
provide decent, safe, and sanitary housing for lower and moderate 
income households. The Enforcement Center is intended to be the central 
Departmental focus for taking aggressive action against owners of HUD's 
troubled assisted housing and public housing portfolios. The 
Enforcement Center will be responsible for correcting long-standing 
noncompliance issues and will take action against owners who do not 
cooperate with HUD during any recovery process or who may have put 
housing developments in jeopardy by engaging in waste, fraud, or abuse. 
Owners that do not maintain properties in decent, safe, and sanitary 
condition and in good repair will be referred to the Enforcement 
Center. However, this rule does not provide the Enforcement Center with 
additional enforcement authority; the Enforcement Center will use 
existing HUD authorities and procedures for enforcing owners' 
responsibilities to maintain housing that is decent, safe, sanitary and 
in good repair. These existing procedures provide entities with all 
requisite due process. Each case may be different and requires analysis 
to determine the most appropriate course of action.
Implementation Requires Additional Time
    Several commenters objected to the implementation schedule and 
suggested that HUD provide additional consideration, demonstration, and 
transition time. In comparing this rulemaking with the rulemaking for 
the new Public Housing Assessment System (PHAS), several commenters 
objected that housing authorities will have at least a year before the 
new physical condition requirements become effective for public 
housing, while lenders must begin complying much sooner.
    HUD's relationship with such private entities that own or manage 
HUD-assisted or HUD-insured housing is necessarily different than HUD's 
relationship with public housing authorities. This rule does not alter 
the statutory standard for maintaining HUD housing, nor does it change 
the requirement for annual inspections currently found in the covered 
HUD programs or the requirements in each covered HUD program regarding 
which entity is responsible for conducting the physical inspection. 
Owners who are currently maintaining their housing in decent, safe, and 
sanitary condition and in good repair should have no problem in meeting 
the standard. Any experienced and qualified residential property 
inspector should easily be able to complete the training and conduct 
inspections using the new inspection protocol. Since it is essential 
for HUD and the Real Estate Assessment Center to move forward with this 
rulemaking with deliberate speed in order to ensure that deplorable and 
life threatening housing conditions are remedied as quickly as 
possible, HUD has determined that it is justifiable and necessary to 
proceed to effectuate this rulemaking.
    However, HUD understands that owners and managers of multifamily 
housing that are not subject to PHAS may also require additional time 
to gain the capability to conduct inspections in accordance with this 
rule. Therefore, for all entities, besides housing authorities with 
public housing that are subject to PHAS, HUD will not require such 
entities to conduct inspections in accordance with this rule until HUD 
issues the final version of the inspection software and accompanying 
guidebook. HUD will publish a notice in the Federal Register to inform 
the public when the software and guidebook are available. The notice 
will provide 30 days within which such entities must prepare to conduct 
inspections in accordance with this rule. Until the date that is 30 
days after HUD publishes such notice, any entity responsible for 
conducting a physical inspection of HUD housing, to determine 
compliance with this subpart, must continue to comply with inspection 
requirements in effect immediately prior to that date. The standards in 
Sec. 5.703 will become effective on the effective date of this rule, 
however, so that owners and mortgagors of HUD housing will begin to 
bring such housing into compliance with those standards.
HUD Should Focus on Correcting Problem Developments; Developments in 
Good Condition Should Not Be Subject to Annual Inspections
    Several commenters remarked that the uniform physical standards 
will result in the expenditure of an inordinate amount of time, energy, 
and money on the great majority of properties that are not ``a 
problem.'' Some commenters asserted that HUD has, in the past, 
effectively ignored lenders' recommendations regarding physically 
troubled properties. Some commenters suggested that for entities or 
properties that receive a favorable inspection report, those entities 
or properties should only be inspected every 2, 3, or 4 years. HUD 
agrees that most housing developments that are assisted or insured by 
HUD are maintained in good physical condition. However, HUD is not at 
this time relaxing the long-standing requirement for an annual 
inspection. The greatest breach of the public trust at HUD is the 
waste, fraud, and abuse in HUD's existing portfolio of millions of 
housing units. Such abuse often includes or results in unacceptable 
living conditions for the lower and moderate income families that rely 
upon HUD assistance. HUD assures the commenters that HUD will not 
ignore such abuse in the future.
Limited Funds Allocated for Improving Physical Condition of Housing
    Several commenters remarked that housing authorities do not always 
have adequate Federal funding for improving the physical condition of 
housing. Some of these commenters suggested that the housing authority 
should not be adversely scored for those items identified in their 
Five-Year Plan that are not yet completed, since these items do not 
reflect housing authority malfeasance or neglect.
    The intent of this rule is to ensure that HUD housing is decent, 
safe, and sanitary and in good repair, and to establish a uniform 
standard and means of assessing the condition of HUD housing. It is 
important that HUD housing is assessed accurately and objectively. 
After the condition of the property is accurately assessed, the 
analysis of the needed corrective actions can commence. That analysis 
can take into account past, present, or future funding (e.g., the 
Comprehensive Grant Five-Year Plan), the allocation of existing 
resources, or other factors.
Rule Contravenes National Housing Act
    Some commenters asserted that this rule contravenes section 203(e) 
of the National Housing Act (12 U.S.C.

[[Page 46570]]

1709(e)). The commenters asserted that the statute clearly conditions 
the existence and validity of a contract for insurance between HUD and 
a lender solely on HUD's execution of the contract (in the absence of 
fraud by the lender). The commenters objected to this rule's 
implication that lenders' participation could be conditioned upon 
additional, material terms such as the physical condition of the 
property.
    Section 203(e) of the National Housing Act prevents HUD from 
contesting the contract of mortgage insurance in the absence of lender 
fraud or material misrepresentation. It does not, however, prevent HUD 
from defining or otherwise delineating the parameters of acceptable 
physical condition of properties with insured mortgages, as necessary 
to ensure residents of decent, safe, and sanitary housing and to 
protect the insurance fund, which are the purposes of this rulemaking.
Proposed Rule Adversely Affects Contract Rights
    Several commenters asserted that HUD may not amend its regulations 
in a way that would adversely affect the interests of a mortgagee or 
lender under the contract of insurance on any mortgage or loan already 
insured. The commenters pointed to Sec. 207.260 (as it existed prior to 
streamlining amendments on April 1, 1996), which required the mortgagee 
to ascertain the general physical condition of the property and to 
furnish HUD with its inspection report, along with recommendations for 
necessary action. The commenters concluded that HUD is prohibited from 
implementing this rule in a way that would alter that regulatory 
provision in a manner adverse to lenders. These commenters asserted, 
therefore, that HUD could only apply the new physical condition 
standards and inspection requirements to new insurance contracts.
    The mortgage insurance contract requires the mortgagee to perform 
an annual inspection. However, the contract of insurance does not 
``lock in'' any particular inspection protocol. HUD previously 
established the parameters for an acceptable inspection through 
guidance in a handbook (HUD Handbook 4350.4). HUD has the legal 
authority and responsibility to change these parameters to meet 
changing conditions. HUD has determined that it is necessary to 
implement a more uniform, objective, and effective inspection protocol 
in order to assess its insured portfolio more accurately.
Rule Should Not Apply to Healthcare Facilities
    Two commenters suggested that the uniform physical condition 
standards and physical inspection requirements in this rule should not 
apply to facilities with mortgages insured under section 232 of the 
National Housing Act (nursing homes, intermediate care facilities, and 
board and care homes). These commenters urged HUD to recognize the 
unique characteristics of such housing, particularly the fact that it 
may otherwise be subject to detailed and comprehensive Federal and 
State regulation. These commenters stated that since there is already 
sufficient government oversight of such housing, the requirements of 
this rule would be unduly duplicative and burdensome.
    While HUD recognizes that healthcare facilities may be covered by 
other regulatory requirements, HUD believes that the other requirements 
focus on the medical aspects of such facilities, such as the delivery 
of medical services and the proper maintenance of medical equipment. 
HUD's focus is to ensure that the residents of such facilities, which 
may vary widely in the level of healthcare services that are provided, 
are living in decent, safe, and sanitary housing. Furthermore, HUD (as 
an insurer) has an interest in the preservation of the housing asset, 
and HUD is responsible for determining compliance with statutory, 
regulatory, and contractual requirements. HUD believes that its new 
physical inspection system will work well to assess the building's 
compliance with the physical condition standards. Therefore, HUD has 
decided that this rule will apply to facilities insured under section 
232 of the National Housing Act.

