[Federal Register Volume 65, Number 177 (Tuesday, September 12, 2000)]
[Rules and Regulations]
[Pages 55134-55168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22829]



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Part IV





Department of Housing and Urban Development





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24 CFR Parts 5, 903 and 982



Section 8 Homeownership Program; Final Rule

  Federal Register / Vol. 65, No. 177 / Tuesday, September 12, 2000 / 
Rules and Regulations  

[[Page 55134]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 903 and 982

[Docket No. FR-4427-F-02]
RIN 2577-AB90


Section 8 Homeownership Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Final rule.

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SUMMARY: This final rule implements the ``homeownership option'' 
authorized by section 8(y) of the United States Housing Act of 1937, as 
amended by section 555 of the Quality Housing and Work Responsibility 
Act of 1998. Under the section 8(y) homeownership option, a public 
housing agency may provide tenant-based assistance to an eligible 
family that purchases a dwelling unit that will be occupied by the 
family. This final rule follows publication of an April 30, 1999 
proposed rule, and takes into consideration the public comments 
received on the proposed rule.

DATES: Effective Date: October 12, 2000.

FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Office of Public and 
Indian Housing, Department of Housing and Urban Development, Room 4210, 
451 Seventh Street, SW., Washington, DC 20410; telephone (202) 708-
0477. (This is not a toll-free number.) Hearing or speech-impaired 
individuals may access this number via TTY by calling the toll-free 
Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On April 30, 1999 (64 FR 23488), HUD published a proposed rule for 
public comment to implement the ``homeownership option'' under section 
8(y) of the United States Housing Act of 1937 (42 U.S.C. 1437 et seq.) 
(referred to as the ``1937 Act''), as amended by section 555 of the 
Quality Housing and Work Responsibility Act of 1998 (Title V of the FY 
1999 HUD Appropriations Act; Public Law 105-276, approved October 21, 
1998; 112 Stat. 2461, 2518) (referred to as the ``Public Housing Reform 
Act''). Section 8(y) authorizes Section 8 tenant-based assistance for 
an eligible family that occupies a home purchased and owned by members 
of the family.
    The April 30, 1999 rule proposed to implement the section 8(y) 
homeownership option by adding a new ``special housing type'' under 
subpart M of HUD's regulations at 24 CFR part 982. The part 982 
regulations, which were amended by a final rule published on October 
21, 1999 (64 FR 56894), implement the statutory merger of the Section 8 
tenant-based certificate and voucher programs into a new Housing Choice 
Voucher program. Subpart M of 24 CFR part 982 describes program 
requirements for alternatives to the basic Housing Choice Voucher 
program.
    Homeownership assistance offers a new option for families that 
receive Section 8 tenant-based assistance. As with the other special 
housing types, HUD does not provide any additional or separate funding 
for homeownership assistance under section 8(y). In general, a public 
housing agency (PHA) that administers section 8 tenant-based assistance 
has the choice whether to offer homeownership assistance as an option 
for qualified applicants and participants in the PHA's Housing Choice 
Voucher program. The PHA may choose to make homeownership assistance 
available for any qualified applicant or participant, or to restrict 
homeownership assistance to families or purposes defined by the PHA.
    As required by law, the homeownership option is not available for 
units receiving section 8 project-based assistance. By law, 
homeownership under section 8(y) may only be provided for families 
receiving ``tenant-based assistance'' (42 U.S.C. 1437f(y)(1)). Integral 
to the tenant-based nature of the housing choice voucher program is the 
freedom-of-choice afforded to the participant family, regardless of 
whether the voucher is used for rental or homeownership assistance. A 
PHA may not reduce a family's choice by limiting the use of 
homeownership assistance to particular units, neighborhoods, 
developers, or lenders. For example, while HUD encourages PHAs to 
develop partnerships with lenders in order to assist the family in 
obtaining financing, the PHA may not require the family to use a 
certain lender or financing approach.

II. Overview of the Section 8 Homeownership Program

    An overview of how the Section 8 homeownership program works 
follows. The details regarding the operation of the Section 8 
homeownership option are provided elsewhere in the preamble and the 
regulatory text.

A. General

    PHA administration of the Section 8 homeownership program differs 
from the tenant-based rental program in many ways. A PHA may use the 
certificate and voucher program funding already under Annual 
Contributions Contract (ACC) or new tenant-based Section 8 funding for 
rental or homeownership purposes. The PHA may opt to limit the number 
of Section 8 homeownership vouchers or not implement the homeownership 
option. There is no separate or additional funding for the 
homeownership program.
    Generally, a PHA that administers Section 8 tenant-based assistance 
has the choice whether to offer the homeownership option. However, a 
PHA that elects to provide homeownership assistance must have the 
capacity to operate a successful Section 8 homeownership program. The 
PHA has the required capacity if it:
     Establishes a minimum homeowner downpayment requirement of 
at least 3 percent of the purchase price for participation in its 
Section 8 homeownership program, and requires that at least one percent 
of the purchase price come from the family's personal resources;
     Requires that financing for purchase of a home under its 
Section 8 homeownership program be provided, insured, or guaranteed by 
the state or Federal government, comply with secondary mortgage market 
underwriting requirements, or comply with generally accepted private 
sector underwriting standards; or
     Otherwise demonstrates in its Annual Plan that it has the 
capacity, or will acquire the capacity, to successfully operate a 
Section 8 homeownership program.
    At the briefing of families selected to participate in the tenant-
based Section 8 program, the PHA must discuss any homeownership option. 
Family participation in the homeownership program is voluntary. 
Although the homeownership program is open to both Section 8 applicants 
and participants, not every Section 8 tenant-based family may receive 
homeownership assistance. The PHA may limit the number of homeownership 
families and there are statutory family eligibility requirements such 
as a minimum level of income and a history of full-time employment. 
(The employment history requirement is not applicable to elderly and 
disabled families, and there is a modified income requirement for 
elderly and disabled families.) The program is generally limited to 
first-time homeowners. The PHA may add other local eligibility 
requirements such as participation in the Family Self-Sufficiency (FSS) 
program.
    Once a family has been determined by the PHA to be eligible for 
Section 8 homeownership assistance, the family must attend 
homeownership counseling sessions. The counseling may be done

[[Page 55135]]

by PHA staff or another entity such as a HUD-approved housing 
counseling agency.
    The PHA must advise the family of any deadlines on locating a home, 
securing financing, and purchasing the home. In establishing such time 
limits, the PHA should ensure that a family who has executed a sales 
contract is provided reasonable time to close on the purchase of the 
home. The PHA does not issue a voucher to the family. If the family is 
unable to locate a home to purchase within the PHA established 
deadlines, the PHA may issue the family a rental voucher.
    A home may be purchased under the homeownership option if, at the 
time the PHA determines that the family is eligible to purchase the 
home with homeownership assistance, the home is either under 
construction or already existing. The home chosen by the family must 
pass an initial PHA Housing Quality Standards (HQS) inspection. (The 
HQS used for the Section 8 rental program is applicable to the 
homeownership program.) In addition, the family must hire an 
independent, professional home inspector to inspect the home selected 
by the family to identify physical defects and the condition of the 
major building systems and components. A copy of the independent 
inspection report must be given to the PHA. The family and the PHA must 
determine if any prepurchase repairs are necessary.
    The family will enter into a contract of sale with the seller. The 
family must secure its own financing for the home purchase. There is no 
prohibition against using local or State Community Development Block 
Grant (CDBG) or other subsidized financing in conjunction with the 
Section 8 homeownership program. The PHA may prohibit certain forms of 
financing, require a minimum cash downpayment, or determine that the 
family cannot afford the proposed financing. (There are no Section 8 
funds for home purchase financing. Instead, the Section 8 housing 
assistance will be provided monthly to help the family meet 
homeownership expenses.)
    It is anticipated that mortgage lenders will consider the Section 8 
assistance when underwriting the loan. If purchase of the home is 
financed with FHA-insured mortgage financing, such financing is subject 
to FHA mortgage insurance credit underwriting requirements. Otherwise, 
the underwriting standards of the individual lender and/or financing 
program will apply in cases where financing for purchase of the home is 
not FHA-insured.
    Homeownership housing assistance payments may be made directly to 
the family or to lender on behalf of the family. (Two-party checks to 
the family and lender are not authorized because such a practice is 
incompatible with typical lending documents and practices.) Before the 
housing assistance begins, the family and the PHA must execute a 
``statement of homeowner obligations.'' The Section 8 tenant-based 
housing assistance payments (HAP) contract, request for lease approval 
and lease addendum are not applicable to the Section 8 homeownership 
program.
    The homeownership housing assistance payment will equal the lower 
of (1) the payment standard minus the total tenant payment or (2) the 
monthly homeownership expenses minus the total tenant payment. The 
family is responsible for the monthly homeownership expenses not 
reimbursed by the housing assistance payment. (Total tenant payment is 
higher of the minimum rent, 10 percent of monthly income, 30 percent of 
monthly adjusted income, or the welfare rent.) The PHA must use the 
utility allowance schedule and payment standard schedules applicable to 
the Section 8 voucher rental program.
    After the homeownership housing assistance payments begin, the PHA 
will annually reexamine family income and composition and make 
appropriate adjustments to the amount of the monthly housing assistance 
payment. There is no requirement for the PHA to conduct an annual HQS 
inspection.
    Except for elderly and disabled families, Section 8 homeownership 
assistance may only be paid for a maximum period of 15 years if the 
initial mortgage incurred to finance purchase of the home has a term 
that is 20 years or longer. In all other cases, the maximum term of 
homeownership assistance is 10 years. The PHA may not establish shorter 
or longer maximum terms. The maximum term for homeownership assistance 
applies to any member of the household who has an ownership interest in 
the unit during any time that homeownership payments are made, or is 
the spouse of any member of the household who has an ownership interest 
in the unit at the time homeownership payments are made.
    The maximum term for homeownership assistance does not apply to an 
elderly family or a disabled family. In the case of an elderly family, 
this exception is only applied if the family qualifies as an elderly 
family at the commencement of homeownership assistance. In the case of 
a disabled family, this exception applies if at any time during receipt 
of homeownership assistance the family qualifies as a disabled family. 
If, during the course of homeownership assistance, the family ceases to 
qualify as a disabled or elderly family, the maximum term becomes 
applicable from the date homeownership assistance commenced. However, 
such a family must be provided at least 6 months of homeownership 
assistance after the maximum term becomes applicable (provided the 
family is otherwise eligible to receive Section 8 homeownership 
assistance).
    PHAs shall recapture a percentage of homeownership assistance 
defined in the regulations upon the sale or refinancing of the home. 
Sales proceeds that are used by the family to purchase a new home with 
Section 8 homeownership assistance are not subject to recapture. 
Further, a family may refinance to take advantage of lower interest 
rates, or better mortgage terms, without any recapture penalty. Only 
those proceeds realized upon refinancing that are retained by the 
family (for example during a ``cash-out'' of the refinanced debt) are 
subject to the program recapture provision.
    A PHA opting to administer the Section 8 homeownership program must 
establish local homeownership policies. The following policies must be 
described in the PHA administrative plan: any additional PHA 
requirements for participation in its Section 8 homeownership program 
(Sec. 982.626(b)); PHA maximum times to locate and purchase a home 
(Sec. 982.629(a)); PHA policy about issuing the family a rental voucher 
if the family does not find a suitable house to buy (Secs. 982.629(c)); 
any minimum cash downpayment or equity requirements (Sec. 982.632); any 
requirements for financing purchase of a home, including requirements 
concerning qualification of lenders (for example, prohibition of seller 
financing or case-by-case approval of seller financing), terms of 
financing (for example, a prohibition of balloon payment mortgages and 
establishment of a minimum homeowner equity requirement), and financing 
affordability (Sec. 982.632); any PHA requirements for continuation of 
homeownership assistance (Sec. 982.633(b)(8)); PHA policy for 
determining the amount of allowable homeownership expenses 
(Sec. 982.635(c)); PHA policy for payment of the HAP to the family or 
lender (Sec. 982.635(d)); and any PHA policies that prohibit more than 
one move by the family during any one year period (Sec. 982.637(a)(3)).

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B. Who Is Assisted

1. General
    The homeownership option is used to assist families in two types of 
housing:
     A unit owned by the family--One or more family members 
hold title to the home.
     A cooperative unit--One or more family members hold 
membership shares in the cooperative.
2. Assistance for Homeowner
    Before enactment of Section 8(y), Section 8 assistance could be 
paid on behalf of a renter or cooperative member, but not for a family 
that owns fee title to its home. Section 8 rental assistance terminates 
when the family takes title to the home. By contrast, Section 8(y) is 
specifically designed to authorize assistance for a ``homeowner''--a 
family that owns title to the home.
    The law provides that the public housing agency may provide 
assistance for:
     A ``first-time homeowner''; and
     A family that owns or is acquiring shares in a 
cooperative.
    By law and this rule, the homeownership option is designed to 
promote and support homeownership by a ``first-time'' homeowner--a 
family that moves for the first time from rental housing to a family-
owned home. Section 8 payments supplement the family's own income to 
facilitate the transition from rental to homeownership. The initial 
availability of these assistance payments helps the family pay the 
costs of homeownership, and may provide additional assurance for a 
lender, so that the family can finance purchase of the home.
    Section 8 homeownership assistance for cooperative homeowners is 
specifically authorized for both a family that is a first time 
cooperative homeowner and a family that owned its cooperative unit 
prior to receiving Section 8 assistance. Cooperative homeowners were 
eligible for tenant-based assistance prior to passage of the Public 
Housing Reform Act.
    To qualify as a ``first-time homeowner,'' the assisted family may 
not include any person who owned a ``present ownership interest'' in a 
residence of any family member during the three years before the 
commencement of homeownership assistance for the family (regulatory 
definition at Sec. 982.4; statutory definition at 42 U.S.C. 
1437f(y)(7)(A)). Such interest includes ownership of title or of 
cooperative membership shares. This rule defines the term ``first-time 
homeowner'' to include a single parent or displaced homemaker who, 
while married, owned a home with his or her spouse, or resided in a 
home owned by his or her spouse.
    The restriction to ``first-time'' homeowners is intended to direct 
homeownership assistance to ``new'' homeowners who may be unable to 
purchase a home without this assistance, but to discourage use of 
Section 8 subsidy on behalf of families who have achieved homeownership 
independently, without benefit of the Federal Section 8 subsidy. In 
addition, the PHA may not commence homeownership assistance for a 
family if any family member has previously received assistance under 
the homeownership option, and has defaulted on a mortgage securing debt 
incurred to purchase the home (see Sec. 982.627(e) of this final rule).
3. Assistance for Cooperative Member
    Section 8(y) authorizes homeownership assistance for a family that 
``owns or is acquiring shares in a cooperative.'' Thus, the law allows 
assistance for a family that already owns cooperative shares before 
commencement of Section 8 homeownership assistance, not just for a 
family that acquires cooperative shares for the first time with the 
support of such assistance. In this respect, the law treats ownership 
of cooperative membership different from ownership of title to the 
home. In the latter case, the law authorizes assistance for a first 
time homeowner. The rule specifies that cooperative membership shares 
may be purchased at or before commencement of homeownership assistance 
(see the definition of ``membership shares'' at Sec. 982.4).
    Before this rule, HUD has provided essentially the same Section 8 
rental assistance for a cooperative member as for a family that chooses 
to rent a unit in conventional rental housing. Since the origin of the 
Section 8 program, the law has provided that with respect to members of 
a cooperative, ``rent'' means the charges under the occupancy 
agreements between the members and the cooperative (42 U.S.C. 
1437f(f)(5)). Thus Section 8 assistance is paid to cover the difference 
between the cooperative occupancy charges and the income-based tenant 
rent.
    Under this final rule, the PHA may provide assistance for a 
cooperative member either under the new homeownership option or under 
the special procedures for cooperative housing within the Section 8 
tenant-based rental program (Sec. 982.619). Each form of assistance is 
designated as a separate special housing type under the Section 8 
voucher program. The PHA may elect to offer either or both of these 
forms of cooperative assistance in its voucher program, and to define 
the appropriate role of each available form of cooperative assistance 
in the local Section 8 program.
    In the new homeownership option, Section 8 assistance is paid on 
behalf of a cooperative member, but there is no requirement that the 
cooperative enter into any agreement or any direct relationship with 
the PHA that provides Section 8 assistance for the cooperative member. 
The cooperative is not asked to modify any ordinary requirement for 
cooperative membership or occupancy, nor asked to modify any 
requirement concerning assessment or collection of the cooperative 
carrying charge, maintenance of the unit or sanctions for violation of 
cooperative requirements.
    For clarity, in describing requirements for homeownership 
assistance to a cooperative member, the new rule supplements existing 
definitions. The term ``cooperative'' refers to housing owned by a 
corporation or association, and where a member of the corporation or 
association has the right to reside in a particular unit, and to 
participate in management of the housing (Sec. 982.4). The rule also 
adds the following two new definitions:
     Cooperative member. A family of which one or more members 
owns membership shares in a cooperative.
     Membership shares. Shares in a cooperative. By owning such 
cooperative shares, the share-owner has the right to reside in a 
particular unit in the cooperative, and the right to participate in 
management of the housing.
    Prior to the enactment of the Public Housing Reform Act, a family 
could only receive assistance in a cooperative that had adopted 
requirements to maintain continued affordability for lower income 
families after transfer of a member's interest. There is now no such 
statutory affordability requirement for Section 8 tenant-based 
assistance to cooperative residents--whether such assistance is 
provided under the rental assistance program or under the new Section 
8(y) homeownership option--and there is no such requirement under this 
rule.
    HUD believes that such a continuing affordability requirement would 
restrict housing choice of Section 8 families among available 
cooperative units. Such a requirement would also diminish a major 
advantage of homeownership--the incentive for an assisted family to 
maintain and improve the housing and to benefit from appreciation upon 
a future sale of the home. This rule

[[Page 55137]]

removes the federal mandate for existing continuing affordability 
requirements for rental assistance in cooperative housing.
    In addition, this rule modifies the allocation of maintenance 
responsibility between the cooperative and the family. In the regular 
rental assistance program, the owner is responsible for most 
maintenance of a unit. Under the old rule, this principle also applies 
to rental assistance for Section 8 cooperative housing. However, in a 
conventional cooperative, the member is generally responsible for 
maintenance of the individual apartment, and the cooperative entity is 
only responsible for maintenance of common areas and systems. The 
cooperative agreement defines the division of maintenance obligations 
between the member and the cooperative.
    The existing regulation is amended by this rule to reflect the 
normal division of maintenance responsibility in cooperative housing 
for which rental (not homeownership) assistance is being provided 
(Sec. 982.619(d)(3)). The revised rule provides that the family is 
responsible for a breach of the HQS caused by failure to perform 
maintenance in accordance with the cooperative occupancy agreement 
between the family and the cooperative. The PHA must take prompt and 
vigorous action to enforce the family maintenance obligation, and may 
terminate assistance for failure to perform maintenance in accordance 
with the cooperative occupancy agreement (Sec. 982.619(d)(4)).
    During the term of the HAP contract between the PHA and the 
cooperative, the unit and premises must be maintained in accordance 
with the Section 8 HQS. If the contract unit and premises are not 
properly maintained, the PHA may exercise all available remedies, 
regardless of whether the family or the owner is responsible for such 
breach of the HQS. PHA remedies for breach of the HQS include recovery 
of overpayments, suspension of housing assistance payments, abatement 
or other reduction of housing assistance payments, termination of 
housing assistance payments and termination of the HAP contract 
(Sec. 982.619(d)(1)).
    In the new homeownership cooperative option under Section 8(y), 
there is no HAP contract (between the PHA and the cooperative as unit 
``owner'') and no lease (between the cooperative and the family). The 
unit is only inspected before the commencement of assistance. There is 
no requirement that the family or cooperative assure that the unit 
continues to satisfy HQS during the continuation of assisted occupancy. 
Consequently, there is no need to specify any allocation of maintenance 
responsibility between the cooperative and the family.
4. Lease-Purchase Agreements
    The law and rule explicitly permit Section 8 homeownership 
assistance for a family that purchases a home that the family 
previously occupied under a ``lease-purchase agreement''--generally a 
lease with option to purchase. Section 8(y) provides that the PHA may 
provide Section 8 homeownership assistance for an eligible family that 
purchases ``a unit under a lease-purchase agreement'' (42 U.S.C. 
1437f(y)(1)).
    Prior to enactment of the Public Housing Reform Act, a family that 
received Section 8 rental subsidy could exercise an option to purchase 
the unit under a lease-purchase agreement. However, there were problems 
in applying the rent reasonableness requirements and, as noted above, 
Section 8 rental subsidy terminated when the family took title to the 
home. Thus the prospective loss of subsidy discouraged the family from 
taking title, and moving from rental to homeownership. However, Section 
8(y) now provides a vehicle for continuation of Section 8 assistance 
after the family takes title to the home.
    To qualify as a first-time homeowner (as noted above) the family 
may not have owned title to a principal residence in the last three 
years. The rule specifies, however, that the right to purchase title 
under a lease-purchase agreement does not constitute a prohibited 
``present ownership interest.'' A family that holds an option to 
purchase may exercise the option and receive assistance under the new 
homeownership option.
    A new Sec. 982.317 is added to describe the requirements for lease-
purchase agreements. The housing assistance payment for a lease-
purchase unit may not exceed the amount that would be paid on behalf of 
the family if the rental unit was not subject to a lease-purchase 
agreement. Any ``homeownership premium'' included in the rent to the 
owner that would result in a higher subsidy amount than would otherwise 
be paid by the PHA must be absorbed by the family. ``Homeownership 
premium'' is defined as an increment of value attributable to the value 
of the lease-purchase right or agreement such as an extra monthly 
payment to accumulate a downpayment or reduce the purchase price. 
Families are permitted to pay an extra amount out-of-pocket to the 
owner for purchase related expenses.
    Section 982.317 also provides that in determining whether the rent 
to owner for a unit subject to a lease-purchase agreement is a 
reasonable amount, any ``homeownership premium'' paid by the family to 
the owner must be excluded when the PHA determines rent reasonableness.
    Lease-purchase agreements are considered rental, and all the normal 
tenant-based Section 8 rental rules are applicable. The family will be 
subject to the homeownership regulatory requirements at the time the 
family is ready to exercise the homeownership option under the lease-
purchase agreement. At that point in time, the PHA will determine 
whether the family is eligible for Section 8 homeownership assistance 
(e.g., whether the family meets the income and employment thresholds 
and any other criteria established by the PHA). If determined eligible 
for a homeownership voucher, the family will then arrange for an 
independent home inspection, attend counseling sessions, and obtain 
financing. Homeownership assistance will begin when the family 
purchases the home and after all of the requirements of the 
homeownership option are met.

