[Federal Register Volume 67, Number 202 (Friday, October 18, 2002)]
[Rules and Regulations]
[Pages 64484-64495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26343]



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Part III





Department of Housing and Urban Development





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24 CFR Part 982



Section 8 Homeownership Program: Downpayment Assistance Grants and 
Streamlining Amendments; Final Rule

  Federal Register / Vol. 67, No. 202 / Friday, October 18, 2002 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 982

[Docket No. FR-4670-F-02]
RIN 2577-AC28


Section 8 Homeownership Program: Downpayment Assistance Grants 
and Streamlining Amendments

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

ACTION: Final rule.

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SUMMARY: This final rule implements section 301 of the American 
Homeownership and Economic Opportunity Act of 2000, which amends the 
``homeownership option'' under the Housing Choice Voucher Program. 
Under section 301, a Public Housing Agency (PHA) may, in lieu of paying 
a monthly homeownership assistance payment on behalf of a family, 
provide homeownership assistance for the family in the form of a single 
grant to be used toward the downpayment required in connection with the 
purchase of the home. Implementation of these downpayment assistance 
grants is anticipated for Federal Fiscal Year 2003. In addition to 
implementation of section 301, this final rule also clarifies and 
streamlines several regulatory requirements applicable to both 
downpayment grants and monthly homeownership assistance payments 
provided under the homeownership option. This final rule follows 
publication of a June 13, 2001, proposed rule, and takes into 
consideration the public comments received on the proposed rule.

DATES: Effective Date: November 18, 2002.

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. Background--HUD's June 13, 2001, Proposed Rule

    On June 13, 2001 (66 FR 32198), HUD published a proposed rule for 
public comment to implement section 301 of the American Homeownership 
and Economic Opportunity Act of 2000 (Pub.L. 106-569, 114 Stat. 2944, 
2952, approved December 27, 2000) (AHEOA). Section 301 amends the 
``homeownership option'' authorized under section 8(y) of the United 
States Housing Act of 1937 (42 U.S.C. 1437f(y)) (1937 Act). Under the 
section 8(y) homeownership option, a public housing agency (PHA) may 
choose to provide monthly tenant-based assistance to an eligible family 
that purchases a dwelling unit that will be occupied by the family. 
Section 301 amends section 8(y) to authorize an alternative form of 
assistance under the homeownership option--assistance in the form of a 
single downpayment assistance grant. Under section 301, a PHA may, in 
lieu of paying a monthly homeownership assistance payment on behalf of 
a family, provide homeownership assistance for the family in the form 
of a single grant to be used toward the downpayment required in 
connection with the purchase of the home. Implementation of these 
downpayment assistance grants is anticipated for Federal Fiscal Year 
2003.
    In addition to implementation of downpayment assistance grants, HUD 
also proposed to clarify and streamline several regulatory requirements 
applicable to both downpayment grants and monthly homeownership 
assistance payments provided under the homeownership option. 
Specifically, HUD proposed to:
    (1) Provide PHAs with the flexibility to establish a higher minimum 
income standard than the uniform national requirement described in the 
current regulations;
    (2) Explicitly reference the eligibility of manufactured homes for 
purchase under the homeownership option; and
    (3) Remove the requirements providing for the recapture of 
homeownership assistance upon the sale or refinancing of the home.
    In addition to these three changes, HUD also announced that it was 
considering the feasibility of permitting the purchase of new homes not 
yet under construction under the homeownership option. The preamble to 
the June 13, 2001, proposed rule provides additional details regarding 
the proposed changes to HUD's homeownership option regulations.

II. Significant Changes to June 13, 2001, Proposed Rule

    This final rule follows publication of the June 13, 2001, proposed 
rule, and takes into consideration the public comments received on the 
proposed rule. The most significant differences between this final rule 
and the June 13, 2001, proposed rule are as follows:

A. Changes to Implementation of Downpayment Assistance Grants

    1. Payment of reasonable and customary closing costs with 
downpayment grant. This final rule authorizes the use of a downpayment 
grant for the payment of reasonable and customary closing costs. If the 
PHA permits the downpayment grant to be applied to closing costs, the 
PHA must define what fees and charges constitute reasonable and 
customary closing costs by providing such a definition in its 
administrative plan. However, if the purchase of a home is financed 
with FHA mortgage insurance, such financing is subject to FHA mortgage 
insurance requirements, including any requirements concerning closing 
costs (see Sec.  982.632(b) of the homeownership option regulations 
regarding the applicability of FHA requirements to voucher 
homeownership assistance and 24 CFR 203.27 regarding allowable fees, 
charges and discounts for FHA-insured mortgages).
    2. Limitation on eligibility to current voucher families. This 
final rule continues to limit eligibility for downpayment assistance 
grants to current voucher families. The final rule, however, no longer 
requires that a family must have been receiving tenant-based voucher 
rental assistance for a specific time period in order to qualify for a 
downpayment grant. The proposed rule would have mandated a one-year 
period of prior voucher rental assistance.
    3. Administrative fee. This final rule announces that the single, 
one-time administrative fee for a downpayment assistance grant will 
initially be set at an amount equal to six months of the PHA's on-going 
regular administrative fee under the voucher program.
    4. Return to tenant-based assistance. The final rule permits a 
family to apply for and receive tenant-based rental assistance after 
receiving a downpayment grant, in accordance with program requirements 
and PHA policies. However, the PHA may not commence tenant-based rental 
assistance for occupancy of the new unit so long as any family member 
owns any title or other interest in the home purchased with 
homeownership assistance. Further, 18 months must have passed since the 
family's receipt of the downpayment assistance grant.
    5. Implementation of downpayment assistance grants. This final rule 
clarifies that a PHA may not offer downpayment assistance grants until 
HUD publishes a notice in the Federal Register announcing that 
appropriated funds are available for this use.