C. Comments on the Uniform Physical Condition Standards

Physical Conditions Beyond Owner's Control
    Several commenters questioned how the inspection system would treat 
conditions that are beyond the control of the owner, such as resident 
neglect (e.g., poor housekeeping) or intentional damage. Other 
commenters stated that housing authorities should not be penalized for 
conditions over which they have no control, or about which they could 
not reasonably have known. Other commenters remarked on the fact that 
the local governments are usually responsible for maintaining roads and 
drainage systems, and that other entities are often responsible for 
maintaining playground equipment. The commenters remarked that the 
inspection system should take this into account.
    The new physical inspection system is objective and does not 
distinguish those defects that are the fault of the resident, nor does 
the system in itself recognize good faith efforts of the owner. The 
system is simply a tool for observing and transmitting data regarding 
the physical condition of the property. As HUD has stated previously, 
the owner of HUD housing is, as always, statutorily and contractually 
responsible for maintaining the physical condition of the property. HUD 
anticipates that such owners, like all landlords, would rely on lease 
provisions regarding the resident maintenance or destruction of the 
unit, and HUD would encourage them to do so in furtherance of 
compliance with the physical condition standards. Good property 
management, which includes regular housekeeping and preventative 
maintenance inspections throughout the year, coupled with strict lease 
enforcement, will result in well-maintained housing that meets the 
standard.
    However, the physical condition standards and inspection 
requirements in this rule only apply to aspects of the housing that are 
within the ownership of the owner. For instance, an owner of HUD 
housing is not responsible for maintaining roads if the owner does not 
own the roads. However, the owner will be responsible for maintaining 
roads that are legally part of the property.
Physical Condition Standards Are Too Vague
    Several commenters remarked that the physical condition standards 
in the rule are too vague. Other commenters stated that such vague 
standards are difficult for inspectors to interpret and difficult for 
owners to achieve. The commenters stated that the standards must be 
more clearly defined if HUD intends to initiate enforcement actions 
against owners or managers.
    The inspectors must meet minimum qualifications and will be trained 
and certified, and they will be guided in their observations by the 
inspection software and the guidebook. The software and the guidebook 
will be made available through the REAC Customer Service Center at no 
cost (besides the nominal cost of shipping) by calling (888) 245-4860 
or by writing to the REAC at the following address: Real Estate 
Assessment Center, Department of Housing and Urban Development, 4900 
L'Enfant Plaza East, SW, Washington, DC 20410. However, with regard to 
the vagueness of the standards, the physical condition standards are 
intentionally broad,

[[Page 46571]]

defined with terms such as ``in proper operating condition,'' 
``adequately functional,'' and ``free of health and safety hazards.'' 
Given the differences in construction and design of HUD housing, and 
the different types of electrical and utility systems that an inspector 
will encounter, the rule itself cannot define or describe every type of 
housing or system. The standards in the rule describe the inspectable 
areas and items and require that they are all maintained in a condition 
that is decent, safe, sanitary, and in good repair. Although time and 
experience with standards may reveal the need for modifications to the 
regulations at some point in the future, HUD believes that the 
standards in this rule are sufficiently specific for purposes of 
compliance and indeed provide a great deal more detail than previous 
regulations for many of HUD's programs.
Odor and Ventilation
    Section 5.703(f) of the rule requires that, as a matter of health 
and safety, the dwelling units and common areas must have proper 
ventilation and be free of mold, odor, or other observable 
deficiencies. Several commenters objected that odor and ventilation 
(often affected by resident cooking, preference for closed windows, or 
personal hygiene) are subjective and are not otherwise matters of 
decent, safe, and sanitary housing. These commenters remarked that 
these factors should not be included in the physical condition 
standards.
    HUD recognizes that this requirement in the physical condition 
standards could have caused confusion. For purposes of health and 
safety, the inspectors will be prompted to observe whether there are 
strong propane, natural gas, and/or methane gas odors that could pose 
risk of explosion or fire, or a risk to health if inhaled. Such odors 
are indeed a matter of decent, safe, and sanitary housing, and 
therefore HUD has retained the requirement in this rule.
Physical Condition Standards Should Apply to Section 8 Certificate and 
Voucher Program
    Several commenters objected that the rule does not apply to housing 
with tenants assisted by Section 8 Certificates and Vouchers. The 
commenters stated that this exemption undermines the uniformity 
position presented by HUD in the proposed rule. The housing quality 
standards (HQS) in HUD's regulations were originally established by the 
Secretary for the purpose of Section 8 tenant-based housing assistance 
(the Rental Certificate and Rental Voucher programs). As HUD explained 
in the proposed rule, unlike Section 8 project-based assistance, HUD is 
continuously reviewing and approving new units into the Section 8 
tenant-based assistance programs, and HUD has found that HQS is 
appropriate for that purpose. HUD will continue considering the 
application of the new uniform standards to housing with Section 8 
tenant-based housing in the future, although it is not prepared to do 
so in this rule. However, since this rule does not alter the standard 
with which owners must comply, but merely describes the standard in 
clear terms, there should be no conflicting results from the continuing 
existence of HQS for the Certificate and Voucher program.
Physical Standards Should Not Apply to PHA-Owned or Leased Projects
    One commenter reviewed the conforming amendments in the proposed 
rule, and objected to the amendments to 24 CFR part 965 (PHA-Owned or 
Leased Projects), which would require that housing that is owned or 
leased by a housing authority must be maintained in accordance with the 
physical condition standards in this rule. The commenter remarked that 
it is inappropriate for HUD to include housing that is owned by a 
housing authority but that is not in any way funded through a HUD 
program within the scope of its new standards or inspection 
requirements.
    HUD agrees that such an application of the standards would be 
inappropriate, and HUD had no intention of applying them in that 
manner. If a housing authority owns or leases housing that is not in 
any way supported by HUD funds, the regulations in 24 CFR part 965 
would not apply, nor would the provisions of this rule.
Uniform Physical Condition Standards Are Higher Than ``Good Repair'' 
Standard
    Several commenters asserted that the physical condition standards 
in the rule are different and more strict than the insured mortgage 
standard of ``good repair.'' A few of these commenters asserted that 
``good repair'' requires only that the project's original improvements 
be maintained. The commenters asserted that ``good repair'' is merely a 
general assessment of the overall physical condition of the property, 
used to determine whether the property is at least worth the balance 
due on the mortgage.
    HUD maintains that the physical condition standards in this rule 
are not significantly different than the standards to which all HUD 
housing has previously been subject. As HUD explained in the proposed 
rule, all HUD-assisted housing is statutorily subject to a standard of 
decent, safe, and sanitary. In HUD-insured multifamily housing, the 
mortgagors are required by contract to maintain the housing in good 
repair and condition. Although HUD's regulations for its multifamily 
programs did not specifically define ``good repair and condition,'' HUD 
Handbook 4350.1 REV-1, Multifamily Asset Management and Project 
Servicing, provides that in determining the level of management review 
HUD should perform on site, it should review the mortgagee's annual 
physical inspection ``to determine if the condition of the property is 
consistent with the provision of ``decent, safe, and sanitary 
housing.'' Regardless of whether the standard is labelled ``decent, 
safe, and sanitary,'' ``good repair,'' or both (as in this rule), 
owners and managers of HUD housing have always been required to 
maintain the housing and to ensure that it is free from health and 
safety hazards. This rule simply sets forth a uniform set of standards 
for HUD housing and combines the familiar labels of ``decent, safe, and 
sanitary'' and ``in good repair.''
Physical Condition Standards Should Allow Adjustments for Age and 
Neighborhood Environment
    Several commenters noticed that the proposed rule for the new 
Public Housing Assessment System for public housing allowed for 
adjustments for public housing based on the age of the development and 
on neighborhood environment. Although the commenters recognized that 
the public housing statute requires such allowance, the commenters 
suggested that the physical condition standards should make similar 
allowances for all housing.
    As the commenters recognized, HUD is required by section 
6(j)(1)(I)(2) of the U.S. Housing Act of 1937 (42 U.S.C. 
1437d(j)(1)(I)(2)) to permit an adjustment to a housing authority's 
assessment score based upon negative conditions related to the age of 
the development or to the surrounding neighborhood. However, HUD has 
determined that such an adjustment is not otherwise appropriate in 
assessing the physical condition of property. As HUD mentioned above, 
the new physical inspection system is objective; regardless of the age 
of the development or the surrounding neighborhood, the housing must be 
maintained for the residents in decent, safe, and sanitary condition.

