[Federal Register Volume 65, Number 199 (Friday, October 13, 2000)]
[Rules and Regulations]
[Pages 61072-61075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26247]



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Part III





Department of Housing and Urban Development





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24 CFR Part 200, et al.



Increased Distributions to Owners of Certain HUD-Assisted Multifamily 
Rental Projects; Final Rule

  Federal Register / Vol. 65 , No. 199 / Friday, October 13, 2000 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200, 236, 880, 881 and 883

[Docket No. FR-4532-F-01]
RIN 2502-AH46


Increased Distributions to Owners of Certain HUD-Assisted 
Multifamily Rental Projects

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

ACTION: Final rule.

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SUMMARY: This final rule adds an exception to current limits on 
distributions to owners for HUD-assisted multifamily rental projects. 
HUD may now permit increased distributions for owners of projects with 
section 8 project-based assistance and below-market rents, if such 
increases are necessary to ensure continued participation of the owners 
in the section 8 program.

EFFECTIVE DATE: November 13, 2000.

FOR FURTHER INFORMATION CONTACT: Willie Spearmon, Director, Office of 
Housing Assistance and Grants Administration, Department of Housing and 
Urban Development, 451 7th St. SW, Washington DC 20410, 202-708-2866. 
(This not a toll-free number.) For hearing- and speech-impaired 
persons, these numbers may be accessed via TTY by calling the Federal 
Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Background

    On June 16, 1999, the Department issued Notice H 99-15, Emergency 
Initiative to Preserve Below-Market Project-Based Section 8 Multifamily 
Housing Stock. The Notice identified a class of HUD-assisted 
multifamily projects that were most at risk of ``opting-out'' of 
section 8 project-based assistance when contracts expired, and provided 
inducements for the owners of at-risk projects to renew the expiring 
contracts.
    Most importantly, the Notice provided for ``marking up'' of rent 
levels for certain projects at risk of opting out, as permitted by 
section 524 of the Multifamily Affordable Housing Reform and 
Affordability Act of 1997 (MAHRA), to comparable market rents (or 150% 
of Fair Market Rent, if lower). Section 524 was recently amended by 
Public Law 106-74 to mandate marking up in certain circumstances, and 
the Department is addressing those amendments in a separate rulemaking 
proceeding involving 24 CFR part 402.
    Notice H 99-15 also announced that HUD would waive regulations to 
permit owners of the at-risk projects to take distributions in excess 
of the limits stated in regulations. This waiver approach is continued 
for FY 2000 by HUD Notice H 99-36 issued on December 29, 1999. Limits 
on distributions are not set by statute and are not directly affected 
by the recent legislation on ``marking up''. However, the Department 
expects to continue to permit increased distributions along the lines 
of Notices H 99-15 and H 99-36 in connection with ``marking up'' under 
amended section 524 of MAHRA. Because this will become a permanent 
policy, it would be inappropriate to continue to rely indefinitely on 
the use of waivers of relevant regulatory restrictions. This final rule 
makes continued reliance on waivers unnecessary.

Changes to Parts 236, 880, 881, and 883 Made in This Rule

    Notice H 99-15 refers to five regulatory provisions of title 24 
that limit distributions to project owners: Secs. 221.532(a) (1995), 
236.50(a)(2) (1995), 880.205(b), 881.205(b), and 883.306(b). This rule 
adds language to the latter four provisions to authorize HUD to allow 
distributions of surplus cash, in excess of the amounts usually 
permitted by such provisions, for project owners who participate in a 
HUD-approved initiative or program to preserve assisted housing stock 
with below-market rates, such as the Emergency Initiative begun by 
Notice H 99-15. Consistent with the regulation waivers that HUD has 
already granted, the increased distributions will be limited to a 
maximum amount based on market rents and calculated according to HUD 
instructions. Any increased limits on distributions, or changes in 
those limits, will be announced in a widely-distributed HUD issuance 
such as a HUD Notice (which will also be available on HUD's Internet 
website), but the limits will not be required to be published in the 
Federal Register. The new language also clarifies that any excess 
rental charges that a section 236 project owner is authorized to retain 
under section 236(g) of the National Housing Act (which was amended 
after Notice 99-15 was issued) are not considered distributions.
    For part 236, we have clarified the language of the ``savings 
provision'' of Sec. 236.1(c), which preserves language predating a 1996 
regulatory ``streamlining'' effort. No substantive change is intended. 
In addition, we added a new Sec. 236.2 that is substantively the same 
as the additions to Secs. 880.205, 881.205, and 883.306 described 
above.