[[Page 64485]]

B. Other Changes to Homeownership Option

    1. Family choice of housing. This final rule makes a non-
substantive clarification to Sec.  982.601(d) of the Housing Choice 
Voucher Program regulations concerning a family's ability to choose 
among the special housing types permitted under the program (including 
the homeownership option). The current wording of the provision refers 
to a family's choice to ``rent'' housing, which may lead to the 
incorrect conclusion that the provisions concerning family choice do 
not apply to home purchases under the homeownership option. 
Accordingly, the final rule replaces the word ``rent'' in this section 
with the more inclusive word ``use.'' This change does not alter any 
existing regulatory requirements, but merely clarifies that a family's 
ability to choose among the various forms of assistance offered under 
the voucher program also includes voucher homeownership assistance.
    2. Future receipt of homeownership assistance. This final rule 
provides that only adult family members are subject to the restrictions 
on the future receipt of homeownership assistance. Specifically, a 
family that includes an individual who was an adult member of a family 
that previously received either of the two forms of homeownership 
assistance may not receive the other form of homeownership assistance 
from any PHA. Further, a PHA may not provide homeownership assistance 
for a family if any member was an adult member of a family at the time 
such family received assistance under the homeownership option and 
defaulted on the mortgage securing purchase of the home.
    3. Clarification of reasonable accommodation requirement. 
Consistent with previous HUD guidance, this final rule clarifies that 
it is the sole responsibility of the PHA to determine whether it is 
reasonable to implement a homeownership program as a reasonable 
accommodation. The PHA will determine what is reasonable based on the 
specific circumstances and individual needs of the person with a 
disability. 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.
    4. Removal of recapture provisions. This final rule adopts the 
proposal to remove the recapture provisions contained in the June 13, 
2001, proposed rule. In addition, this final rule provides that a PHA 
shall not impose or enforce any requirement for the recapture of 
voucher homeownership assistance on the sale or refinancing of a home 
purchased with assistance under the homeownership option. This change 
will ensure that families who purchased their homes prior to issuance 
of this final rule also receive the benefit provided by removal of the 
onerous recapture requirements.
    5. Inclusion of welfare assistance in determining whether elderly 
and disabled families meet the minimum income requirement. This final 
rule clarifies that, in determining whether an elderly or disabled 
family meets the minimum income requirement, welfare assistance shall 
be included only for those adult elderly or disabled family members who 
will own the home.
    6. Revised minimum income standard for disabled families. This 
final rule adopts the revisions to the minimum income requirements 
contained in the June 13, 2001, proposed rule. Specifically, the final 
rule permits a PHA to establish a higher minimum income standard than 
the uniform national standard described in the homeownership option 
regulations. However, the final rule establishes a separate national 
standard for disabled families. This minimum income standard for such 
families will be equal to the monthly Federal Supplemental Security 
Income (SSI) benefit for an individual living alone (or paying his or 
her share of food and housing costs) multiplied by twelve.
    PHAs will have the flexibility to establish a higher income 
standard for either or both types of families (disabled and non-
disabled). However, as described in the proposed rule, a family that 
meets the applicable HUD minimum income requirement, but not the higher 
standard established by the PHA, shall be considered to satisfy the 
minimum income requirement if the family is able to demonstrate that it 
has been pre-qualified or pre-approved for financing. The pre-qualified 
or pre-approved financing must meet any PHA established requirements 
for financing the purchase of the home (including qualifications of 
lenders and terms of financing). The pre-qualified or pre-approved 
financing amount must be sufficient to purchase housing that meets 
housing quality standards in the PHA's jurisdiction.
    7. Timing of new construction. After careful consideration of all 
the issues regarding the eligibility of units not yet under 
construction, HUD, at this time, is not prepared to authorize the 
purchase of such units with voucher homeownership assistance. However, 
in order to expand a family's homeownership choices, the final rule 
provides that a unit need only be under construction at the time the 
family enters into the contract of sale--and not at the time the PHA 
determines the family is eligible for homeownership assistance to 
purchase the unit, as is currently required by the regulations.
    8. Eligibility of housing where the family will not also own fee 
title to the real property on which the home is located. The final rule 
expands the types of housing eligible for purchase under the 
homeownership option to include any housing where the family will not 
also own fee title to the real property on which the home is located. 
Further, in order to effectuate this change, the final rule revises the 
list of homeownership expenses to include land lease payments. However, 
the family must have the right to occupy the site for a period of at 
least forty years and the home must have a permanent foundation. The 
right of occupancy period has been increased to forty years (from the 
proposed thirty year period) to conform to FHA mortgage insurance 
requirements and manufactured home lending industry practice.
    9. PHA disapproval of seller. This final rule clarifies that a PHA, 
in its administrative discretion, may deny approval of a seller for any 
reason provided for disapproval of an owner under the voucher rental 
program regulations (see Sec.  982.306(c)). These reasons include: 
violations of the housing assistance payments (HAP) contract; 
committing fraud; bribery; or any other corrupt or criminal acts in 
connection with any Federal housing program; engaging in drug-related 
or violent criminal activity; non-compliance with HUD's housing quality 
standards (HQS); failing to meet State or local housing codes; and 
failure to pay State or local real estate taxes, fines, or assessments. 
The current regulatory language is unclear as to whether PHAs have the 
authority to prohibit sellers who engage in these disreputable 
activities from participating in the homeownership option. This final 
rule closes this ``loophole'' by specifying that the PHA disapproval 
provisions of Sec.  982.306(c) apply to both the rental and 
homeownership components of the voucher program.

