[Federal Register Volume 64, Number 135 (Thursday, July 15, 1999)]
[Proposed Rules]
[Pages 38284-38286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18066]



[[Page 38283]]

_______________________________________________________________________

Part V





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 290



Multi-Family Housing; Up-Front Grants and Loans in the Disposition; 
Proposed Rulemaking

  Federal Register / Vol. 64, No. 135 / Thursday, July 15, 1999 / 
Proposed Rules  

[[Page 38284]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 290

[Docket No. FR-4310-P-01]
RIN 2502-AH12


Up-Front Grants and Loans in the Disposition of Multifamily 
Projects

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Proposed rule.

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

SUMMARY: This proposed rule would establish generally applicable 
requirements to govern the use of up-front grants and loans in the 
disposition of HUD-owned multifamily properties by defining the 
projects, sales, and purchasers eligible for up-front grants and loans, 
and setting both a maximum per-unit and overall cap for up-front grant 
amounts. This proposed rule would promote the affordability and 
viability of multifamily housing projects.

DATES: Comments Due Date: September 13, 1999.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Rules Docket Clerk, Office of General 
Counsel, Room 10278, Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410. Communications should refer 
to the above docket number and title. A copy of each communication 
submitted will be available for public inspection and copying between 
7:30 a.m. and 5:30 p.m. weekdays at the above address. FAXED comments 
will not be accepted.

FOR FURTHER INFORMATION CONTACT: Marc Harris, Supervisory Project 
Manager, Office of Portfolio Management in Multifamily Housing, 
Department of Housing and Urban Development, Room 6164, 451 7th Street 
SW, Washington, DC 20410, telephone (202) 708-2654. Hearing or speech-
impaired individuals may call 1-800-877-8339 (Federal Information Relay 
Service TTY). (Other than the ``800'' number, these are not toll-free 
numbers.)

SUPPLEMENTARY INFORMATION:

I. Background

    HUD's statutory authority to manage and dispose of HUD-held 
multifamily housing projects is contained in section 207(k) and (l) of 
the National Housing Act, in section 203 of the Housing and Community 
Development Amendments of 1978 (HCDA 1978) and in section 204 of the 
Departments of Veterans Affairs and Housing and Urban Development, and 
Independent Agencies Appropriations Act, 1997 (approved September 26, 
1996, Public Law 104-204), (FY 1997 Appropriations Act). HCDA 1978 
section 203 was amended by the Multifamily Housing Property Disposition 
Reform Act of 1994 (MHPDRA) (Public Law 102-233, approved April 11, 
1994) which authorized the use of up-front grants for the necessary 
cost of rehabilitation and other related development costs at section 
203(f)(4). This section also authorizes project-based assistance under 
section 8 of the United States Housing Act of 1937 as the source of 
funding for the up-front grants.
    The Department's authority and discretion in matters relating to 
the disposition of multifamily housing projects was expanded by section 
204 which permits HUD to manage and dispose of multifamily properties 
owned by the Secretary, ``on such terms and conditions as the Secretary 
may determine''. Section 204 was amended by section 213 of the 
Departments of Veterans Affairs and Housing and Urban Development, and 
Independent Agencies Appropriations Act, 1998 (approved October 27, 
1997, Public Law 105-65) (FY 1998 Appropriations Act). Section 213 
clarified that the General Insurance Fund could be used to provide 
grants and loans for the necessary costs of rehabilitation or 
demolition, but limited this authority to FYs 1997 and 1998. Section 
206 of the Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act, 1999, 
(approved October 21, 1998, Pub.L. 105-276) (FY 1999 Appropriations 
Act) extends this authority for an additional year, through FY 1999. 
The use of the General Insurance Fund as authorized in these 
appropriations Acts, however, is limited to grants and loans for 
rehabilitation or demolition activities. Section 8 project-based 
assistance is the only source of up-front grant funding for total 
rebuilding. The FY 1999 Appropriations Act, however, did not provide 
any Section 8 project-based funds for property disposition.
    The discretion conferred under section 204 of the FY 1997 
Appropriations Act, as amended by the FYs 1998 and 1999 Appropriations 
Acts, is very broad, and HUD is, therefore, proposing this rule to 
implement generally applicable requirements for up-front grants and 
loans. The procedures in this rule would be followed for all up-front 
grants and loans made with whatever funds are authorized and available. 
If Section 8 project-based assistance is not available, or if the 
authorization to use the General Insurance Fund is not extended beyond 
FY 1999, up-front grants and loans will not be available as an option 
in the disposition of multifamily projects.
    This rule would add a new Sec. 290.27 to part 290 to implement 
generally applicable requirements for eligible projects, sales and 
purchasers, and for a maximum grant or loan amount on a per-unit basis. 
Until the regulation takes effect, those portions of the Guidance 
Memorandum issued February 27, 1997, which conform with applicable 
statutes and regulations, may be used on a case-by-case basis.
    HUD's goal in promulgating generally applicable eligibility 
requirements for up-front grants and loans is to promote the 
affordability and viability of multifamily housing projects. Under this 
proposed rule, to be eligible for an up-front grant or loan, a project 
would have to be currently serving very low-income residents (at least 
50% of units occupied by very low-income residents at the time HUD 
approves a Disposition Program); be located in a housing market with a 
need for affordable housing (vacancy rate of habitable, affordable, 
multifamily housing is 4% or less); and generate sufficient income 
after rehabilitation or rebuilding to be viable and provide affordable 
housing for at least 20 years or the term of the loan, whichever is 
shorter.
    The rule would also limit the use of up-front grants or loans in 
negotiated sales, which involve no competitive bidding among 
prospective purchasers, to three categories of purchasers: (1) the unit 
of general local government, including a public housing agency in the 
area in which the project is located, (2) the State in which the 
project is located, or (3) an agency of the federal government. 
Otherwise, an up-front grant or loan will only be considered as a 
possible option in a competitive sale. HUD has determined that these 
general limitations are appropriate measures to limit its exposure to 
loss and conserve housing resources. Making an up-front grant or loan 
an option in a negotiated sale with a unit of government is consistent 
with the statutory right, under HCDA 1974 section 203, of first refusal 
accorded such entities. State and local governments would also be more 
familiar and involved with local plans and needs, and would have 
greater authority and capacity to control local factors that could 
affect the viability and affordability of the project. In all other 
cases, a competitive sale is more appropriate to permit choice among a

[[Page 38285]]

range of plans and ensure the best use of up-front grant or loan 
amounts.
    This rule would also provide for a grant or loan limit of 50 
percent of the total development cost (TDC) per project, which may not 
exceed $40,000 per affordable, finished unit. The actual grant or loan 
amount provided within these limits will be determined on a case-by-
case basis depending upon rehabilitation, demolition, rebuilding, and 
other development costs approved by HUD. It will be the responsibility 
of the purchaser to obtain funds for the remaining rehabilitation, 
demolition or development costs. HUD has determined that it is 
appropriate to give the purchaser this responsibility because the 
purchaser's ability to raise the balance of funds necessary to complete 
the project provides assurance that other lenders or contributors have 
made an independent determination that the proposed plan for the 
project is viable, and that they are willing to commit to its success.

II. Findings and Certifications

Paperwork Reduction Act Statement

    The information collection requirements for the disposition of 
multifamily housing projects under 24 CFR part 290 have been approved 
by the Office of Management and Budget in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned OMB control 
number 2502-0204. This rule does not contain additional information 
collection requirements. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless the collection displays a valid control number.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969. The Finding 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 the General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street SW, Washington, DC 20410.

Regulatory Planning and Review

    This rule has been reviewed in accordance with Executive Order 
12866 (captioned ``Regulatory Planning and Review'') and determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the Order (although not economically significant 
regulatory action under the Order). Any changes made to this rule as a 
result of that review are available for public inspection between 7:30 
a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket Clerk.

Regulatory Flexibility Act

    The Secretary, in accordance with provisions of the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), has reviewed this rule before 
publication and by approving it certifies that it will not have a 
significant economic impact on a substantial number of small entities. 
These requirements address only one aspect (up-front grants) of the 
requirements governing the management and disposition of HUD-owned 
multifamily housing projects, and should not affect the ability of 
small entities, relative to larger entities, to bid for and acquire 
projects that HUD determines to sell. Nevertheless, HUD is soliciting 
comment specifically to elicit issues of importance to small entities.