[[Page 46572]]

D. Comments on the Uniform Physical Inspection Requirements

Rule Needs To Clarify Whether PHAs, Owners, and/or Mortgagees Would 
Have Access to Inspection Report
    Several commenters objected that the proposed rule was unclear 
about when and how the owner (and the mortgagee, if applicable) would 
be informed of the results of the inspection. With the direct 
electronic submission described in the proposed rule, some of these 
commenters expressed concern that an adverse inspection could lead to a 
referral to the Enforcement Center without the mortgagee or owner 
becoming aware of the findings in the inspection report. The commenters 
remarked that it is essential for the owner and its site staff to 
receive a copy of the inspection report immediately, which would be 
easy and would result in the quick resolution of gross errors. The 
commenters further stated that the inspection report is otherwise 
important for asset management purposes and for presenting to third-
party investors upon request.
    As HUD described above, the REAC will make an inspection report 
available electronically via a HUD Web page to the owner, mortgagee, or 
HA, as well as to HUD's relevant field office. HUD expects that the 
inspection report will be provided to the owner or housing authority 
very quickly--optimally within 48 hours of the inspection.
Mandatory Use of the Inspection Procedures
    Several commenters objected to lenders being singled out for 
adverse treatment, since housing authorities are not required to use 
the inspection system to inspect public housing. These commenters 
remarked that since other entities such as contract administrators and 
mortgagees also have existing physical inspection systems in place, 
HUD's argument for exempting public housing would also apply to them. 
The commenters stated that those entities should also be allowed 
maximum latitude for determining how best to assess compliance with the 
new physical condition standards. These commenters stated that such 
different treatment belies HUD's efforts toward uniformity.
    HUD's relationship with such private entities that own or manage 
HUD-assisted or HUD-insured housing is necessarily different than HUD's 
relationship with public housing agencies in their operation of public 
housing. Public housing agencies are basically governmental entities 
that are government-funded under the U.S. Housing Act of 1937 for the 
purpose of providing public housing to low income households. Public 
housing agencies (PHAs) are subject to a statutory requirement to 
inspect 100 percent of their units to determine maintenance and 
modernization needs. Private entities are not subject to this same 
requirement of 100 percent unit inspection. Additionally, for private 
entities that own or manage HUD housing, participation in HUD programs 
is voluntary. As the preamble to the June 30, 1998 proposed rule on the 
new Public Housing Assessment System noted, HUD will be conducting 
independent inspections of public housing units in accordance with this 
new inspection protocol. The preamble also noted that HUD is 
considering requiring PHAs at some future point to inspect their units 
in accordance with the new inspection protocol. However, given the 
statutory requirement to inspect all units, HUD decided not to impose 
mandatory use of the new inspection protocol on PHAs in the first year 
or first few years of implementation of the new protocol.
    The consistent assessment and evaluation of HUD housing that is the 
mission of the REAC depends upon the consistent, nationwide use of a 
standardized analytical and risk evaluation tool for each property. 
Therefore, HUD has determined that it is important to rely upon the 
physical inspection system in this rule to the greatest extent 
feasible. As HUD has stated previously, HUD is making the software 
available to owners/agents and housing authorities at no cost (besides 
shipping). Furthermore, HUD is not requiring the use of specific 
hardware; the inspection software can be run on any portable computer 
with certain minimum capacity (e.g., Pentium/100MHz processor or 
equivalent; 320MB hard drive; 16MB RAM; battery life of 3.5 hours). 
Therefore, required use of the inspection system should not be a 
significant burden.
Objections Regarding the Number of Units to be Inspected
    Several commenters objected that under HUD's current handbook 
guidance for lenders with HUD-insured mortgages, lenders are only 
required to conduct inspections for two vacant and two occupied units. 
Several commenters objected that while the rule provides that a 
statistically valid number of public housing units will be inspected, 
it does not appear to limit the number of units that lenders must 
inspect, and it could be read to require that all units must be 
inspected.
    To be accurate, under HUD's handbook guidance for lenders with HUD-
insured mortgages that was used prior to this rulemaking, lenders were 
required to conduct an inspection ``of sufficiently high quality to 
permit an accurate evaluation of the condition of the property.'' (HUD 
Handbook 4350.4 CHG-7, Ch. 2, Sec. 5, 2-20) The guidance provided that 
inspectors should randomly select at least two vacant units, and if 
time and resources permit, select two additional vacant units--one just 
after move-out and one ready for occupancy. In addition, the guidance 
provided that the inspectors should randomly select several occupied 
units for inspection.
    This rule will not require lenders to inspect all units. The 
inspection system established under this rule requires the inspection 
of a statistically valid number of units. As described above, 
immediately prior to the inspection, the HUD-certified inspector will 
download relevant property profile information from HUD databases. The 
inspector will determine a statistically valid sample of the units 
based on the number and configuration of the dwelling units on the 
property. In statistical validity tables, there is a point at which it 
serves no useful purpose to inspect additional units. HUD recognizes 
that the requirement to inspect a statistically valid sample of units 
may pose an additional requirement on some mortgagees that were 
previously inspecting fewer units. However, HUD's goal and mission is 
to ensure that residents of HUD housing are provided decent, safe, and 
sanitary housing, which obviously requires an accurate assessment of 
the physical condition of such housing. In order to obtain an accurate 
assessment of such housing, it is necessary to obtain inspection data 
from a statistically valid number of units, and to put an end to lax 
inspections.
Double Inspection
    Several commenters asserted that under subsidy contracts (generally 
Housing Assistance Payments contracts), HUD already requires contract 
administrators, such as housing authorities and housing finance 
agencies, to perform project inspections. These commenters objected 
that the rule does not eliminate those duplicative inspections. HUD's 
goal is to require a single inspection for such properties. HUD is 
exploring ways to implement the new inspection system in a way that 
will eliminate any duplicative inspections.

[[Page 46573]]