III. Discussion of Public Comments Received on the June 13, 2001, 
Proposed Rule

    The public comment period on the proposed rule closed on August 13, 
2001. HUD received twenty-seven comments on the proposed rule. Comments 
were received from: PHAs;

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advocates of low-income housing; legal services providers; national 
associations representing realtors, home builders, and mortgage 
bankers; state and local housing services and community development 
agencies; a housing subsidy recipient; Fannie Mae; the United States 
Department of Agriculture-Rural Housing Service; and other commenters.
    The following section of the preamble presents a summary of the 
significant issues raised by the public commenters on the proposed 
rule, and HUD's responses to these issues.
    The summary of public comments is organized as follows:
    Section IV of the preamble discusses the public comments regarding 
the implementation of downpayment assistance grants.
    Section V of the preamble discusses the public comments regarding 
the proposed streamlining and clarifying amendments to the 
homeownership option.
    Section VI of the preamble discusses other public comments received 
on the proposed rule.

IV. Discussion of Public Comments Regarding the Implementation of 
Downpayment Assistance Grants

A. Comments Regarding Types of Homeownership Assistance Offered by PHA

    Comment: A PHA that offers downpayment assistance grants should be 
required to clarify to the potential homebuyer the benefits of each 
option. Several commenters wrote that it is important that any 
potential participants have full knowledge of the advantages and 
disadvantages of each type of homeownership assistance. The commenters 
wrote that those families who are considering giving up their tenant-
based rental assistance to receive a downpayment grant particularly 
should be made aware of all anticipated costs and requirements that go 
along with homeownership and the financial risks that may result from 
termination of their voucher rental assistance.
    HUD Response. HUD agrees that families should be made fully aware 
of the benefits and disadvantages associated with each type of 
homeownership assistance. Before the commencement of either form of 
homeownership assistance, families are already required to 
satisfactorily complete the pre-assistance homeownership counseling 
offered by the PHA (see Sec.  982.630). The regulation at Sec.  982.630 
identifies several suggested topics for inclusion in the pre-assistance 
counseling, and provides PHAs with the flexibility to adapt the 
subjects covered in the counseling to local circumstances and the needs 
of individual families. HUD encourages all PHAs who offer both forms of 
homeownership assistance to explain to applicants in the pre-assistance 
counseling how both forms of assistance work, and the benefits of each 
type of homeownership assistance. However, HUD continues to believe 
that the topics to be covered in counseling should be selected by the 
individual PHAs, who are in the best position to determine the 
counseling needs of families within their respective jurisdictions. 
Accordingly, HUD has not revised the proposed rule to adopt the 
suggestions made by the commenters.
    Comment: A PHA that offers downpayment assistance grants should be 
required to also offer monthly homeownership assistance payments. 
Several commenters wrote that downpayment assistance carries 
substantial economic risks for families, since they will be forfeiting 
monthly homeownership assistance payments in exchange for a single 
downpayment grant. The commenters wrote that for many potential 
participants, the major obstacle to homeownership might be the ability 
to make monthly payments and not insufficient funds for a downpayment. 
However, PHAs may prefer to offer downpayment grants because they 
present less administrative burden than monthly homeownership 
assistance payments. The commenters suggested that PHAs who offer 
downpayment assistance should be required (or at a minimum encouraged) 
to also offer monthly homeownership assistance payments.
    HUD Response. HUD does not believe it has the statutory authority 
to impose the requirement suggested by the commenter. Section 8(y) of 
the 1937 Act clearly gives individual PHAs the discretion to decide 
whether they will offer homeownership assistance and, if so, whether 
one or both forms of assistance will be made available by the PHA. 
Additionally, mandating that PHAs offer both types of assistance might 
have the negative consequence of discouraging some PHAs from offering 
any form of voucher homeownership assistance.
    Comment: Support for PHA discretion to offer homeownership 
assistance. One commenter supported granting PHAs the flexibility to 
offer either or both types of homeownership assistance.
    HUD Response. HUD agrees with the commenter. As noted above, 
section 8(y) of the 1937 Act makes the determination of whether to 
offer voucher homeownership assistance a local PHA decision.