Executive Order 12612, Federalism

    HUD has determined, in accordance with Executive Order 12612, 
Federalism, that this rule will not have a substantial, direct effect 
on the States or on the relationship between the Federal government and 
the States, or on the distribution of power or responsibilities among 
the various levels of government. The specific requirements of this 
rule do not impose any additional terms and conditions on States or 
local governments that acquire projects under this rule, and therefore 
no further review is necessary or appropriate.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance Program number and title 
is 14.156, Lower Income Housing Assistance Program (Section 8).

List of Subjects in 24 CFR Part 290

    Low- and moderate-income housing, Mortgage insurance, Reporting and 
recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, part 290 of 
title 24 of the Code of Federal Regulations is proposed to be amended 
as follows:

PART 290--MANAGEMENT AND DISPOSITION OF HUD-OWNED MULTIFAMILY 
PROJECTS AND CERTAIN MULTIFAMILY PROJECTS SUBJECT TO HUD-HELD 
MORTGAGES

    1. The authority citation for 24 CFR part 290 continues to read as 
follows:

    Authority: 12 U.S.C. 1701z-11, 1701z-12, 1713, 1715b, 1715z-1b; 
42 U.S.C. 3535(d) and 3535(i).

    2. A new Sec. 290.27 is added to subpart A to read as follows:


Sec. 290.27  Up-front grants and loans.

    (a) General. HUD may provide up-front grants and loans for 
rehabilitation, demolition, rebuilding and other related development 
costs as part of the disposition of a multifamily housing project that 
is HUD-owned, upon making a determination that such a grant or loan 
would be more cost-effective than project-based rental assistance.
    (b) Eligible projects. An up-front grant or loan can be made 
available in the sale of a HUD-owned multifamily housing project that:
    (1) Has more than 50% of the units in the project occupied by very 
low-income residents at the time a disposition plan is approved by HUD;
    (2) Is located in a housing market or submarket in which there is 
not sufficient habitable, affordable, rental housing, as defined in 
Sec. 290.3;
    (3) Will generate, after rehabilitation or rebuilding, sufficient 
rental income in a competitive market to cover all operating expenses, 
meet after sale debt service requirements, fund required reserves and 
throw-off positive cash flow;
    (4) Will provide affordable housing for at least 20 years or the 
term of the loan, whichever is shorter, after the rehabilitation and/or 
rebuilding is completed; and
    (5) Meets such other requirements, including deed restrictions, 
loan provisions, and monetary penalties for non-performance, as HUD may 
determine are appropriate on a case-by-case basis.
    (c) Eligible sales and purchasers--(1) Negotiated sales to 
governmental entities. A negotiated sale of a project with an up-front 
grant or loan can only be made to the unit of general local government, 
which includes public housing agencies, in the area in which the 
project is located; or a State agency designated by the chief executive 
officer of the State in which the project is located; or an agency of 
the Federal government.
    (2) Other sales and purchasers. All sales which provide up-front 
grants or loans to entities other than those described in paragraph 
(c)(1) of this section must be conducted through a competitive 
selection process. All general and limited partnerships or their 
nominees, joint ventures or other entities assembled for purposes of 
purchasing the project and which have

[[Page 38286]]

a governmental entity as a partner or other participant are considered 
profit motivated purchasers and not governmental entities, whether or 
not there is a non-profit, public, corporate or individual general 
partner.
    (d) Up-front grant or loan amount. The maximum that HUD will fund 
per project in an up-front grant or loan is 50 percent of total 
development cost (TDC), or $40,000 per affordable, finished unit, 
whichever amount is less. TDC covers construction materials, artisan 
services, professional services, developers services, and overhead, 
relocation and operating losses that are incurred to plan, perform and 
complete repairs or rebuilding.

    Dated: March 25, 1999.
William Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 99-18066 Filed 7-14-99; 8:45 am]
BILLING CODE 4210-27-P