C. How to Qualify for Homeownership Assistance

1. General
    To qualify for assistance under the homeownership option, a family 
must meet the general requirements for admission to the PHA's Section 8 
tenant-based voucher program, and additional special requirements for 
homeownership assistance (Sec. 982.627). The PHA may not provide 
homeownership assistance for a family unless the PHA determines that 
the family satisfies all of the following initial requirements at 
commencement of homeownership assistance for the family:
     The family satisfies the minimum income requirements 
described in Sec. 982.627(c) of the final rule;
     The family satisfies the employment requirements described 
in Sec. 982.627(d) of the final rule;
     The family has not defaulted on a mortgage securing debt 
to purchase a home under the homeownership option (see Sec. 982.627(e) 
of the final rule);
     Except for cooperative members who have acquired 
cooperative membership shares prior to the commencement of 
homeownership assistance, no family member has a present ownership 
interest in a residence at the commencement of

[[Page 55138]]

homeownership assistance for the purchase of any home;
     Except for cooperative members who have acquired 
cooperative membership shares prior to the commencement of 
homeownership assistance, the family has entered into a contract of 
sale in accordance with Sec. 982.631(c);
     The family satisfies any other initial requirements 
established by the PHA.
2. Minimum Income Requirement
    To enter the Section 8 voucher program, a family must be income-
eligible (i.e., below the maximum income cutoff). However, to qualify 
for the homeownership option in the voucher program, the family must 
demonstrate sufficient income to meet a minimum income standard, which 
is intended to assure that a family will have sufficient income to pay 
homeownership and other family expenses not covered by the Section 8 
subsidy.
    Section 8(y) provides that a family may not receive homeownership 
assistance unless the family demonstrates that gross monthly income is 
at least two times the voucher ``payment standard'' or an ``other 
amount'' established by the Secretary (Section 8(y)(1)(B), 42 U.S.C. 
1437f(y)(1)(B)).
    At the request of several public commenters, the final rule 
establishes a national minimum income requirement that is equal to 
2,000 hours of annual full-time work at the Federal minimum wage. In 
response to public comment, the final rule also provides that the adult 
family members who will own the home at the commencement of the 
homeownership assistance (as opposed to only the head of household or 
spouse) must have annual income (gross income) that is not less than 
the minimum income requirement.
    The law does not specify whether the minimum income requirement is 
only applied at initial qualification for commencement of homeownership 
assistance, or is also a continuing requirement that must be maintained 
so long as the family is receiving assistance under the homeownership 
option. (By contrast, the law explicitly provides that the statutory 
employment requirement only applies at the time the family initially 
receives homeownership assistance.) HUD has decided that any minimum 
income requirement will only be applied to determine initial 
qualification to purchase a particular home, not as a continuing 
requirement. This policy gives assurance to the family, and possibly to 
a potential mortgage lender, that the stream of homeownership 
assistance payments will not be disrupted because of a drop in family 
income. Any minimum income requirement will only apply again if the 
family purchases a subsequent home with Section 8 homeownership 
assistance.
    The law provides that the income counted in meeting any minimum 
income requirement under the homeownership option must come from 
sources other than welfare assistance. Thus, PHAs may limit 
homeownership assistance to families with substantial non-welfare 
income available to pay housing and non-housing costs. However, the law 
provides that HUD may count welfare assistance in determining 
availability of voucher homeownership assistance for an elderly or 
disabled family (in which the household head or spouse is an elderly or 
disabled person). (The term ``welfare assistance'' is defined in HUD's 
regulations at Sec. 5.603, thereby identifying the types of income that 
may not be included in determining whether a family meets the 
homeownership minimum income standard.)
    The rule also clarifies that the requirement to disregard welfare 
assistance income only applies in determining whether a family has the 
minimum income to qualify for homeownership assistance. However, 
welfare assistance income is counted for other program purposes: in 
determining income-eligibility for admission to the voucher program, in 
calculating the amount of the family's total tenant payment (gross 
family contribution); and in calculating the amount of the monthly 
homeownership assistance payment for a family assisted under the 
homeownership option.
    Under the law, HUD may permit PHAs to count welfare assistance 
income of an ``elderly family'' or a ``disabled family''--a family 
whose head or spouse is elderly or disabled (definitions of these terms 
are found in section 3(b)(3)(B) of the 1937 Act; 42 U.S.C. 
1437a(b)(3)(B))--in determining whether a family has the minimum income 
to qualify for homeownership assistance. On consideration of this 
issue, and recognizing the special needs of such families, the rule 
requires that the PHA count welfare assistance of an elderly or 
disabled family in determining whether the family meets the minimum 
income requirement for homeownership assistance. This requirement to 
count welfare assistance in determining whether a family has the 
minimum income to qualify for homeownership assistance only applies, 
however, to families which satisfy the statutory definition of an 
elderly or disabled family. In particular, as required by the law, the 
requirement to count welfare assistance income does not apply in the 
case of a family that includes a disabled person other than the 
household head or spouse (and where the household head or spouse are 
not elderly or disabled).
3. Family Employment
    Section 8(y) provides that, except as provided by HUD, the family 
must be able to demonstrate, at the time that the family initially 
receives homeownership assistance, that one or more adult members of 
the family have achieved employment for the time period established by 
HUD (42 U.S.C. 1437f(y)(1)(B)).
    The final rule requires that the family must demonstrate that one 
or more adult members of the family who will own the home at 
commencement of homeownership assistance:
     Is currently employed on a full-time basis (the term 
``full-time employment'' is defined to mean not less than an average of 
30 hours per week); and
     Has been continuously so employed during the year before 
commencement of homeownership assistance for the family.
    The final rule provides that the PHA has the discretion to 
determine whether (and to what extent) an employment interruption is 
considered permissible in satisfying the employment requirement. The 
final rule also clarifies that the PHA may consider successive 
employment during the one-year period and self-employment in a 
business.
    The employment requirement does not apply to an elderly family or a 
disabled family. Furthermore, if a family, other than an elderly family 
or a disabled family, includes a person with disabilities, the PHA must 
grant an exemption from the employment requirement if the PHA 
determines that an exemption is needed as a reasonable accommodation so 
that the program is readily accessible to and usable by persons with 
disabilities.
4. Discussion of Other Requirements
    a. Homeownership counseling. Section 8(y) provides that a family 
that receives assistance under the homeownership option must 
participate in a homeownership and housing counseling program provided 
by the PHA (42 U.S.C. 1437f(y)(1)(D)). The rule provides that, before 
commencement of homeownership assistance for a family, the family must 
attend and satisfactorily complete the pre-assistance homeownership and 
housing counseling program required by the PHA (pre-assistance 
counseling) (Sec. 982.630).

[[Page 55139]]

Suggested topics for the PHA-required pre-assistance counseling program 
include:
     Home maintenance (including care of the grounds);
     Budgeting and money management;
     Credit counseling;
     How to negotiate the purchase price of a home;
     How to obtain homeownership financing and loan 
preapprovals, including a description of types of financing that may be 
available, and the pros and cons of different types of financing;
     How to find a home, including information about 
homeownership opportunities, schools, and transportation in the PHA 
jurisdiction;
     Advantages of purchasing a home in an area that does not 
have a high concentration of low-income families and how to locate 
homes in such areas;
     Information on fair housing, including fair housing 
lending and local fair housing enforcement agencies; and
     Information about the Real Estate Settlement Procedures 
Act (12 U.S.C. 2601 et seq.) (RESPA), state and Federal truth-in-
lending laws, and how to identify and avoid loans with oppressive terms 
and conditions.
    The PHA may adapt subjects covered in pre-assistance counseling to 
local circumstances and the needs of individual families. The PHA may 
also offer additional counseling after commencement of homeownership 
assistance (ongoing counseling). If the PHA offers a program of ongoing 
counseling for participants in the homeownership option, the PHA has 
the discretion to determine whether the family is required to 
participate in the ongoing counseling.
    The counseling may be provided by the PHA, another entity such as a 
HUD-approved housing counseling agency, or by both the PHA and another 
entity. HUD-approved housing counseling agencies provide free 
counseling. The HUD field office will provide the PHA with a list of 
the HUD-approved counseling agencies. If the PHA is not using a HUD-
approved housing counseling agency to provide the counseling for 
families participating in the homeownership option, the PHA should 
ensure that its counseling program is consistent with the homeownership 
counseling provided under HUD's Housing Counseling program.
    Experience with low-income homeownership programs has demonstrated 
that quality counseling is imperative for successful homeownership and 
prevention of mortgage defaults. In addition, counseling will assist 
families in making informed decisions when selecting the home they wish 
to purchase.
    b. Financing purchase of home. Families selected to participate in 
the Section 8 homeownership program must secure their own financing. If 
the family applies for a mortgage or loan (including an FHA mortgage), 
all regular lender underwriting and property inspection requirements 
apply.
    The rule provides that a PHA may establish requirements for 
financing purchase of a home to be assisted under the homeownership 
option (Sec. 982.632). All PHA financing or affordability requirements 
must be described in the PHA administrative plan. The PHA may also set 
requirements concerning qualifications of lenders and terms of 
financing. For example, a PHA may determine that mortgages with balloon 
payments and certain kinds of variable interest rate loans are not in 
the best interest of the family because it is unlikely the family could 
afford the payments when the balloon comes due or interest rates rise. 
In addition, the PHA could opt to prohibit seller financing, or to only 
allow seller financing in cases when the seller is a nonprofit or the 
purchase price can be clearly supported by an independent appraisal.
    Another purpose of the PHA financing review would be to determine 
whether the monthly mortgage or loan payment is affordable after 
considering other family expenses. The PHA may disapprove proposed 
financing, refinancing or other debt if the PHA determines that the 
debt is unaffordable. PHAs may wish to establish minimum initial 
downpayment requirements to ensure that the family has a personal 
financial stake in the home, thus helping to minimize mortgage loan 
defaults (for example, the PHA may require that the family use its own 
resources to make the entire initial downpayment, or a percentage of 
the initial downpayment).
    c. Home inspections. Two kinds of physical inspections are required 
in the homeownership option (in addition to, and separate from, any 
lender required inspections): an HQS inspection by the PHA and an 
independent professional home inspection by an inspector that is used 
in the private market by homebuyers. (Sec. 982.631).
    The PHA inspection is the normal initial HQS inspection conducted 
by the PHA for the tenant-based rental assistance program. This 
inspection will indicate the current physical condition of the unit and 
any repairs necessary to ensure that the unit is safe and otherwise 
habitable. The PHA HQS inspection does not include an assessment of the 
adequacy and life span of the major building components, building 
systems, appliances and other structural components.
    The only difference between the HQS inspection requirements for the 
tenant-based rental and homeownership programs is that the PHA is not 
required by the regulation to conduct annual inspections. The exemption 
from annual HQS homeownership inspections is authorized by the statute. 
The initial (prior to the commencement of housing assistance) HQS 
inspection is the only PHA inspection required for homeownership units 
during the entire time the family is receiving Section 8 homeownership 
assistance.
    The other inspection required by this final rule is a statutory 
requirement that is consistent with private real estate practice. The 
independent professional home inspection is conducted by a private 
market home inspector (not PHA staff) that is experienced and qualified 
to conduct prepurchase inspections for homebuyers. The purpose of the 
home inspection is the identification of home defects and an assessment 
of the adequacy and life span of the major building components, 
building systems, appliances and other structural components. The 
requirement for an inspection arranged by the buyer and satisfactory to 
the buyer is a typical contingency clause in contracts of sale. The 
Section 8 family selects the home inspector and pays the home 
inspector's fees. (The source of funds for family payment of the home 
inspection may be a gift, family savings or an inheritance, or sources 
other than family savings.) A copy of the inspection report is provided 
to the family and the PHA.
    Although the PHA may not require the family to use a particular 
inspector, the PHA may establish standards for qualification of the 
home inspector selected by the family. For example, the PHA may require 
the use of a home inspector certified by the American Society of Home 
Inspectors, or a similar national organization.
    The PHA must review the home inspector's report to determine 
whether repairs are necessary prior to purchase, and to generally 
assess whether the purchase transaction makes sense in light of the 
overall condition of the home and the likely costs of repairs and 
capital expenditures. For example, the home inspector's report might 
reveal foundation instability, and a defective roof and heating system 
that needs immediate replacement at great cost. Confronted with these 
facts the PHA would discuss the inspection results

[[Page 55140]]

with the family and decide whether to disapprove the unit for 
assistance under the homeownership option because of the major physical 
problems and substantial correction costs, or whether it is feasible to 
have the necessary repairs accomplished prior to sale.
    d. Switching from Section 8 homeownership voucher assistance to 
rental voucher assistance, and vice-versa, after a mortgage default and 
at other times. There are a number of circumstances under which a 
family may switch between rental and homeownership assistance under the 
voucher program. Various scenarios are described below.
     A Section 8 participant receiving voucher assistance may 
request a PHA operating a homeownership program to determine whether 
the family is eligible for Section 8 homeownership assistance. If the 
family is determined eligible for homeownership assistance, the PHA may 
authorize the family to search for a home to purchase. The family would 
continue to receive rental assistance until the family vacates the 
rental unit (consistent with the lease).
     A Section 8 applicant selected from the PHA waiting list 
goes to the briefing and learns of the homeownership option. The PHA 
determines the family is eligible for homeownership and the family is 
given two months to find a home to purchase. At the end of the two 
months the PHA extends the search period for an additional month 
because the family has found a unit. However, the purchase never occurs 
due to problems qualifying for a loan. The family opts to rent an 
apartment and try homeownership at a later time after they have 
increased their savings. The PHA issues the family a rental voucher.
     The family purchases a home under the Section 8 
homeownership option. After several years the family decides that they 
prefer to live in a rental apartment. If there is no mortgage loan 
default and the family has met all obligations under the Section 8 
program, the PHA may issue the family a rental voucher. The family must 
sell the home before the PHA may provide rental assistance. If there is 
a default on a mortgage (whether FHA-insured or non-FHA), the PHA may 
exercise the PHA option to issue the family a rental voucher only if 
the family vacates the home and conveys the title in accordance with 
Sec. 982.638(d) (assuming the family has met all the family obligations 
under the Section 8 program other than not causing a mortgage default).
    e. Portability. Generally, a family determined eligible for 
homeownership assistance by the initial PHA may purchase a unit outside 
of the initial PHA's jurisdiction, if the receiving PHA is 
administering a voucher homeownership program and is accepting new 
homeownership families. In general, the portability procedures for the 
Housing Choice Voucher program (described in Secs. 982.353 and 982.355) 
apply to the homeownership option and the administrative 
responsibilities of the initial and receiving PHA are not altered 
except that some administrative functions (e.g, issuance of a voucher 
or execution of a tenancy addendum) do not apply to the homeownership 
option.
    The receiving PHA may absorb the homeownership family or bill the 
initial PHA for the homeownership housing assistance using the normal 
portability billing process. Communications between the initial and 
receiving PHA are necessary. As is the case for Section 8 rental 
portable families, all of the receiving PHA's administrative policies 
are applicable to the homeownership family. The family will be required 
to attend the briefing and counseling sessions required by the 
receiving PHA. The receiving PHA, not the initial PHA, will determine 
whether the financing for and the physical condition of the unit are 
acceptable.
    f. Buying another home with Section 8 assistance. A homeownership 
family may purchase another home with Section 8 assistance provided 
there is no mortgage loan default. The family must sell its current 
home in order to purchase another with homeownership assistance.
    As noted above, PHAs shall recapture a percentage of homeownership 
assistance defined in the regulations upon the sale or refinancing of 
the home. Proceeds invested in the purchase of another home are exempt 
from recapture. Most of the homeownership requirements applicable to 
the first home purchase remain applicable to a subsequent purchase. For 
example, the family must once again meet the employment threshold. The 
necessity of any counseling will be determined by the PHA. An 
independent home inspection will be conducted and the PHA will 
determine the acceptability of the financing. The maximum term of 
homeownership assistance applies to the cumulative time the family 
receives homeownership assistance. The only exception to eligibility 
requirements applicable to initial receipt of homeownership assistance 
is that the family need not meet the first-time homebuyer requirement 
(See Sec. 982.637(b)).
    g. Applicability of the Section 8 tenant-based voucher requirements 
to the homeownership option. Section 982.641 details the portions of 
the voucher regulations that apply to the homeownership special housing 
type. PHAs should carefully review this section of the regulations.
    It is noted that all civil rights laws applicable to the Section 8 
voucher program are applicable to the homeownership program. PHAs must 
comply with all equal opportunity and nondiscrimination requirements 
imposed by contract or Federal law. In addition, PHAs are reminded that 
``finders-keepers'' applies to homeownership assistance; PHAs may not 
steer families to particular units or neighborhoods. Further, as in the 
tenant-based rental voucher program, PHAs must provide assistance to 
expand housing opportunities. The PHA briefing for both rental and 
homeownership families must explain:
     Where the family may lease or purchase a unit;
     How portability works (if the family qualifies to lease or 
purchase a unit outside the PHA jurisdiction under portability 
procedures); and
     The advantages of moving to an area that does not have a 
high concentration of poor families (if the family is currently living 
in a high poverty census tract within the jurisdiction of the PHA).
    Further, if the family includes any person with disabilities, the 
PHA must take appropriate steps to ensure effective communication 
during the briefing in accordance with 24 CFR 8.6.
    h. Link between Section 8 homeownership and the Family Self-
Sufficiency (FSS) Program. PHAs may wish to link Section 8 
homeownership with the FSS program. For example, participation in the 
FSS program could be a PHA eligibility requirement. The PHA may also 
opt to incorporate the homeownership goal into the family's FSS 
contract of participation so any FSS escrow could be advanced for 
purchase of a home or home maintenance/improvement purposes. It is 
noted that FSS families must meet the homeownership income and 
employment thresholds.
    i. PHA determination of ``homeownership expense''. Section 
982.635(c) details the expenses that the PHA will include when 
determining the family's homeownership expenses. The principal and 
interest amount is the debt service amount for the initial (original) 
mortgage debt, any refinancing of such debt, and any mortgage insurance 
premium. The utility allowance is the same utility allowance schedule 
as used in the rental voucher program. The PHA allowance for

[[Page 55141]]

maintenance expenses is the amount the PHA thinks is appropriate for 
routine maintenance for a home.
    The PHA allowance for major repairs and replacements is the amount 
the PHA thinks is appropriate for a replacement ``reserve'' for a home. 
If a member of the family is a person with disabilities, such debt may 
include debt incurred by the family to finance costs needed to make the 
home accessible for such person, if the PHA determines that allowance 
of such costs as homeownership expenses is needed as a reasonable 
accommodation so that the homeownership option is readily accessible to 
and usable by such person, in accordance with 24 CFR part 8.
    These allowances for maintenance expenses and major repairs and 
replacements should not be based on the condition of the home, similar 
to how utility allowances work. It is recommended that a PHA contact 
counseling agencies, local realtors and relevant national organizations 
for advice on the appropriate level for these local allowances. 
(Families are not required to put the amount set aside for these two 
maintenance allowances in the bank or in escrow. Further, it is not 
expected that the monthly amounts for these allowances will cover all 
maintenance and capital expenditures.)

III. Summary of Changes Made by this Final Rule to the April 30, 
1999 Proposed Rule

    The following discussion summarizes the most significant 
differences between the April 30, 1999 proposed rule and this final 
rule. The changes made in response to public comment are discussed in 
greater detail in sections IV., V., and VI. of this preamble.
    1. Revised definition of ``net family assets'' (Sec. 5.603(d)). In 
response to public comment, this final rule revises the definition of 
``net family assets'' located in 24 CFR 5.603(d) to exclude the value 
of a home currently being purchased with Section 8 homeownership 
assistance. This exclusion is limited to the first 10 years after the 
purchase date of the home.
    2. Use of the term ``welfare assistance'' rather than the term 
``public assistance'' (Sec. 982.4(a)). The final rule replaces the 
proposed definition of the term ``public assistance'' with a cross-
reference to the term ``welfare assistance'', which is defined at 24 
CFR 5.603. The proposed definition of ``public assistance'' was 
redundant of HUD's existing definition of ``welfare assistance.'' 
Further, the use of the term ``welfare assistance'' in this final rule 
will help to ensure the consistent use of defined terms throughout 
HUD's regulations.
    3. Revised definition of the term ``cooperative'' (Sec. 982.4(b)). 
In response to public comment, the definition of the term 
``cooperative'' in the final rule is no longer limited to housing owned 
by a nonprofit entity.
    4. Revised definition of the term ``first-time homeowner'' 
(Sec. 982.4(b)). The definition of ``first-time homeowner'' has been 
revised to clarify that any family who has owned any residential 
property during the preceding three years (regardless of whether its is 
the family's principal residence) does not meet the definition of a 
``first-time'' homeowner. The final rule also clarifies that a single 
parent or displaced homemaker who, while married, owned a home with a 
spouse (or resided in a home owned by a spouse) is considered a 
``first-time homeowner'' for purposes of the Section 8 homeownership 
option.
    5. Separate definition of the term ``Present ownership interest'' 
(Sec. 982.4(b)). For purposes of clarity, this final rule provides a 
separate definition of the term ``present ownership interest.'' The 
proposed rule had defined this term within the definition of the term 
``first-time homeowner.''
    6. Overview of special housing types (Sec. 982.601). This final 
rule reorganizes and makes several clarifying changes to Sec. 982.601, 
which provides an overview of the special housing types. For example, 
the changes clarify that the provisions of subpart M of 24 CFR part 982 
apply solely to the specific special housing type noted in the heading 
of each regulatory section. Further, the revisions clarify that the PHA 
may not set aside program funds or program slots for special housing 
types or for a specific special housing type. These technical changes 
do not establish or modify existing program requirements, but are 
designed solely to make Sec. 982.601 easier to understand.
    7. PHA capacity to operate successful Section 8 homeownership 
program (Sec. 982.625(d)). This final rule adds a new Sec. 982.625(d), 
which requires that a PHA wishing to provide Section 8 homeownership 
assistance must have the capacity to operate a successful homeownership 
program. The PHA has the required capacity if it either:
     Establishes a minimum homeowner downpayment requirement of 
at least 3 percent of the purchase price for participation in its 
Section 8 homeownership program, and requires that at least one percent 
of the purchase price come from the family's personal resources;
     Requires that financing for purchase of a home under its 
Section 8 homeownership program be provided, insured, or guaranteed by 
the state or Federal government, comply with secondary mortgage market 
underwriting requirements, or comply with generally accepted private 
sector underwriting standards; or
     Otherwise demonstrates in its Annual Plan that its has the 
capacity, or will acquire the capacity, to successfully operate a 
Section 8 homeownership program. A PHA may acquire this capacity by 
either partnering with an entity experienced in reviewing homeownership 
financing or by hiring staff with such experience.
    The final rule also makes a conforming change to HUD's PHA Plan 
regulations at 24 CFR part 903. The revision is necessary so that the 
capacity requirement can be applied fully to high-performing PHAs 
wishing to provide Section 8 homeownership assistance. The final rule 
amends Sec. 903.11 to provide that the information required by 
Sec. 903.7(k) pertaining to homeownership programs must be included in 
the PHA's streamlined Annual Plan submission only to the extent that 
the PHA participates in homeownership programs under section 8(y) of 
the 1937 Act.
    8. Reorganization of Eligibility requirements (Secs. 982.626, 
982.627, and 982.628). For purposes of clarity, this final rule 
reorganizes the eligibility requirements for participation in the 
homeownership option located in Secs. 982.626 and 982.627 of the 
proposed rule). Section 982.626 of the final rule describes the initial 
requirements that must be satisfied before the commencement of 
homeownership assistance. Section 982.627 of the final rule sets forth 
the eligibility requirements (such as the minimum income and employment 
requirements) for families wishing to participate in the homeownership 
option. Section 982.628 of the final rule describes the eligibility 
requirements for homes purchased with homeownership assistance. With 
the exception of those changes described elsewhere in this preamble, 
this reorganization is not substantive, but is intended to clarify 
these regulatory requirements. The substance of proposed Sec. 982.628 
and subsequent regulatory sections have been redesignated to conform to 
the establishment of new Sec. 982.628 (for example, proposed 
Sec. 982.628 has become Sec. 982.629 of this final rule, proposed 
Sec. 982.630 has become Sec. 982.631, etc.).
    9. Homeownership assistance as a reasonable accommodation 
(Sec. 982.627(b)(3)). This final rule revises Sec. 982.627 to clarify 
that a family

[[Page 55142]]

containing a family member with disabilities who requires homeownership 
assistance as a reasonable accommodation is eligible for the 
homeownership option, regardless of whether the family is a cooperative 
member or a first-time homeowner (as those terms are defined at 
Sec. 982.4).
    10. Prohibition on the provision of homeownership assistance to 
family with present ownership interest (Sec. 982.627(a)(6)). This final 
rule clarifies that, except for cooperative members who have acquired 
cooperative membership shares prior to the commencement of 
homeownership assistance, no family member may have a present ownership 
interest in a residence at the commencement of homeownership assistance 
for the purchase of any home.
    11. Establishment of national minimum income requirement 
(Sec. 982.627(c)). At the request of several public commenters, the 
final rule establishes a national minimum income requirement that is 
equal to 2,000 hours of annual full-time work at the Federal minimum 
wage. A PHA may not establish a minimum income requirement in addition 
to the minimum income standard established by this rule.
    12. Fulfilling the minimum income requirement (Sec. 982.627(c)(1)). 
In response to public comment, the final rule provides that the adult 
family members who will own the home at the commencement of the 
homeownership assistance (as opposed to only the head of household or 
spouse) must have annual income (gross income) that is not less than 
the minimum income requirement.
    13. Establishment of national employment requirement 
(Sec. 982.627(d)). At the request of several public commenters, this 
final rule establishes a uniform national employment requirement. For 
purposes of uniformity, the final rule defines ``full-time employment'' 
to mean not less than an average of 30 hours per week. Further, the 
final rule adds a new Sec. 982.627(d)(4), which provides that a PHA may 
not establish an employment requirement in addition to the employment 
standard established by the final rule.
    14. Fulfilling the employment requirement (Sec. 982.627(d)(1)). The 
final rule provides that one or more adult members of the family who 
will own the home at commencement of homeownership assistance (not just 
the head of household or spouse) must fulfill the employment 
requirement.
    15. Interruptions in employment (Sec. 982.627(d)(2)). The final 
rule provides that the PHA has the discretion to determine whether (and 
to what extent) an employment interruption is considered permissible in 
satisfying the employment requirement. The final rule also clarifies 
that the PHA may consider successive employment during the one-year 
period and self-employment in a business.
    16. Eligible homes for purchase under the homeownership option 
(Sec. 982.628(a)(2)). The final rule provides that a home is eligible 
for purchase under the homeownership option if, at the time the PHA 
determines that the family is eligible to purchase the home with 
homeownership assistance, the home is either under construction or 
already existing.
    17. Provision of homeownership counseling (Sec. 982.630). The final 
rule clarifies that, although the PHA must require pre-assistance 
homeownership counseling, the PHA is not itself obligated to provide 
the required counseling.
    18. Housing counseling topics (Sec. 982.630(b)). The final rule 
clarifies that the PHA-required counseling program should ``generally'' 
cover the topics listed in Sec. 982.629(b).
    19. Fair housing as a suggested counseling topic 
(Sec. 982.630(b)(8)). The final rule expands the list of suggested 
housing counseling topics to include information on fair housing, fair 
housing lending practices, and local fair housing enforcement agencies.
    20. RESPA and predatory lending as suggested counseling topics 
(Sec. 982.630(b)(9)). The final rule expands the list of suggested 
housing counseling topics to include information about the Real Estate 
Settlement Procedures Act (12 U.S.C. 2601 et seq.) (RESPA), state and 
Federal truth-in-lending laws, and how to identify and avoid loans with 
oppressive terms and conditions.
    21. Revision of housing counseling topics (Sec. 982.630(c)). The 
final rule provides that a PHA may revise the subjects covered in the 
pre-assistance counseling to address local circumstances and the needs 
of individual families.
    22. Housing counseling standards (Sec. 982.630(e)). The final rule 
provides that, if the PHA is not using a HUD-approved housing 
counseling agency to provide the counseling for families participating 
in the homeownership option, the PHA should ensure that its counseling 
program is consistent with the homeownership counseling provided under 
HUD's Housing Counseling program.
    23. Seller certification in contract of sale that the seller is not 
debarred, suspended, or subject to a limited denial of participation 
(Sec. 982.631(c)(2)(v)). In response to public comment, the final rule 
provides that the contract of sale must contain a seller certification 
that the seller is not debarred, suspended, or subject to a limited 
denial of participation under 24 CFR part 24.
    24. Applicability of Federal Housing Administration (FHA) 
underwriting standards for non-FHA insured loans (Sec. 982.632). The 
final rule removes the requirement that purchases of homes financed 
without FHA mortgage insurance must, nonetheless, comply with the basic 
underwriting requirements for FHA-insured single family homes. However, 
the final rule continues to provide that if the purchase of the home is 
financed with FHA mortgage insurance, such financing is subject to FHA 
mortgage insurance requirements.
    25. PHA approval of refinancing agreements or securing of 
additional financing on the home (Sec. 982.632(c)). The final rule 
provides that the PHA may establish requirements or other restrictions 
concerning debt secured by the home.
    26. PHA disapproval of lender qualifications and loan terms 
(Sec. 982.632(d)). This final rule clarifies that the PHA may review 
lender qualifications and the loan terms before authorizing 
homeownership assistance. The PHA may disapprove proposed financing, 
refinancing or other debt if the PHA determines that the debt is 
unaffordable, or if the PHA determines that the lender or the loan 
terms do not meet PHA qualifications.
    27. Prohibition on ownership interest in second residence 
(Sec. 982.633(b)(7)). This final rule clarifies that no family member 
may have a present ownership interest in a second residence while 
receiving homeownership assistance.
    28. Additional requirements for continuation of homeownership 
assistance (Sec. 982.633(b)(8)). The final rule provides that the 
additional requirements for continuation of homeownership assistance 
established by the PHA may include a requirement for post-purchase 
homeownership counseling or for periodic unit inspections while the 
family is receiving homeownership assistance. With regards to post-
purchase counseling, PHAs are encouraged to at least provide the family 
written briefing materials covering the topics in the PHA-required 
housing counseling program at the time of any refinancing of the 
initial debt, or the financing for improvement or repair of the home.

