[Federal Register Volume 67, Number 155 (Monday, August 12, 2002)]
[Proposed Rules]
[Pages 52526-52529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20022]



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Part II





Department of Housing and Urban Development





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24 CFR Part 236



Retention of Section 236 Excess Income; Proposed Rule

  Federal Register / Vol. 67, No. 155 / Monday, August 12, 2002 / 
Proposed Rules  

[[Page 52526]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 236

[Docket No. FR-4689-P-01]
RIN 2502-AH68


Retention of Section 236 Excess Income

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would establish the terms and procedures 
for owners of projects receiving section 236 rental assistance to 
participate in retaining some or all of their excess rental charges 
(Excess Income) for project use; to retain Excess Income charges for 
non-project use after a determination by HUD that the project is well-
maintained housing in good condition and that the owner has not engaged 
in material adverse financial or managerial actions or omissions; and 
to request a return of Excess Income remitted to HUD.

DATES: Comments Due Date: October 11, 2002.

ADDRESSES: Address all comments concerning this proposed rule to the 
Rules Docket Clerk, Office of the General Counsel, Room 10276, U.S. 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410-0500. Comments should refer to the docket number 
and title listed above. A copy of each comment submitted will be 
available for public inspection and copying weekdays between 7:30 a.m. 
and 5:30 p.m. at the above address. Comments submitted by facsimile 
(FAX) will not be accepted.

FOR FURTHER INFORMATION CONTACT: Willie Spearmon, Director, Office of 
Housing Assistance and Grant Administration, Room 6134, U.S. Department 
of Housing and Urban Development, 451 Seventh Street, SW., Washington, 
DC 20410; telephone (202) 708-3000 (this is not a toll-free number). 
Persons who have difficulty hearing or speaking may access this number 
via TTY by calling the toll-free Federal Information Relay Service at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 532(b) of the Departments of Veterans Affairs, Housing and 
Urban Development, Independent Agencies Appropriations Act, 2000 (Pub. 
L. 106-74, 113 Stat. 1047, approved October 20, 1999) (FY 2000 
Appropriations Act) amended section 236(g) of the National Housing Act 
(12 U.S.C. 1715z-1(g)) to permit owners (mortgagors) of projects 
receiving Section 236 rental assistance to participate in retaining 
some or all of their excess charges, referred to as ``Excess Income'' 
in this rule, for project use if authorized by HUD. Permitting project 
owners to retain Excess Income is an exception to the general 
requirement of section 236(g) that project owners pay to HUD all rental 
charges, collected on a unit-by-unit basis, that are in excess of the 
basic rental charges. Under the new statutory authority, Excess Income 
that mortgagors are permitted to retain is to be used for the project 
upon terms and conditions established by HUD. This rule establishes 
those terms and conditions.
    Section 532(b) of the FY 2000 Appropriations Act also permits 
owners to retain Excess Income for non-project use after a 
determination by HUD that the project is well-maintained housing in 
good condition, and that the owner has not engaged in material adverse 
financial or managerial actions or omissions as described in section 
516 of the Multifamily Assisted Housing Reform and Affordability Act of 
1997.
    This proposed rule would implement the section 236(g) authority to 
retain Excess Income by adding 24 CFR 236.60, formerly contained in the 
April 1, 1995 edition of 24 CFR, the provisions of which were saved 
pursuant to 24 CFR 236.1(c) of the current CFR. As added by this rule, 
Sec. 236.60 would include the general rule requiring the return to HUD 
of Excess Income, but would also add new provisions to govern the 
process for a Section 236 mortgagor to apply for, and HUD to approve, 
the authority to retain Excess Income. HUD will not withhold approval 
of a mortgagor's request to retain Excess Income because of the 
existence of unpaid Excess Income charges, if the unpaid income is 
being repaid over a period of time in accordance with a Workout or 
Repayment Agreement with HUD. However, HUD will withhold approval if 
the mortgagor is in violation of such an Agreement.
    Once approved to retain Excess Income, a mortgagor must continue to 
prepare and submit to HUD a revised Form HUD-93104, Monthly Report of 
Excess Income. If approved to retain Excess Income for project use, a 
mortgagor must also submit an annual narrative description of the 
amount and the uses made of Excess Income during the prior fiscal year 
of the project. Finally, this rule includes the procedure for 
withdrawing the authority to withhold income from a mortgagor.
    This rule would also establish the procedures for mortgagors to 
request a return of Excess Income that has already been remitted to 
HUD. The Departments of Veterans Affairs, Housing and Urban 
Development, Independent Agencies Appropriations Act, 1999, (Pub. L. 
105-276, 112 Stat. 2461, approved October 21, 1998) (FY 1999 
Appropriations Act), at section 227, permitted project owners to retain 
Excess Income upon terms and conditions established by HUD. Section 
532(e) of the FY 2000 Appropriations Act allowed HUD to return any 
Excess Income remitted to HUD since October 21, 1998, the date of 
enactment of the FY 1999 Appropriations Act. Finally, section 861(b) of 
the American Homeownership and Economic Opportunity Act of 2000 (Pub. 
L. 106-569, 114 Stat. 2944, approved December 27, 2000) authorized HUD 
to return Excess Income remitted to HUD since the date of enactment of 
the FY 2000 Appropriations Act.
    This rule proposes to permit mortgagors to request a return of 
Excess Income for project use or non-project use in accordance with the 
same procedures and conditions that apply to a request to retain Excess 
Income. For example, a request to return Excess Income for project use 
must include a description of how the funds will be used, and 
mortgagors may request a return of remitted Excess Income for non-
project use only if the project has been well-maintained housing in 
good condition during the period from which a return is requested, and 
if the mortgagor has not engaged in material adverse financial or 
managerial actions or omissions.
    A mortgagor may request a return of Excess Income that has been 
remitted to HUD since October 21, 1998, except for unpaid income that 
was repaid in accordance with a Workout or Repayment Agreement with 
HUD, or Excess Income generated between October 1, 2000, and October 
27, 2000, by projects with State agency non-insured Section 236-
assisted mortgages or HUD-held Section 236 mortgages. This rule further 
provides that a mortgagor may not request a return of any income after 
the date that is one year from the publication date of the final rule. 
HUD has set this time limit for requesting income returns to give 
mortgagors a period to plan for the retention and use of Excess Income 
on a current basis, which is more efficient than a procedure that would 
require constant reexaminations.