Changes to Part 200 Made in This Rule

    Although the waiver mentioned Sec. 221.532(a) (1995), that 
provision is not amended by this final rule because it is no longer in 
effect as such. Section 221.532(a) was removed by a streamlining rule 
published on April 1, 1996, without any express savings provision. In 
lieu of matters that formerly appeared in subpart C of part 221 
(including specific limits on distributions), Sec. 221.501 now refers 
the reader to subpart A of part 200. That subpart is a restatement of 
eligibility requirements (including continued general authority for 
mortgagor supervision by HUD) for FHA multifamily and health care 
mortgage insurance programs. Current Sec. 200.105 contains general 
regulatory authority for HUD's mortgagor supervision policies and 
permits regulation to be by a regulatory agreement or other means 
prescribed by the Secretary. This general authority is supplemented by 
Sec. 200.106, which specifically permits HUD to regulate as limited 
dividend mortgagors projects receiving government ``assistance'' as 
defined in regulations implementing the Department of Housing and Urban 
Development Reform Act of 1990 (as explained below, there is no longer 
any such definition and correction is needed). Section 200.106 permits 
HUD to continue to impose additional regulation for mortgagors of 
assisted projects beyond those applicable to all multifamily 
mortgagors.
    The preamble to the streamlining rule made it clear that the 
replacement of certain part 221 provisions with those now in part 200 
was not intended to affect substantive policy. Because the focus of 
current subpart A is on the eligibility requirements for origination of 
new mortgages, however, subpart A lacks some of the previous specifics 
on certain matters of mortgagor regulation covered in former subpart C 
that continue to be relevant after the mortgage origination is 
completed.
    We are taking this opportunity to amend part 200 in several 
respects. Most importantly, the final rule adds language (new 
Sec. 200.106(b)) that is similar to the language added to the other 
four sections amended by the final rule. The previous language of 
Sec. 200.106 is now designated as Sec. 200.106(a) and is revised in 
several respects. First, the reference in Sec. 200.106 to the 
definition of ``assistance'' is brought up to date. It appears to have 
been intended as a

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reference to a defined term that formerly appeared in 24 CFR parts 4 
and 12 before those parts were streamlined and combined in 1996 into 
the current 24 CFR part 4. Part 4 now uses several different 
definitions to encompass the concept formerly conveyed by the single 
defined term ``assistance''. Of these definitions, we have chosen to 
reference in Sec. 200.106 the defined phrase ``assistance within the 
jurisdiction of the Department to any housing project'' from Sec. 4.3. 
That phrase includes existing section 221 projects held by limited 
distribution mortgagors.
    Second, we have clarified several points in what is now 
redesignated as Sec. 200.106(a). The revised language expressly 
recognizes that regulation of limited distribution mortgagors for 
assisted projects may be by regulation or otherwise and is in addition 
to any regulation of mortgagors under Sec. 200.105. This approach makes 
it clear that Sec. 201.106 is consistent with Sec. 201.105. Further, 
the revised language expressly includes regulation of the amount of the 
permissible distribution as an example of permissible regulation. Prior 
to streamlining, this and other matters especially applicable to 
assisted projects were spelled out in regulations, but they are now 
continued in force by HUD by virtue of the more general language of 
Secs. 200.105 and 200.106.
    On the technical corrections level, we have deleted from the 
redesignated Sec. 200.106(a) a confusing reference to the Low-Income 
Housing Tax-Credit program. Existing Sec. 200.105(b) is also revised to 
correct errors.

Pre-emption

    Public Law 106-74 also added a new section 524(f) to MAHRA that 
preempts State and local laws and regulations that limit or restrict 
project distributions to an amount less than that provided for under 
regulations of the Secretary. The preemption is limited to projects 
which have section 8 contracts renewed under section 524 of MAHRA and 
which have distributions of surplus funds accruing after October 20, 
1999. Preemption does not apply to State-financed projects. An owner 
may elect to waive the preemption. Each section of the regulations that 
is amended as discussed above to permit increased distributions is also 
covered by the statutory preemption, both with respect to distribution 
limits expressly set forth in regulations and to any increased amounts 
permitted by HUD pursuant to this final rule.