[[Page 55143]]

    29. Maximum term of homeownership assistance (Sec. 982.634). The 
final rule provides for a mandatory term limit on homeownership 
assistance of 15 years if the initial mortgage incurred to finance 
purchase of the home has a term that is 20 years or longer. In all 
other cases, the maximum term of homeownership assistance is 10 years. 
The PHA may not establish shorter or longer maximum terms.
    30. Applicability of maximum term for homeownership assistance 
(Sec. 982.634). The final rule clarifies that the maximum term for 
homeownership assistance applies to any member of the household who has 
an ownership interest in the unit during any time that homeownership 
payments are made, or is the spouse of any member of the household who 
has an ownership interest in the unit at the time homeownership 
payments are made.
    As in the proposed rule, the final rule provides that the maximum 
term for homeownership assistance does not apply to an elderly family 
or a disabled family. The final rule clarifies that, in the case of an 
elderly family, this exception is only applied if the family qualifies 
as an elderly family at the commencement of homeownership assistance. 
In the case of a disabled family, this exception applies if at any time 
during receipt of homeownership assistance the family qualifies as a 
disabled family.
    If, during the course of homeownership assistance, the family 
ceases to qualify as a disabled or elderly family, the maximum term 
becomes applicable from the date homeownership assistance commenced. 
However, such a family must be provided at least 6 months of 
homeownership assistance after the maximum term becomes applicable 
(provided the family is otherwise eligible to receive homeownership 
assistance in accordance with this part).
    31. Inclusion of accessibility modifications as homeownership 
expenses (Sec. 982.635(c)(2)(vii) and Sec. 982.635(c)(3)(vii)). The 
final rule clarifies that, if a member of the family is a person with 
disabilities, eligible homeownership expenses may include debt incurred 
to finance costs needed to make the home accessible for the family 
member, if the PHA determines that the allowance is needed as a 
reasonable accommodation.
    32. Inclusion of condominium or cooperative operating charges or 
maintenance fees as homeownership expenses (Sec. 982.635(c)(4)). The 
final rule provides that, if the home is a cooperative or condominium 
unit, homeownership expenses may include cooperative or condominium 
operating charges or maintenance fees assessed by the condominium or 
cooperative homeowner association.
    33. Homeownership assistance payments to lender or family 
(Sec. 982.635(d)(2)). The final rule clarifies that, if the PHA decides 
to make the homeownership assistance payments directly to the lender, 
and the assistance payment exceeds the amount due to the lender, the 
PHA must pay the excess amount directly to the family.
    34. Automatic termination of homeownership assistance 
(Sec. 982.635(e)). The final rule clarifies that homeownership 
assistance for a family terminates automatically 180 calendar days 
after the last housing assistance payment on behalf of the family. 
However, a PHA has the discretion to grant relief from this requirement 
in those cases where automatic termination would result in extreme 
hardship for the family.
    35. Clarification of portability procedures (Sec. 982.636). This 
final rule clarifies the portability procedures for Section 8 
homeownership assistance. Generally, a family determined eligible for 
homeownership assistance by the initial PHA may purchase a unit outside 
of the initial PHA's jurisdiction, if the receiving PHA is 
administering a voucher homeownership program and is accepting new 
homeownership families. In general, the portability procedures for the 
Housing Choice Voucher program (described in Secs. 982.353 and 982.355) 
apply to the homeownership option and the administrative 
responsibilities of the initial and receiving PHA are not altered 
except that some administrative functions (e.g, issuance of a voucher 
or execution of a tenancy addendum) do not apply to the homeownership 
option.
    36. Prohibition on provision of continued assistance to family with 
interest in prior home (Sec. 982.637(a)(2)). The final rule provides 
that a PHA may not commence continued tenant-based assistance for 
occupancy of the new unit so long as any family member owns any title 
or other interest in the prior home.
    37. Denial or termination of homeownership assistance 
(Sec. 982.638). For purposes of clarity, the final rule consolidates 
the provisions regarding the denial and termination of homeownership 
assistance in a new Sec. 982.638.
    38. Continued assistance after mortgage defaults (Sec. 982.638(d)). 
This final rule clarifies the regulatory provisions regarding continued 
assistance to a family that has defaulted on a mortgage obtained 
through the homeownership option. The final rule provides that the PHA 
must terminate voucher homeownership assistance for any member of a 
family that is dispossessed from the home pursuant to a judgement or 
order of foreclosure on any mortgage (whether FHA-insured or non-FHA) 
securing debt incurred to purchase the home, or any refinancing of such 
debt. However, the family may be eligible to receive continued voucher 
rental assistance. The PHA may consider mitigating circumstances in 
determining whether to provide a family with rental assistance after a 
mortgage default.
    39. Recapture of homeownership assistance (Sec. 982.640). In 
response to public comment, the final rule provides for the recapture 
of a percentage of homeownership assistance provided to the family upon 
the sale or refinancing of the home. Sales proceeds that are used by 
the family to purchase a new home with Section 8 homeownership 
assistance are not subject to recapture. Further, a family may 
refinance to take advantage of lower interest rates, or better mortgage 
terms, without any recapture penalty. Only those proceeds realized upon 
refinancing that are retained by the family (for example during a 
``cash-out'' of the refinanced debt) are subject to the new recapture 
provision.
    The final rule requires that, upon purchase of the home, a family 
receiving homeownership assistance shall execute documentation as 
required by HUD, and consistent with State and local law, that secures 
the PHA's right to recapture the homeownership assistance. The lien 
securing the recapture of homeownership subsidy may be subordinated to 
a refinanced mortgage. The amount of homeownership assistance subject 
to recapture shall automatically be reduced over a 10 year period, 
beginning one year from the purchase date, in annual increments of 10 
percent. At the end of the 10 year period, the amount of the 
homeownership assistance subject to recapture will be zero.

IV. Public Comments Received on the April 30, 1999 Proposed Rule

    The public comment period on the April 30, 1999 proposed rule 
closed on June 29, 1999. HUD received 93 public comments. Comments were 
submitted by PHAs, including regional and State housing agencies; 
national organizations representing PHAs; legal services organizations; 
mortgage bankers; Fannie Mae and Freddie Mac; advocates for persons 
with disabilities; low-income housing advocates; and various other 
organizations and individuals. The following sections of this preamble 
present a summary of the significant

[[Page 55144]]

issues raised by the public commenters on the April 30, 1999 proposed 
rule, and HUD's responses to these comments.
    Section V. of the preamble discusses general comments that did not 
address a specific regulatory section. Section VI. of the preamble 
discusses those comments that concerned a specific regulatory provision 
of the proposed rule.

V. Discussion of General Comments Not Regarding a Specific 
Regulatory Section

A. Support for Proposed Rule

    Comment: Support for proposed rule. Several commenters expressed 
support for the proposed rule and the concept of the Section 8 
homeownership option. One commenter wrote: ``In general, [our PHA] 
commends the job that HUD has done in this component of the immense 
regulatory undertaking required by the [Public Housing Reform Act].'' 
Another commenter wrote that its board ``unanimously endorsed the 
concept of the Section 8 homeownership program, and applauds HUD for 
taking this initiative.'' Still another commenter wrote: ``[We] applaud 
the proposed Section 8 Homeownership Program.''
    HUD Response. HUD is appreciative of the comments in support of 
HUD's efforts in developing the proposed rule. HUD believes that the 
Section 8 homeownership option will provide local PHAs with greater 
flexibility in addressing the housing needs of their communities while 
creating homeownership opportunities for the low-income families the 
Section 8 tenant-based program is designed to serve.

B. General Concerns About the Proposed Rule

    Comment: HUD should prohibit or limit the use of Section 8 rental 
assistance funds for homeownership. Several commenters were opposed to 
the concept of Section 8 homeownership. These commenters wrote that 
limited Section 8 resources should be used solely to assist families in 
renting decent, safe, and sanitary units. One of the commenters wrote 
that many communities currently offer other programs with Community 
Development Block Grant (CDBG), HOME, or state or local funding to 
assist prospective first-time homebuyers. Several of the commenters 
suggested that HUD should establish reasonable upper limits on the 
number or percentage of households that can use the homeownership 
option, in order to protect the availability of rental assistance for 
extremely low-income families. According to these commenters, the 
homeownership option is geared toward families with relatively higher 
incomes than the typical Section 8 rental program participant.
    HUD response. Section 8(y) provides that a PHA, in its discretion, 
may make Section 8 homeownership assistance available to eligible 
families. HUD anticipates that PHAs will consider local circumstances 
(such as the availability of other local resources) when deciding 
whether or not to implement a homeownership program.
    HUD does not believe it is necessary to establish upper limits on 
the number of families a PHA may allow to participate in the 
homeownership option in order to protect the interests of extremely 
low-income families. Since the same income targeting requirements apply 
to the rental and homeownership components of the Section 8 Housing 
Choice Voucher program, implementation of the homeownership option 
should not have a significant effect on the availability of Section 8 
voucher assistance to extremely low-income applicants.
    Comment: The lack of uniformity in program rules for PHAs will 
discourage lender participation and impede family choice and economic 
mobility. Several commenters wrote that the proposed rule grants too 
much discretion to PHAs to establish certain critical elements of the 
homeownership program. These areas include minimum income requirements, 
program eligibility requirements, financing requirements, and the 
duration of homeownership assistance. The commenters wrote that, as a 
result of the lack of uniform rules, there will be considerable 
disparity from one jurisdiction to another unless HUD imposes uniform 
rules. The commenters wrote that such disparities would discourage 
lender participation and prevent regional efforts to expand 
homeownership opportunities. Without broad lender participation, 
families would be deprived of the protections offered by a competitive 
marketplace and would be vulnerable to fraudulent real estate and 
financing practices.
    HUD response. The final rule continues to provide PHAs with broad 
administrative flexibility over the homeownership option. Where HUD has 
determined that uniformity is appropriate (such as in the areas of 
minimum income, employment, and maximum term of assistance), this final 
rule establishes uniform Federal standards. However, HUD continues to 
believe that administrative flexibility is essential for the program to 
address local needs, adapt to local markets, and permit localized 
financing strategies in order to achieve success in individual 
communities. The approach of the final rule is consistent with two of 
the purposes of the Public Housing Reform Act: to deregulate PHAs, and 
to provide more flexible use of Federal assistance to PHAs (see section 
505(b) of the Public Housing Reform Act).
    While standardized requirements may facilitate participation by 
certain regional and national financing entities, and increase 
opportunities for sales of mortgages in the secondary market, HUD 
believes that PHA flexibility over certain features of the program will 
not preclude that result. For instance, a regional lending institution 
could establish its own requirements to participate in the section 8(y) 
program. PHAs could then choose to structure their programs accordingly 
in order to comply with and complement the lender's requirements for 
participation.

C. Comments Regarding Persons with Disabilities

    Comment: Support for rule provisions regarding the elderly and 
persons with disabilities. A number of commenters commended HUD for the 
sensitivity shown in the proposed rule to persons with disabilities' 
real life situations, especially in the areas of income and employment. 
These commenters wrote that the proposed rule demonstrated that HUD is 
attuned to disability issues and that a conscious effort was made to 
recognize those barriers faced in accessible housing.
    HUD response. HUD appreciates the comments supporting the proposed 
rule provisions concerning the elderly and persons with disabilities.
    Comment: The rule should require the PHA or a local supportive 
service provider to annually review difficulties faced by persons with 
disabilities in maintaining their mortgage payments or homes. The 
commenter submitting this suggestion wrote that an annual review is 
necessary to ensure that: (1) homeowners with disabilities continue to 
be able to access the supportive services they choose; and (2) 
supportive service agencies and the PHA are aware of any problems the 
family may be having.
    HUD Response: The final rule provides that PHAs may offer post-
purchase counseling, and HUD encourages the use of such counseling to 
further lessen the risk of defaults. However, it would be inappropriate 
to limit post-purchase counseling to persons with disabilities, and HUD 
believes it would be inappropriate to presume that persons with 
disabilities require additional scrutiny because they

[[Page 55145]]

are more likely to default on their mortgages. Accordingly, HUD has not 
adopted the suggestion made by the commenter.
    Comment: The rule should define what constitutes a ``reasonable 
accommodation'' for a person with disabilities. Several commenters 
wrote that the proposed rule would require a PHA to offer Section 8 
homeownership assistance ``if needed as a reasonable accommodation for 
a family member who is a person with disabilities'' (64 FR 23488). 
These commenters suggested that the final rule should establish 
guidelines to determine when homeownership assistance is a ``reasonable 
accommodation.'' The commenters wrote that, without such guidance in 
the final rule, PHAs that choose not to provide a homeownership option 
may fail to provide the required ``reasonable accommodation'' to 
persons with disabilities.
    Other commenters, however, wrote that PHAs should not be required 
to offer homeownership assistance as a reasonable accommodation. The 
commenters wrote that this obligation could be costly to a PHA that has 
not elected to offer the homeownership option and has not assembled the 
counseling and other resources needed to operate it.
    HUD response. The provision of homeownership assistance as a 
reasonable accommodation is determined on a case-by-case basis by the 
PHA. The PHA will determine what is reasonable based on the specific 
circumstances and individual needs of the person with a disability. It 
is the sole responsibility of the PHA to determine whether it is 
reasonable to implement a homeownership program as a reasonable 
accommodation. For example, depending on the individual circumstances, 
the PHA may determine that it is a reasonable accommodation to provide 
homeownership assistance when the PHA has implemented a limited 
homeownership program and is currently assisting the maximum number of 
homeowners in the PHA program. On the other hand, the PHA may determine 
that it is not reasonable to provide homeownership assistance as a 
reasonable accommodation in cases where the PHA has otherwise opted not 
to implement a homeownership program.
    Comment: All homeownership briefing materials should be accessible 
to persons with disabilities. Several commenters suggested that HUD 
should ensure that all homeownership programs and briefing materials 
are accessible to person with all types of disabilities.
    HUD response. The Section 8 homeownership program is a ``special 
housing type'' under subpart M of the tenant-based Section 8 program 
regulations. Except when specifically modified by subpart M, 
requirements in the other subparts of the tenant-based regulations 
apply to the special housing types (including the homeownership 
program). Accordingly, as specified in Sec. 982.301, the PHA, in 
briefing a family that includes any person with disabilities, must take 
appropriate steps to ensure effective communication in accordance with 
24 CFR 8.6.

D. Comments Regarding the Role of Nonprofits

    Comment: The final rule should encourage PHAs to contract with 
nonprofit organizations to administer the homeownership assistance. A 
number of commenters wrote that PHAs have had little experience in 
operating homeownership programs, whereas nonprofits have a solid-track 
record in this area. These commenters wrote that PHA partnerships with 
nonprofits may prove particularly helpful in preventing fraud and other 
abusive practices. In addition, the commenters wrote that nonprofits' 
knowledge of the market can help ensure that families are exposed to 
housing choices in a range of neighborhoods. The commenters wrote that 
there is much to be gained by requiring, or at least strongly 
encouraging, PHAs to partner with nonprofits in the design and 
operation of Section 8 homeownership programs.
    HUD response. While the final rule does not require the PHA to 
partner with a nonprofit, the PHA may wish to consider subcontracting 
with nonprofits for administration of one or more of the 
responsibilities under the homeownership program, just as it may 
contract out other PHA functions in administering the Section 8 Housing 
Choice Voucher program. Alternatively, the PHA may wish to consult with 
nonprofit organizations with homeownership experience in designing the 
PHA's homeownership program. HUD encourages PHAs lacking in 
homeownership program experience to explore the possibility of working 
with experienced nonprofits through partnerships or contractual 
arrangements to design and administer a successful section 8(y) 
program. Regardless of the PHA approach to the delivery of PHA 
responsibilities, the PHA is always responsible for overall compliance 
with program requirements.
    Comment: Where there is no PHA willing to implement the 
homeownership option in a particular area, HUD should permit other 
public agencies or private nonprofits to administer a Section 8 
homeownership program. Several commenters wrote that this approach 
would expand homeownership opportunities for persons with disabilities, 
even in those cases where a PHA chooses not to provide the 
homeownership option or where there is no tenant-based program at all 
(perhaps an area where there is little or no rental housing, but an 
abundance of low-cost single-family homes).
    HUD response. Section 8(o)(15) of the 1937 Act specifically 
provides that a PHA providing tenant-based assistance ``may at the 
option of the agency, provide assistance for homeownership'' and that a 
PHA ``may contract with a nonprofit organization to administer a 
homeownership program.'' The decision to offer homeownership assistance 
rests with the PHA and there is no additional or separate funding 
provided for homeownership assistance. A PHA that does not want to use 
existing staff to implement a homeownership program may consider 
subcontracting with a nonprofit organization to administer the 
homeownership program on behalf of the PHA, but is not required to do 
so.

E. Comments Regarding Income Targeting

    Comment: The final rule should clarify whether Section 8 
homeownership subsidies are subject to the same income targeting 
requirements as the Section 8 rental assistance program. A few 
commenters wrote that if the new income targeting requirements of the 
Public Housing Reform Act apply, the requirements will reduce the pool 
of families eligible for Section 8 homeownership assistance.
    HUD response. The Section 8 homeownership program is a ``special 
housing type'' under subpart M of the tenant-based Section 8 program 
regulations. Except when specifically modified by subpart M, 
requirements in the other subparts of the tenant-based regulations 
apply to the special housing types (including the homeownership 
program). The income targeting requirements apply to the PHA's entire 
tenant-based Section 8 program, including the rental and any 
homeownership portion of the program.
    HUD anticipates that most participants in the Section 8 
homeownership program will be current program participants, not 
applicants. Since families continuing to receive assistance under the 
1937 Act are not considered as new admissions, their income levels are 
not examined for compliance with income targeting requirements.

[[Page 55146]]

F. Comments Regarding the Relationship Between the Homeownership Option 
and the Family Self-Sufficiency (FSS) Program

    Comment: Linking the FSS Program to Homeownership Option. One 
commenter expressed the opinion that it is very important to retain PHA 
discretion regarding whether to link the Section 8 homeownership 
program to FSS. Several commenters wrote that families should not be 
required to participate in the FSS program as a condition of receiving 
homeownership assistance.
    HUD response. There is no federal requirement that families must 
participate in the FSS program as a condition of receiving 
homeownership assistance. There is, however, PHA administrative 
flexibility to link the FSS and homeownership programs. For example, 
the PHA may adopt local homeownership eligibility requirements such as 
participation in the FSS program. The PHA may opt to incorporate the 
homeownership goal in the family's FSS contract of participation so any 
FSS escrow could be advanced for purchase of a home or home 
maintenance/improvement purposes. HUD believes that PHA discretion over 
this issue is appropriate and in keeping with the intention to ensure 
there is sufficient PHA flexibility to address the local community's 
needs and objectives in the administrative policies of the program.

G. Considering Section 8 Assistance as Income for Purposes of Financing 
Purchase of Home

    Comment: Section 8 assistance should not be considered income for 
purposes of financing the purchase of the home. Several commenters 
wrote that the proposed rule did not adequately consider the high cost 
of housing in certain metropolitan areas. The commenters wrote that the 
preamble to the proposed rule states that ``it is anticipated that 
mortgage lenders will consider the Section 8 assistance as a source of 
income when underwriting the loan'' (64 FR 23488, 23489). Instead, the 
commenters suggested that the final rule should require that the 
voucher housing assistance payment be deducted from the monthly housing 
expense. The commenters wrote that, due to the high cost of housing in 
certain metropolitan areas, the housing assistance payment will not 
raise income sufficiently to permit the family to qualify for a loan in 
an amount necessary to purchase a good quality home.
    One of the commenters wrote that lenders should not consider 
Section 8 assistance as a source of income because payments are not 
earned income or entitlement income, are not guaranteed for more than 
12 months, and may decrease with an increase in total family income or 
violation of Section 8 program requirements.
    Another commenter recommended that the final rule prohibit 
discrimination based on source of income because lending institutions 
do not view government benefits as a reliable or stable source of 
income. Accordingly, these lenders will be unlikely to approve home 
loan applications from Section 8 recipients.
    HUD response. Section 8(y) does not regulate the lending industry. 
Consequently, the final rule does not impose any requirement on lenders 
to treat the subsidy in a certain manner, nor does the rule prohibit 
discrimination by lenders based on source of income. Lenders will apply 
their underwriting criteria for financing of homes to be purchased 
under the Section 8 homeownership program. HUD notes that, to the 
extent applicable, lenders must comply with the Equal Credit 
Opportunity Act (15 U.S.C. 1601 et seq.) (referred to as ``ECOA'') and 
the implementing regulations issued by the Federal Reserve Board at 12 
CFR part 202. ECOA prohibits lending discrimination, including 
discrimination based on receipt of public assistance.

H. Comments Regarding Mortgage Defaults

    Comment: HUD should require that each PHA with a homeownership 
program develop a strategy to reduce foreclosure risk. Two commenters 
wrote that such a requirement would help minimize foreclosures among 
participating families.
    HUD response. Although HUD has not adopted the suggestion, the 
final rule does provide that a family must attend and satisfactorily 
complete pre-assistance homeownership counseling before homeownership 
assistance may commence. In addition, HUD encourages PHAs to provide 
post-purchase counseling and otherwise develop local strategies to 
reduce mortgage foreclosures by families participating in the 
homeownership program.