[[Page 52527]]

II. Findings and Certifications

Paperwork Reduction Act

    The proposed new information collection requirements contained in 
Secs. 236.60(c)(3), (d)(3), and (g), have been submitted to the Office 
of Management and Budget (OMB) for review under the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501-3520). Under this Act, 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.
    The public reporting burden for this new collection of information 
is estimated to include the time for reviewing the instructions, 
searching existing data sources, gathering and maintaining the data 
needed, and completing and reviewing the collection of information. 
Information on the estimated public reporting burden is provided in the 
following table.

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                                     Number of     Responses per   Total annual      Hours per
     Information collection         respondents     respondent       responses       response       Total hours
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Sec.  236.60(c)(3)..............           1,750               1           1,750             .25             438
Sec.  236.60(d)(3)..............             750               1             750             .25             188
Sec.  236.60(g).................           1,750               1           1,750             .25             438
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      Total hours...............  ..............  ..............  ..............  ..............           1,064
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    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning the 
proposed collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received by October 11, 2002. Comments must refer to the proposal by 
name and docket number (FR-4689-P-01) and must be sent to:

Joseph F. Lackey, Jr., HUD Desk Officer, Office of Management and 
Budget, New Executive Office Building, Washington, DC 20503.
        and
Rules Docket Clerk, Office of the General Counsel, Room 10276, U.S. 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410.

Regulatory Planning and Review

    The Office of Management and Budget has reviewed this proposed rule 
under Executive Order 12866 (captioned ``Regulatory Planning and 
Review'') and determined that this rule is a ``significant regulatory 
action'' as defined in section 3(f) of the Order (although not an 
economically significant regulatory action under the Order). Any 
changes made to this rule as a result of that review are identified in 
the docket file, which is available for public inspection during 
regular business hours (7:30 a.m. to 5:30 p.m.) at the Office of the 
General Counsel, Rules Docket Clerk, Room 10276, U.S. Department of 
Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 
20410-0500.