Justification for Final Rulemaking

    It is the general practice of the Department to provide a 60-day 
public comment period on all rules in accordance with 24 CFR part 10. 
However, a prior public comment procedure may be omitted under 
Sec. 10.1 if the Department determines that is impracticable, 
unnecessary, or contrary to the public interest.
    The Department has determined that prior public comment for these 
provisions regarding increased limits on distributions is unnecessary 
because these provisions do not adversely affect the interests of any 
person. Most of the rule simply permits HUD to continue existing 
practices that provide for the preservation of certain below-market 
projects as affordable housing resources. It is also unnecessary to 
seek public comment on the preemption language of the rule because this 
language simply sets forth a statutory provision with some 
interpretation of its effect. As such, that language is an 
interpretative rule. HUD's rulemaking procedures do not require a 
notice and comment procedure for interpretive rules (see 24 CFR 10.1). 
Additionally, the rule makes certain technical corrections and 
clarifications to existing regulations that do not have any substantive 
effect.

Findings and Certifications

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50 
implementing section 102(2)(C) of the National Environmental Policy Act 
of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m. weekdays at the Office of the Rules Docket Clerk, 451 Seventh 
Street, SW, Room 10276, Washington, DC 20410-0500.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The final 
rule codifies long-established existing practices that provide for the 
preservation of certain below-market projects as affordable housing 
resources. The rule also includes a statutorily required provision on 
preemption and makes certain technical corrections and clarifications 
to existing regulations that do not have any substantive effect.

Executive Order 13132, Federalism

    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.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This rule does not impose a Federal mandate that 
will result in the expenditure by State, local, or tribal governments, 
in the aggregate, or by the private sector, of $100 million or more in 
any one year.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance program number is 
14.134.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, Housing standards, Lead 
poisoning, Loan programs--housing and community development, Minimum 
property standards, Mortgage insurance, Organization and functions 
(Government agencies), Penalties, Reporting and recordkeeping 
requirements, Social security, Unemployment compensation, Wages.

24 CFR Part 236

    Grant programs--housing and community development, Low and moderate 
income housing, Mortgage insurance, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 880

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

24 CFR Part 881

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

24 CFR Part 883

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

    Accordingly, chapter II of title 24 of the Code of Federal 
Regulations is amended as follows:

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PART 200--INTRODUCTION TO FHA PROGRAMS

    1. The authority citation for part 200 is revised to read as 
follows:

    Authority: 12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535(d).

    2. Section 200.105 is amended by revising paragraph (b) to read as 
follows:


Sec. 200.105  Mortgagor supervision.

* * * * *
    (b) The Commissioner may delegate to the mortgagee or other party 
the Commissioner's authority, in whole or in part, in accordance with 
the terms, conditions and standards established by the Commissioner in 
any executed Regulatory Agreement or other instrument granting the 
Commissioner supervision of the mortgagor.

    3. Section 200.106 is revised to read as follows:


Sec. 200.106  Projects with limited distribution mortgagors and program 
assistance.

    (a) Regulation as limited distribution mortgagors. In addition to 
regulation under Sec. 200.105, limited distribution mortgagors for 
projects receiving ``assistance within the jurisdiction of the 
Department'' (as defined in Sec. 4.3 of this title) may be regulated by 
the Commissioner as to additional matters, by regulation or otherwise, 
including as to the amount of the permissible distribution to the 
mortgagor.
    (b) Increased distributions. The Commissioner may permit increased 
distributions of surplus cash, in excess of the amounts the 
Commissioner otherwise permits for limited distribution mortgagors, to 
a limited distribution mortgagor who participates in a HUD-approved 
initiative or program to preserve housing stock with below-market rents 
as affordable housing. The increased distribution will be limited to a 
maximum amount based on market rents and calculated according to HUD 
instructions. Funds that the mortgagor is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the mortgagor.
    (c) Pre-emption. Any State or local law or regulation that 
restricts distributions to an amount lower than permitted by the 
Commissioner under authority of this section is preempted to the extent 
provided in section 524(f) of the Multifamily Assisted Housing Reform 
and Affordability Act of 1997.