B. Comments Regarding Eligibility for Downpayment Assistance

    Comment: Support for restricting eligibility to current program 
participants. Several commenters supported limiting eligibility for 
downpayment assistance grants to current participants in the tenant-
based voucher program. The commenters wrote that the proposal is 
consistent with the legislative history of section 301, and prevents 
transforming the voucher program into a short-term downpayment 
assistance program.
    HUD Response. HUD agrees with the commenters, and the final rule 
continues to limit eligibility for downpayment assistance to current 
voucher families. Upon re-consideration, however, HUD believes that 
mandating at least one year of prior voucher rental assistance may be 
unduly prescriptive and unnecessarily delay the ability of families to 
move ``up and out'' and become homeowners. Further, eliminating the 
one-year requirement will facilitate lease-purchase transactions where 
the family is entitled to purchase a home it is leasing. Accordingly, 
the final rule no longer requires that a family must have been 
receiving tenant-based voucher rental assistance for a specific amount 
of time in order to qualify for a downpayment assistance grant.
    In most PHA jurisdictions, the initial lease term for a family 
participating in the voucher rental program is one year (see Sec.  
982.309). The change regarding the amount a time a family must be 
receiving voucher rental assistance in order to qualify for a 
downpayment grant does not override the initial lease term requirements 
of Sec.  982.309, or the family obligation to comply with the terms of 
the lease (Sec.  982.551(e)). Neither does it override any PHA 
administrative policy restricting moves by the family during the 
initial lease term. Rather, one of the goals of the change is to 
facilitate use of a downpayment grant where there is mutual agreement 
between the family and the owner to terminate the lease prior to the 
end of the initial term.
    Comment: Proposed eligibility restriction should not apply to 
disabled families requesting a reasonable accommodation. One commenter 
wrote that eligibility for downpayment assistance should include 
individuals with disabilities requesting a reasonable accommodation, 
regardless of the length of time they have been receiving tenant-based 
voucher rental assistance.
    HUD Response. As noted above, this final rule no longer requires 
that a family have been receiving tenant-based voucher rental 
assistance for a specific

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amount of time in order to qualify for downpayment assistance. Further, 
the homeownership option contains several special provisions for 
families with a member who is a person with disabilities. For example, 
there is no maximum term of homeownership assistance for disabled 
families (assistance to other families is limited to a fifteen or ten-
year term) (see Sec.  982.634). As described elsewhere in this 
preamble, the final rule establishes a separate, lower national minimum 
income standard for disabled families (see Sec.  982.627(c)(1)). The 
PHA is also required to count welfare assistance provided to the 
disabled family for purposes of determining whether the family 
satisfies the minimum income requirements (generally, such assistance 
is not counted for other families) (see Sec.  982.627(c)(2)). In 
addition, if a PHA determines that a disabled family requires 
homeownership assistance as a reasonable accommodation, the first-time 
homeowner requirement does not apply (Sec.  982.627(b)). Further, on 
June 22, 2001 (66 FR 33610), HUD published an interim rule implementing 
the pilot program authorized by section 302 of AHEOA. This pilot 
program provides disabled families with certain additional benefits 
under the homeownership option (see Sec.  982.642).

C. Comments Regarding Maximum Amount of Downpayment Grant

    Comment: Maximum amount of downpayment grant is insufficient. Three 
commenters wrote that basing the maximum amount of the downpayment 
grant on a single year's worth of homeownership assistance payments 
will benefit only a small number of families, particularly in expensive 
markets such as New York City. One of the commenters recommended that 
the final rule either establish a minimum downpayment grant amount (the 
commenter suggested $3,000) or base the maximum grant amount on a 
longer time period of subsidy assistance (the commenter suggested 5 
years). A second commenter agreed that the time period for determining 
the maximum grant amount should be extended, and suggested a 5-10 year 
period.
    HUD Response. HUD does not have the statutory authority to make the 
change suggested by the commenter. The maximum amount of the 
downpayment grant is established by section 301 of AHEOA. Specifically, 
the statute provides that ``[t]he amount of the downpayment grant * * * 
may not exceed the amount that is equal to the sum of the assistance 
payments that would be made during the first year of assistance on 
behalf of the family * * ''
    Comment: The payment standard of the initial PHA should always be 
used to calculate the maximum downpayment grant. One commenter made 
this suggestion. The commenter wrote that this requirement appears to 
impose an unnecessary burden upon the family and the receiving PHA, and 
may deny homeownership assistance to a deserving family if the 
receiving PHA does not offer downpayment assistance grants. The 
commenter urged HUD to require that the policies and procedures of the 
initial PHA must be used for determining the maximum downpayment grant, 
regardless of where the property being purchased is located.
    HUD Response. HUD does not agree with the commenter. HUD believes 
the portability requirements should be the same for both monthly 
homeownership assistance payments and downpayment assistance grants. A 
family determined eligible for either form of homeownership assistance 
may purchase a unit outside of the initial PHA's jurisdiction if the 
receiving PHA is administering a homeownership program and is accepting 
new homeownership families (see Sec.  982.636).