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 rule will not impose any 
Federal mandates on any State, local, or tribal governments or the 
private sector within the meaning of the Unfunded Mandates Reform Act 
of 1995.

Environmental Review

    A Finding of No Significant Impact (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). The FONSI is available for public 
inspection during regular business hours in the Office of the Rules 
Docket Clerk, Office of General Counsel, Room 10276, U.S. Department of 
Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 
20410.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this proposed rule and in so 
doing certifies that the rule would not have a significant economic 
impact on a substantial number of small entities. The rule only 
establishes the requirements for mortgagors of section 236 projects to 
retain and use Excess Income.
    Notwithstanding HUD's determination that this rule would not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Federalism Impact

    This 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 Executive Order 13132.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance Number for section 236 
assistance is 14.103.

List of Subjects in 24 CFR Part 236

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

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR part 236 as follows:

PART 236--MORTGAGE INSURANCE AND INTEREST REDUCTION

    1. The authority citation for 24 CFR part 236 continues to read as 
follows:

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

    2. Section 236.60 is added to read as follows:

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Sec. 236.60  Excess Income.

    (a) Definition. Excess Income consists of cash collected as rent 
from the residents by the mortgagor, on a unit-by-unit basis, that is 
in excess of either the HUD-approved unassisted Basic Rent or the New 
Authorized Rent under the Section 8 mark-to-market program under 24 CFR 
part 401. The unit-by-unit requirement necessitates that, if a unit has 
Excess Income, it must be returned to HUD. It is not permissible to do 
an aggregate calculation of the Excess Income for all occupied rent-
paying units, and then to offset or subtract from that figure any 
unpaid rent from occupied or vacant units, before remitting Excess 
Income to HUD.
    (b) General requirement to return Excess Income. Except as 
otherwise provided in this section, or as agreed to by HUD pursuant to 
a plan of action approved under part 248 of this chapter or in 
connection with an adjustment of contract rents under section 8 of the 
1937 Act, the mortgagor shall agree to pay monthly to HUD the total of 
all Excess Income in accordance with procedures prescribed by HUD.
    (c) Retention of Excess Income for project use--(1) Eligible 
mortgagors. Any mortgagor of a project receiving Section 236 interest 
reduction payments may apply to retain Excess Income for project use 
unless the mortgagor owes prior Excess Income and is not current in 
payments under a HUD-approved Workout or Repayment Agreement.
    (2) Eligible uses. Excess Income retained by a mortgagor for 
project use may be used for any necessary and reasonable operating 
expense of the project. Examples are:
    (i) Project operating shortfalls, including repair costs;
    (ii) Repair costs identified in the Comprehensive Needs Assessment, 
including increasing deposits to the Reserve Fund for Replacements to a 
limit necessary to adequately fund the reserve;
    (iii) Service coordinators;
    (iv) Neighborhood networks located at the project for project 
residents; and
    (v) Enhanced supportive services for the residents.
    (3) Request for approval to retain Excess Income. A mortgagor must 
submit a written request to retain Excess Income for project use to the 
local HUD Field Office. The request must describe:
    (i) The amount or percentage of Excess Income requested;
    (ii) The period from which Excess Income is being requested; and
    (iii) The proposed use of the requested Excess Income.
    (d) Retention of Excess Income for non-project use--(1) Eligible 
mortgagors. Any mortgagor of a project receiving Section 236 interest 
reduction payments may apply to retain Excess Income for non-project 
use unless the mortgagor owes prior Excess Income and is not current in 
payments under a HUD-approved Workout or Repayment Agreement or the 
mortgagor falls within any of the following categories:
    (i) The mortgagor's Reserve for Replacement is not funded;
    (ii) The mortgagor's project is not well maintained housing in good 
condition, as evidenced by:
    (A) Failure to maintain the project in decent, safe, and sanitary 
condition and in good repair in accordance with HUD's Uniform Physical 
Condition Standards and Inspection Requirements in subpart G of 24 CFR 
part 5;
    (B) A score below 60 on the physical inspection conducted by HUD's 
Real Estate Assessment Center (REAC);
    (C) The existence of Exigent Health and Safety (EHS) deficiencies 
identified by REAC; or
    (D) A Comprehensive Needs Assessment that finds there are 
significant current repair or maintenance needs;
    (iii) The mortgagor has engaged in any one of the following 
material adverse financial or managerial actions or omissions:
    (A) Materially violating any Federal, State, or local law or 
regulation with regard to the project or any other federally assisted 
project, including any applicable civil rights law or regulation, after 
receipt of notice and an opportunity to cure;
    (B) Materially breaching a contract for assistance under section 8 
of the United States Housing Act of 1937 (42 U.S.C. 1437f), after 
receipt of notice and an opportunity to cure;
    (C) Materially violating any applicable regulatory or other 
agreement with HUD or a participating administrative entity, after 
receipt of notice and an opportunity to cure;
    (D) Repeatedly and materially violating any Federal, State, or 
local law or regulation, including any applicable civil rights law or 
regulation, with regard to the project or any other federally assisted 
project;
    (E) Repeatedly and materially breaching a contract for assistance 
under section 8 of the United States Housing Act of 1937;
    (F) Repeatedly and materially violating any applicable regulatory 
or other agreement with HUD or a participating administrative entity, 
including failure to submit audited financial statements or required 
tenant data;
    (G) Repeatedly failing to make mortgage payments at times when 
project income was sufficient to maintain and operate the project;
    (H) Materially failing to maintain the project in decent, safe, and 
sanitary condition and in good repair after receipt of notice and a 
reasonable opportunity to cure; or
    (I) Committing any actions or omissions that would warrant 
suspension or debarment by HUD.
    (2) Eligible uses. Excess Income retained by a mortgagor for non-
project use may be used for any purpose, except that the non-project 
use of Excess Income by a nonprofit entity mortgagor is limited to 
activities that carry out the entity's nonprofit purpose.
    (3) Request for approval to retain Excess Income. A mortgagor must 
submit a written request to retain Excess Income for non-project use to 
the local HUD Field Office. The request must describe:
    (i) The amount or percentage of Excess Income requested; and
    (ii) The period from which Excess Income is being requested.
    (e) Timing of request to retain Excess Income. A mortgagor must 
submit a request to retain Excess Income at least 90 days before the 
beginning of each fiscal year, or 90 days before any other time during 
a fiscal year that the mortgagor plans to begin retaining Excess Income 
for that fiscal year.
    (f) HUD review and response procedure. HUD will review the 
mortgagor's request to retain income and issue a letter of approval or 
denial as follows:
    (1) Approval letter. The approval letter from HUD permitting the 
mortgagor to retain Excess Income must, at a minimum, assert:
    (i) Retention rights are for the time specified in the approval 
letter, but cannot extend beyond the current fiscal year;
    (ii) Failure of the mortgagor to maintain the Reserve for 
Replacement account in a fully funded amount at all times is grounds 
for HUD to rescind the approval;
    (iii) Failure of the mortgagor to maintain the project in decent, 
safe, and sanitary condition and in good repair at all times is grounds 
for HUD to rescind the approval;
    (iv) If the Excess Income requested for project use is not used for 
the proposed purpose described in the mortgagor's request, the income 
must be returned to HUD, unless the mortgagor has obtained prior HUD 
approval for the alternate use; and
    (v) The failure of a mortgagor to return retained Excess Income to 
HUD for not

[[Page 52529]]

complying with applicable requirements is a violation of the Regulatory 
Agreement for which there are enforcement remedies that HUD may take.
    (2) Denial letter. A letter from HUD denying a mortgagor's request 
to retain Excess Income must cite the specific reasons for denial and 
state what requirements the mortgagor must meet to receive HUD's 
approval to retain Excess Income.
    (3) Environmental review. Before approving a request to retain 
Excess Income for project use, HUD will perform an environmental review 
to the extent required under 24 CFR part 50 for activities that are not 
excluded under 24 CFR 50.19(b).
    (g) Post-approval requirements--(1) Monthly report. Mortgagors 
approved to retain Excess Income must continue to prepare and submit to 
HUD a revised Form HUD-93104, Monthly Report of Excess Income, or 
successor form.
    (2) Other reporting requirements. Mortgagors who retain Excess 
Income for project use must provide HUD, on an annual basis, two copies 
of a narrative description of the amount and the uses made of Excess 
Income during the prior fiscal year of the project. HUD may request 
additional follow-up information on a case-by-case basis. The report 
must contain the following certification:

    I certify that (1) the amount of Excess Income retained and used 
was for the purposes approved by HUD; (2) all eligibility 
requirements for retaining Excess Income were satisfied for the 
entire reporting period; and (3) all the facts and data on which 
this report is based are true and accurate. Warning: HUD will 
prosecute false claims and statements. Conviction may result in 
criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; and 31 
U.S.C. 3729 and 3802).