PART 236--MORTGAGE INSURANCE AND INTEREST REDUCTION PAYMENTS FOR 
RENTAL PROJECTS

    4. The authority citation for this part continues to read as 
follows:

    Authority: 12 U.S.C. 1715b and 1715z-1; 42 U.S.C. 3535(d).

    5. Section 236.1(c) is revised to read as follows:


Sec. 236.1  Applicability, cross-reference and savings clause.

* * * * *
    (c) Savings provision. Any mortgage approved by the Commissioner 
for insurance pursuant to sections 236(j) or 236(n) of the National 
Housing Act is governed by subpart A of this part as in effect 
immediately before May 1, 1996, contained in the April 1, 1995 edition 
of 24 CFR, parts 220 to 499, and by subparts B through E of this part, 
except as otherwise provided in this subpart.

    6. A new Sec. 236.2 is added to read as follows:


Sec. 236.2  Increased distributions to certain limited distribution 
mortgagors.

    (a) Increased distributions. The Commissioner may permit increased 
distributions of surplus cash in excess of the amounts otherwise 
permitted by subpart A of this part to limited distribution mortgagors 
who participate in a HUD-approved initiative or program to preserve 
below-market housing stock. The increased distributions will be limited 
to a maximum amount based on market rents and calculated according to 
HUD instructions. Funds that the mortgagor is authorized to retain 
under section 236(g)(2) of the National Housing Act are not considered 
distributions to the mortgagor.
    (b) Pre-emption. Any State or local law or regulation that 
restricts distributions to an amount lower than permitted by subpart A 
of this part as in effect immediately before May 1, 1996, contained in 
the April 1, 1995 edition of 24 CFR, parts 220 to 499, or permitted by 
the Commissioner under this section is preempted to the extent provided 
by section 524(f) of the Multifamily Assisted Housing Reform and 
Affordability Act of 1997.

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

    7. The authority citation for part 880 continues to read as 
follows:

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

    8. Section 880.205 is amended by adding new paragraphs (h) and (i) 
to read as follows:


Sec. 880.205  Limitation on distributions.

* * * * *
    (h) HUD may permit increased distributions of surplus cash, in 
excess of the amounts otherwise permitted, to profit-motivated owners 
who participate in a HUD-approved initiative or program to preserve 
below-market housing stock. The increased distributions will be limited 
to a maximum amount based on market rents and calculated according to 
HUD instructions. Funds that the owner is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the owner.
    (i) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (i) is preempted to 
the extent provided by section 524(f) of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997.

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

    9. The authority citation for part 881 continues to read as 
follows:

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

    10. Section 881.205 is amended by adding new paragraphs (h) and (i) 
to read as follows:


Sec. 881.205  Limitation on distributions.

* * * * *
    (h) HUD may permit increased distributions of surplus cash, in 
excess of the amounts otherwise permitted, to profit-motivated owners 
who participate in a HUD-approved initiative or program to preserve 
below-market housing stock. The increased distributions will be limited 
to a maximum amount based on market rents and calculated according to 
HUD instructions. Funds that the owner is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the owner.
    (i) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (i) is preempted to 
the extent provided by section 524(f) of the Multifamily Assisted 
Housing Reform and Affordability Act of 1997.

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

    11. The authority citation for part 881 continues to read as 
follows:

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

    12. Section 883.306 is amended by adding new paragraph (g) and (h) 
to read as follows:


Sec. 883.205  Limitation on distributions.

* * * * *
    (g) HUD may permit increased distributions of surplus, in excess of 
the amounts otherwise permitted, to profit-motivated owners who 
participate in a HUD-approved initiative or program to preserve below-
market housing stock. The increased distributions will be limited to a 
maximum amount based on market rents and calculated according to HUD 
instructions. Funds that the owner is authorized to retain under 
section 236(g)(2) of the National Housing Act are not considered 
distributions to the owner.
    (h) Any State or local law or regulation that restricts 
distributions to an amount lower than permitted by this section or 
permitted by the Commissioner under this paragraph (h) is preempted as 
provided by section 524(f) of the Multifamily Assisted Housing Reform 
and Affordability Act of 1997.

    Dated: July 7, 2000.
William C. Apgar,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 00-26247 Filed 10-12-00; 8:45 am]
BILLING CODE 4210-27-P