I. Other General Comments

    Comment: The final rule should explicitly permit PHAs to limit 
homeownership assistance to local needs. The preamble to the April 30, 
1999 proposed rule provided that: The PHA may choose to make 
homeownership assistance freely available for any qualified applicant 
or participant, or to restrict homeownership assistance to families or 
purposes defined by the agency. (64 FR 23488)
    One commenter wrote that the proposed regulatory text does not 
contain comparable language. The commenter wrote that a PHA should have 
the discretion to limit application of its Section 8 homeownership 
program, in whole or in part, to achieve local housing goals or 
priorities. Accordingly, the commenter suggested that the final rule 
contain regulatory text equivalent to the quoted preamble language.
    HUD response. The final rule explicitly provides at Sec. 982.626(b) 
that the PHA may limit homeownership assistance to families or purposes 
defined by the PHA.
    Comment: HUD should explicitly authorize and encourage PHAs to join 
together to administer the homeownership option. Several commenters 
wrote that lenders are much more likely to participate in a regional 
program than in a program whose rules vary from PHA to PHA. The 
commenters wrote that a regional program would facilitate mobility and 
minimize portability concerns.
    HUD response. PHAs currently have necessary flexibility to join in 
the regional administration of the homeownership option. Explicit 
authorization is not necessary for PHAs to jointly administer (or 
otherwise cooperate in the administration) of the Section 8 
homeownership program.
    Comment: PHAs should be required to provide homeownership option. A 
few commenters suggested that PHAs should be required to offer Section 
8 homeownership assistance. The commenters wrote that HUD should exempt 
a PHA from offering homeownership assistance only if the PHA can 
document that implementing the homeownership option in its jurisdiction 
would not be feasible.
    HUD response. The recommendation made by the commenters is 
inconsistent with the 1937 Act. Section 8(o)(15) of the 1937 Act 
specifically provides that a PHA providing tenant-based Section 8 
assistance ``may at the option of the agency, provide assistance for 
homeownership.'' Accordingly, HUD has not adopted the suggestion made 
by the commenters.
    Comment: HUD should isolate Section 8 homeownership loans from 
other FHA loans. One commenter wrote that loans under the Section 8 
homeownership program will likely

[[Page 55147]]

have higher default ratios than other loans, and that lenders 
originating these loans would be penalized when their default numbers 
are higher than those of their peers who have not participated in the 
program. Specifically, the commenter wrote that lenders participating 
in the Section 8 homeownership program might unfairly lose their FHA 
approved lender status. Therefore, the commenter suggested that HUD's 
tracking systems should isolate loans issued under the Section 8 
homeownership program from other FHA loans.
    HUD response. Lenders will use normal FHA underwriting criteria for 
FHA-insured loans. As a result, HUD does not anticipate a higher than 
average default rate and HUD does not intend to track these loans 
separately.

J. General Questions About the Proposed Rule

    Comment: Is a PHA an eligible seller under the homeownership 
program?
    HUD response. There is no prohibition against a family purchasing a 
PHA-owned home under the Section 8 homeownership program. However, the 
PHA cannot steer families (or otherwise limit or restrict purchase 
options) to PHA-owned or controlled units.
    Comment: Is a manufactured home eligible for purchase under the 
homeownership program?
    HUD response. A manufactured home and the real property upon which 
the manufactured home sits are eligible for purchase under the 
homeownership program.
    Comment: At annual reexaminations of family income subsequent to 
home purchase, will the owned home be counted as an asset? One 
commenter wrote that this could become a serious problem if there is 
rapid appreciation of the value of the home.
    HUD response. In response to this comment, HUD has revised the 
definition of ``net family assets'' found in 24 CFR 5.603(d). The 
revised definition excludes the value of a home currently being 
purchased with Section 8 homeownership assistance. This exclusion is 
limited to the first 10 years after the purchase date of the home.
    Comment: Is the initial 40 percent maximum rent burden requirement 
under the Housing Choice Voucher program applicable to the 
homeownership option? The commenter wrote that this provision, if 
applied to the homeownership program, would severely limit housing 
choice.
    HUD response. The 40 percent initial rent burden cap does not apply 
to families who will participate in the Section 8 homeownership program 
since homeownership families do not pay rent.
    Comment: If the lender is relying on the Section 8 assistance to 
secure the mortgage, is the family, the PHA, or HUD is responsible for 
payment of the note?
    HUD response. Neither the PHA nor HUD is guarantor of mortgage note 
for a home being purchased under the Section 8 program. The terms of 
the loan note will determine who is responsible for payment (usually 
the family) of the loan.

VI. Discussion of Comments Regarding a Specific Regulatory Section

    For the convenience of readers, the discussion that follows is 
organized by the regulatory section of the proposed rule it pertains to 
(e.g., Sec. 982.625, Sec. 982.633, etc.). As noted, HUD has made 
several organizational changes at the final rule stage. Accordingly, 
the proposed regulatory section headings do not always correspond to 
those of this final rule.

A. Definitions (proposed Sec. 982.4)

    Comment: Definition of ``Public Assistance'' is too broad. Several 
commenters wrote that the proposed definition of ``public assistance'' 
is overly broad and subject to misinterpretation. The commenters 
suggested that the definition should be narrowed to specifically 
identify only those welfare programs that may not be counted in 
determining minimum income. Other commenters wrote that the definition 
should exclude food stamps, unemployment insurance and permanent 
disability payments.
    HUD response. The final rule addresses the concerns raised by the 
commenters regarding the clarity of the definition of ``public 
assistance.'' Specifically, HUD has removed the definition of the term 
``public assistance'' and adopted, in its place, the definition of the 
term ``welfare assistance'' located in 24 CFR 5.603. The definition of 
``welfare assistance'' is well-established and understood by PHAs. 
Further, the use of the term ``welfare assistance'' in this final rule 
will help to ensure the consistent use of defined terms throughout 
HUD's regulations.
    Comment: The definition of ``cooperative'' should not be limited to 
``housing owned by a nonprofit corporation or association.'' One 
commenter wrote that many housing cooperatives are incorporated under 
their home state's business corporation act. The commenter suggested 
that by dropping the word ``nonprofit,'' the definition would better 
reflect the reality of diverse legal practices among states. Another 
commenter wrote that the proposed definition is unnecessarily 
intrusive, imposes unnecessary administrative functions, and unduly 
hinders the use of cooperative housing.
    HUD response. Consistent with the recommendation, the regulatory 
definition of ``cooperative'' in the final rule is no longer limited to 
housing owned by a nonprofit entity.

B. Lease-purchase arrangements (proposed Secs. 982.305 and 982.317)

    Comment: HUD should develop a model lease-purchase agreement to 
prevent fraud by seller. The commenter wrote that a standard lease-
purchase agreement would prevent seller fraud.
    HUD response. HUD does not intend to provide or require the use of 
a standard HUD-prescribed lease-purchase agreement for the Housing 
Choice Voucher program. HUD believes broad flexibility is needed in 
this area to reflect the wide range of acceptable real estate market 
practices that differ among localities.
    Comment: Applicability of homeownership requirements upon entering 
lease-purchase agreement. Two commenters suggested that a lease-
purchase family should be required to comply with all homeownership 
requirements before purchase of the home. Another commenter wrote that 
PHAs should be provided with the option of requiring compliance with 
the homeownership requirements at the start of the lease-purchase 
arrangement.
    One commenter wrote that Section 8 families opting for 
homeownership through a lease-purchase arrangement should be required 
to satisfy at least half the continuous employment and half the 
required counseling requirements at the time they enter the lease-
purchase program. The commenter wrote that, since lease-purchase 
families typically have credit-history problems to clear up over time, 
it would be onerous to impose all of the homeownership requirements on 
the family at the time of their entrance into the program.
    Other commenters wrote that a lease-purchase family should be 
subject to the independent professional home inspection requirements of 
the homeownership program before entering into a lease-purchase 
arrangement. These commenters wrote that it would be devastating to a 
lease-purchase family to reach the purchase option stage only to 
discover that the purchase is jeopardized due to a property defect.
    Several commenters suggested that the counseling requirement should 
be

[[Page 55148]]

applicable before entering into the lease-purchase arrangement. These 
commenters wrote that families should have an idea of what the 
responsibilities of homeownership are before entering into a lease-
purchase arrangement.
    One commenter wrote that HUD should continue to allow a family to 
enter into a lease-purchase arrangement without being subject to the 
homeownership program requirements.
    HUD response. HUD has not changed the requirements specified in the 
proposed rule for lease-purchase arrangements. The final rule does not 
require families with lease-purchase arrangements under the Section 8 
tenant-based rental program to comply with any of the Section 8 
homeownership program requirements. However, HUD believes it is in the 
best interest of these families for the PHA to brief the family on the 
homeownership requirements if they expect to receive Section 8 
homeownership assistance to complete the purchase transaction. The PHA 
may refer families participating in lease-purchase arrangements to HUD 
homeownership counseling agencies. There is generally little or no cost 
to the participant for this HUD funded counseling.

C. Cooperative Housing (proposed Sec. 982.619).

    Comment: Final rule should clarify that the occupancy agreement 
controls not only the allocation of maintenance responsibility between 
the cooperative member and the cooperative, but also the rules to which 
the Section 8 assisted members are subject. Several commenters wrote 
that consideration and adoption of the rules governing co-ownership is 
the focus of much democratic process in virtually every housing 
cooperative. The commenters wrote that few cooperatives would be 
willing to accept the existence of a differently-privileged class of 
Section 8-assisted members in their midst.
    HUD response. HUD disagrees that the suggested clarification is 
necessary. The rule does not change the legal relationship between the 
cooperative and cooperative member.
    Comment: Final rule should clarify that, where rental assistance is 
used in a cooperative setting, Section 8 assistance may be used for the 
acquisition costs of cooperative memberships or shares. The commenter 
wrote that this is especially critical in limited-equity cooperatives, 
which is the type of cooperative in which most Section 8 rental 
assistance is used. In limited-equity cooperatives, the share or 
membership prices are strictly limited to provide ongoing affordability 
of acquisition to low-income families. Section 8 rental assistance is 
currently used in these settings to pay for the membership acquisition 
over time.
    HUD response. This comment, which appears to relate only to Section 
8 rental assistance, is outside the scope of this rulemaking, which 
implements the ``homeownership option'' authorized by section 8(y) of 
the 1937 Act. HUD notes, however, that the final rule provides that the 
costs of purchasing a cooperative unit may be included as a 
``homeownership expense'' for purposes of determining the amount of 
monthly homeownership assistance payment (see Sec. 982.635(c) of this 
final rule).

D. Homeownership Option: General (proposed Sec. 982.625)

    Comment: Newly constructed homes or units under construction should 
be eligible for purchase under the homeownership option. Several 
commenters wrote that in some areas the only affordable housing is new 
housing being constructed by nonprofits, and that new construction 
provides greater assurances to low-income families that major repairs 
will not be necessary. The commenters wrote that the prohibition 
against new construction would make it more difficult for persons with 
disabilities to find accessible homes. Other commenters wrote that new 
construction normally occurs in areas of job growth. The prohibition 
would therefore prevent families from moving to such an area in search 
of employment opportunities.
    HUD response. In response to these comments, HUD has revised 
proposed Sec. 982.625, which described the ``existing home'' 
requirement. Section 982.628(a)(2) of this final rule provides that a 
home may be purchased under the homeownership option if, at the time 
the PHA determines that the family is eligible for Section 8 
homeownership assistance, the home is either under construction or 
already existing. However, before commencing homeownership assistance 
for the family, the PHA must determine that the home satisfies all of 
the applicable requirements described in Sec. 982.628 of this final 
rule (for example, the home must have been inspected by a PHA inspector 
and by an independent inspector designated by the family; and the home 
must meet the HUD Housing Quality Standards (HQS)).
    Comment: The homeownership option should be available only to 
current recipients of Section 8 rental assistance who have successfully 
complied with all rental program requirements for at least one year. 
One commenter suggested that homeownership assistance should not be 
made available at initial admission. According to the commenter, this 
will facilitate proper counseling and a considered housing search 
without imposing artificial deadlines.
    HUD response. HUD has not adopted this suggestion. HUD notes, 
however, that PHAs may choose to impose this condition as an additional 
requirement for eligibility.
    Comment: Possible exceptions to the first-time homebuyer 
requirement. Several commenters made suggestions on possible exceptions 
to the first-time homebuyer requirement. Other commenters, however, 
wrote that HUD should retain the first-time homeownership requirements 
as set forth in the proposed rule, since the definition conforms to the 
industry standard. Among the suggested exceptions, were exceptions for:
     A divorced spouse who does not retain homeownership 
interest;
     Persons with disabilities who lost a previous home as a 
result of becoming disabled;
     Any otherwise eligible person with a disability;
     Victims of domestic violence;
     Current manufactured homeowners;
     Owners of substandard housing; and
     Single parents.
    Another commenter suggested that the first-time homebuyer 
requirement should only apply to the mortgagor, not to the entire 
family. The commenter wrote that, otherwise, other family members would 
be unfairly prevented from subsequently enjoying Section 8 
homeownership benefits.
    Two commenters wrote that homeownership assistance should not be 
restricted to first-time homebuyers. Several commenters wrote that PHAs 
should be provided with the option of establishing additional 
exceptions to the first-time homebuyer requirement.
    HUD response. HUD has carefully considered all of the suggested 
exemptions to the first-time homebuyer requirement and is sympathetic 
to the circumstances of families in many of the suggested categories. 
However, HUD has decided not to attempt to specify, by regulation, the 
many possible situations that may merit an exception to the first-time 
homebuyer requirement.
    However, HUD has revised the definition of ``first-time homeowner'' 
at Sec. 982.4 to clarify the eligibility of single parents and 
displaced homemakers, as those terms are defined in section 956 of the 
Cranston-Gonzalez National Affordable Housing Act (codified at 42 
U.S.C. 12713). Section 956 provides that no displaced homemaker or 
single

[[Page 55149]]

parent ``may be denied eligibility under any Federal program to assist 
first time homebuyers'' because of previous ownership of a home by or 
with a spouse. Accordingly, this final rule provides that such 
individuals are ``first-time homeowners'' for purposes of the 
homeownership option and are, therefore, eligible to receive Section 8 
homeownership assistance.
    In addition, HUD has further revised this definition to clarify 
that any family who has owned any residential property during the 
preceding three years (regardless of whether it is the family's 
principal dwelling unit or not) does not qualify as a first-time 
homeowner.
    Comment: The PHA should not be able to ``pass over'' a family on 
its waiting list in order to provide another family homeownership 
assistance. One commenter suggested that such a practice would be 
unfair to families on the waiting list. Another commenter suggested 
that HUD should explicitly forbid separate waiting lists for rental and 
homeownership assistance.
    HUD response. HUD's regulations at 24 CFR part 982, subpart M, 
provide that a PHA may not set aside program funding for special 
housing types or for a specific special housing type. The PHA may not 
require an applicant to use the Housing Choice Voucher program 
assistance for a particular special housing type. Consequently, a PHA 
may not maintain separate waiting lists for special housing types or 
provide a selection preference based on a family's willingness to use 
the housing choice voucher for a particular special housing type.
    Instead, if the PHA opts to offer Section 8 homeownership 
assistance, the PHA may offer families (both current participants and 
applicants who have been issued housing choice vouchers) that meet the 
initial eligibility criteria (including any additional requirements 
established by the PHA) the opportunity to use their Section 8 
assistance to purchase a home. If the PHA has established limits on the 
number of vouchers that may be used for homeownership, the PHA simply 
suspends offering Section 8 homeownership assistance at such time that 
the number of families receiving homeownership assistance, in 
combination with the number currently in the pre-assistance phase of 
the program, reaches the PHA limit.

E. Initial requirements (Proposed Sec. 982.626)

    Comment: The rule should allow for homeownership assistance to be 
used by a family to purchase a two- and three-family home. The 
commenter wrote that, in certain areas, much of the affordable housing 
stock consists of two-and three-family homes, and the rental income 
would help the family meet its share of the homeownership expenses.
    HUD response. Homeownership assistance is provided to assist a 
family with the monthly homeownership expenses of its residence. 
Homeownership assistance may not be used to assist the family with the 
monthly expenses for investment or rental property. The family may not 
use Section 8 homeownership assistance to purchase two- or three-family 
homes. Accordingly, Sec. 982.628 of this final rule clarifies that a 
home purchased with homeownership assistance must either be a one unit 
property or a single dwelling unit in a cooperative or condominium.
    Comment: PHAs should not be allowed to establish local eligibility 
requirements for the homeownership option that are more restrictive 
than those for Section 8 rental assistance. Several commenters wrote 
that stricter requirements have the potential to discriminate or 
discourage users with disabilities from using the homeownership option.
    HUD response. HUD has not adopted this suggestion. Section 8(y) 
specifically requires homeownership eligibility criteria that are not 
applicable to the Section 8 rental assistance program. In addition, HUD 
believes it is appropriate for PHAs to have broad administrative 
authority to target homeownership assistance for specific purposes. 
Since the PHA has the option whether or not to offer Section 8 
homeownership assistance, HUD believes retaining PHA administrative 
flexibility over this area is important to encourage wider 
implementation of the homeownership option.
    Comment: The prohibition against providing homeownership assistance 
if the seller is debarred, suspended, or subject to a limited denial of 
participation imposes a hardship on the purchaser. The commenter wrote 
that after the purchase agreement is signed, the purchaser is 
contractually obligated to buy the home according to the terms the 
parties agreed to. Failure to complete the sale will result in loss of 
downpayment and could result in the purchaser being sued for failure to 
perform. An alternative would be to have the PHA conduct a review of 
the seller before execution of the purchase agreement.
    HUD response. PHAs are encouraged to regularly review the list of 
individuals and entities that are debarred, suspended or subject to a 
limited denial of participation in HUD programs. In response to this 
comment, the final rule provides at Sec. 982.631 that the contract of 
sale must contain a seller certification that the seller is not 
debarred, suspended, or subject to a limited denial of participation 
under 24 CFR part 24.

F. How to Qualify for Homeownership Assistance (Proposed Sec. 982.627)

    Comment: The relaxed regulatory requirements for the elderly and 
persons with disabilities will limit homeownership assistance to these 
individuals. One commenter wrote that lenders will be wary of the 
relaxed employment/income requirements established by the proposed rule 
for the elderly and persons with disabilities. The commenter wrote that 
lenders, concerned for their risk in underwriting a loan without the 
usual level of work history, will be less likely to approve home loans 
for elderly and disabled families.
    HUD response.
    HUD has not revised the rule in response to this comment. The 
relaxed eligibility requirements for elderly and disabled families are 
used by the PHA to determine if the family is eligible for 
homeownership assistance. The rule does not impose relaxed or exception 
standards for any family with respect to their ability to obtain 
financing from a lender.
    Lenders will determine the creditworthiness of each borrower on a 
case-by-case basis using their own requirements and standards.

G. Minimum Income Requirements (proposed Sec. 982.627(b)).

    Comment: The minimum income requirements should be eliminated. 
Several commenters wrote that, since lenders will evaluate a family's 
resources as part of their mortgage application review, HUD should rely 
on them to screen out families who do not have sufficient resources to 
make payments on a mortgage loan, rather than permitting PHAs to 
establish a minimum income threshold.
    HUD response. HUD has not adopted this suggestion. Section 8(y) 
explicitly establishes a minimum income requirement for participation 
in the Section 8 homeownership program.
    Comment: HUD should establish uniform minimum income requirements.
    Several commenters wrote that a national standard creates 
certainty, making it possible for national, regional, or statewide 
entities (lenders, advocates, intermediaries, nonprofits, etc.) to 
develop and administer activities in support of the program.

[[Page 55150]]

    Other commenters wrote that the final rule should restrict the PHA 
from establishing minimum income requirements that will prevent persons 
on fixed incomes from receiving homeownership assistance, since elderly 
and persons with disabilities are often on low, fixed incomes. The 
commenters recommended that any minimum income requirements established 
by the PHA should not be so high that they exclude these individuals 
from homeownership assistance.
    HUD response. HUD agrees that the regulation should establish a 
national standard for the minimum income requirements. As suggested by 
several of the commenters, HUD has decided to establish a national 
minimum income requirement that is equal to 2,000 hours of annual full-
time work under the Federal minimum wage. A PHA may not establish a 
minimum income requirement in addition to the minimum income standard 
established by this final rule. HUD believes that this standard is 
administratively straight-forward, and addresses the statutory income 
requirement without arbitrarily eliminating working families that are 
making no more than the minimum wage.
    Comment: PHAs should be permitted to make reasonable exceptions to 
the minimum income requirement if they determine that the applicant 
household has a high probability of being a successful owner. One 
commenter wrote that the minimum income requirements do not address one 
of the factors in mortgagor credit review--a household's total monthly 
fixed payment obligation. The commenter wrote that a household below 
the minimum requirement may have an exemplary credit history and no 
additional debt obligations. According to the commenter, such a 
household would be a better candidate for homeownership than a 
household with income above the minimum.
    HUD response. HUD has not adopted this suggestion. The minimum 
income requirement represents the bare minimum income threshold the 
family must meet to be eligible for homeownership assistance, and does 
not automatically indicate the family would be a successful candidate 
for homeownership. Instead of making exceptions to the minimum income 
requirement for families that otherwise appear to have a high 
probability of being a successful homeowner, the PHA could work with 
the family on increasing family income through the FSS program or other 
self-sufficiency efforts.
    Comment: Requiring the ``head of household or spouse'' to meet 
minimum income requirement fails to acknowledge the varied structure of 
some families, and has a disparate impact on single-headed households, 
domestic partners, and households that have related but unmarried adult 
members. Several commenters wrote that the minimum income requirements 
fail to account for the wide variety of families receiving Section 8 
assistance. For example, it is possible for the head of household to 
have no earned income but have a domestic partner, adult child, or 
other adult family member that works.
    HUD response. The purpose of the minimum income requirement is to 
ensure that the family has adequate resources to meet the additional 
costs associated with homeownership. The proposed rule tied the minimum 
income to the head of household and spouse in order to ensure that 
those family members who actually owned the home met the income 
requirement, as opposed to other family members that might shortly 
leave the household following the purchase (thereby increasing the risk 
of defaults). However, HUD agrees that this type of restriction does 
not sufficiently take the variety of family structures into account. 
Therefore, the final rule provides that the adult family members who 
will own the home at commencement of homeownership assistance must have 
annual income (gross income) that is not less than the minimum income 
requirement, as opposed to only the head and spouse.
    Comment: Disabled and elderly families should be exempt from 
minimum income requirements. One commenter wrote that although the rule 
permits public assistance payments to be considered in determining 
whether an elderly or disabled family meets the minimum income 
requirements, disabled or elderly families would still have difficulty 
in meeting the minimum income threshold. The commenter suggested that 
elderly and disabled families should be exempt from the minimum income 
requirements, because the goal of rewarding work does not apply to 
these households.
    HUD response. Section 8(y) does not provide for an exemption from 
the minimum income requirement for elderly or disabled families, other 
than the source of income used to determine if the family meets the 
requirement. The purpose of the minimum income requirement is to ensure 
that the family has sufficient income available to absorb the 
additional expenses associated with homeownership, not to ensure that 
the family meets the employment requirement.

H. Family Employment (proposed Sec. 982.627(c))

    Comment: The employment requirement should be eliminated. Several 
commenters recommended elimination of this requirement. The commenter 
wrote that HUD should rely on lenders to determine what is an 
acceptable employment history, rather than establishing minimum 
employment requirements or permitting PHAs to establish such 
requirements. Other commenters wrote that, since a minimum income 
requirement already exists, the employment requirement is redundant. 
The commenters suggested that, in the place of an employment 
requirement, HUD require a family to show proof that it earned the 
minimum income amount during the past year.
    HUD response. The employment requirement is statutory and the 
requirement is essential to the purpose of rewarding work and assisting 
families in making the transition to economic self-sufficiency. 
However, the final rule, in accordance with the law, provides 
exceptions from the employment requirement for disabled and elderly 
families.
    Comment: PHAs need flexibility in determining whether the family 
has fulfilled the ``continuous'' employment requirement. Several 
commenters wrote that the final rule should focus on whether 
prospective participants have maintained a steady income, not on 
whether they have been continuously employed. The commenters wrote that 
in some parts of the country there are seasonal industries that result 
in annual full-time income being acquired during only part of the year. 
Many persons, such as construction workers, nurses, taxi drivers, 
waitresses and hair dressers, may have multiple employers in the same 
year. The commenters recommended that the final rule grant PHAs 
flexibility in interpreting the ``continuous'' employment requirement.
    HUD response. HUD agrees that the employment requirement should 
allow for small breaks in service to be taken into consideration. The 
final rule provides that the PHA has discretion to determine whether 
(and to what extent) an interruption is considered permissible. The 
final rule also clarifies that the PHA may count successive employment 
during the year and consider self-employment in a business.
    Comment: Requiring the ``head of household or spouse'' to meet 
employment requirement fails to acknowledge the varied structure of 
some families. Several commenters wrote that requiring the head of 
household or spouse to meet the

[[Page 55151]]

employment requirements will disqualify many non-traditional families. 
In some extended families the head of household may be unemployed, but 
there may be an adult child who is employed and providing the income 
upon which the family could qualify for financing. One commenter 
suggested that the final rule should simply require that an adult 
member of the household be gainfully employed.
    HUD response. HUD agrees with the commenters and the final rule 
provides that any of the adult family members who will own the home at 
commencement of homeownership assistance may fulfill the employment 
requirement.
    Comment: The required term of employment should be lengthened. One 
commenter suggested that HUD should impose a two year employment term. 
The commenter recommended that the final rule should require either: 
(1) two years employment with the same employer; or (2) two years 
employment in the same line of work. The commenter wrote that this is 
the minimum required by mortgage underwriters. Other commenters 
suggested that the employment term should be at least three years. 
Another commenter wrote that the head of household or spouse should be 
required to be employed for as long as the family is receiving 
homeownership assistance, with limited periods of unemployment due to 
circumstances beyond the control of the family taken into 
consideration.
    HUD response. The final rule does not extend the minimum employment 
term. HUD believes one year of substantially continuous employment is 
an acceptable minimum threshold and a realistic gauge of the likelihood 
of continued employment in the future. At the request of several public 
commenters, this final rule establishes a uniform national employment 
requirement. For purposes of uniformity, the final rule defines ``full-
time employment'' to mean not less than an average of 30 hours per 
week. Further, the final rule adds a new Sec. 982.627(d)(4), which 
provides that a PHA may not establish an employment requirement in 
addition to the employment standard established by the final rule. 
However, the lender will apply its own underwriting criteria, which may 
include an employment requirement that is more stringent than the 
standard adopted by the final rule.