Accompanying Inspectors During Inspection
    Three commenters asked whether owners would be allowed to accompany 
inspectors. Other commenters objected to the increased administrative 
burden of assigning staff to such a task. As noted earlier in this 
rule, the new inspection system requires that a representative of the 
owner/management agent accompany inspectors during these inspections. 
This is necessary in order to gain access to units, utilities, and 
other areas of the property. It is also important for the owner's 
representative to observe and discover any significant deficiencies, 
including health and safety deficiencies, so that corrective action can 
be taken at the earliest possible time. It is customary in the 
inspection industry for owner representatives to accompany third-party 
inspectors during inspections. As such, HUD does not believe that this 
is an undue requirement, but rather, as some of the commenters 
remarked, an important and necessary feature.
Notice to Owners and Residents of Units to be Inspected
    Two commenters asked how much advance notice the owner would 
receive regarding the specific units to be inspected. Other commenters 
objected to a potential administrative burden of notifying 
``thousands'' of residents, especially with regard to the additional 
notices required for the confirmatory inspections of public housing. 
With respect to inspectors under contract to HUD, contractors are to 
attempt to communicate, preferably by telephone, with the owners to 
arrange for an inspection date. They are to confirm the inspection date 
in writing. The owner is to have a minimum of 5 calendar days advance 
written notice to provide time for notification to the residents. 
Typically, owners will have more than 5 calendar days based on the 
original telephone call from the inspector. HUD would expect mortgagees 
and contract administrators to follow a similar procedure. While there 
is a burden of notifying residents, such a burden is inherent when the 
owner participates in HUD programs and is unavoidable.
Qualification of Inspectors and Fairness of the Inspection
    Several commenters asked about the quantity and type of training 
the inspectors would receive. Two commenters specifically asked whether 
the inspectors would be qualified to inspect all the various forms of 
housing (highrise buildings to single family homes), and all state-of-
the-art systems (which otherwise the commenters asserted require 
specifically trained technicians). Three commenters asked what quality 
control measures HUD intends to use to ensure inspectors are fair and 
accurate. These commenters expressed concern that the qualifications of 
the inspectors are critical, and remarked that HUD must set parameters 
for qualifications and training well above simply a general familiarity 
with real estate of the type to be inspected, as provided in the 
proposed rule.
    HUD has developed a training curriculum and certification test that 
all inspectors must take to conduct inspections using HUD inspection 
software. The course is approximately 40 hours long, and the 
certification test involves downloading property profile information 
from HUD data bases, using HUD software to conduct inspections, and 
uploading the completed inspection results to HUD. HUD has established 
specific qualifications and criteria for inspectors who will be 
conducting these inspections; such qualifications include but are not 
limited to, at least 3 years of experience that demonstrates sufficient 
knowledge of multifamily and public housing. HUD believes that it has 
set a reasonable and sufficient level of qualifications for inspectors 
to conduct inspections of this nature. Further, HUD will monitor the 
inspectors with its own quality assurance staff to assure that the 
inspectors are using the protocol as intended and that inspection 
reports are valid.
Increased Costs of Inspection Under This Rule
    Many commenters asserted that HUD's original estimate of the costs 
of an inspection is several times higher than the current industry 
average and would significantly exceed the servicers' average annual 
income on loans. The commenters concluded that the increase in 
servicing costs will result either in higher rents, increased mortgage 
rates, higher rates of FHA claims, fewer lenders willing to service FHA 
mortgages, fewer owners and investors interested in HUD housing, and/or 
reduced availability of affordable financing.
    HUD now estimates that the costs for the inspection will be 
substantially lower than it originally projected, and HUD is exploring 
possible ways of lowering the costs to program participants. HUD is 
determined, however, to obtain accurate assessments of its housing 
portfolio in an effort to ensure that residents are not living in 
substandard HUD housing. HUD can no longer tolerate shoddy inspections. 
If lenders have been performing adequate inspections, HUD believes that 
the new inspection procedures should not substantially increase their 
costs. HUD reiterates, however, that the software will be provided, and 
HUD is not requiring that inspectors use a particular type of hand-held 
computer.
    Furthermore, HUD believes that the commenters' claims regarding the 
adverse effects of increased servicing costs will not inevitably result 
from improved inspections. In fact, HUD believes that such inspections 
may have a beneficial impact on the industry. The overall image of the 
industry will be enhanced, because the public will perceive that HUD 
and its program partners care about the quality of the affordable 
housing they are offering.
Rule Affects the Liability of the Mortgagee
    Several commenters objected to the rule due to their claims that it 
affects the liability of the mortgagee. These commenters stated that if 
HUD is requiring lenders to be responsible for inspections on HUD's 
behalf, and HUD intends to make determinations about enforcement 
actions based upon those inspections, HUD should somehow indemnify 
lenders in the event of lawsuits regarding inspections. The commenters 
explained that such indemnification could be of the conventional sort, 
or could take the form of a declaration that the inspectors are acting 
as HUD's agents and HUD is liable for their conduct. Some of these 
commenters stated that the new physical inspection system may create a 
conflict of fiduciary responsibilities for the servicing lender--its 
responsibilities to its investor(s) and its responsibilities to HUD 
under this rule.
    This rule does not alter the lenders' responsibilities with respect 
to the inspection of HUD housing. Therefore, this rule does not impose 
additional liability upon lenders, and HUD does not have plans to 
indemnify lenders or to accept undue liability for their conduct. HUD 
is establishing this inspection system as an objective and accurate 
means of fulfilling HUD's assessment and monitoring responsibilities, 
and of providing HUD an accurate basis for determining where to focus 
its monitoring and enforcement resources. Any enforcement action taken 
by the Enforcement Center will be within HUD's existing authority and 
fully in accordance with due process procedures.
Frequency of Inspections
    Several commenters commented on Sec. 5.705 of the proposed rule, 
which

[[Page 46574]]

provided that responsible entities must conduct inspections annually 
``(unless otherwise specifically notified by HUD).'' These commenters 
objected that this would allow HUD to require more frequent inspections 
solely upon notification, without notice and comment rulemaking.
    HUD included this language in the rule in order to provide it with 
flexibility in the event that poor-performing owners need follow-up 
reinspection in some circumstances. It is necessary for HUD to have the 
flexibility to meet the needs of the individual situation.

IV. Regulatory Amendments

New Subpart for Physical Condition Standards and Inspection 
Requirements

    This rule creates a new subpart G in 24 CFR part 5. The regulations 
in part 5 represent HUD's general program requirements, as well as 
requirements that cut across one or more HUD programs. This new subpart 
G consists of three sections. Section 5.701 provides the lists of the 
types of HUD housing to which the uniform physical condition standards 
and inspection requirements apply. This section also describes the 
unique applicability of the requirements to the Public Housing program.
    Section 5.703 contains the physical condition standards for HUD 
housing that is decent, safe, sanitary and in good repair. These are 
the standards to which HUD housing must be maintained. Section 5.705 
simply provides that any entity responsible for conducting a physical 
inspection of HUD housing must inspect such housing annually (unless 
HUD provides notice to the contrary), in accordance with HUD-prescribed 
physical inspection procedures. This rule does not affect the existing 
requirements under each covered HUD program regarding which entity is 
responsible for conducting the physical inspection.

Conforming Amendments in Program Regulations

    In accordance with the physical condition standards and inspection 
requirements, this rule also makes several conforming amendments to 
HUD's program regulations.
1. 24 CFR Part 207; Multifamily Housing Mortgage Insurance
    This rule adds a new Sec. 207.260, which provides that for FHA-
insured multifamily properties, the mortgagor must maintain the insured 
project in accordance with the physical condition standards in the new 
subpart G of part 5. This section also requires the mortgagee to 
inspect the project in accordance with the requirements in subpart G of 
part 5. As described above, however, the requirements for the mortgagor 
to maintain the property in a condition that is decent, safe, sanitary 
and in good repair (and for the mortgagee to inspect the property) are 
not new. This rule provides a clear set of physical condition standards 
and inspection requirements to help ensure that these properties are 
maintained in accordance with such obligations.
2. 24 CFR Part 266; Housing Finance Agency (HFA) Risk-Sharing
    This rule adds a new Sec. 266.507 to provide that the mortgagor 
must maintain the project in accordance with the new physical condition 
standards in subpart G of part 5. This new section applies the new 
standards to all projects insured previously or in the future. This 
rule also removes Sec. 266.505(b)(6) regarding the maintenance 
requirements of the Regulatory Agreement between the HFA and the 
mortgagor, since the maintenance requirements will be in the new 
Sec. 266.507. This rule also amends Sec. 266.510(a) to require HFAs to 
perform their inspections in accordance with the inspection 
requirements in subpart G of part 5.
3. 24 CFR Part 880; Section 8 New Construction
    This rule amends Sec. 880.201 to revise the definition of the term 
``Decent, safe, and sanitary.'' This rule provides that decent, safe, 
and sanitary housing is housing that meets the requirements of subpart 
G of part 5. This rule also removes paragraph (a) of Sec. 880.207 
regarding HUD's minimum property standards, since compliance with the 
new subpart G of part 5 replaces the requirement to comply with these 
standards.
4. 24 CFR Part 881; Section 8 Substantial Rehabilitation
    This rule amends Sec. 881.201 to revise the definition of the term 
``Decent, safe, and sanitary.'' This rule provides that decent, safe, 
and sanitary housing is housing that meets the requirements of subpart 
G of part 5. This rule also removes paragraph (a) of Sec. 881.207 
regarding HUD's minimum design standards, since compliance with the new 
subpart G of part 5 replaces the requirement to comply with these 
standards.
5. 24 CFR Part 882; Section 8 (Project-Based) Moderate Rehabilitation 
(Including the Single Room Occupancy Program for Homeless Individuals)
    HUD recently amended its regulations in part 882 to remove the 
regulatory provisions on certificates. These provisions are now in part 
982. (Please see the Section 8 Certificate and Voucher Programs 
Conforming Rule, published in the Federal Register on April 30, 1998, 
63 FR 23826.) The only regulatory provisions remaining in part 882 are 
for two Section 8 project-based programs--Moderate Rehabilitation and 
Single Room Occupancy for homeless individuals.
    This rule amends part 882 further to recognize the new uniform 
physical condition standards. This rule amends Sec. 882.102 to revise 
the definition of the term ``Decent, safe, and sanitary.'' This rule 
provides that decent, safe, and sanitary housing is housing that meets 
the requirements of subpart G of part 5. This rule also removes the 
definition of ``Housing Quality Standards'' from Sec. 882.102, since 
those standards are replaced by the new uniform physical condition 
standards in this rule.
    This rule then amends Sec. 882.404 by replacing the Housing Quality 
Standards with references to the new physical condition standards in 
subpart G of part 5. This rule retains, however, the lead-based paint 
requirements that were otherwise embedded in the Housing Quality 
Standards. (HUD is developing consolidated final regulations to 
implement portions of the Residential Lead-Based Paint Hazard Reduction 
Act of 1992 (42 U.S.C 4851 et seq.). These final regulations will be 
based upon a proposed rule published on June 7, 1996 (61 FR 29170), and 
will be codified in 24 CFR part 35.) This rule does not affect the 
applicability of HUD's lead-based paint requirements. This rule also 
retains the requirements for special housing types. Single room 
occupancy, congregate housing, and group homes have particular 
requirements since the individual dwelling units or sleeping areas do 
not contain kitchen and/or bathroom facilities; such facilities are 
provided in common areas.
    This rule also amends Sec. 882.803(b) for the SRO program by 
replacing references to the Housing Quality Standards with references 
to Sec. 882.404. This rule retains the requirements for the adequacy of 
the location of the site (e.g., site must be suitable from the 
standpoint of further fair housing laws); the new physical standards in 
part 5 would relate to the condition of the site,