D. Comments Regarding Use of Downpayment Grant

    Comment: HUD should permit the use of downpayment assistance to 
cover closing costs. Several commenters wrote that closing costs can be 
substantial, typically amounting to two or three percent of the 
purchase of the home. Accordingly, the commenters suggested that the 
final rule authorize the use of downpayment grant funds to cover such 
costs.
    HUD Response. Upon re-consideration of this issue, HUD has revised 
the rule to allow the use of a downpayment grant for the payment of 
reasonable and customary closing costs. HUD has determined that 
permitting families the option of using a downpayment assistance grant 
to cover such costs will facilitate homeownership. If the PHA permits 
the downpayment grant to be applied to closing costs, the PHA must 
define what fees and charges constitute reasonable and customary 
closing costs by providing such a definition in its administrative 
plan. However, if the purchase of a home is financed with FHA mortgage 
insurance, such financing is subject to FHA mortgage insurance 
requirements, including any requirements concerning closing costs (see 
Sec.  982.632(b) of the homeownership option regulations regarding the 
applicability of FHA requirements to voucher homeownership assistance 
and 24 CFR 203.27 regarding allowable fees, charges, and discounts for 
FHA-insured mortgages).

E. Comments Regarding Administrative Fee

    Comment: HUD should either provide a one-time administrative fee 
for both types of homeownership assistance or no fee at all. Several 
commenters wrote that the effect of the one-time administrative fee 
would be to provide an unfair ``bonus'' to PHAs offering downpayment 
assistance grants. The commenters wrote that a PHA that provides a 
downpayment grant would receive the one-time administrative fee, as 
well as ``freeing-up'' a voucher for use by another family. The PHA 
will collect an ongoing administrative fee for this ``freed-up'' 
voucher. The commenters wrote that HUD does not provide a similar one-
time administrative fee to PHAs offering the existing homeownership 
option. Accordingly, PHAs will prefer to offer downpayment assistance 
grants rather than monthly homeownership assistance payments. Since 
downpayment grants will primarily benefit higher-income Section 8 
families, the commenters wrote that the proposed administrative fee may 
unfairly penalize lower-income families who might benefit from monthly 
homeownership assistance payments. The commenters recommended that HUD 
either provide a one-time administrative fee for the administration of 
both types of homeownership assistance--or provide no one-time fee at 
all.
    HUD Response. HUD has not revised the proposed rule in response to 
these comments. The administrative fee is a one-time fee paid to 
compensate PHAs for the administration of downpayment assistance 
grants. This administrative fee is paid in lieu of the monthly fee a 
PHA would receive for the administration of other forms of voucher 
assistance. The single, one-time fee should not be construed as a 
``bonus'' to PHAs for providing downpayment assistance. Further, HUD 
disagrees with the commenters that no fee should be paid for the 
administration of downpayment assistance grants. PHAs providing 
downpayment assistance grants require compensation for the staff work 
associated with counseling and other administrative actions in 
connection with such grants.
    Comment: Administrative fee is inadequate. Several commenters 
objected that the proposed one-time administrative fee of $250 is too 
low to adequately compensate PHAs for the administration of downpayment 
grants. The commenters wrote that the low

[[Page 64488]]

administrative fee will make downpayment assistance an unattractive 
option for PHAs, who will prefer to use their voucher funding to 
provide monthly tenant-based assistance and earn the higher 
administrative fee. Two commenters wrote that given the widely varying 
costs experienced by PHAs in different geographical locations, a 
flexible administrative fee would be more appropriate than the flat 
nationwide fee proposed by HUD. The commenter recommended an 
administrative fee equal to six months of a PHA's regular 
administrative fee. The commenters wrote that such a fee would be 
simple to administer and reflect the varying cost structures of PHAs.
    HUD Response. Upon reconsideration, HUD agrees that the proposed 
$250 administrative fee did not reflect geographic cost differences 
between PHAs. Through publication of this final rule, HUD announces 
that the administrative fee is initially set at an amount equal to six 
months of a PHA's on-going regular administrative fee (see Sec.  
982.152(b) of the Housing Choice Voucher program regulations). HUD will 
monitor the adequacy of this fee amount and will make adjustments as 
necessary. As is standard practice, any updates to the administrative 
fee amount will be announced through HUD notice.

F. Comments Regarding Return to Tenant-Based Assistance

    Comment: Final rule should permit a family to return to tenant-
based assistance after receiving a downpayment assistance grant. Two 
commenters wrote that a family that receives monthly homeownership 
assistance payments may elect to move with continued voucher tenant-
based assistance (see Sec.  982.637). However, the June 13, 2001, 
proposed rule does not provide a similar safety net to a family 
selecting a one-time downpayment assistance grant. The commenters wrote 
that households receiving Section 8 assistance, even at the higher end 
of the income spectrum, are financially vulnerable and subject to 
personal and economic hardship. Thus, a household that is well 
qualified for downpayment assistance initially may find itself in a 
difficult financial situation one or more years down the road due to a 
loss of employment, illness, or death. The commenters wrote that it 
would be unduly harsh to prohibit such a family from returning to 
voucher rental assistance simply because it elected to receive a one-
time downpayment grant. One of the commenters wrote that if 
disqualification is sought, a more equitable approach would be to 
disqualify participating households from receiving tenant-based 
assistance for a period equivalent to the number of months used to 
calculate the amount of the downpayment assistance grant. The other 
commenter suggested that, at a minimum, a family should be allowed to 
return to voucher rental assistance within 18 months following the 
downpayment assistance grant.
    HUD Response. HUD agrees with the commenters that families 
receiving a downpayment grant should be permitted to return to tenant-
based rental assistance under certain circumstances. This final rule 
permits a family that has received a one-time downpayment assistance 
grant to apply for, and receive, tenant-based rental assistance in 
accordance with program requirements and PHA policies. However, the PHA 
may not commence tenant-based rental assistance for occupancy of the 
new unit so long as any family member owns any title or other interest 
in the home purchased with homeownership assistance. Further, 18 months 
must have passed since the family's receipt of the downpayment 
assistance grant.