I. Ineligibility of Family if Head or Spouse Previously Defaulted on a 
Mortgage When Receiving Homeownership Assistance (proposed 
Sec. 982.627(d))

    Comment: Prohibition against mortgage defaults is unnecessarily 
restrictive. Several commenters wrote that the requirement is 
unnecessarily restrictive. These commenters wrote that this is a matter 
best left to the discretion of the loan underwriter, who will consider 
the default in determining whether to approve the mortgage.
    Another commenter suggested that a family who defaulted on a 
previous mortgage due to the death of a family member, or other 
circumstances beyond the family's control, should not be prohibited 
from receiving future homeownership assistance. The commenter suggested 
that the final rule should permit the PHA to determine on a case-by-
case basis whether the default was beyond the family's control.
    HUD response. The prohibition on participation by a family that 
previously defaulted on a mortgage while receiving section 8(y) 
assistance is a statutory requirement. Accordingly, HUD has not adopted 
the changes suggested by the commenters.

J. Additional PHA Requirements for Family Search and Purchase (proposed 
Sec. 982.628)

    Comment: Delays in provision of assistance may limit effectiveness 
of program. One commenter wrote that the longer, more unpredictable 
time frame between the time the PHA determines a family is eligible for 
homeownership assistance and the time that assistance actually 
commences would affect lease up rates and PHA financial management. The 
commenter wrote that this unpredictability may cause PHAs to offer 
homeownership assistance only to existing participants, rather than 
allowing new clients to participate.
    HUD response. HUD agrees with the comment that permitting 
applicants to participate in the homeownership option will present PHAs 
with several significant challenges (such as defining a realistic 
search term for a first-time homebuyer without creating adverse impact 
on utilization rates and administrative fees) that do not surface if 
the PHA limits the option to current rental participants. For this 
reason, HUD anticipates that most participants in the Section 8 
homeownership program will be families currently participating in the 
tenant-based rental program. The time required for a current 
participant to locate and purchase a home will have a minimal impact on 
the PHA's lease-up rate or financial management activities since the 
family may continue to receive rental assistance in their rental unit 
during the search and settlement process. The decision to extend the 
homeownership option to applicants, participants, or both applicants 
and participants rests with the PHA.
    Comment: A family should be allowed more than two months to locate 
a home. Several commenters wrote that finding a home can be a lengthy 
process and requires more than two months. Although there was no 
consensus on the amount of time that should be provided, all of the 
commenters advocated that the final rule establish a greater length of 
time for finding a home. Suggestions included a minimum of four months, 
six months, and a range of six to nine months. A number of commenters 
wrote that due to the difficulty of finding a home that is both 
affordable and accessible, the final rule should ensure that persons 
with disabilities are provided with ample time to find a home to 
purchase.
    HUD response. Neither the April 30, 1999 proposal nor this final 
rule place a two month limitation on the family's search for a home. 
Section 982.303 (term of voucher) is not applicable to the 
homeownership option (see Sec. 982.641(b) of this final rule). HUD has 
not adopted the suggestions to establish a minimum term for family 
search and purchase. HUD believes this decision is properly left to the 
administrative discretion of the PHA, as the housing market will vary 
from community to community. However, in establishing such time limits, 
the PHA should ensure that a family who has executed a sales contract 
is provided reasonable time to close on the purchase of the home.
    Comment: The final rule should explicitly provide that if a family 
is unable to locate a home within the time limits, the PHA should be 
required to issue a rental voucher or put the family at the top of the 
waiting list. One commenter made this suggestion.
    HUD response. HUD has not adopted this comment. HUD does not wish 
to impose this type of requirement on PHAs.
    Comment: The PHA should provide a letter to the lender verifying 
the applicant's family income, payment standard assistance, and any 
other financial help that would be offered to the family. Two 
commenters wrote that this type of documentation would enable the 
family to show prospective sellers, realtors, etc. that the family is 
in fact empowered to make the acquisition of a home. The commenters 
also wrote that this would assist the lender to pre-qualify the family 
accurately.

[[Page 55152]]

    HUD Response. Although HUD is not requiring PHAs to provide such a 
letter to lenders in the final rule, PHAs may opt to provide 
prospective lenders or realtors with information concerning the 
family's participation in the Section 8 homeownership program, the 
applicable payment standard, and how the monthly subsidy will be 
calculated under the housing choice voucher program. However, HUD would 
caution the PHA not to provide income information on an individual 
family to any third party. The family must disclose income to the 
lender through the mortgage application process, and the verification 
of family income for underwriting purposes is the responsibility of the 
lender, not the PHA.

K. Homeownership Counseling (proposed Sec. 982.629)

    Comment: HUD should provide funding for homeownership counseling 
services. Several commenters recommended that HUD provide additional 
funding for homeownership counseling. One commenter suggested that HUD 
should make the additional funds available through a demonstration 
program or competition. Other commenters wrote that HUD should provide 
the necessary funding by either an increase in the ongoing 
administrative fee or by making provisions for approving release of the 
hard-to-house fee (currently available for assisting large families to 
lease a unit).
    HUD Response. HUD has not adopted these recommendations. There are 
no additional appropriations made available for this purpose. 
Furthermore, PHAs can partner with HUD-funded homeownership counseling 
agencies to provide the necessary counseling. Since these agencies 
provide homeownership counseling services at little or no charge, the 
cost incurred by the PHA would be nominal. A list of the HUD-approved 
homeownership counseling agencies is available from the HUD Housing 
Counseling Clearinghouse website (http://www.hudhcc.org/agencies/agencies.html).
    Comment: Charges to the family for counseling should be nominal. 
One commenter made this recommendation.
    HUD response. Family completion of the pre-assistance homeownership 
counseling program is mandatory in order for homeownership assistance 
to commence on behalf of the family. Since the PHA cannot charge a 
family any type of fee to receive Section 8 assistance, the PHA may not 
charge a family a fee or otherwise pass on any of the cost of the 
counseling to the family.
    Comment: Paragraph (b) of this section would be more accurate if it 
read ``The PHA-required pre-assistance counseling program. . . .'' One 
commenter wrote that the addition of the word ``required'' would 
clarify that the PHA itself is not obligated to provide the counseling.
    HUD response. HUD agrees with the commenter, and has incorporated 
the suggested revision in the final rule.
    Comment: The final rule should allow as much flexibility as 
possible to PHAs in the development of counseling programs. One 
commenter wrote that several of the mandatory counseling requirements 
may be inappropriate for certain types of PHA homeownership programs. 
The commenter urged that the final rule provide greater flexibility 
regarding the crafting of homeownership counseling programs.
    HUD response. The final rule clarifies that the PHA-required 
counseling program should ``generally'' cover the topics listed in 
Sec. 982.630. The final rule also provides that the PHA may adapt the 
housing counseling topics to local circumstances and the needs of 
individual families. Further, the final rule provides that, if the PHA 
is not using a HUD-approved housing counseling agency to provide the 
counseling for families participating in the homeownership option, the 
PHA should ensure that its counseling program is consistent with the 
homeownership counseling provided under HUD's Housing Counseling 
program.
    Comment: Counseling programs should include information on fair 
housing and fair housing lending practices, as well as referrals to 
local fair housing enforcement agencies. One commenter made this 
suggestion.
    HUD response. HUD agrees with the commenter, and the suggested 
revision has been incorporated in the final rule.

L. Home Inspections and Contract of Sale (proposed Sec. 982.630)

    Comment: Dual inspection requirements. A number of commenters 
objected to the proposed dual HQS/independent home inspection 
requirements. Several commenters wrote that two inspections would be 
duplicative and add unnecessary expense and time to the homebuying 
process. The commenters offered various alternatives to the dual 
inspection requirement. Several commenters suggested that only the 
independent inspection be required; others recommended that the initial 
HQS inspection be retained and the requirement for third-party 
inspection be removed. One commenter suggested that PHAs be granted the 
discretion to establish criteria for one uniform inspection. Another 
commenter recommended that the scope of the HQS inspection be expanded 
to include the desired features of an independent professional home 
inspection.
    Other commenters supported the dual inspection requirement 
contained in the proposed rule. These commenters wrote that an 
independent home inspection was useful to identify potential problems 
that were not immediate deficiencies, but that an HQS inspection is 
also important to identify basic health and safety issues. One 
commenter wrote that the HQS inspection was also useful because it 
limited the possible financial burden on the family by identifying 
significant HQS deficiencies and eliminating the need for the family to 
pay for a subsequent independent inspection.
    HUD response. After carefully considering the comments, HUD has not 
changed the requirement that the unit must pass an initial HQS 
inspection conducted by the PHA and also be subject to an independent 
professional home inspection. Section 8(y) removes the requirement that 
the PHA conduct annual HQS inspections, but does not eliminate the 
requirement that the unit initially meet HQS before assistance payments 
may commence. The statute specifically requires that the contract of 
sale provide for a pre-purchase inspection by an independent 
professional, which is clearly separate and distinct from the statutory 
HQS inspection.
    The purposes of these inspections are also separate and distinct. 
The HQS inspection determines if the current physical condition of the 
unit is decent, safe, and sanitary, and is therefore eligible to be 
assisted under the Section 8 program. It is the sole responsibility of 
the PHA to determine whether a potential unit meets the HQS 
requirements of the program.
    The HQS inspection is not designed to assess the life span of major 
components, building systems, appliances and other structural 
components in order to identify potential problems for the future, such 
as the need to replace an aging heating system or roof in the next 
several years. Clearly, such information is important for a potential 
homebuyer to take into consideration. The requirement for an inspection 
arranged by the buyer and satisfactory to the buyer is a typical 
contingency clause in contracts of sale and is consistent with private 
real estate practice.
    HUD does not believe it is advisable to combine the distinct 
purposes of each

[[Page 55153]]

inspection into a single inspection. Combining the inspections 
compromises the independent standing of the professional inspector, who 
is selected by and paid by the potential buyer, and the separate 
programmatic role and responsibility of the PHA HQS inspector. HUD also 
agrees that the initial HQS inspection serves to ensure the family does 
not enter into a contract of sale or otherwise expend family resources 
for the independent inspection for units that are ineligible for 
Section 8 assistance.
    Comment: The final rule should provide PHAs the discretion to 
modify the inspection requirements for new homes. Several commenters 
wrote that newly constructed homes often come with builder/contractor 
warranties and that new homes have to pass a series of inspections by 
local authorities in order to receive a final certificate of occupancy. 
The commenters recommended that the final rule permit PHAs to establish 
more relaxed inspection standards for newly constructed homes.
    HUD response. HUD has not provided PHAs with the discretion to 
relax or modify the inspection requirements for newly constructed 
homes. HUD does not believe that the inspection requirement will prove 
problematic for new homes. The unit must initially meet the HQS and 
there is no automatic guarantee against poor construction or other 
types of problems, regardless of the date of completion of a particular 
unit.
    Comment: HQS inspections should be performed on a regular basis 
throughout the term of assistance. One commenter wrote that HQS 
inspections should be required annually during the term of 
homeownership assistance. Another commenter suggested that HQS 
inspections should be performed at least once every two years at 
minimum. One commenter wrote that the PHA, or local supportive service 
provider, should be given the option of performing annual HQS 
inspections.
    HUD response. The statute explicitly provides that the annual HQS 
inspection is not required for section 8(y) units. While the final rule 
does not require the PHA to conduct subsequent inspections of the unit, 
the final rule clarifies that the additional requirements for 
continuation of homeownership assistance established by the PHA may 
include additional unit inspections while the family is receiving 
homeownership assistance (see Sec. 982.633(b)(8) of this final rule).
    Comment: PHAs should be permitted to pay for the independent 
professional home inspection. Several commenters wrote that, given the 
expense involved in contracting with a home inspector, PHAs should be 
provided the option of paying for the independent home inspection.
    HUD response. The independent home inspection is supposed to be 
independent of, not only the seller, but also the PHA. The HQS 
inspection, conducted prior to the time the family enters into a 
contract of sale and contracts for the independent inspection, and the 
pre-assistance counseling program should reduce the likelihood of the 
family having to incur the cost of the inspection for numerous units.
    Comment: The independent inspector should be allowed to be an 
employee or contractor of the PHA. One commenter wrote that some PHAs 
contract with private nonprofit agencies that provide a variety of 
housing related services. According to the commenter, these agencies 
have rehabilitation programs and inspectors that are completely 
separate from the Section 8 program. The commenter wrote that PHAs 
should not lose these agencies as a resource for independent 
inspections.
    HUD response. HUD has not adopted this recommendation. The pre-
purchase inspection is supposed to be conducted by a professional 
independent of the PHA. The purpose of the requirement is to provide 
the potential buyer with an impartial third-party assessment of the 
physical condition of the property's systems and components. The final 
rule explicitly provides that the independent inspector may not be a 
PHA employee or contractor, or other person under control of the PHA.

M. Financing Purchase of Home; Affordability of Purchase (proposed 
Sec. 982.631)

    Comment: PHA administrative authority to establish financing 
requirements. Several commenters wrote that the PHA is not acting as 
the lender, nor has an ownership interest in the property, and should 
not determine acceptable types of financing or establish payment 
requirements. As an alternative, one of the commenters suggested that 
HUD should allow PHAs to define in their PHA Plans questionable 
financing situations (such as balloon payment mortgages) that would 
trigger a PHA review to determine the reasonableness of the financing 
arrangement.
    Several other commenters wrote that variable interest rates have 
the potential to negatively impact a first-time homebuyer's success if 
the mortgage balloons while the family's income remains stagnant. These 
commenters urged that the final rule establish an absolute prohibition 
against balloon payments.
    HUD response. After carefully considering the comments submitted on 
this issue, HUD has decided that it is appropriate to retain PHA 
administrative discretion to establish requirements regarding the terms 
of the financing. The PHA is in the best position to determine what is 
workable in its local community, and what level of risk related to 
variable interest rate mortgages and balloon payments is acceptable for 
the PHA's homeownership program. HUD believes that the flexibility 
granted to PHAs by the final rule will help to ensure responsible 
financial oversight of the homeownership program and that homeowners 
are provided with necessary protections. In addition, HUD believes that 
allowing the PHA to prohibit questionable types of financing will 
increase the number of PHAs willing to offer the homeownership option.
    While HUD believes that PHAs should have the discretion to 
determine what financing requirements are appropriate for their 
localities, HUD also wishes to protect families participating in the 
Section 8 homeownership option from abusive lending practices. This 
final rule makes several changes that are designed to ensure that 
families are protected from abusive lending practices. For example, 
Sec. 982.632 of this final rule clarifies that a PHA may review lender 
qualifications and the loan terms before authorizing homeownership 
assistance. The PHA may disapprove proposed financing, refinancing or 
other debt if the PHA determines that the debt is unaffordable or the 
lender or the loan terms do not meet PHA qualifications. HUD also 
encourages PHAs to analyze each loan (including refinancing or 
financing for improvements or repairs) to identify and eliminate 
abusive lending practices. (See Section VII. of this preamble for 
additional information regarding the prevention of predatory lending 
practices in the Section 8 homeownership option.)
    Comment: The final rule should establish uniform qualification 
requirements for lenders. One commenter wrote that examples of this 
type of lender or financial program qualifications might include 
identifying specific entities (such as conventional mortgage lenders) 
that regularly participate in the secondary market or that participate 
in governmental lending or mortgage insurance programs; State Housing 
Finance Agency programs; subsidy programs administered by

[[Page 55154]]

states, counties, cities, or subdivisions; and nonprofit organizations.
    HUD response. HUD believes such a requirement is too restrictive 
and could inappropriately limit available financing in some markets. 
The final rule continues to allow the PHA to establish requirements 
concerning the qualification of lenders but does not impose any for the 
program as a whole.
    Comment: Final rule should not require or permit the PHA to 
establish homebuyer downpayment requirements. Several commenters 
opposed any homebuyer downpayment requirements under the homeownership 
program. One commenter wrote that requiring families to make 
downpayments from their own resources will effectively prevent families 
residing in expensive housing markets from ever participating in the 
homeownership option. Another commenter wrote that foreclosures are not 
caused by families choosing to walk away from a home because they have 
equity invested but because they lose their income.
    HUD response. The proposed rule did not propose to establish a 
minimum downpayment requirement, but proposed to grant the PHA 
flexibility to establish a requirement for a minimum homeowner equity 
payment from the family's personal resources. The final rule continues 
to provide this flexibility to the PHA. A PHA may determine that a 
minimum contribution by the family for the downpayment is appropriate 
to demonstrate the family's commitment and readiness for the 
responsibilities of homeownership. HUD notes that an Individual 
Development Account (IDA) is considered to be a family asset under 
HUD's annual income regulations at Sec. 5.609 and would, therefore, be 
considered a personal family resource for purposes of meeting such a 
PHA downpayment requirement.
    Comment: Final rule should permit seller contributions to 
downpayment/closing costs. According to one commenter, this policy 
would increase housing choice for participating families.
    HUD response. This final rule does not prohibit seller 
contributions to the downpayment or closing costs. However, the final 
rule continues to provide that the PHA may establish a minimum equity 
requirement from the family's personal resources, types of financing, 
and qualifications of lenders. The PHA's administrative policy on these 
subjects might impact on the extent to which seller contributions would 
be permissible. In addition, individual lenders may have underwriting 
criteria impacting seller contributions to the downpayment or closing 
costs, which would be applicable regardless of the PHA policy regarding 
seller contributions.
    Comment: Use of FHA underwriting standards for non-FHA insured 
loans. Several commenters supported the requirement that all loans 
under the Section 8 homeownership program meet FHA underwriting 
criteria. On the other hand, other commenters wrote that the use of FHA 
underwriting standards would unduly restrict the availability of 
properties available for purchase. These commenters wrote that the use 
of FHA criteria would prevent families from using other types of 
flexible mortgage financing designed to assist low-income homebuyers. 
Some commenters also wrote that the added burden and restrictions of 
complying with FHA requirements would deter lenders from participating 
in the program.
    HUD response. After considering the comments on this issue, HUD has 
revised the rule by removing the requirement that purchases of homes 
financed without FHA-insured mortgage assistance must, nonetheless, 
comply with the basic mortgage insurance credit underwriting 
requirements for FHA-insured single family mortgage loans.
    HUD proposed this requirement to minimize the risk of default by 
imposing a minimum underwriting standard. However, HUD agrees that 
imposing FHA requirements on non-FHA loans would unduly restrict the 
availability of financing vehicles and options for Section 8 
homeownership families. FHA underwriting requirements are in place for 
FHA mortgages to protect the solvency of the FHA fund but may not 
necessarily be an appropriate standard for non-FHA loans. In fact, 
mandating FHA underwriting standards would result in eliminating 
desirable non-FHA financing options for families, such as foundation 
funds or State programs for first-time homebuyers.
    The final rule clarifies that if purchase of the home is financed 
with FHA-insured mortgage financing, the financing is subject to FHA 
insurance credit underwriting requirements. Otherwise, the underwriting 
standards of the individual lender and/or financing program will apply 
in cases where financing for purchase of the home is not FHA-insured.
    Comment: PHA authority to disapprove proposed financing if the PHA 
determines the debt for the purchase of the home is unaffordable. One 
commenter recommended that the final rule should require the PHA to 
take a family's expenses into account in determining whether to approve 
the financing for a homeownership loan. Another commenter suggested 
that the final rule should establish uniform standards for use by PHAs 
in assessing the affordability of debt. The commenter wrote that a 
national standard will provide certainty for institutions seeking to 
develop programs designed to dovetail with the homeownership option. 
The commenter recommended that a standard similar to that used in the 
HOME program or the USDA Section 502 Direct loan program be adopted.
    Another commenter wrote that the PHA's right to review and 
disapprove financing should be limited to seller financing. The 
commenter wrote that reputable mortgage lenders have no incentive to 
underwrite loans that will default.
    HUD response. The final rule retains the broad PHA administrative 
discretion to disapprove proposed financing if the PHA determines that 
the debt for the purchase of the home is unaffordable. HUD believes 
that local administrative flexibility is appropriate, and that the 
decisions as to what level of debt is unaffordable or what terms of 
financing are appropriate are best left to the PHA.

N. Continued Assistance Requirements; Family Obligations (proposed 
Sec. 982.632)

    Comment: The family should obtain PHA approval prior to entering 
into refinancing agreements or securing additional financing on the 
home (whether to finance repairs, consolidate debts, or for any other 
reason) and the family should secure counseling before such action. One 
commenter made this suggestion.
    HUD response. HUD agrees that the PHA should have the option to 
require prior PHA approval before the family enters into a refinancing 
agreement or secures additional financing on the home. Accordingly, 
Sec. 982.632 of the final rule incorporates the suggestion made by the 
commenter.
    Comment: HUD should develop contracts for use in the Section 8 
homeownership program. One commenter wrote that a Statement of 
Homeowner Obligations is not a contract and would probably be 
insufficient if the PHA has to turn to the local courts. The commenter 
recommended that HUD develop two separate contracts for use by PHAs--
one if the payments are made directly to the family and another for 
payments made directly to the lender.
    HUD response. The PHA is not contractually obligated to make 
payments to the lender. The HAP payments to the lender are made on 
behalf of the family, not the PHA. If the HAP payment were to cease, 
the family

[[Page 55155]]

would still be responsible for the full monthly mortgage payment due 
the lender. Furthermore, mortgages are often sold and families may 
refinance. Encumbering the mortgage or the lender with a mandated HUD 
contract may ultimately discourage lender participation in the program.
    Comment: Homebuyers should be required to demonstrate that real 
property taxes, assessments, water taxes, etc., are current on an 
annual basis. One commenter made this suggestion.
    HUD response. HUD has not added evidence of payment of taxes as a 
specific requirement for continued homeownership assistance in the 
final rule. However, Sec. 982.633(b)(8) of this final rule permits PHAs 
to establish additional requirements for the continuation of 
homeownership assistance, which could include such a requirement. HUD 
believes that imposing a requirement of this type is best left to the 
discretion of the individual PHA.