    (h) Return of remitted Excess Income--(1) For project use. A 
mortgagor that is eligible to retain Excess Income for project use 
under paragraph (c)(1) of this section may apply for the return of 
Excess Income remitted to HUD since October 21, 1998 (except for unpaid 
income that was repaid in accordance with a Workout or Repayment 
Agreement with HUD, or Excess Income generated between October 1, 2000, 
and October 27, 2000, by projects with State agency non-insured Section 
236-assisted mortgages or HUD-held Section 236 mortgages) in accordance 
with procedure in paragraph (c)(3) of this section.
    (2) For non-project use. A mortgagor that is eligible to retain 
Excess Income for non-project use under paragraph (d)(1) of this 
section may apply for the return of Excess Income remitted to HUD since 
October 21, 1998 (except for unpaid income that was repaid in 
accordance with a Workout or Repayment Agreement with HUD, or Excess 
Income generated between October 1, 2000, and October 27, 2000, by 
projects with State agency non-insured Section 236-assisted mortgages 
or HUD-held Section 236 mortgages) in accordance with procedure in 
paragraph (d)(3) of this section.
    (3) Reporting requirement. A mortgagor that receives returned 
Excess Income requested for project use is subject to the reporting 
requirements of paragraph (g)(2) of this section with respect to the 
returned Excess Income.
    (4) Time limit. After [Insert date that is one year after the date 
of publication of the final rule], a mortgagor may no longer apply for 
the return of any Excess Income remitted to HUD.
    (i) HUD withdrawal of approval to retain Excess Income--(1) Bases 
for withdrawal of approval. HUD may withdraw approval for any of the 
following reasons:
    (i) If, at any time after approval, a mortgagor fails to meet the 
eligibility requirements of paragraph (c)(1) or (d)(1) of this section, 
as applicable;
    (ii) If the mortgagor does not use the Excess Income requested for 
project use for purposes and activities as approved by HUD; or
    (iii) Where the mortgagor has been approved to retain Excess Income 
for non-project use, if at any time during the fiscal year that such 
approval is in effect, the mortgagor fails to maintain the project in 
decent, safe, and sanitary condition and in good repair, or maintain 
the Reserve for Replacement account in a fully funded amount.
    (2) Notification of withdrawal of approval. HUD will notify the 
mortgagor by certified mail that the authorization to retain Excess 
Income is withdrawn. The notification will state:
    (i) Specific reasons for HUD's withdrawal of approval;
    (ii) The effective termination date, which may be the date of the 
violation resulting in the withdrawal or the date of HUD's 
determination that the mortgagor was out of compliance;
    (iii) The amount of retained Excess Income improperly retained that 
must be returned to HUD; and
    (iv) The actions that the mortgagor must take to restore the 
authorization to retain Excess Income.
    (3) Mortgagor's request for reconsideration--(i) Letter of 
reconsideration. A mortgagor may request that HUD reconsider its 
decision by submitting, to the Hub/Field Office Director or other party 
identified by HUD in the notification, within 30 days of receipt of the 
notification of withdrawal, a letter stating the basis for 
reconsideration. The letter must include documentation supporting a 
review of the denial.
    (ii) HUD response. Within 30 days of HUD's receipt of the 
mortgagor's request for reconsideration, HUD will make a final 
determination and respond in writing to the mortgagor. HUD's response 
may:
    (A) Affirm the withdrawal of authority to retain Excess Income;
    (B) Reverse the withdrawal of authority to retain Excess Income; or
    (C) Request additional information from the mortgagor before 
affirming or reversing the withdrawal of authority to retain Excess 
Income.

    Dated: July 8, 2002.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 02-20022 Filed 8-9-02; 8:45 am]
BILLING CODE 4210-27-P