G. Comments Regarding Voucher Renewals

    Comment: Voucher renewal policy for downpayment grants is unclear 
and may be inequitable. Two commenters expressed uncertainty regarding 
the voucher renewal policy for downpayment grants announced in the June 
13, 2001, proposed rule. The commenters requested clarification on 
whether downpayment grants are required to be funded from PHA reserves. 
The commenters noted that if a PHA uses reserves to assist additional 
families, it is not entitled to HUD reimbursement. The commenters wrote 
that such a voucher renewal policy would be inequitable and discourage 
PHAs from offering downpayment assistance grants.
    HUD Response. HUD intends to issue further non-regulatory guidance 
on renewal funding in the near future.

H. Miscellaneous Comments Regarding Downpayment Grants

    Comment: HUD should require PHAs to take an active role in ensuring 
the long-term success of participating families. One commenter wrote 
that, although the PHA's involvement with the family ceases once the 
downpayment grant is made, the PHA remains in the important position of 
being the family's sole safety net if mortgage and maintenance expenses 
prove to be unaffordable. According to the commenter, the PHA is also 
the last line of defense in preventing a predatory lender from 
encouraging the family to move into homeownership. For these reasons, 
the commenter suggested that HUD require PHAs to review the 
participant's financing, sales contract, appraisal, and any other 
documents deemed necessary by the PHA. In this manner, the PHA can 
ensure that the sales price of the home and the monthly mortgage 
payments are affordable and the borrower is not subject to abusive loan 
terms or predatory lending. The commenter also requested that HUD 
clarify that new homeowners receiving a downpayment grant are required 
to complete all required pre-purchase homeownership counseling and must 
obtain the required home inspections (with approval by the PHA) prior 
to obtaining the grant. The commenter wrote that HUD should consider 
reporting requirements, perhaps through the Section 8 Management 
Assessment Program (SEMAP), that would enable HUD to ensure that the 
PHA has adopted all necessary safeguards under the homeownership 
option.
    HUD Response. HUD has not adopted the suggestions made by the 
commenter. HUD agrees that families receiving downpayment grants should 
be protected from entering into unaffordable financing arrangements and 
from abusive lending practices. However, HUD does not believe that 
additional regulatory requirements are necessary to accomplish these 
goals. Many of the regulatory protections afforded to families 
receiving monthly homeownership assistance payments also apply to 
downpayment grants. For example, families receiving a downpayment grant 
must participate in pre-assistance counseling, and a PHA may establish 
requirements for financing purchase of the home. Although PHA 
involvement with the family ends once the downpayment grant is 
provided, HUD expects that PHAs will undertake the same efforts to 
ensure that financing requirements are appropriate for a downpayment 
grant as they would for monthly homeownership assistance payments. PHAs 
are encouraged to review lender qualifications and the loan terms 
before authorizing a downpayment grant. PHAs should disapprove proposed 
financing if the PHA determines that the debt is unaffordable or the 
lender or the loan terms do not meet PHA qualifications.
    Comment: Downpayment assistance option needs to be included in the 
PHA Plan template. One commenter wrote that the homeownership component 
of the PHA Annual and Five-Year Plan template needs to be revised to 
include

[[Page 64489]]

downpayment grants along with monthly homeownership assistance 
payments. The commenter suggested that PHAs should be required to 
identify whether they offer downpayment grants in addition to monthly 
homeownership assistance payments, and their reasons for offering 
downpayment assistance. The commenter wrote that including downpayment 
assistance grants in the template will better ensure that PHAs, 
potential participants, lenders, and others better understand the 
program and all of its ramifications in advance.
    HUD Response. HUD intends to address downpayment grants through 
future amendments to the PHA Plan instructions.
    Comment: Downpayment grants will unnecessarily divert scarce 
voucher subsidy to higher-income families. One commenter wrote that 
downpayment assistance grants will principally benefit higher-income 
families who can afford monthly mortgage payments. The commenter wrote 
that the proposed rule would, therefore, ``have very minimal impact on 
[lower-income] voucher recipients who may wish to become homeowners.'' 
The commenter also wrote that there are already several available 
downpayment assistance resources available to voucher families, such as 
HOME program funds, the Federal Home Loan Bank, state housing finance 
authority funds, and other state housing funds. The commenter suggested 
that PHAs work with their respective state housing and finance 
agencies, lending institutions, and local nonprofits to identify and 
develop downpayment assistance resources rather than using valuable 
voucher assistance for this purpose.
    HUD Response. HUD does not agree with the commenter. Downpayment 
assistance grants are statutorily authorized by section 8(y). The 
statutory language makes clear that the provision of such assistance is 
solely at the discretion of individual PHAs. The PHA is in the best 
position to assess the availability and amount of other housing 
resources in its community and determine whether it is appropriate to 
offer downpayment assistance grants. Further, since a family provided a 
downpayment grant will no longer receive monthly rental assistance, 
implementation of this program will ``free up'' resources to assist 
additional families on the PHA waiting list.