O. Maximum Term of Homeownership Assistance (proposed Sec. 982.633)

    Comment: What is the appropriate length of time to provide 
homeownership assistance to the family? Several commenters wrote in 
support of the ten year limit. Other commenters urged HUD to extend the 
10 year limit. Many of these commenters suggested that the maximum term 
be extended to fifteen, twenty, or thirty years, to better reflect 
usual mortgage terms. The commenters urging an extension of the maximum 
10 year period stated that the shorter term would discourage lenders 
and the secondary mortgage market from participating in the program. 
Several of these commenters wrote that in ten years it is unlikely that 
the unamortized balance of a mortgage could be refinanced at a monthly 
payment affordable to an unassisted homeowner, therefore resulting in a 
large number of mortgage defaults. Accordingly, the commenters stated 
that the maximum term might limit homeownership assistance to higher 
income families able to afford the increased mortgage payments 
following the termination of assistance. Further, low income families 
concerned about defaulting at the end of the maximum term would be 
forced to purchase in depressed real estate markets, such as minority 
and/or poverty concentrated areas.
    On the other hand, a number of commenters wrote that the ten year 
maximum term should be reduced to three, five, or seven years. These 
commenters stated that by providing a mortgage subsidy for ten or more 
years, HUD would be promoting ongoing dependency on Section 8 
assistance and reducing the availability of limited Section 8 resources 
for other families.
    A couple of commenters wrote that the final rule should establish a 
uniform maximum term instead of permitting a PHA to establish a maximum 
term shorter than ten years. The commenters stated that without the 
availability of a uniform program time period, lenders and other 
agencies likely to provide subsidy assistance would find it difficult 
to develop national or regional programs to support the homeownership 
option. However, other commenters recommended that PHAs should have 
absolute flexibility to determine the maximum term of assistance based 
on their local housing needs.
    HUD response. After carefully considering the comments on the 
maximum term for a family to receive homeownership assistance, HUD has 
significantly revised the requirement in the final rule.
    HUD agrees that there is a need to establish a Federal standard 
regarding the maximum time that a family may receive homeownership 
assistance to ensure that the program is equitable for all families 
receiving homeownership assistance. Further, a uniform Federal standard 
will establish consistency across jurisdictional lines, thus 
facilitating wider lender participation. The final rule removes PHA 
discretion to establish a shorter minimum term than the Federal 
standard.
    HUD also believes that a time limit is appropriate for 
homeownership assistance. The purpose of the Section 8 homeownership 
program goes beyond simply defraying the monthly homeownership costs as 
opposed to rent. Rather, the objective is to move an assisted renter 
into homeownership in order to foster responsibility and assist the 
family in ultimately achieving economic self-sufficiency. A related 
statutory objective is to assist renters make the transition to 
economic self-sufficiency. This objective is made clear from the fact 
that section 8(y) targets homeownership assistance to first-time 
homebuyers. The statute does not expand eligibility for scarce Section 
8 assistance to existing homeowners.
    The final rule provides for a mandatory term limit on homeownership 
assistance of 15 years if the initial mortgage incurred to finance 
purchase of the home has a term that is 20 years or longer. In all 
other cases, the maximum term of homeownership assistance is 10 years. 
HUD believes that a family should be able to assume the full 
responsibility for monthly homeownership expenses at the end of such 
time. HUD also believes that the maximum term established by this final 
rule is sufficient to achieve broad lender participation.
    HUD understands the concerns raised by some of the commenters 
regarding Section 8 homeowners who, due to circumstances beyond their 
control, are unable to assume full responsibility for the monthly 
homeownership expenses at the end of the maximum term. HUD encourages 
PHAs and families to realistically assess the family's economic 
situation a year or so before the conclusion of the maximum term of the 
homeownership assistance. The family would then be in a position to 
decide whether it might be in the family's best interest to sell the 
property and revert to Section 8 rental assistance.
    The final rule retains the provision that if the family receives 
homeownership assistance for different homes or from different PHAs, 
the total of assistance term is subject to the regulatory maximum term 
(15 or 10 years, depending on the length of the initial mortgage to 
purchase the first unit under the homeownership option).
    As in the proposed rule, the final rule provides that the maximum 
term limit does not apply to elderly or disabled families. The final 
rule clarifies that, in the case of an elderly family, the exception is 
only applied if the family qualifies as an elderly family at the 
commencement of homeownership assistance. For instance, if a family is 
a non-elderly family when homeownership assistance commences, the 
family is still subject to the term limit on assistance even if the 
family subsequently meets the definition of an elderly family during 
the term. In the case of a disabled family, the exception applies if at 
any time during receipt of homeownership assistance the family 
qualifies as a disabled family.
    If, during the course of homeownership assistance, the family 
ceases to qualify as a disabled or elderly family, the maximum term 
becomes applicable from the date homeownership assistance commenced. 
However, such a family must be provided at least 6 months of 
homeownership assistance after the maximum term becomes applicable 
(provided the family is otherwise eligible to receive homeownership 
assistance in accordance with this part).
    Comment: Does the maximum term requirement mean that no person in 
the family may have received more than ten years assistance? One 
commenter asked whether the daughter of a head of household who has 
resided in a home

[[Page 55156]]

purchased under the homeownership option for ten years would be 
prohibited from applying for assistance to purchase her own home. The 
commenter recommended that the final rule clarify that the maximum term 
applies only to those family members who obtained an ownership interest 
through the program.
    HUD response. The final rule clarifies that the time limit applies 
to any member of the household who has an ownership interest in the 
unit during any time that homeownership payments are made, or is the 
spouse of any member of the household who has an ownership interest in 
the unit at the time homeownership payments are made.

P. Amount and Distribution of Monthly Homeownership Assistance Payment 
(proposed Sec. 982.634)

    Comment: Families should be permitted to receive homeownership 
assistance for the initial 3 years of the mortgage term, even if HAP 
assistance is reduced to zero as a result of the annual examination of 
the family's income. According to the commenter, this recommendation 
would provide a safety net for mortgage lenders and would be consistent 
with current underwriting requirements, which require payments like 
child support to be available for a minimum of 36 months.
    HUD response. The length of time a family will remain eligible for 
a subsidy in the homeownership program is the same as in the rental 
program. During this time, the family has a subsidy slot reserved, 
thereby denying use of the assistance by another deserving family. In 
light of the severe needs for housing assistance and the length of time 
applicants must already wait to receive assistance, HUD has not revised 
the rule to increase the length of time the subsidy slot is reserved 
for a family who has a relatively high income and no longer qualifies 
for a subsidy.
    Comment: The final rule should provide that a stable bedroom-size 
assistance level will be provided to the family throughout the life of 
the mortgage. Three commenters worried that as children leave home 
Section 8 assistance levels would be reduced, therefore jeopardizing 
the ability of a family to maintain its mortgage payments. The 
commenters wrote that such fluctuating assistance levels would 
discourage lenders from participating in the program.
    HUD response. HUD does not need to revise the proposed rule to 
address this concern. The final rule retains the provision that 
protects the homeowner from decreases in the normally applicable 
payment standard. The payment standard for a family receiving 
homeownership assistance is the greater of the payment standard at the 
commencement of homeownership assistance for occupancy of the home and 
the payment standard at the most recent regular reexamination of family 
income and composition since the commencement of homeownership 
assistance for occupancy of the home. This policy minimizes the risk of 
default due to decreases in the payment standard or changes in family 
composition.
    Comment: Should the family or the lender receive the HAP payments? 
Several commenters suggested that HAP payments should only be made 
directly to the lender and never to the family. One of the commenters 
wrote that this would increase the efficiency of program 
administration. Other commenters were concerned that a family might 
inappropriately use the funds and potentially jeopardize the mortgage. 
One of the commenters also suggested that shelter costs (such as debt 
service, property taxes, insurance and reserve for replacement) be 
built directly into the mortgage payment.
    Several other commenters wrote that the payments should be made 
directly to the family and not the lender. The commenters wrote that it 
would be an administrative nightmare for lenders to be required to 
accept separate payments from the homeowner (for the family's portion) 
and the PHA. The commenters recommended that the assistance payment 
should be made by the PHA as a direct automatic deposit into the 
family's bank account with provisions for automatic withdrawal of the 
mortgage amount by the lender.
    HUD comment. This final rule continues to provide that the PHA may 
make the homeownership assistance payment either directly to the family 
or to a lender on behalf of the family. The PHA may determine it is 
necessary to make housing assistance payments directly to the family in 
order to secure lender participation, thereby avoiding the possibility 
that both the PHA and the family will be sending checks to the lender 
for the mortgage payment. On the other hand, some lenders may indicate 
their participation is contingent on receiving the payment directly 
from the PHA.
    The final rule clarifies that if the PHA decides to make the 
homeownership assistance payment directly to the lender, and the 
assistance payment exceeds the amount due to the lender, the PHA must 
pay the excess amount directly to the family.
    Comment: To prevent loss of home due to unpaid taxes, the final 
rule should require that the mortgage payment include taxes. One 
commenter made this suggestion.
    HUD response. This is a matter that is more appropriately left to 
negotiation between the lender and the family, subject to any local or 
state laws.
    Comment: PHAs should be permitted to set a separate payment 
standard for the homeownership program. Several commenters wrote that 
PHAs should have the latitude to set a separate payment standard for 
the homeownership option. For example, a payment standard of 95% of the 
Fair Market Rent (FMR) might work for the rental market, but for the 
for-sale market a payment standard of 105% might be more appropriate. 
Another commenter wrote that, if the unit selected by the participating 
family is new, the PHA should have the latitude to adjust the payment 
standard to account for the superiority of the housing unit.
    HUD response. HUD has not made the recommended changes. The subsidy 
level for a homeowner should not be higher than for a renter under the 
tenant-based program. Fewer families would be assisted if HUD provided 
a higher subsidy to homeowners. Also, it would not be equitable to 
provide larger subsidies for families who are more likely (on average) 
to have higher incomes than their counterparts receiving rental 
assistance.
    Comment: What do ``monthly homeownership expenses'' include? Two 
commenters requested clarification regarding the items included in 
``monthly homeownership expenses.''
    HUD response. The final rule lists the items that comprise the 
monthly homeownership expenses at Sec. 982.635(c).
    Comment: Homeownership expenses should not include maintenance 
expenses nor major repairs and replacements. One commenter wrote that 
these are expenses that come with the risk of homeownership. The 
commenter wrote that families participating in the program should have 
the means to maintain their home and protect the investment without 
subsidy.
    HUD response. HUD has not adopted this comment. The costs of 
maintaining and repairing a home are significant expenses associated 
with homeownership. HUD does not believe it is inappropriate to 
consider these costs in determining the monthly homeownership expense 
for a family. Furthermore, in any case where the family's monthly 
homeownership expenses exceed the applicable payment

[[Page 55157]]

standard, the maximum subsidy that may be paid on behalf of a family is 
capped by the applicable payment standard. Reimbursement for such 
expenses is therefore limited by the voucher subsidy formula.
    Comment: In addition to the allowance for major home repair and 
replacements, there should also be consideration for the cost of 
modifications to make a home accessible to owners with disabilities. 
Several commenters wrote in support of this change to the proposed 
rule.
    HUD response. The final rule clarifies that where a member of the 
family is a person with disabilities, mortgage debt incurred to finance 
costs for major repairs, replacements or improvements for the home may 
include debt incurred by the family to finance costs needed to make the 
home accessible for the disabled person, if the PHA determines the 
allowance is needed as a reasonable accommodation.
    Comment: Other items should be considered in determining the 
homeownership expenses. Several commenters suggested the consideration 
of various items in the determination of homeownership expenses, 
including water and sewer fees; condominium fees; and homeowner 
association fees.
    HUD response. Water and sewer fees were already covered in the 
proposed rule under the PHA utility allowance for the home. The final 
rule has been amended to provide that if the home is a cooperative or 
condominium unit, homeownership expenses may also include cooperative 
or condominium operating charges or maintenance fees, or charges 
assessed by the condominium or cooperative homeowner association.
    Comment: HUD should develop a uniform rule for allowances of 
homeownership expenses. The proposed rule would allow PHAs to adopt 
policies for determining the amount of homeownership expenses in 
determining the family's Section 8 subsidy amount. Several commenters 
stated that giving discretion to PHAs to exclude any of these amounts 
as expenses would create great inequities across jurisdiction lines. 
The commenters suggested that HUD adopt a uniform rule regarding 
homeownership expenses. One of the commenters recommended that all of 
the listed items be considered homeownership expenses.
    HUD response. The proposed rule and the final rule do not provide 
the PHA with the discretion to exclude any of the listed homeownership 
expenses or to add any additional items. The PHA is responsible for 
determining the appropriate allowance amount provided for maintenance 
expenses; major repairs and replacements; and utilities (which is the 
same utility allowance amount that applies to the voucher program as a 
whole). HUD believes it is appropriate for the PHA to determine the 
allowance amounts provided for the homeownership expenses, since a 
realistic projection of these average costs will vary from jurisdiction 
to jurisdiction.

Q. Portability (proposed Sec. 982.635)

    Comment: Applicability of portability to the homeownership program. 
Several commenters suggested that homeownership assistance should be 
freely portable. The commenters wrote that restricting portability 
would prohibit a family living in a center city from pursuing job 
opportunities in suburban areas where the homeownership option is not 
provided.
    One commenter suggested that if a person with a disability finds a 
home outside the jurisdiction of the initial PHA, the initial PHA 
should be permitted to continue to administer the program where the 
receiving PHA will not provide homeownership assistance. The commenter 
wrote that the final rule could also require the receiving PHA to 
provide homeownership assistance to the person with the disability.
    Several other commenters recommended that portability of assistance 
under the Section 8 homeownership program between PHA jurisdictions 
should be prohibited. One commenter wrote that Section 8 homeownership 
funding is provided by HUD to assist local needs and should not be 
transferable to another jurisdiction that has chosen not to provide 
such assistance.
    HUD response. As noted above, HUD has clarified the portability 
procedures of the proposed rule, which provide that the family may 
qualify to move outside the initial PHA jurisdiction with continued 
assistance under the voucher program. In general, the receiving PHA is 
not required to permit families that move into the PHA's jurisdiction 
to receive any special housing type (including homeownership 
assistance), regardless of whether the family was receiving such 
assistance at the initial PHA. While the family participating in the 
Housing Choice Voucher program has the portability right to move 
anywhere in the country where a PHA administering tenant-based 
assistance has jurisdiction, Section 8(y) also provides the PHA with 
the sole discretion to determine whether to make homeownership 
assistance available. A family under the homeownership option retains 
the portability rights of the Section 8 voucher, but may only continue 
to receive homeownership assistance if the receiving PHA runs a 
homeownership program and is accepting additional homeownership 
families.
    Comment: PHAs should be authorized to enter into homeownership 
transactions outside their normal service areas, provided no other PHA 
runs a homeownership program in that area. The commenter wrote that 
this policy would follow the principle of promoting maximum portability 
wherever the PHA is willing to administer the program.
    HUD response. HUD has not adopted this comment. The PHA area of 
operation is determined by state law, and the language of Section 8(y) 
does not provide a statutory basis for overriding state law with 
respect to PHA administration of the homeownership option.

R. Move With Continued Tenant-Based Assistance (proposed Sec. 982.636)

    Comment: A family should not be permitted to use the homeownership 
option more than once. One commenter questioned whether the policy 
permitting a family to purchase multiple units with voucher assistance 
was a prudent use of scarce housing subsidy dollars.
    HUD response. Both the proposed and final rules permit the family 
to purchase one or more subsequent homes with continued Section 8 
assistance, provided that the head of household or spouse has not 
defaulted on a mortgage securing debt incurred to purchase the home 
(see Secs. 982.627(e) and 982.637 of this final rule). HUD believes it 
is appropriate to permit family mobility in the homeownership program. 
Families may need to move for a number of compelling reasons such as 
safer neighborhoods, better schools, because more or less space is 
needed, or to be closer to a job.
    The final rule provides that the PHA may not commence homeownership 
assistance for occupancy of the new unit so long as any family member 
owns any title or other interest in the prior home. As noted earlier, 
the final rule provides that the family cannot be assisted if they own 
another residential property. HUD agrees that it is appropriate to 
limit homeownership assistance only to families that do not own other 
residential property. The purpose of the program is to help families 
meet their immediate housing needs and limited assistance funds should 
not be provided to families who currently own another home, regardless 
of whether the family

[[Page 55158]]

chooses not to make that property their primary residence.
    Comment: The final rule should provide for the recapture of 
homeownership assistance upon the sale or transfer of the home. Several 
commenters made this suggestion. There was no consensus among these 
commenters as to the extent of the recapture. Two of the commenters 
suggested that recaptures should only apply to half of the 
homeownership assistance payments made to or on behalf of the family. 
One of these commenters also suggested that the PHA should use the 
recaptured proceeds to assist other Section 8 families. Another 
commenter wrote that any recapture provision should be designed to 
limit the amount of equity that a participant may realize through the 
sale of a home under the Section 8 homeownership program.
    HUD response. HUD agrees with the commenters that it is appropriate 
for HUD to recapture homeownership assistance upon the sale or 
refinancing of the home. Further, HUD agrees with the commenters that 
the recaptured assistance should be used to assist additional housing 
choice voucher assistance families. HUD recognizes that the possibility 
of accumulating equity in the property and the realization of profit 
upon sale is an important facet of homeownership. However, HUD believes 
these benefits can be realized even if a portion of the assistance 
payments made on behalf of the family are retained by the PHA out of 
the net sales proceeds of the property in order to further assist other 
needy families.
    The final rule establishes a new Sec. 982.640 that provides for 
such recaptures. PHAs shall recapture a percentage of the homeownership 
assistance defined in the regulations upon the sale or refinancing of 
the home. Sales proceeds that are used by the family to purchase a new 
home with Section 8 homeownership assistance are not subject to 
recapture. Further, a family may refinance to take advantage of lower 
interest rates, or better mortgage terms, without any recapture 
penalty. Only those proceeds realized upon refinancing that are 
retained by the family (for example during a ``cash-out'' of the 
refinanced debt) are subject to the new recapture provision.
    New Sec. 982.640 requires that, upon purchase of the home, a family 
receiving homeownership assistance shall execute documentation as 
required by HUD, and consistent with State and local law, that secures 
the PHA's right to recapture the homeownership assistance. The lien 
securing the recapture of homeownership subsidy may be subordinated to 
a refinanced mortgage.
    The homeownership assistance subject to recapture shall 
automatically be reduced over a 10 year period, beginning one year from 
the purchase date, in annual increments of 10 percent. For example, if 
the family sells the home during the first year after purchase, the PHA 
will recapture 100% of the homeownership assistance provided to the 
family. If the family sells one year (but less than two years) after 
purchase, the PHA will recapture 90% of the homeownership assistance, 
etc. At the end of the 10 year period, the amount homeownership 
assistance subject to recapture will be zero.
    Comment: HUD should clarify how to treat a rollover sale by which 
the family sells one unit to purchase another. The commenter questioned 
if the profit from the sale of the first property should be counted as 
income (for purposes of determining the total tenant payment) if the 
family purchased or rented another unit with Section 8 assistance.
    HUD response. In calculating the family income, the treatment of 
income realized by the family as a result of the sale of a home 
purchased with assistance under the homeownership program is no 
different than treatment of net income from real property under 24 CFR 
part 5. However, in accordance with Sec. 982.640 of this final rule, 
the PHA may recapture a percentage of the homeownership assistance 
provided to family upon the sale or refinancing of the home (see the 
discussion of the preceding comment). Any profit remaining from the 
sale or refinancing after the recapture is ``income'', and may reduce 
the amount of future subsidy for the family.
    Comment: If a family participating in the homeownership program 
decides to ``switch back'' to rental assistance, must the family first 
sell its home before receiving rental assistance?
    HUD response. Yes, the family must sell its home before the family 
can receive continued Section 8 rental or homeownership assistance in 
another unit. The final rule makes this clarification.
    Comment: What ramifications should a family default have on 
continued participation in the rental program? Several commenters 
suggested that a family that defaults on its mortgage should not be 
allowed to receive Section 8 rental assistance. The commenters 
recommended that the family should be placed on the waiting list. 
However, there was no consensus among these commenters regarding where 
on the waiting list the family should be placed. For example, one 
commenter wrote that the family should not be penalized through 
placement at the end of the waiting list. Another commenter, however, 
recommended that a defaulting family should be placed at the bottom of 
the Section 8 waiting list.
    Two commenters wrote that a family that defaults should be required 
to re-apply for Section 8 assistance (rather than being placed back on 
the waiting list). One of the commenters believed that it would be 
unfair to other families to place the defaulting family on the waiting 
list (even at the bottom of the list) since in many jurisdictions 
Section 8 waiting lists are closed for an extended periods.
    Several commenters recommended that the PHA should have the 
flexibility to develop its own guidelines regarding the provision of 
rental assistance after a default or to handle such matters on a case-
by-case basis. The commenters wrote that there may be circumstances 
beyond the recipient's control (such as death, divorce, disability, or 
job lay-off) that result in a default. The commenters wrote that a 
recipient should not be penalized in these instances.
    HUD response. The proposed and final rule both provide that the PHA 
may terminate the family's participation in the voucher program if the 
family fails to comply with the terms of the mortgage (for instance, if 
the family defaults). Like other grounds for denial or termination of 
voucher assistance, the decision whether to deny the family's continued 
participation in the voucher program or to permit the family to 
automatically be placed back on the waiting list rests with the PHA.
    The final rule also retains the statutory provision that if the 
family defaults on an FHA-insured mortgage, the PHA must terminate the 
Section 8 assistance and may not issue the family a rental voucher 
unless the family: (1) Moves from the unit within the specified time 
period established or approved by HUD; and (2) conveys the title to the 
home, as required by HUD, to HUD or HUD's designee. Even if the family 
complies with these requirements, the PHA may still deny the family 
continued participation in the rental voucher program, since the family 
did not comply with the family obligations under Sec. 982.633.
    The final rule continues to leave the decision on the ramifications 
of the termination of homeownership assistance because of a default 
with the PHA. The PHA may allow the family to move and receive rental 
assistance (except in cases where the family defaulted on an FHA-
insured mortgage and has not complied with HUD requirements for 
conveyance and

[[Page 55159]]

possession of the property). The PHA may also choose, consistent with 
the PHA policy in the PHA administrative plan, to require the family to 
reapply for rental assistance. The PHA may place the family at the 
bottom of the list, at the top of the list, or wherever the family 
would normally fall based on PHA preferences. The PHA may also prohibit 
the family from re-applying for assistance for a certain period of 
time. HUD notes that the family may request an informal hearing if a 
current participant that has defaulted on a mortgage for a Section 8 
homeownership unit is denied a rental voucher.
    Comment: The incentives provided for rapid possession and title 
conveyance for homes with FHA mortgage defaults should be extended to 
all lenders including secondary market agencies. Two commenters made 
this suggestion.
    HUD response. As noted above, the PHA must deny the family 
continued assistance if the family defaults on an FHA-insured mortgage 
and does not comply with HUD requirements. HUD has not extended the 
mandatory termination provision to a family who defaults on a non-FHA 
mortgage.
    Section 8(y) provides for the mandatory termination of a family 
that does not comply with HUD requirements to convey title and vacate 
the property because the Federal government has a vested interest in 
protecting the FHA insurance fund. HUD does not believe that it is 
appropriate to extend this mandatory termination policy in the case of 
non-FHA mortgages. There may be circumstances where the terms of the 
mortgage or the conditions for rapid possession and title conveyance to 
the lender are not reasonable. The PHA should have the discretion to 
decide how to address these situations.
    Comment: The final rule should require lenders to provide a copy to 
the PHA of any default notice at the same time such notice is sent to 
the borrower. One commenter made this suggestion.
    HUD response. HUD has not revised the rule to incorporate this 
suggestion. HUD believes the recommended change could negatively impact 
lender participation and the sale of mortgages on the secondary market. 
Section 982.633(b)(6) of the final rule retains the requirement that 
the family must notify the PHA if the family defaults on a mortgage 
securing any debt incurred to purchase the home.

S. Administrative Fees (proposed Sec. 982.637)

    Comment: Additional HUD funding is needed for implementation of new 
program. One commenter identified various requirements of the 
homeownership option that will require staff time and new staff 
expertise to carry out. The commenter suggested that HUD should 
compensate PHAs on a performance basis and provide some preliminary 
funding to set up the program. Another commenter wrote that HUD should 
provide a one time incentive of $5,000 for each homebuyer family as an 
incentive for PHAs to participate.
    HUD response. The final rule has not adopted these suggestions. 
Section 8(y) is intended to provide PHAs with added flexibility in 
serving the housing needs of their local communities within the 
existing framework and funding constraints of the Section 8 Housing 
Choice Voucher program. HUD does not have any additional or separate 
funding to increase administrative fees for PHAs that choose to 
exercise the homeownership option.
    It is true that the PHA has some additional administrative duties 
for homeownership families. However, there is a corresponding reduction 
in the administrative responsibilities that the PHA must perform for a 
family receiving rental assistance over the duration of the family's 
participation in the program. For example, the PHA is not required to 
determine rent reasonableness or conduct annual HQS inspections under 
the homeownership option.
    Comment: HUD should consider allowing the PHA to impose a one-time 
fee on families participating in the program to offset additional PHA 
expenses, such as marketing, developing program materials, and 
coordinating activities with homebuyer counselors. One commenter made 
this suggestion.
    HUD response. HUD has not adopted this suggestion. PHAs may not 
charge families fees to participate in the homeownership program or for 
the normal program responsibilities to be performed by the PHA. 
Although there are additional PHA upfront responsibilities associated 
with a family purchasing a home, the time necessary to perform the 
PHA's ongoing responsibilities will decrease since rent reasonableness 
and annual HQS inspections are not required in the homeownership 
program.