[[Page 46575]]

rather than the initial adequacy of the location of the site.
6. 24 CFR Part 883; Section 8 State Housing Agencies
    This rule amends Sec. 883.302 to add a definition of the term 
``Decent, safe, and sanitary.'' This rule provides that decent, safe, 
and sanitary housing is housing that meets the requirements of subpart 
G of part 5. This rule also removes the definition of ``MPS (Minimum 
Property Standards)'' in Sec. 883.302, and paragraphs (a)(1) and (b)(1) 
of Sec. 883.310 regarding HUD's minimum property and design standards, 
since compliance with the new subpart G of part 5 replaces any 
requirement to comply with these standards.
7. 24 CFR Part 884; Section 8 New Construction Set-Aside for Rural 
Rental Housing
    This rule amends Sec. 884.102 to revise the definition of the term 
``Decent, safe, and sanitary.'' This rule provides that decent, safe, 
and sanitary housing is housing that meets the requirements of subpart 
G of part 5. This rule also removes the definition of ``Minimum 
property standards'' in Sec. 884.102, and paragraph (b)(1) of 
Sec. 884.110 regarding HUD's minimum property standards, since 
compliance with the new subpart G of part 5 replaces any requirement to 
comply with those standards.
8. 24 CFR Part 886; Section 8 Special Allocations (Loan Management Set-
Aside (LMSA) and Property Disposition (PD))
    This rule amends Secs. 886.102 (LMSA) and 886.302 (PD) to revise 
the definition of the term ``Decent, safe, and sanitary.'' This rule 
provides that decent, safe, and sanitary housing is housing that meets 
the requirements of subpart G of part 5. This rule also amends 
Secs. 886.113 (LMSA) and 886.307 (PD) by replacing the Housing Quality 
Standards with references to the new physical condition standards in 
subpart G of part 5. This rule retains, however, the specific occupancy 
requirements (i.e., the number of residents per dwelling unit); such 
requirements are not addressed by the new uniform physical condition 
standards. This rule also retains the lead-based paint requirements 
that are otherwise embedded in the Housing Quality Standards. This rule 
does not affect the applicability of HUD's lead-based paint 
requirements (although please see the reference above to the separate 
regulations that are under development for lead-based paint). This rule 
also retains the special requirements for congregate housing and/or 
independent group residences in Secs. 886.113 and 886.307.
9. 24 CFR Part 891; Supportive Housing for the Elderly and Persons With 
Disabilities
    This rule adds a new Sec. 891.180 to provide that housing assisted 
under these supportive housing programs must be maintained and 
inspected in accordance with the physical condition standards and 
inspection requirements in subpart G of part 5.
10. 24 CFR Part 965; PHA-Owned or Leased Projects--General Provisions
    This rule adds a new subpart F (consisting of Sec. 965.601) to part 
965. Section 965.601 requires that housing that is owned or leased by a 
PHA must be maintained in accordance with the new uniform physical 
condition standards. Section 965.601 also provides that for each PHA, 
HUD intends to perform independent inspections to confirm that Public 
Housing is being maintained in accordance with the new uniform physical 
condition standards using the new inspection system, based upon a 
statistically valid sample of Public Housing units for each PHA.
11. 24 CFR Part 983; Section 8 Project-Based Certificate Program
    This rule amends Sec. 983.5 by replacing the Housing Quality 
Standards with references to the new physical condition standards in 
subpart G of part 5. This rule retains, however, the specific occupancy 
requirements, since these requirements are not addressed by the new 
uniform physical condition standards. This rule also retains the lead-
based paint requirements that were otherwise embedded in the Housing 
Quality Standards. This rule does not affect the applicability of HUD's 
lead-based paint requirements (although please see the reference above 
to the separate regulations that are under development for lead-based 
paint).

V. Findings and Certifications

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review, issued by the 
President on September 30, 1993. OMB determined that this rule is a 
``significant regulatory action,'' as defined in section 3(f) of the 
Order (although not economically significant, as provided in section 
3(f)(1) of the Order). Any changes made to this rule subsequent to its 
submission to OMB are identified in the docket file, which is available 
for public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the 
Office of the Rules Docket Clerk, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW, Washington, DC.

Environmental Impact

    During the development of the June 30, 1998 proposed rule, a 
Finding of No Significant Impact with respect to the environment was 
made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4223). That Finding continues to apply to this final 
rule, and is available for public inspection between 7:30 a.m. and 5:30 
p.m. weekdays in the Office of the Rules Docket Clerk, Office of 
General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule is not anticipated to have a 
significant economic impact on a substantial number of small entities. 
All HUD housing is currently subject to physical condition standards 
and a physical inspection requirement. There are statutory directives 
to maintain HUD housing in a condition that is decent, safe, and 
sanitary. Accordingly, this rule does not alter that requirement, nor 
does the rule shift responsibility with respect to who conducts the 
physical inspection of the property. The entities and individuals 
previously responsible for the inspection of HUD subsidized properties 
remain responsible. The rule, however, provides for uniform physical 
inspection standards for the majority of HUD programs. These standards 
are not significantly different from those standards to which HUD 
housing is currently subject. The previous applicable standards are 
similar, but there were some variations from HUD program to program. 
Making these standards uniform and consistent for the HUD programs 
covered by this rule should ease the administrative burden for 
participants in the covered HUD programs, including and particularly 
small entities. As with the implementation of any new or modified 
program requirement, HUD intends to provide guidance to the covered 
entities, particularly small entities, to assist them in understanding 
the changes being made. As stated earlier in this preamble, HUD will be 
providing the inspection software and guidebook,