V. Discussion of Public Comments Regarding Streamlining and Clarifying 
Amendments to Homeownership Option

A. Comments Regarding Minimum Income Requirements

    Comment: Support for proposed minimum income revisions. Several 
commenters expressed support for the proposed revisions to the minimum 
income requirements. The commenter wrote that the flexibility provided 
by the proposed rule is both welcome and necessary. According to the 
commenters, the current minimum income requirement is well below the 
amount necessary to purchase in many areas, and raises false hopes in 
voucher families desiring homeownership. The commenters also wrote that 
allowing PHAs to establish minimum income requirements that more 
accurately reflect local housing costs will encourage lender 
participation.
    HUD Response. HUD appreciates the support expressed by the 
commenters. HUD agrees that increased flexibility is necessary to allow 
successful PHA implementation of the homeownership option. This final 
rule adopts the proposed changes granting PHAs the flexibility to 
establish a higher minimum income standard that more accurately 
reflects local housing costs.
    Comment: PHAs should have increased flexibility in establishing 
minimum income standards, especially for elderly and disabled families. 
Several commenters made this suggestion. The commenters wrote that, in 
at least some areas of the country, the current minimum income standard 
is already too high, especially for the elderly, persons with 
disabilities, and others living on fixed incomes or government 
benefits. The commenters wrote that lower income families are good 
candidates to purchase homes due to favorable underwriting standards 
employed by lenders and the secondary market, are also often able to 
take advantage of existing local affordable housing programs. The 
commenters wrote that although HUD may provide guidance for the 
determination of the minimum income requirement, ultimately the PHA 
should define the minimum income amount that will be required under the 
PHA's program.
    HUD Response. HUD agrees that the current uniform national minimum 
income standard is too high for disabled families in some areas of the 
country. Accordingly, this final rule establishes a separate national 
standard for such families equal to the monthly Federal SSI benefit for 
an individual living alone (or paying his or her share of food and 
housing costs) multiplied by twelve.\1\ HUD agrees that there are a 
number of loan products and grant programs tailored for disabled 
families that, when combined with voucher homeownership assistance, 
would allow families below the current minimum income standard to 
successfully purchase a home. The new national standard for disabled 
families is based on the SSI benefit, since most families who will 
benefit from this change will be receiving such assistance.
---------------------------------------------------------------------------

    \1\ The monthly SSI benefit for an individual living alone (or 
paying his or her share of food and housing costs) currently equals 
$545. Multiplied by twelve, this equals a $6540 minimum income 
threshold for a disabled family under this final rule.
---------------------------------------------------------------------------

    HUD also continues to believe that the current income standard may 
be too low for certain high-cost areas of the country. The minimum 
income requirement is included in section 8(y), and is intended to 
ensure that families participating in the program have sufficient 
resources to meet their monthly mortgage payments and other ongoing 
homeownership obligations (such as real estate taxes, repairs, and 
other maintenance costs). HUD agrees with the commenters that PHAs are 
in the best position to establish a standard that accurately reflects 
local housing conditions, while ensuring compliance with the statutory 
goal of ensuring that families participating in the homeownership 
option have a satisfactory minimum amount of income. Accordingly, 
consistent with the June 13, 2001, proposed rule, this final rule 
permits a PHA to establish a higher minimum income standard than the 
uniform national standard for either or both types of families 
(disabled and non-disabled).Although HUD believes that PHAs should have 
the flexibility to tailor the minimum income standard to local housing 
conditions, it also wants to make sure that PHA-established income 
limits do not hinder use of the homeownership option by families who 
can qualify for a mortgage from a reputable lending institution. 
Accordingly, as described in the proposed rule, a family that meets the 
applicable HUD minimum income requirement, but not the higher PHA-
specific income standard shall be considered to satisfy the minimum 
income requirement if the family is able to demonstrate that it has 
been pre-qualified or pre-approved for financing. The pre-qualified or 
pre-approved financing must meet any PHA established requirements for 
financing the purchase of the home (including qualifications of lenders 
and terms of financing). The pre-qualified or pre-

[[Page 64490]]

approved financing amount must be sufficient to purchase housing that 
meets the housing quality standards in the PHA's jurisdiction.