VII. Prevention of Predatory Lending Practices

    While HUD believes that PHAs should have the discretion to 
determine what financing requirements are appropriate for their 
localities, HUD also wishes to protect families participating in the 
Section 8 homeownership option from abusive lending practices. HUD has 
joined with the Department of the Treasury to develop recommendations 
on legislative, regulatory, and other steps to curb predatory mortgage 
practices. These recommendations, which are contained in a joint HUD-
Treasury report, are based on information that HUD and the Department 
of the Treasury gathered as co-chairs of the National Predatory Lending 
Task Force, convened in April, 2000. Through public forums with 
industry, consumers, consumer advocates, and local and state 
governments in Washington, Atlanta, Los Angeles, New York, Baltimore, 
and Chicago, HUD and the Department of the Treasury collected evidence 
on the nature and growing incidence of predatory lending practices 
nationwide.
    As noted above, this final rule makes several changes that are 
designed to ensure that families are protected from abusive lending 
practices. For example, Sec. 982.632 of this final rule clarifies that 
a PHA may review lender qualifications and the loan terms before 
authorizing homeownership assistance. The PHA may disapprove proposed 
financing, refinancing or other debt if the PHA determines that the 
debt is unaffordable or the lender or the loan terms do not meet PHA 
qualifications.
    PHAs are also encouraged to analyze each loan (including 
refinancing or financing for improvements or repairs) before providing 
assistance to determine whether the lender and the loan meet its 
qualifications. While no one set of abusive practices or terms 
characterizes a predatory mortgage loan, PHAs should be particularly 
careful of loans with the following features: loans in which financing 
costs represent a high percentage of the total loan amount; loans that 
include high credit insurance premiums; balloon payments that the 
borrower will be unable to repay; interest rates (including variable 
rates) significantly higher than conventional mortgages; pre-payment 
penalties, especially penalties that extend over long terms; high 
ratios of family debt to income; loans based on unverified sources of 
income or without regard to the borrower's ability to repay; excessive 
fees or fees ``packed'' into the loan amount without the borrower's 
understanding; and ``loan flipping'' accompanied by high fees 
(including prepayment penalties that strip the borrower's equity with 
each successive refinancing).
    HUD will revise its regulations for the Section 8 homeownership 
option, as appropriate, to implement legislative or other changes made 
in response to the

[[Page 55160]]

joint HUD-Treasury report. A copy of the joint report may be obtained 
through HUD's internet homepage at www.hud.gov.

VIII. Performance-Based Standards for the Section 8 Homeownership 
Option

    HUD intends to develop performance-based standards for the Section 
8 homeownership option. HUD would use these standards to monitor PHA 
program performance in administering their Section 8 homeownership 
programs, and to determine whether HUD intervention is appropriate due 
to excessive mortgage default rates.

IX. Findings and Certifications

Paperwork Reduction Act

    The homeownership option is a special housing type under 24 CFR 
part 982, subpart M, of the unified rule for the Section 8 tenant-based 
voucher program. The information collection requirements of the Section 
8 rental voucher program approved by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) are not increased by the implementation of this new special 
housing type. While the rule substitutes several variations to existing 
requirements under the normal Section 8 tenant-based program, the 
homeownership option does not increase the total reporting and 
recordkeeping burden resulting from the collection of information for 
the Section 8 voucher program. The following provisions of this final 
rule contain information collections: Secs. 982.305, 982.629, 982.631, 
982.633, and 982.638.
    The OMB approval number for the Section 8 tenant-based assistance 
program is 2577-0169. 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 (FONSI) 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) at the proposed rule stage. That 
FONSI remains applicable 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.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. This final rule does not impose any 
Federal mandates on any State, local, or tribal governments or the 
private sector within the meaning of Unfunded Mandates Reform Act of 
1995.

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this final rule 
under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this final 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 the final rule subsequent to its submission to OMB are 
identified in the docket file, which is available for public inspection 
in the office of the Department's Rules Docket Clerk, Room 10276, 451 
Seventh Street, SW, Washington, DC 20410-0500.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) (the RFA), has reviewed and approved this final rule and 
in so doing certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The reasons 
for HUD's determination are as follows:
    (1) A Substantial Number of Small Entities Will Not Be Affected. 
The final rule is exclusively concerned with public housing agencies 
that administer tenant-based housing assistance under section 8 of the 
United States Housing Act of 1937. Specifically, the final rule will 
permit a PHA to provide Section 8 tenant-based assistance to an 
eligible family that purchases a dwelling unit that will be occupied by 
the family. Under the definition of ``Small governmental jurisdiction'' 
in section 601(5) of the RFA, the provisions of the RFA are applicable 
only to those few PHAs that are part of a political jurisdiction with a 
population of under 50,000 persons. The number of entities potentially 
affected by this rule is therefore not substantial.
    (2) No Significant Economic Impact. The final rule will not change 
the amount of funding available under the Section 8 voucher program. 
Accordingly, the economic impact of this rule will not be significant, 
and it will not affect a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This final rule is exclusively 
concerned with the establishment of an alternative use of Section 8 
rental voucher assistance. Specifically, the rule authorizes a PHA to 
provide tenant-based assistance for an eligible family that purchases a 
dwelling unit that will be occupied by the family. This final rule does 
not have federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Catalog of Domestic Assistance Number

    The Catalog of Domestic Assistance number for the program affected 
by this final rule is 14.855.

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 903

    Administrative practice and procedure, Public housing, Reporting 
and recordkeeping requirements.

24 CFR Part 982

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

    For the reasons described in the preamble, HUD amends 24 CFR parts 
5, 903 and 982 as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

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

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


[[Page 55161]]



    2. In Sec. 5.603(b), amend the definition of ``net family assets'' 
by adding new paragraph (4) to read as follows:


Sec. 5.603  Definitions.

* * * * *
    (d) * * *
    Net family assets. * * *
    (4) For purposes of determining annual income under Sec. 5.609, the 
term ``net family assets'' does not include the value of a home 
currently being purchased with assistance under part 982, subpart M of 
this title. This exclusion is limited to the first 10 years after the 
purchase date of the home.
* * * * *

PART 903--PUBLIC HOUSING AGENCY PLANS

    3. The authority citation for 24 CFR part 903 continues to read as 
follows:

    Authority: 42 U.S.C. 1437c; 42 U.S.C. 3535(d).


    4. Revise Sec. 903.11(c)(1) to read as follows:


Sec. 903.11  Are certain PHAs eligible to submit a streamlined Annual 
Plan?

* * * * *
    (c) * * *
    (1) For high performing PHAs, the streamlined Annual Plan must 
include the information required by Sec. 903.7(a), (b), (c), (d), (g), 
(h), (k), (m), (n), (o), (p) and (r). The information required by 
Sec. 903.7(m) must be included only to the extent this information is 
required for the PHA's participation in the public housing drug 
elimination program and the PHA anticipates participating in this 
program in the upcoming year. The information required by Sec. 903.7(k) 
must be included only to the extent that the PHA participates in 
homeownership programs under section 8(y).
* * * * *

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM

    5. The authority citation for 24 CFR part 982 continues to read as 
follows:

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

Subpart A--General Information

    6. Amend Sec. 982.4 as follows:
    a. In paragraph (a)(3), in the first sentence revise the phrase 
``and utility reimbursement'' to read ``utility reimbursement'' and 
``welfare assistance'';
    b. In paragraph (b), revise the definitions of ``Cooperative,'' and 
``Special housing types'';
    c. In paragraph (b), remove the definition of ``Mutual housing''; 
and
    d. In paragraph (b), add the definitions of ``Cooperative member,'' 
``Family,'' ``First-time homeowner,'' ``Home,'' ``Homeowner,'' 
``Homeownership assistance,'' ``Homeownership expenses,'' 
``Homeownership option,'' ``Interest in the home,'' ``Membership 
shares,'' ``Present ownership interest,'' and ``Statement of homeowner 
obligations'' in alphabetical order.


Sec. 982.4  Definitions.

* * * * *
    (b) * * *
    Cooperative. Housing owned by a corporation or association, and 
where a member of the corporation or association has the right to 
reside in a particular unit, and to participate in management of the 
housing.
    Cooperative member. A family of which one or more members owns 
membership shares in a cooperative.
* * * * *
    Family. A person or group of persons, as determined by the PHA, 
approved to reside in a unit with assistance under the program. See 
discussion of family composition at Sec. 982.201(c).
* * * * *
    First-time homeowner. In the homeownership option: A family of 
which no member owned any present ownership interest in a residence of 
any family member during the three years before commencement of 
homeownership assistance for the family. The term ``first-time 
homeowner'' includes a single parent or displaced homemaker (as those 
terms are defined in 12 U.S.C. 12713) who, while married, owned a home 
with his or her spouse, or resided in a home owned by his or her 
spouse.
* * * * *
    Home. In the homeownership option: A dwelling unit for which the 
PHA pays homeownership assistance.
    Homeowner. In the homeownership option: A family of which one or 
more members owns title to the home.
    Homeownership assistance. In the homeownership option: Monthly 
homeownership assistance payments by the PHA. Homeownership assistance 
payment may be paid to the family, or to a mortgage lender on behalf of 
the family.
    Homeownership expenses. In the homeownership option: A family's 
allowable monthly expenses for the home, as determined by the PHA in 
accordance with HUD requirements (see Sec. 982.635).
    Homeownership option. Assistance for a homeowner or cooperative 
member under Sec. 982.625 to Sec. 982.641. A special housing type.
* * * * *
    Interest in the home. In the homeownership option:
    (1) In the case of assistance for a homeowner, ``interest in the 
home'' includes title to the home, any lease or other right to occupy 
the home, or any other present interest in the home.
    (2) In the case of assistance for a cooperative member, ``interest 
in the home'' includes ownership of membership shares in the 
cooperative, any lease or other right to occupy the home, or any other 
present interest in the home.
* * * * *
    Membership shares. In the homeownership option: shares in a 
cooperative. By owning such cooperative shares, the share-owner has the 
right to reside in a particular unit in the cooperative, and the right 
to participate in management of the housing.
* * * * *
    Present ownership interest. In the homeownership option: ``Present 
ownership option'' in a residence includes title, in whole or in part, 
to a residence, or ownership, in whole or in part, of membership shares 
in a cooperative. ``Present ownership interest'' in a residence does 
not include the right to purchase title to the residence under a lease-
purchase agreement.
* * * * *
    Special housing types. See subpart M of this part 982. Subpart M of 
this part states the special regulatory requirements for: SRO housing, 
congregate housing, group home, shared housing, manufactured home 
(including manufactured home space rental), cooperative housing (rental 
assistance for cooperative member) and homeownership option 
(homeownership assistance for cooperative member or first-time 
homeowner).
    Statement of homeowner obligations. In the homeownership option: 
The family's agreement to comply with program obligations.
* * * * *

Subpart G--Leasing a Unit

    7. Add Sec. 982.305(b)(3) to read as follows:


Sec. 982.305  PHA approval of assisted tenancy.

* * * * *
    (b) * * *
    (4) In the case of a unit subject to a lease-purchase agreement, 
the PHA

[[Page 55162]]

must provide written notice to the family of the environmental 
requirements that must be met before commencing homeownership 
assistance for the family (see Sec. 982.626(c)).
* * * * *

    8. Add Sec. 982.317 to read as follows:


Sec. 982.317  Lease-purchase agreements.

    (a) A family leasing a unit with assistance under the program may 
enter into an agreement with an owner to purchase the unit. So long as 
the family is receiving such rental assistance, all requirements 
applicable to families otherwise leasing units under the tenant-based 
program apply. Any homeownership premium (e.g., increment of value 
attributable to the value of the lease-purchase right or agreement such 
as an extra monthly payment to accumulate a downpayment or reduce the 
purchase price) included in the rent to the owner that would result in 
a higher subsidy amount than would otherwise be paid by the PHA must be 
absorbed by the family.
    (b) In determining whether the rent to owner for a unit subject to 
a lease-purchase agreement is a reasonable amount in accordance with 
Sec. 982.503, any homeownership premium paid by the family to the owner 
must be excluded when the PHA determines rent reasonableness.

Subpart H--Where Family Can Live and Move

    9. Revise Sec. 982.352(a)(6) to read as follows:


Sec. 982.352  Eligible housing.

    (a) * * *
    (6) A unit occupied by its owner or by a person with any interest 
in the unit.
* * * * *

Subpart M--Special Housing Types

    10. Amend Sec. 982.601 as follows:
    a. Revise paragraphs (a), (b)(1), and (b)(2);
    b. Remove paragraph (d);
    c. Redesignate paragraph (c) as paragraph (d);
    d. Remove the first sentence of newly designated paragraph (d); and
    e. Add new paragraphs (c) and (e) as set forth below.


Sec. 982.601  Overview.

    (a) Special housing types. This subpart describes program 
requirements for special housing types. The following are the special 
housing types:
    (1) Single room occupancy (SRO) housing;
    (2) Congregate housing;
    (3) Group home;
    (4) Shared housing;
    (5) Manufactured home;
    (6) Cooperative housing (excluding families that are not 
cooperative members); and
    (7) Homeownership option.
    (b) PHA choice to offer special housing type. (1) The PHA may 
permit a family to use any of the following special housing types in 
accordance with requirements of the program: single room occupancy 
(SRO) housing, congregate housing, group home, shared housing, 
manufactured home when the family owns the home and leases the 
manufactured home space, cooperative housing or homeownership option.
    (2) In general, the PHA is not required to permit families 
(including families that move into the PHA program under portability 
procedures) to use any of these special housing types, and may limit 
the number of families using special housing types.
* * * * *
    (c) Program funding for special housing types. (1) HUD does not 
provide any additional or designated funding for special housing types, 
or for a specific special housing type (e.g, the homeownership option). 
Assistance for special housing types is paid from program funding 
available for the PHA's tenant-based program under the consolidated 
annual contributions contract.
    (2) The PHA may not set aside program funding or program slots for 
special housing types or for a specific special housing type.
* * * * *
    (e) Applicability of requirements. (1) Except as modified by this 
subpart, the requirements of other subparts of this part apply to the 
special housing types.
    (2) Provisions in this subpart only apply to a specific special 
housing type. The housing type is noted in the title of each section.
    (3) Housing must meet the requirements of this subpart for a single 
special housing type specified by the family. Such housing is not 
subject to requirements for other special housing types. A single unit 
cannot be designated as more than one special housing type.

    11. Amend Sec. 982.619 as follows:
    a. Revise paragraph (a);
    b. Redesignate paragraph (d) as paragraph (e); and
    c. Add new paragraph (d).


Sec. 982.619  Cooperative housing.

    (a) Assistance in cooperative housing. This section applies to 
rental assistance for a cooperative member residing in cooperative 
housing. However, this section does not apply to:
    (1) Assistance for a cooperative member under the homeownership 
option pursuant to Sec. 982.625 through Sec. 982.641; or
    (2) Rental assistance for a family that leases a cooperative 
housing unit from a cooperative member (such rental assistance is not a 
special housing type, and is subject to requirements in other subparts 
of this part 982).
* * * * *
    (d) Maintenance. (1) During the term of the HAP contract between 
the PHA and the cooperative, the dwelling unit and premises must be 
maintained in accordance with the HQS. If the dwelling unit and 
premises are not maintained in accordance with the HQS, the PHA may 
exercise all available remedies, regardless of whether the family or 
the cooperative is responsible for such breach of the HQS. PHA remedies 
for breach of the HQS include recovery of overpayments, abatement or 
other reduction of housing assistance payments, termination of housing 
assistance payments and termination of the HAP contract.
    (2) The PHA may not make any housing assistance payments if the 
contract unit does not meet the HQS, unless any defect is corrected 
within the period specified by the PHA and the PHA verifies the 
correction. If a defect is life-threatening, the defect must be 
corrected within no more than 24 hours. For other defects, the defect 
must be corrected within the period specified by the PHA.
    (3) The family is responsible for a breach of the HQS that is 
caused by any of the following:
    (i) The family fails to perform any maintenance for which the 
family is responsible in accordance with the terms of the cooperative 
occupancy agreement between the cooperative member and the cooperative;
    (ii) The family fails to pay for any utilities that the cooperative 
is not required to pay for, but which are to be paid by the cooperative 
member;
    (iii) The family fails to provide and maintain any appliances that 
the cooperative is not required to provide, but which are to be 
provided by the cooperative member; or
    (iv) Any member of the household or guest damages the dwelling unit 
or premises (damages beyond ordinary wear and tear).
    (4) If the family has caused a breach of the HQS for which the 
family is responsible, the PHA must take prompt and vigorous action to 
enforce such family obligations. The PHA may

[[Page 55163]]

terminate assistance for violation of family obligations in accordance 
with Sec. 982.552.
    (5) Section 982.404 does not apply to assistance for cooperative 
housing under this section.
* * * * *

    12. Add Secs. 982.625 through 982.641 under a new undesignated 
heading ``Homeownership Option'' to read as follows:
Homeownership Option
Sec.
982.625   Homeownership option: General.
982.626   Homeownership option: Initial requirements.
982.627   Homeownership option: Eligibility requirements for 
families.
982.628   Homeownership option: Eligible units.
982.629   Homeownership option: Additional PHA requirements for 
family search and purchase.
982.630   Homeownership option: Homeownership counseling.
982.631   Homeownership option: Home inspections and contract of 
sale.
982.632   Homeownership option: Financing purchase of home; 
affordability of purchase.
982.633   Homeownership option: Continued assistance requirements; 
Family obligations.
982.634   Homeownership option: Maximum term of homeownership 
assistance.
982.635   Homeownership option: Amount and distribution of monthly 
homeownership assistance payment.
982.636   Homeownership option: Portability.
982.637   Homeownership option: Move with continued tenant-based 
assistance.
982.638   Homeownership option: Denial or termination of assistance 
for family.
982.639   Homeownership option: Administrative fees.
982.640   Homeownership option: Recapture of homeownership 
assistance.
982.641   Homeownership option: Applicability of other requirements.


Sec. 982.625  Homeownership option: General.

    (a) The homeownership option is used to assist a family residing in 
a home purchased and owned by one or more members of the family.
    (b) A family assisted under the homeownership option may be a newly 
admitted or existing participant in the program.
    (c) The PHA must approve a live-in aide if needed as a reasonable 
accommodation so that the program is readily accessible to and useable 
by persons with disabilities in accordance with part 8 of this title. 
(See Sec. 982.316 concerning occupancy by a live-in aide.)
    (d) The PHA must have the capacity to operate a successful Section 
8 homeownership program. The PHA has the required capacity if it 
satisfies either paragraph (d)(1), (d)(2), or (d)(3) of this section.
    (1) The PHA establishes a minimum homeowner downpayment requirement 
of at least 3 percent of the purchase price for participation in its 
Section 8 homeownership program, and requires that at least one percent 
of the purchase price come from the family's personal resources;
    (2) The PHA requires that financing for purchase of a home under 
its Section 8 homeownership program:
    (i) Be provided, insured, or guaranteed by the state or Federal 
government;
    (ii) Comply with secondary mortgage market underwriting 
requirements; or
    (iii) Comply with generally accepted private sector underwriting 
standards; or
    (3) The PHA otherwise demonstrates in its Annual Plan that it has 
the capacity, or will acquire the capacity, to successfully operate a 
Section 8 homeownership program.


Sec. 982.626  Homeownership option: Initial requirements.

    (a) List of initial requirements. Before commencing homeownership 
assistance for a family, the PHA must determine that all of the 
following initial requirements have been satisfied:
    (1) The family is qualified to receive homeownership assistance 
(see Sec. 982.627);
    (2) The unit is eligible (see Sec. 982.628); and
    (3) The family has satisfactorily completed the PHA program of 
required pre-assistance homeownership counseling (see Sec. 982.630).
    (b) Additional PHA requirements. Unless otherwise provided in this 
part, the PHA may limit homeownership assistance to families or 
purposes defined by the PHA, and may prescribe additional requirements 
for commencement of homeownership assistance for a family. Any such 
limits or additional requirements must be described in the PHA 
administrative plan.
    (c) Environmental requirements. The PHA is responsible for 
complying with the authorities listed in Sec. 58.6 of this title 
requiring the purchaser to obtain and maintain flood insurance for 
units in special flood hazard areas, prohibiting assistance for 
acquiring units in the coastal barriers resource system, and requiring 
notification to the purchaser of units in airport runway clear zones 
and airfield clear zones.


Sec. 982.627  Homeownership option: Eligibility requirements for 
families.

    (a) Determination whether family is qualified. The PHA may not 
provide homeownership assistance for a family unless the PHA determines 
that the family satisfies all of the following initial requirements at 
commencement of homeownership assistance for the family:
    (1) The family has been admitted to the Section 8 Housing Choice 
Voucher program, in accordance with subpart E of this part.
    (2) The family satisfies any first-time homeowner requirements 
(described in paragraph (b) of this section).
    (3) The family satisfies the minimum income requirement (described 
in paragraph (c) of this section).
    (4) The family satisfies the employment requirements (described in 
paragraph (d) of this section).
    (5) The family has not defaulted on a mortgage securing debt to 
purchase a home under the homeownership option (see paragraph (e) of 
this section).
    (6) Except for cooperative members who have acquired cooperative 
membership shares prior to commencement of homeownership assistance, no 
family member has a present ownership interest in a residence at the 
commencement of homeownership assistance for the purchase of any home.
    (7) Except for cooperative members who have acquired cooperative 
membership shares prior to the commencement of homeownership 
assistance, the family has entered a contract of sale in accordance 
with Sec. 982.631(c).
    (8) The family also satisfies any other initial requirements 
established by the PHA (see Sec. 982.626(b)). Any such additional 
requirements must be described in the PHA administrative plan.
    (b) First-time homeowner requirements. At commencement of 
homeownership assistance for the family, the family must be any of the 
following:
    (1) A first-time homeowner (defined at Sec. 982.4);
    (2) A cooperative member (defined at Sec. 982.4); or
    (3) A family of which a family member is a person with 
disabilities, and use of the homeownership option is needed as a 
reasonable accommodation so that the program is readily accessible to 
and usable by such person, in accordance with part 8 of this title.
    (c) Minimum income requirements. (1) At commencement of 
homeownership assistance for the family, the family must demonstrate 
that the annual income (gross income), as determined by the PHA in 
accordance with Sec. 5.609 of this title, of the adult family members 
who will own

[[Page 55164]]

the home at commencement of homeownership assistance is not less than 
the Federal minimum hourly wage multiplied by 2,000 hours.
    (2)(i) Except in the case of an elderly family or a disabled family 
(see the definitions of these terms at Sec. 5.403(b) of this title), 
the PHA shall not count any welfare assistance received by the family 
in determining annual income under this section.
    (ii) The disregard of welfare assistance income under paragraph 
(c)(2)(i) of this section only affects the determination of minimum 
annual income used to determine if a family initially qualifies for 
commencement of homeownership assistance in accordance with this 
section, but does not affect:
    (A) The determination of income-eligibility for admission to the 
voucher
    program;
    (B) Calculation of the amount of the family's total tenant payment 
(gross family contribution); or
    (C) Calculation of the amount of homeownership assistance payments 
on behalf of the family.
    (iii) In the case of an elderly family or a disabled family, the 
PHA shall count welfare assistance in determining annual income.
    (3) A PHA may not establish a minimum income requirement in 
addition to the minimum income standard established by this paragraph.
    (d) Employment requirements. (1) Except as provided in paragraph 
(d)(2) of this section, the family must demonstrate that one or more 
adult members of the family who will own the home at commencement of 
homeownership assistance:
    (i) Is currently employed on a full-time basis (the term ``full-
time employment'' means not less than an average of 30 hours per week); 
and
    (ii) Has been continuously so employed during the year before 
commencement of homeownership assistance for the family.
    (2) The PHA shall have discretion to determine whether and to what 
extent interruptions are considered to break continuity of employment 
during the year. The PHA may count successive employment during the 
year. The PHA may count self-employment in a business.
    (3) The employment requirement does not apply to an elderly family 
or a disabled family (see the definitions of these terms at 
Sec. 5.403(b) of this title). Furthermore, if a family, other than an 
elderly family or a disabled family, includes a person with 
disabilities, the PHA shall grant an exemption from the employment 
requirement if the PHA determines that an exemption is needed as a 
reasonable accommodation so that the program is readily accessible to 
and usable by persons with disabilities in accordance with part 8 of 
this title.
    (4) A PHA may not establish an employment requirement in addition 
to the employment standard established by this paragraph.
    (e) Prohibition against mortgage defaults. The PHA shall not 
commence homeownership assistance for a family if any family member has 
previously received assistance under the homeownership option, and has 
defaulted on a mortgage securing debt incurred to purchase the home.


Sec. 982.628  Homeownership option: Eligible units.

    (a) Initial requirements applicable to the unit. The PHA must 
determine that the unit satisfies all of the following requirements:
    (1) The unit is eligible. (See Sec. 982.352. Paragraphs (a)(6), 
(a)(7) and (b) of Sec. 982.352 do not apply.)
    (2) The unit was either under construction or already existing at 
the time the PHA determined that the family was eligible for 
homeownership assistance to purchase the unit.
    (3) The unit is either a one unit property or a single dwelling 
unit in a cooperative or condominium.
    (4) The unit has been inspected by a PHA inspector and by an 
independent inspector designated by the family (see Sec. 982.631).
    (5) The unit satisfies the HQS (see Sec. 982.401 and Sec. 982.631).
    (b) PHA disapproval of seller. The PHA may not commence 
homeownership assistance for occupancy of a home if the PHA has been 
informed (by HUD or otherwise) that the seller of the home is debarred, 
suspended, or subject to a limited denial of participation under part 
24 of this title.