[[Page 46576]]

and HUD is not requiring the use of specific hardware (so long as it 
meets certain minimum capacity requirements). Therefore, HUD is 
anticipating that the cost for the inspections will be substantially 
lower than initial estimates. Entities that have been conducting 
adequate inspections as previously required should not experience a 
significant increase in costs. HUD is also providing additional time 
for entities that are not subject to the new Public Housing Assessment 
System to gain the capability to conduct inspections. Therefore, HUD 
has considered the effects of this rule on small entities. Since this 
rule does not impose additional responsibilities on HUD's program 
partners, and since HUD estimates that the cost differences will not be 
substantial, this rule is not anticipated to have a significant 
economic impact on a substantial number of small entities.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
States or their political subdivisions, on the relationship between the 
Federal Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. This rule 
provides a uniform set of physical condition standards and physical 
inspection requirements for HUD housing, which make HUD's requirements 
clearer and more objective. As a result, this rule is not subject to 
review under the Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on State, 
local, and tribal governments, and the private sector. Several 
commenters asserted that this rule would violate the Unfunded Mandates 
Reform Act, arguing that HUD failed to assess the costs of the 
inspections on private sector lenders, failed to estimate the 
disproportionate effects of the rule on the private sector, and failed 
to consider and select the least costly, most cost-effective, or least 
burdensome alternative for the private sector. Section 201 of the UMRA 
requires agencies to assess the effects of Federal regulatory actions 
on State, local, and tribal governments, and the private sector. HUD 
has assessed the effects of this rule on housing authorities and other 
owners and managers of HUD housing. While this rule provides a uniform 
set of physical condition standards for HUD housing, these standards 
are not significantly different from the standards with which program 
participants already have had to comply. While this rule establishes a 
new physical inspection system, it does not change the requirements in 
HUD's programs for annual physical inspections. HUD has determined that 
the quality of the inspections to be performed under this rule are 
necessary to replace the lax inspections that may have been conducted 
in the past. The uniform standards and the inspection system 
established in this rule are necessary in order to bring consistency, 
objectivity, accuracy, and efficiency to the assessment of the physical 
condition of HUD housing.
    This rule would not impose a Federal mandate within the definitions 
provided in section 101 of the UMRA, because this rule merely provides 
standards relating to duties that arise from participation in a 
voluntary Federal program, for which funds are provided through budget 
authority that is not entitlement authority. Since HUD has assessed the 
effects of this rule on State, local, and tribal governments, and on 
the private sector, and since this rule does not include a Federal 
mandate, HUD has complied with the Unfunded Mandates Reform Act of 
1995.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for the programs 
that are affected by this rule are:

14.126--Mortgage Insurance--Cooperative Projects (Section 213)
14.129--Mortgage Insurance--Nursing Homes, Intermediate Care 
Facilities, Board and Care Homes and Assisted Living Facilities 
(Section 232)
14.134--Mortgage Insurance--Rental Housing (Section 207)
14.135--Mortgage Insurance--Rental and Cooperative Housing for 
Moderate Income Families and Elderly, Market Rate Interest (Sections 
221(d) (3) and (4))
14.138--Mortgage Insurance--Rental Housing for Elderly (Section 231)
14.139--Mortgage Insurance--Rental Housing in Urban Areas (Section 
220 Multifamily)
14.157--Supportive Housing for the Elderly (Section 202)
14.181--Supportive Housing for Persons with Disabilities (Section 
811)
14.188--Housing Finance Agency (HFA) Risk Sharing Pilot Program 
(Section 542(c))
14.850--Public Housing
14.851--Low Income Housing--Homeownership Opportunities for Low 
Income Families (Turnkey III)
14.852--Public Housing--Comprehensive Improvement Assistance Program
14.856--Lower Income Housing Assistance Program--Section 8 Moderate 
Rehabilitation
14.859--Public Housing--Comprehensive Grant Program

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Claims, Drug abuse, 
Drug traffic control, Grant programs--housing and community 
development, Grant programs--Indians, Individuals with disabilities, 
Loan programs--housing and community development, Low- and moderate-
income housing, Mortgage insurance, Pets, Public housing, Rent 
subsidies, Reporting and recordkeeping requirements.

24 CFR Part 207

    Manufactured homes, Mortgage insurance, Reporting and recordkeeping 
requirements, Solar energy.

24 CFR Part 266

    Aged, Fair housing, Intergovernmental relations, Mortgage 
insurance, Low and moderate income housing, Reporting and recordkeeping 
requirements.

24 CFR Part 880

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

24 CFR Part 881

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

24 CFR Part 882

    Grant programs--housing and community development, Homeless, Lead 
poisoning, Manufactured homes, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 883

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

24 CFR Part 884

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

24 CFR Part 886

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

[[Page 46577]]

24 CFR Part 891

    Aged, Capital advance programs, Civil rights, Grant programs--
housing and community development, Individuals with disabilities, Loan 
programs--housing and community development, Low- and moderate-income 
housing, Mental health programs, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 965

    Energy conservation, Government procurement, Grant programs--
housing and community development, Lead poisoning, Loan programs--
housing and community development, Public housing, Reporting and 
recordkeeping requirements, Utilities.

24 CFR Part 983

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

    Accordingly, for the reasons stated in the preamble, title 24 of 
the CFR is amended as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

    1. The authority citation for 24 CFR part 5 continues to read as 
follows:

    Authority: 42 U.S.C. 3535(d), unless otherwise noted.

    2. A new subpart G is added to part 5 to read as follows:

Subpart G--Physical Condition Standards and Inspection Requirements

Sec.
5.701  Applicability.
5.703  Physical condition standards for HUD housing that is decent, 
safe, sanitary and in good repair (DSS/GR).
5.705  Uniform physical inspection requirements.

Subpart G--Physical Condition Standards and Inspection Requirements


Sec. 5.701  Applicability.

    (a) This subpart applies to housing assisted by HUD under the 
following programs:
    (1) All Section 8 project-based assistance. ``Project-based 
assistance'' means Section 8 assistance that is attached to the 
structure (see Sec. 982.1(b)(1) of this title regarding the distinction 
between ``project-based'' and ``tenant-based'' assistance);
    (2) Section 202 Program of Supportive Housing for the Elderly;
    (3) Section 811 Program of Supportive Housing for Persons with 
Disabilities;
    (4) Section 202 loan program for projects for the elderly and 
handicapped (including 202/8 projects and 202/162 projects).
    (b) This subpart also applies to housing with mortgages insured or 
held by HUD, or housing that is receiving assistance from HUD, under 
the following authorities:
    (1) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701 
et seq.) (Rental Housing Insurance);
    (2) Section 213 of the NHA (Cooperative Housing Insurance);
    (3) Section 220 of the NHA (Rehabilitation and Neighborhood 
Conservation Housing Insurance);
    (4) Section 221(d)(3) and (5) of the NHA (Housing for Moderate 
Income and Displaced Families);
    (5) Section 221(d)(4) of the NHA (Housing for Moderate Income and 
Displaced Families);
    (6) Section 231 of the NHA (Housing for Elderly Persons);
    (7) Section 232 of the NHA (Mortgage Insurance for Nursing Homes, 
Intermediate Care Facilities, Board and Care Homes);
    (8) Section 234(d) of the NHA (Rental) (Mortgage Insurance for 
Condominiums);
    (9) Section 236 of the NHA (Rental and Cooperative Housing for 
Lower Income Families);
    (10) Section 241 of the NHA (Supplemental Loans for Multifamily 
Projects); and
    (11) Section 542(c) of the Housing and Community Development Act of 
1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing 
Program).
    (c) This subpart also applies to Public Housing (housing receiving 
assistance under the U.S. Housing Act of 1937, other than under section 
8 of the Act).
    (d) For purposes of this subpart, the term ``HUD housing'' means 
the types of housing listed in paragraphs (a), (b), and (c) of this 
section.


Sec. 5.703  Physical condition standards for HUD housing that is 
decent, safe, sanitary and in good repair (DSS/GR).