Sec. 982.629  Homeownership option: Additional PHA requirements for 
family search and purchase.

    (a) The PHA may establish the maximum time for a family to locate a 
home, and to purchase the home.
    (b) The PHA may require periodic family reports on the family's 
progress in finding and purchasing a home.
    (c) If the family is unable to purchase a home within the maximum 
time established by the PHA, the PHA may issue the family a voucher to 
lease a unit or place the family's name on the waiting list for a 
voucher.


Sec. 982.630  Homeownership option: Homeownership counseling.

    (a) Before commencement of homeownership assistance for a family, 
the family must attend and satisfactorily complete the pre-assistance 
homeownership and housing counseling program required by the PHA (pre-
assistance counseling).
    (b) Suggested topics for the PHA-required pre-assistance counseling 
program include:
    (1) Home maintenance (including care of the grounds);
    (2) Budgeting and money management;
    (3) Credit counseling;
    (4) How to negotiate the purchase price of a home;
    (5) How to obtain homeownership financing and loan preapprovals, 
including a description of types of financing that may be available, 
and the pros and cons of different types of financing;
    (6) How to find a home, including information about homeownership 
opportunities, schools, and transportation in the PHA jurisdiction;
    (7) Advantages of purchasing a home in an area that does not have a 
high concentration of low-income families and how to locate homes in 
such areas;
    (8) Information on fair housing, including fair housing lending and 
local fair housing enforcement agencies; and
    (9) Information about the Real Estate Settlement Procedures Act (12 
U.S.C. 2601 et seq.) (RESPA), state and Federal truth-in-lending laws, 
and how to identify and avoid loans with oppressive terms and 
conditions.
    (c) The PHA may adapt the subjects covered in pre-assistance 
counseling (as listed in paragraph (b) of this section) to local 
circumstances and the needs of individual families.
    (d) The PHA may also offer additional counseling after commencement 
of homeownership assistance (ongoing counseling). If the PHA offers a 
program of ongoing counseling for participants in the homeownership 
option, the PHA shall have discretion to determine whether the family 
is required to participate in the ongoing counseling.
    (e) If the PHA is not using a HUD-approved housing counseling 
agency to provide the counseling for families participating in the 
homeownership option, the PHA should ensure that its counseling program 
is consistent with the homeownership counseling provided under HUD's 
Housing Counseling program.


Sec. 982.631  Homeownership option: Home inspections and contract of 
sale.

    (a) HQS inspection by PHA. The PHA may not commence homeownership 
assistance for a family until the PHA has inspected the unit and has 
determined that the unit passes HQS.

[[Page 55165]]

    (b) Independent inspection. (1) The unit must also be inspected by 
an independent professional inspector selected by and paid by the 
family.
    (2) The independent inspection must cover major building systems 
and components, including foundation and structure, housing interior 
and exterior, and the roofing, plumbing, electrical, and heating 
systems. The independent inspector must be qualified to report on 
property conditions, including major building systems and components.
    (3) The PHA may not require the family to use an independent 
inspector selected by the PHA. The independent inspector may not be a 
PHA employee or contractor, or other person under control of the PHA. 
However, the PHA may establish standards for qualification of 
inspectors selected by families under the homeownership option.
    (4) The independent inspector must provide a copy of the inspection 
report both to the family and to the PHA. The PHA may not commence 
homeownership assistance for the family until the PHA has reviewed the 
inspection report of the independent inspector. Even if the unit 
otherwise complies with the HQS (and may qualify for assistance under 
the PHA's tenant-based rental voucher program), the PHA shall have 
discretion to disapprove the unit for assistance under the 
homeownership option because of information in the inspection report.
    (c) Contract of sale. (1) Before commencement of homeownership 
assistance, a member or members of the family must enter into a 
contract of sale with the seller of the unit to be acquired by the 
family. The family must give the PHA a copy of the contract of sale 
(see also Sec. 982.627(a)(7)).
    (2) The contract of sale must:
    (i) Specify the price and other terms of sale by the seller to the 
purchaser.
    (ii) Provide that the purchaser will arrange for a pre-purchase 
inspection of the dwelling unit by an independent inspector selected by 
the purchaser.
    (iii) Provide that the purchaser is not obligated to purchase the 
unit
    unless the inspection is satisfactory to the purchaser.
    (iv) Provide that the purchaser is not obligated to pay for any 
necessary repairs.
    (v) Contain a certification from the seller that the seller has not 
been debarred, suspended, or subject to a limited denial of 
participation under part 24 of this title.


Sec. 982.632  Homeownership option: Financing purchase of home; 
affordability of purchase.

    (a) The PHA may establish requirements for financing purchase of a 
home to be assisted under the homeownership option. Such PHA 
requirements may include requirements concerning qualification of 
lenders (for example, prohibition of seller financing or case-by-case 
approval of seller financing), or concerning terms of financing (for 
example, a prohibition of balloon payment mortgages, or establishment 
of a minimum homeowner equity requirement from personal resources).
    (b) If the purchase of the home is financed with FHA mortgage 
insurance, such financing is subject to FHA mortgage insurance 
requirements.
    (c) The PHA may establish requirements or other restrictions 
concerning debt secured by the home.
    (d) The PHA may review lender qualifications and the loan terms 
before authorizing homeownership assistance. The PHA may disapprove 
proposed financing, refinancing or other debt if the PHA determines 
that the debt is unaffordable, or if the PHA determines that the lender 
or the loan terms do not meet PHA qualifications. In making this 
determination, the PHA may take into account other family expenses, 
such as child care, unreimbursed medical expenses, homeownership 
expenses, and other family expenses as determined by the PHA.
    (e) All PHA financing or affordability requirements must be 
described in the PHA administrative plan.


Sec. 982.633  Homeownership option: Continued assistance requirements; 
Family obligations.

    (a) Occupancy of home. Homeownership assistance may only be paid 
while the family is residing in the home. If the family moves out of 
the home, the PHA may not continue homeownership assistance after the 
month when the family moves out. The family or lender is not required 
to refund to the PHA the homeownership assistance for the month when 
the family moves out.
    (b) Family obligations. The family must comply with the following 
obligations.
    (1) Ongoing counseling. To the extent required by the PHA, the 
family must attend and complete ongoing homeownership and housing 
counseling.
    (2) Compliance with mortgage. The family must comply with the terms 
of any mortgage securing debt incurred to purchase the home (or any 
refinancing of such debt).
    (3) Prohibition against conveyance or transfer of home. (i) So long 
as the family is receiving homeownership assistance, use and occupancy 
of the home is subject to Sec. 982.551(h) and (i).
    (ii) The family may grant a mortgage on the home for debt incurred 
to finance purchase of the home or any refinancing of such debt.
    (iii) Upon death of a family member who holds, in whole or in part, 
title to the home or ownership of cooperative membership shares for the 
home, homeownership assistance may continue pending settlement of the 
decedent's estate, notwithstanding transfer of title by operation of 
law to the decedent's executor or legal representative, so long as the 
home is solely occupied by remaining family members in accordance with 
Sec. 982.551(h).
    (4) Supplying required information. (i) The family must supply 
required information to the PHA in accordance with Sec. 982.551(b).
    (ii) In addition to other required information, the family must 
supply any information as required by the PHA or HUD concerning:
    (A) Any mortgage or other debt incurred to purchase the home, and 
any refinancing of such debt (including information needed to determine 
whether the family has defaulted on the debt, and the nature of any 
such default), and information on any satisfaction or payment of the 
mortgage debt;
    (B) Any sale or other transfer of any interest in the home; or
    (C) The family's homeownership expenses.
    (5) Notice of move-out. The family must notify the PHA before the 
family moves out of the home.
    (6) Notice of mortgage default. The family must notify the PHA if 
the family defaults on a mortgage securing any debt incurred to 
purchase the home.
    (7) Prohibition on ownership interest on second residence. During 
the time the family receives homeownership assistance under this 
subpart, no family member may have any ownership interest in any other 
residential property.
    (8) Additional PHA requirements. The PHA may establish additional 
requirements for continuation of homeownership assistance for the 
family (for example, a requirement for post-purchase homeownership 
counseling or for periodic unit inspections while the family is 
receiving homeownership assistance). The family must comply with any 
such requirements.
    (9) Other family obligations. The family must comply with the 
obligations of a participant family described in Sec. 982.551. However, 
the following

[[Page 55166]]

provisions do not apply to assistance under the homeownership option: 
Sec. 982.551(c), (d), (e), (f), (g) and (j).
    (c) Statement of homeowner obligations. Before commencement of 
homeownership assistance, the family must execute a statement of family 
obligations in the form prescribed by HUD. In the statement, the family 
agrees to comply with all family obligations under the homeownership 
option.


Sec. 982.634  Homeownership option: Maximum term of homeownership 
assistance.

    (a) Maximum term of assistance. Except in the case of a family that 
qualifies as an elderly or disabled family (see paragraph (c) of this 
section), the family members described in paragraph (b) of this section 
shall not receive homeownership assistance for more than:
    (1) Fifteen years, if the initial mortgage incurred to finance 
purchase of the home has a term of 20 years or longer; or
    (2) Ten years, in all other cases.
    (b) Applicability of maximum term. The maximum term described in 
paragraph (a) of this section applies to any member of the family who:
    (1) Has an ownership interest in the unit during the time that 
homeownership payments are made; or
    (2) Is the spouse of any member of the household who has an 
ownership interest in the unit during the time homeownership payments 
are made.
    (c) Exception for elderly and disabled families. (1) As noted in 
paragraph (a) of this section, the maximum term of assistance does not 
apply to elderly and disabled families.
    (2) In the case of an elderly family, the exception only applies if 
the family qualifies as an elderly family at the start of homeownership 
assistance. In the case of a disabled family, the exception applies if 
at any time during receipt of homeownership assistance the family 
qualifies as a disabled family.
    (3) If, during the course of homeownership assistance, the family 
ceases to qualify as a disabled or elderly family, the maximum term 
becomes applicable from the date homeownership assistance commenced. 
However, such a family must be provided at least 6 months of 
homeownership assistance after the maximum term becomes applicable 
(provided the family is otherwise eligible to receive homeownership 
assistance in accordance with this part).
    (d) Assistance for different homes or PHAs. If the family has 
received such assistance for different homes, or from different PHAs, 
the total of such assistance terms is subject to the maximum term 
described in paragraph (a) of this section.


Sec. 982.635  Homeownership option: Amount and distribution of monthly 
homeownership assistance payment.

    (a) Amount of monthly homeownership assistance payment. While the 
family is residing in the home, the PHA shall pay a monthly 
homeownership assistance payment on behalf of the family that is equal 
to the lower of:
    (1) The payment standard minus the total tenant payment; or
    (2) The family's monthly homeownership expenses minus the total 
tenant payment.
    (b) Payment standard for family. (1) The payment standard for a 
family is the lower of:
    (i) The payment standard for the family unit size; or
    (ii) The payment standard for the size of the home.
    (2) If the home is located in an exception payment standard area, 
the PHA must use the appropriate payment standard for the exception 
payment standard area.
    (3) The payment standard for a family is the greater of:
    (i) The payment standard (as determined in accordance with 
paragraphs (b)(1) and (b)(2) of this section) at the commencement of 
homeownership assistance for occupancy of the home; or
    (ii) The payment standard (as determined in accordance with 
paragraphs (b)(1) and (b)(2) of this section) at the most recent 
regular reexamination of family income and composition since the 
commencement of homeownership assistance for occupancy of the home.
    (4) The PHA must use the same payment standard schedule, payment 
standard amounts, and subsidy standards pursuant to Secs. 982.402 and 
982.503 for the homeownership option as for the rental voucher program.
    (c) Determination of homeownership expenses. (1) The PHA shall 
adopt policies for determining the amount of homeownership expenses to 
be allowed by the PHA in accordance with HUD requirements.
    (2) Homeownership expenses for a homeowner (other than a 
cooperative member) may only include amounts allowed by the PHA to 
cover:
    (i) Principal and interest on initial mortgage debt, any 
refinancing of such debt, and any mortgage insurance premium incurred 
to finance purchase of the home;
    (ii) Real estate taxes and public assessments on the home;
    (iii) Home insurance;
    (iv) The PHA allowance for maintenance expenses;
    (v) The PHA allowance for costs of major repairs and replacements;
    (vi) The PHA utility allowance for the home; and
    (vii) Principal and interest on mortgage debt incurred to finance 
costs for major repairs, replacements or improvements for the home. If 
a member of the family is a person with disabilities, such debt may 
include debt incurred by the family to finance costs needed to make the 
home accessible for such person, if the PHA determines that allowance 
of such costs as homeownership expenses is needed as a reasonable 
accommodation so that the homeownership option is readily accessible to 
and usable by such person, in accordance with part 8 of this title.
    (3) Homeownership expenses for a cooperative member may only 
include amounts allowed by the PHA to cover:
    (i) The cooperative charge under the cooperative occupancy 
agreement including payment for real estate taxes and public 
assessments on the home;
    (ii) Principal and interest on initial debt incurred to finance 
purchase of cooperative membership shares and any refinancing of such 
debt;
    (iii) Home insurance;
    (iv) The PHA allowance for maintenance expenses;
    (v) The PHA allowance for costs of major repairs and replacements;
    (vi) The PHA utility allowance for the home; and
    (vii) Principal and interest on debt incurred to finance major 
repairs, replacements or improvements for the home. If a member of the 
family is a person with disabilities, such debt may include debt 
incurred by the family to finance costs needed to make the home 
accessible for such person, if the PHA determines that allowance of 
such costs as homeownership expenses is needed as a reasonable 
accommodation so that the homeownership option is readily accessible to 
and usable by such person, in accordance with part 8 of this title.
    (4) If the home is a cooperative or condominium unit, homeownership 
expenses may also include cooperative or condominium operating charges 
or maintenance fees assessed by the condominium or cooperative 
homeowner association.
    (d) Payment to lender or family. The PHA must pay homeownership 
assistance payments either:
    (1) Directly to the family or;
    (2) At the discretion of the PHA, to a lender on behalf of the 
family. If the assistance payment exceeds the amount due to the lender, 
the PHA must pay the excess directly to the family.

[[Page 55167]]

    (e) Automatic termination of homeownership assistance. 
Homeownership assistance for a family terminates automatically 180 
calendar days after the last housing assistance payment on behalf of 
the family. However, a PHA has the discretion to grant relief from this 
requirement in those cases where automatic termination would result in 
extreme hardship for the family.


Sec. 982.636  Homeownership option: Portability.

    (a) General. A family may qualify to move outside the initial PHA 
jurisdiction with continued homeownership assistance under the voucher 
program in accordance with this section.
    (b) Portability of homeownership assistance. Subject to 
Sec. 982.353(b) and (c), Sec. 982.552, and Sec. 982.553, a family 
determined eligible for homeownership assistance by the initial PHA may 
purchase a unit outside of the initial PHA's jurisdiction, if the 
receiving PHA is administering a voucher homeownership program and is 
accepting new homeownership families.
    (c) Applicability of Housing Choice Voucher program portability 
procedures. In general, the portability procedures described in 
Secs. 982.353 and 982.355 apply to the homeownership option and the 
administrative responsibilities of the initial and receiving PHA are 
not altered except that some administrative functions (e.g, issuance of 
a voucher or execution of a tenancy addendum) do not apply to the 
homeownership option.
    (d) Family and PHA responsibilities. The family must attend the 
briefing and counseling sessions required by the receiving PHA. The 
receiving PHA will determine whether the financing for, and the 
physical condition of the unit, are acceptable. The receiving PHA must 
promptly notify the initial PHA if the family has purchased an eligible 
unit under the program, or if the family is unable to purchase a home 
within the maximum time established by the PHA.
    (e) Continued assistance under Sec. 982.637. Such continued 
assistance under portability procedures is subject to Sec. 982.637.


Sec. 982.637  Homeownership option: Move with continued tenant-based 
assistance.

    (a) Move to new unit. (1) A family receiving homeownership 
assistance may move to a new unit with continued tenant-based 
assistance in accordance with this section. The family may move either 
with voucher rental assistance (in accordance with rental assistance 
program requirements) or with voucher homeownership assistance (in 
accordance with homeownership option program requirements).
    (2) The PHA may not commence continued tenant-based assistance for 
occupancy of the new unit so long as any family member owns any title 
or other interest in the prior home.
    (3) The PHA may establish policies that prohibit more than one move 
by the family during any one year period.
    (b) Requirements for continuation of homeownership assistance. The 
PHA must determine that all initial requirements listed in Sec. 982.626 
have been satisfied if a family that has received homeownership 
assistance wants to move to a new unit with continued homeownership 
assistance. However, the following requirements do not apply:
    (1) The requirement for pre-assistance counseling (Sec. 982.630) is 
not applicable. However, the PHA may require that the family complete 
additional counseling (before or after moving to a new unit with 
continued assistance under the homeownership option).
    (2) The requirement that a family must be a first-time homeowner 
(Sec. 982.627) is not applicable.
    (c) When PHA may deny permission to move with continued assistance. 
The PHA may deny permission to move to a new unit with continued 
voucher assistance as follows:
    (1) Lack of funding to provide continued assistance. The PHA may 
deny permission to move with continued rental or homeownership 
assistance if the PHA determines that it does not have sufficient 
funding to provide continued assistance.
    (2) Termination or denial of assistance under Sec. 982.638. At any 
time, the PHA may deny permission to move with continued rental or 
homeownership assistance in accordance with Sec. 982.638.


Sec. 982.638  Homeownership option: Denial or termination of assistance 
for family.

    (a) General. The PHA shall terminate homeownership assistance for 
the family, and shall deny voucher rental assistance for the family, in 
accordance with this section.
    (b) Denial or termination of assistance under basic voucher 
program. At any time, the PHA may deny or terminate homeownership 
assistance in accordance with Sec. 982.552 (Grounds for denial or 
termination of assistance) or Sec. 982.553 (Crime by family members).
    (c) Failure to comply with family obligations. The PHA may deny or 
terminate assistance for violation of participant obligations described 
in Sec. 982.551 or Sec. 982.633.
    (d) Mortgage default. The PHA must terminate voucher homeownership 
assistance for any member of family receiving homeownership assistance 
that is dispossessed from the home pursuant to a judgment or order of 
foreclosure on any mortgage (whether FHA-insured or non-FHA) securing 
debt incurred to purchase the home, or any refinancing of such debt. 
The PHA, in its discretion, may permit the family to move to a new unit 
with continued voucher rental assistance. However, the PHA must deny 
such permission, if:
    (1) The family defaulted on an FHA-insured mortgage; and
    (2) The family fails to demonstrate that:
    (i) The family has conveyed title to the home, as required by HUD, 
to HUD or HUD's designee; and
    (ii) The family has moved from the home within the period 
established or approved by HUD.


Sec. 982.639  Homeownership option: Administrative fees.

    The ongoing administrative fee described in Sec. 982.152(b) is paid 
to the PHA for each month that homeownership assistance is paid by the 
PHA on behalf of the family.


Sec. 982.640  Homeownership option: Recapture of homeownership 
assistance.

    (a) General. The PHA shall recapture a percentage of the 
homeownership assistance provided to the family upon the family's sale 
or refinancing of the home.
    (b) Securing the PHA's right of recapture. Upon purchase of the 
home, a family receiving homeownership assistance shall execute 
documentation as required by HUD, and consistent with State and local 
law, that secures the PHA's right to recapture the homeownership 
assistance in accordance with this section. The lien securing the 
recapture of homeownership subsidy may be subordinated to a refinanced 
mortgage.
    (c) Recapture amount for sales. In the case of the sale of the 
home, the recapture shall be in an amount equalling the lesser of:
    (1) The amount of homeownership assistance provided to the family, 
adjusted as described in paragraph (f) of this section; or
    (2) The difference between the sales price and purchase price of 
the home, minus:
    (i) The costs of any capital expenditures;
    (ii) The costs incurred by the family in the sale of the home (such 
as sales commission and closing costs);
    (iii) The amount of the difference between the sales price and 
purchase

[[Page 55168]]

price that is being used, upon sale, towards the purchase of a new home 
under the Section 8 homeownership option; and
    (iv) Any amounts that have been previously recaptured, in 
accordance with this section.
    (d) Recapture amount for refinancing. In the case of a refinancing 
of the home, the recapture shall be in an amount equalling the lesser 
of:
    (1) The amount of homeownership assistance provided to the family, 
adjusted as described in paragraph (f) of this section; or
    (2) The difference between the current mortgage debt and the new 
mortgage debt; minus:
    (i) The costs of any capital expenditures;
    (ii) The costs incurred by the family in the refinancing of the 
home (such as closing costs); and
    (iii) Any amounts that have been previously recaptured as a result 
of refinancing.
    (e) Use of sales price in determining recapture amount. The 
recapture amount shall be determined using the actual sales price of 
the home, unless the sale is to an identity-of-interest entity. In the 
case of identity-of-interest transactions, the PHA shall establish a 
sales price based on fair market value.
    (f) Automatic reduction of recapture amount. The amount of 
homeownership assistance subject to recapture will automatically be 
reduced over a 10 year period, beginning one year from the purchase 
date, in annual increments of 10 percent. At the end of the 10 year 
period, the amount of homeownership assistance subject to recapture 
will be zero.


Sec. 982.641  Homeownership option: Applicability of other 
requirements.

    (a) General. The following types of provisions (located in other 
subparts of this part) do not apply to assistance under the 
homeownership option:
    (1) Any provisions concerning the Section 8 owner or the HAP 
contract between the PHA and owner;
    (2) Any provisions concerning the assisted tenancy or the lease 
between the family and the owner;
    (3) Any provisions concerning PHA approval of the assisted tenancy;
    (4) Any provisions concerning rent to owner or reasonable rent; and
    (5) Any provisions concerning the issuance or term of voucher.
    (b) Subpart G requirements. The following provisions of subpart G 
of this part do not apply to assistance under the homeownership option:
    (1) Section 982.302 (Issuance of voucher; Requesting PHA approval 
of assisted tenancy);
    (2) Section 982.303 (Term of voucher);
    (3) Section 982.305 (PHA approval of assisted tenancy);
    (4) Section 982.306 (PHA disapproval of owner);
    (5) Section 982.307 (Tenant screening);
    (6) Section 982.308 (Lease and tenancy);
    (7) Section 982.309 (Term of assisted tenancy);
    (8) Section 982.310 (Owner termination of tenancy);
    (9) Section 982.311 (When assistance is paid) (except that 
Sec. 982.311(c)(3) is applicable to assistance under the homeownership 
option);
    (10) Section 982.313 (Security deposit: Amounts owed by tenant); 
and
    (11) Section 982.314 (Move with continued tenant-based assistance).
    (c) Subpart H requirements. The following provisions of subpart H 
of this part do not apply to assistance under the homeownership option:
    (1) Section 982.352(a)(6) (Prohibition of owner-occupied assisted 
unit);
    (2) Section 982.352(b) (PHA-owned housing); and
    (3) Those provisions of Sec. 982.353(b)(1),(2), and (3) (Where 
family can lease a unit with tenant-based assistance) and Sec. 982.355 
(Portability: Administration by receiving PHA) that are inapplicable 
per Sec. 982.636;
    (d) Subpart I requirements. The following provisions of subpart I 
of this part do not apply to assistance under the homeownership option:
    (1) Section 982.403 (Terminating HAP contract when unit is too 
small);
    (2) Section 982.404 (Maintenance: Owner and family responsibility; 
PHA remedies); and
    (3) Section 982.405 (PHA initial and periodic unit inspection).
    (e) Subpart J requirements. The requirements of subpart J of this 
part (Housing Assistance Payments Contract and Owner Responsibility) 
(Secs. 982.451-456) do not apply to assistance under the homeownership 
option.
    (f) Subpart K requirements. Except for those sections listed below, 
the requirements of subpart K of this part (Rent and Housing Assistance 
Payment) (Secs. 982.501-521) do not apply to assistance under the 
homeownership option:
    (1) Section 982.503 (Voucher tenancy: Payment standard amount and 
schedule);
    (2) Section 982.516 (Family income and composition: Regular and 
interim reexaminations); and
    (3) Section 982.517 (Utility allowance schedule).
    (g) Subpart L requirements. The following provisions of subpart L 
of this part do not apply to assistance under the homeownership option:
    (1) Section 982.551(c) (HQS breach caused by family);
    (2) Section 982.551(d) (Allowing PHA inspection);
    (3) Section 982.551(e) (Violation of lease);
    (4) Section 982.551(g) (Owner eviction notice); and
    (5) Section 982.551(j) (Interest in unit).
    (h) Subpart M requirements. The following provisions of subpart M 
of this part do not apply to assistance under the homeownership option:
    (1) Sections 982.602-982.619; and
    (2) Sections 982.622-982.624.

    Dated: August 24, 2000.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 00-22829 Filed 9-11-00; 8:45 am]
BILLING CODE 4210-33-P