    HUD housing must be decent, safe, sanitary and in good repair. 
Owners of housing described in Sec. 5.701(a), mortgagors of housing 
described in Sec. 5.701(b), and PHAs and other entities approved by HUD 
owning housing described in Sec. 5.701(c), must maintain such housing 
in a manner that meets the physical condition standards set forth in 
this section in order to be considered decent, safe, sanitary and in 
good repair. These standards address the major areas of the HUD 
housing: the site; the building exterior; the building systems; the 
dwelling units; the common areas; and health and safety considerations.
    (a) Site. The site components, such as fencing and retaining walls, 
grounds, lighting, mailboxes/project signs, parking lots/driveways, 
play areas and equipment, refuse disposal, roads, storm drainage and 
walkways must be free of health and safety hazards and be in good 
repair. The site must not be subject to material adverse conditions, 
such as abandoned vehicles, dangerous walks or steps, poor drainage, 
septic tank back-ups, sewer hazards, excess accumulations of trash, 
vermin or rodent infestation or fire hazards.
    (b) Building exterior. Each building on the site must be 
structurally sound, secure, habitable, and in good repair. Each 
building's doors, fire escapes, foundations, lighting, roofs, walls, 
and windows, where applicable, must be free of health and safety 
hazards, operable, and in good repair.
    (c) Building systems. Each building's domestic water, electrical 
system, elevators, emergency power, fire protection, HVAC, and sanitary 
system must be free of health and safety hazards, functionally 
adequate, operable, and in good repair.
    (d) Dwelling units. (1) Each dwelling unit within a building must 
be structurally sound, habitable, and in good repair. All areas and 
aspects of the dwelling unit (for example, the unit's bathroom, call-
for-aid (if applicable), ceiling, doors, electrical systems, floors, 
hot water heater, HVAC (where individual units are provided), kitchen, 
lighting, outlets/switches, patio/porch/balcony, smoke detectors, 
stairs, walls, and windows) must be free of health and safety hazards, 
functionally adequate, operable, and in good repair.
    (2) Where applicable, the dwelling unit must have hot and cold 
running water, including an adequate source of potable water (note for 
example that single room occupancy units need not contain water 
facilities).
    (3) If the dwelling unit includes its own sanitary facility, it 
must be in proper operating condition, usable in privacy, and adequate 
for personal hygiene and the disposal of human waste.
    (4) The dwelling unit must include at least one battery-operated or 
hard-wired smoke detector, in proper working condition, on each level 
of the unit.
    (e) Common areas. The common areas must be structurally sound, 
secure, and functionally adequate for the purposes intended. The 
basement/garage/carport, restrooms, closets, utility, mechanical, 
community rooms, day care, halls/corridors, stairs, kitchens, laundry 
rooms, office, porch, patio, balcony, and trash collection areas, if 
applicable, must be free of health and safety hazards, operable, and in 
good repair. All common area ceilings, doors, floors,

[[Page 46578]]

HVAC, lighting, outlets/switches, smoke detectors, stairs, walls, and 
windows, to the extent applicable, must be free of health and safety 
hazards, operable, and in good repair. These standards for common areas 
apply, to a varying extent, to all HUD housing, but will be 
particularly relevant to congregate housing, independent group homes/
residences, and single room occupancy units, in which the individual 
dwelling units (sleeping areas) do not contain kitchen and/or bathroom 
facilities.
    (f) Health and safety concerns. All areas and components of the 
housing must be free of health and safety hazards. These areas include, 
but are not limited to, air quality, electrical hazards, elevators, 
emergency/fire exits, flammable materials, garbage and debris, handrail 
hazards, infestation, and lead-based paint. For example, the buildings 
must have fire exits that are not blocked and have hand rails that are 
undamaged and have no other observable deficiencies. The housing must 
have no evidence of infestation by rats, mice, or other vermin, or of 
garbage and debris. The housing must have no evidence of electrical 
hazards, natural hazards, or fire hazards. The dwelling units and 
common areas must have proper ventilation and be free of mold, odor 
(e.g., propane, natural gas, methane gas), or other observable 
deficiencies. The housing must comply with all requirements related to 
the evaluation and reduction of lead-based paint hazards and have 
available proper certifications of such (see 24 CFR part 35).
    (g) Compliance with State and local codes. The physical condition 
standards in this section do not supersede or preempt State and local 
codes for building and maintenance with which HUD housing must comply. 
HUD housing must continue to adhere to these codes.


Sec. 5.705  Uniform physical inspection requirements.

    (a) Any entity responsible for conducting a physical inspection of 
HUD housing, to determine compliance with this subpart, must inspect 
such HUD housing annually (unless otherwise specifically notified by 
HUD), in accordance with HUD-prescribed physical inspection procedures. 
For Public Housing, PHAs have the option to inspect Public Housing 
units using the procedures prescribed in accordance with this section.
    (b) Inspections in accordance with the physical inspection 
procedures identified in paragraph (a) of this section shall not be 
required until HUD has issued the inspection software and accompanying 
guidebook. When the software and guidebook have been issued, HUD will 
publish a notice in the Federal Register to inform the public when the 
software and guidebook are available. The notice will provide 30 days 
within which covered entities must prepare to conduct inspections in 
accordance with this subpart. Until the date that is 30 days after HUD 
publishes such notice, any entity responsible for conducting a physical 
inspection of HUD housing, to determine compliance with this subpart, 
must continue to comply with inspection requirements in effect 
immediately prior to that date.

PART 207--MULTIFAMILY HOUSING MORTGAGE INSURANCE

    3. The authority citation for 24 CFR part 207 continues to read as 
follows:

    Authority: 12 U.S.C. 1701z-11(e), 1713, and 1715b; 42 U.S.C. 
3535(d).

    4. A new Sec. 207.260 is added, immediately after Sec. 207.259a, to 
read as follows:


Sec. 207.260  Maintenance and inspection of property.

    As long as the mortgage is insured or held by the Commissioner, the 
mortgagor must maintain the insured project in accordance with the 
physical condition requirements in 24 CFR part 5, subpart G; and the 
mortgagee must inspect the project in accordance with the physical 
inspection requirements in 24 CFR part 5, subpart G.

PART 266--HOUSING FINANCE AGENCY RISK-SHARING PROGRAM FOR INSURED 
AFFORDABLE MULTIFAMILY PROJECT LOANS

    5. The authority citation for 24 CFR part 266 continues to read as 
follows:

    Authority: 12 U.S.C. 1707; 42 U.S.C. 3535(d).


Sec. 266.505  [Amended]

    6. Section 266.505 is amended by removing and reserving paragraph 
(b)(6).
    7. A new Sec. 266.507 is added, to read as follows:


Sec. 266.507  Maintenance requirements.

    The mortgagor must maintain the project in accordance with the 
physical condition standards in 24 CFR part 5, subpart G.
    8. In Sec. 266.510, paragraph (a) is revised to read as follows:


Sec. 266.510  HFA responsibilities.

    (a) Inspections. The HFA must perform inspections in accordance 
with the physical inspection procedures in 24 CFR part 5, subpart G.
* * * * *

PART 880--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR NEW 
CONSTRUCTION

    9. The authority citation for 24 CFR part 880 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 
13611-13619.

    10. Section 880.201 is amended by revising the definition of 
``Decent, safe and sanitary'', to read as follows:


Sec. 880.201  Definitions.

* * * * *
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it meets the physical condition requirements in 24 CFR part 5, 
subpart G.
* * * * *


Sec. 880.207  [Amended]

    11. Section 880.207 is amended by removing and reserving paragraph 
(a).

PART 881--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR 
SUBSTANTIAL REHABILITATION

    12. The authority citation for 24 CFR part 881 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 
13611-13619.

    13. Section 881.201 is amended by revising the definition of 
``Decent, safe and sanitary'', to read as follows:


Sec. 881.201  Definitions.

* * * * *
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it meets the physical condition requirements in 24 CFR part 5, 
subpart G.
* * * * *


Sec. 881.207  [Amended]

    14. Section 881.207 is amended by removing and reserving paragraph 
(a).

PART 882--SECTION 8 MODERATE REHABILITATION PROGRAMS

    15. The authority citation for 24 CFR part 882 continues to read as 
follows:

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

    16. In Sec. 882.102, paragraph (b) is amended by revising the 
definition of ``Decent, safe, and sanitary''; and by removing the 
definition of ``Housing quality standards (HQS)''; to read as follows:


Sec. 882.102  Definitions.

* * * * *
    (b) * * *
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it meets the

[[Page 46579]]

physical condition standards in 24 CFR part 5, subpart G.
* * * * *
    17. Section 882.404 is revised to read as follows:


Sec. 882.404  Physical condition standards; physical inspection 
requirements.

    (a) Compliance with physical condition standards. Housing in this 
program must be maintained and inspected in accordance with the 
requirements in 24 CFR part 5, subpart G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, a dwelling unit used in the Section 8 moderate 
rehabilitation program that is not SRO housing must have a living room, 
a kitchen area, and a bathroom. Such a dwelling unit must have at least 
one bedroom or living/sleeping room for each two persons.
    (c) Special housing types. The following provisions in 24 CFR part 
982, subpart M (Special Housing Types) apply to the Section 8 moderate 
rehabilitation program:
    (1) 24 CFR 982.605(b) (for SRO housing). For the Section 8 moderate 
rehabilitation SRO program under subpart H of this part 882, see also 
Sec. 882.803(b).
    (2) 24 CFR 982.609(b) (for congregate housing).
    (3) 24 CFR 982.614(c) (for group homes).
    (d) Compliance with lead-based paint requirements. Housing used in 
the Section 8 moderate rehabilitation program must comply with the 
lead-based paint requirements in Sec. 982.401(j). For purposes of the 
SRO program, however, see Sec. 882.803(b).
    18. Section 882.803 is amended by revising paragraph (b), to read 
as follows:


Sec. 882.803  Project eligibility and other requirements.

* * * * *
    (b)(1) Physical condition standards. Section 882.404 applies to 
this program; however, the lead-based paint requirements in 
Sec. 982.401(j) of this title do not apply to this program, since these 
SRO units will not house children.
    (2) Site standards. (i) The site must be adequate in size, 
exposure, and contour to accommodate the number and type of units 
proposed; adequate utilities and streets must be available to service 
the site. (The existence of a private disposal system and private 
sanitary water supply for the site, approved in accordance with local 
law, may be considered adequate utilities.)
    (ii) The site must be 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), title 
VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601-19), E.O. 11063 
(as amended by E.O. 12259; 3 CFR, 1959-1963 Comp., p. 652 and 3 CFR, 
1980 Comp., p. 307), and HUD regulations issued pursuant thereto.
    (iii) The site must be accessible to social, recreational, 
educational, commercial, and health facilities, and other appropriate 
municipal facilities and services.
* * * * *

PART 883--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--STATE 
HOUSING AGENCIES

    19. The authority citation for 24 CFR part 883 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.

    20. Section 883.302 is amended by adding a definition of ``Decent, 
safe, and sanitary'', in alphabetical order; and by removing the 
definition of ``MPS (Minimum Property Standards''; to read as follows:


Sec. 883.302  Definitions.

* * * * *
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it meets the physical condition requirements in 24 CFR part 5, 
subpart G.
* * * * *


Sec. 883.310  [Amended]

    21. Section 883.310 is amended by removing and reserving paragraphs 
(a)(1) and (b)(1).

PART 884--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM, NEW 
CONSTRUCTION SET-ASIDE FOR SECTION 515 RURAL RENTAL HOUSING 
PROJECTS

    22. The authority citation for 24 CFR part 884 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.

    23. Section 884.102 is amended by revising the definition of 
``Decent, safe, and sanitary''; and by removing the definition of 
``Minimum property standards''; to read as follows:


Sec. 884.102  Definitions.

* * * * *
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it meets the physical condition requirements in 24 CFR part 5, 
subpart G.
* * * * *
    24. In Sec. 884.110, paragraph (b) is revised to read as follows:


Sec. 884.110  Types of housing and property standards.

* * * * *
    (b) Participation in this program requires compliance with:
    (1) [Reserved]
    (2) In the case of congregate housing, the appropriate HUD 
guidelines and standards;
    (3) HUD requirements pursuant to section 209 of the HCD Act for 
projects for the elderly, disabled, or handicapped;
    (4) HUD requirements pertaining to noise abatement and control; and
    (5) Applicable State and local laws, codes, ordinances, and 
regulations.
* * * * *

PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL 
ALLOCATIONS

    25. The authority citation for 24 CFR part 886 continues to read as 
follows:

    Authority: 42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.

    26. Section 886.102 is amended by revising the definition of 
``Decent, Safe and Sanitary'', to read as follows:


Sec. 886.102  Definitions.

* * * * *
    Decent, Safe, and Sanitary. Housing is decent, safe, and sanitary 
if it meets the physical condition requirements in 24 CFR part 5, 
subpart G.
* * * * *
    27. Section 886.113 is amended by revising the heading; by removing 
the introductory text; by revising paragraphs (a) and (b); by removing 
and reserving paragraphs (c) through (h); by removing and reserving 
paragraphs (j) through (m); and by revising the introductory text of 
paragraph (n); to read as follows:


Sec. 886.113  Physical condition standards; physical inspection 
requirements.

    (a) General. Housing used in this program must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen 
area, and a bathroom. The dwelling unit must have at least one bedroom 
or living/sleeping room for each two persons.
* * * * *

[[Page 46580]]

    (n) Congregate housing. In addition to the foregoing standards, the 
following standards apply to congregate housing:
* * * * *
    28. Section 886.302 is amended by revising the definition of 
``Decent, safe, and sanitary'', to read as follows:


Sec. 886.302  Definitions.

* * * * *
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it meets the physical condition requirements in 24 CFR part 5, 
subpart G.
* * * * *
    29. Section 886.307 is amended by revising the heading; by removing 
the introductory text; by revising paragraphs (a) and (b); by removing 
and reserving paragraphs (c) through (h); by removing and reserving 
paragraphs (j) through (l); by revising the introductory text of 
paragraphs (m) and (n); and by removing paragraphs (o) and (p); to read 
as follows:


Sec. 886.307  Physical condition standards; physical inspection 
requirements.

    (a) General. Housing assisted under this part must be maintained 
and inspected in accordance with the requirements in 24 CFR part 5, 
subpart G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen 
area, and a bathroom. The dwelling unit must have at least one bedroom 
or living/sleeping room for each two persons.
* * * * *
    (m) Congregate housing. In addition to the foregoing standards, the 
following standards apply to congregate housing:
* * * * *
    (n) Independent group residence. In addition to the foregoing 
standards, the standards in 24 CFR 887.467 (a) through (g) apply to 
independent group residences.

PART 891--SUPPORTIVE HOUSING FOR THE ELDERLY AND PERSONS WITH 
DISABILITIES

    30. The authority citation for 24 CFR part 891 continues to read as 
follows:

    Authority: 12 U.S.C. 1701q; 42 U.S.C. 1437f, 3535(d), and 8013.

    31. In subpart A of part 891, a new Sec. 891.180 is added, to read 
as follows:


Sec. 891.180  Physical condition standards; physical inspection 
requirements.

    Housing assisted under this part must be maintained and inspected 
in accordance with the requirements in 24 CFR part 5, subpart G.

PART 965--PHA-OWNED OR LEASED PROJECTS--GENERAL PROVISIONS

    32. The authority citation for 24 CFR part 965 continues to read as 
follows:

    Authority: 2 U.S.C. 1437, 1437a, 1437d, 1437g, and 3535(d). 
Subpart H is also issued under 42 U.S.C. 4821-4846.

    33. In part 965, a new subpart F, consisting of Sec. 965.601, is 
added, to read as follows:

Subpart F--Physical Condition Standards and Physical Inspection 
Requirements


Sec. 965.601  Physical condition standards; physical inspection 
requirements.

    Housing owned or leased by a PHA, and public housing owned by 
another entity approved by HUD, must be maintained in accordance with 
the physical condition standards in 24 CFR part 5, subpart G. For each 
PHA, HUD will perform an independent physical inspection of a 
statistically valid sample of such housing based upon the physical 
condition standards in 24 CFR part 5, subpart G.

PART 983--SECTION 8 PROJECT-BASED CERTIFICATE PROGRAM

    34. The authority citation for 24 CFR part 983 continues to read as 
follows:

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

    35. Section 983.5 is revised to read as follows:


Sec. 983.5  Physical condition standards; physical inspection 
requirements.

    (a) General. Housing used in this program must be maintained and 
inspected in accordance with the requirements in 24 CFR part 5, subpart 
G.
    (b) Space and security. In addition to the standards in 24 CFR part 
5, subpart G, the dwelling unit must have a living room, a kitchen 
area, and a bathroom. The dwelling unit must have at least one bedroom 
or living/sleeping room for each two persons.
    (c) Lead-based paint. 24 CFR 982.401(j) applies to assistance under 
this part.

    Dated: August 26, 1998.
Andrew Cuomo,
Secretary.
[FR Doc. 98-23421 Filed 8-31-98; 8:45 am]
BILLING CODE 4210-32-P