B. Comments Regarding the Eligibility of Units Not Yet Under 
Construction

    Comment: Support for eligibility of new construction. The 
commenters writing on this proposal unanimously endorsed the 
eligibility of units not yet under construction for purchase under the 
homeownership option. Four of the commenters specifically addressed the 
environmental concerns raised in the preamble to the proposed rule. 
These commenters wrote that it is the Federal funding obtained by the 
developer to construct the units--not the homeownership assistance 
provided to the family--that typically triggers any environmental 
requirements under the National Environmental Policy Act of 1969 (NEPA) 
or environmental authorities. The commenters wrote that individual 
units are not deeded to the family until the developer is ready to 
begin construction on the units or, in some instances, after 
construction of the units is completed. Accordingly, the required 
environmental reviews will be performed in connection with the 
provision of HOME, Community Development Block Grant (CDBG), Rural 
Housing Service, or other Federal construction funding. The commenters 
suggested that the final rule simply defer to the environmental 
requirements posed by the applicable programs and funding sources for 
the underlying development.
    HUD Response. After careful review of all the issues regarding the 
eligibility of units not yet under construction (including 
environmental issues), HUD at this time is not prepared to authorize 
the purchase of such units with voucher homeownership assistance. The 
environmental requirements for the Housing Choice Voucher Program are 
located in 24 CFR part 58. Although, as several of the commenters 
noted, part 58 categorically excludes individual actions on one to four 
family properties from review under NEPA, it also requires compliance 
with other applicable environmental laws (such as those regarding 
historic preservation, floodplains and wetlands) (see Sec.  
58.35(a)(4)). The broader categorical exclusion for homeownership 
assistance at Sec.  58.35(b)(5) explicitly applies only to ``existing 
dwelling units and dwelling units under construction.'' Even if other 
Federal agencies provide some funding for the units and perform the 
required environmental reviews, HUD cannot ensure that the reviews will 
be conducted in compliance with HUD's regulations.
    Although HUD at this time is not prepared to authorize the use of 
the homeownership option for the purchase of units not yet under 
construction, it believes that another way to address the concerns 
raised by the restriction is to revise the existing requirement 
regarding the timing of new construction. The current regulation at 
Sec.  982.628 requires that a unit must be under construction at the 
time the PHA determines the family is eligible for homeownership 
assistance to purchase the unit. Requiring that construction commence 
at such an early stage in the homeownership process diminishes the 
housing choices available to the family, and is unnecessary to ensure 
compliance with applicable environmental requirements since the voucher 
family has not yet entered into a binding commitment to purchase the 
home with Federal funds. Accordingly, this final rule amends Sec.  
982.628 to require that a unit need only be under construction at the 
time the family enters into the contract of sale. HUD will consider a 
unit to be ``under construction'' if the footers have been poured.

C. Comments Regarding Eligibility of Manufactured Homes

    Comment: Support for proposed changes. Several commenters expressed 
support for the proposed changes regarding the eligibility of 
manufactured homes.
    HUD Response. HUD appreciates these favorable comments. As noted 
below, HUD has further expanded the types of housing eligible for 
purchase under the homeownership option.
    Comment: HUD should further expand eligibility to include other 
types of housing where the homeowner does not also own the underlying 
real property. Three commenters wrote that HUD should expand the types 
of eligible housing to include other similar housing types--such as 
manufactured homes in resident-owned, or nonprofit owned, manufactured 
home parks and units in land trust networks. The commenters wrote that 
such a change would expand the housing options for low-income families 
and conform to the existing secondary market.
    HUD Response. HUD has adopted the change suggested by the 
commenters. This final rule expands the types of eligible housing to 
include any housing where the family will not also own fee title to the 
real property on which the home is located. However, the family must 
have the right to occupy the site for a period of at least forty years. 
Further, the home must have a permanent foundation. These requirements 
are necessary to satisfy the homeownership goals of section 8(y). The 
statute contemplates the purchase of real property, which necessitates 
long-term site control.
    For all practical purposes, the requirement for a permanent 
foundation will usually only come into consideration when the purchase 
involves a manufactured home. HUD notes that the purchase of a 
manufactured home without a permanent foundation and a short-term pad 
lease is not eligible for voucher homeownership assistance. 
Manufactured home owners with short-term lease arrangements are 
eligible for rental assistance for the pad under section 8(o)(12), but 
not homeownership assistance under section 8(y).
    Comment: HUD must revise list of homeownership expenses to fully 
implement manufactured home eligibility. Two commenters wrote that in 
order to fully implement these changes, HUD must revise the list of 
homeownership expenses for a homeowner other than a cooperative member 
at Sec.  982.635(c) to include the cost of pad rental and land lease or 
land trust payments. A corresponding change for cooperative members at 
Sec.  982.635(c)(3) is unnecessary because these expenses are already 
included in the cooperative charges.
    HUD Response. HUD has adopted the suggestion made by the commenter. 
This final rule revises Sec.  982.635(c) to include land lease 
payments. These payments include the cost of leasing the land for both 
manufactured homes and other housing types where the family does not 
also own the real property on which the home is located.
    Comment: HUD should extend right of occupancy requirement to forty 
years. One commenter wrote that this change would conform to the 
policies of certain lenders regarding the purchase of a manufactured 
home where the borrower does not also own the property on which the 
home is located. Specifically, these lenders require that the borrower 
have a leasehold on the property of at least ten years beyond the term 
of the first mortgage loan.
    HUD Response. HUD agrees and has revised the proposed rule in 
response to this public comment. The revised requirement is consistent 
with standard FHA mortgage underwriting practices.

D. Comments Regarding Removal of Recapture Provisions

    Comment: Support for removal of recapture provisions. Most 
commenters submitting comments on this issue

[[Page 64491]]

applauded HUD's proposal to remove the recapture provisions. The 
commenters agreed with HUD that recaptures might discourage 
participation in the homeownership option and pose an undue 
administrative burden on PHAs.
    HUD Response. HUD appreciates the support expressed by these 
commenters. This final rule adopts the proposal to remove the recapture 
provisions contained in the June 13, 2001, proposed rule. In addition, 
this final rule provides that a PHA shall not impose or enforce any 
requirement for the recapture of voucher homeownership assistance on 
the sale or refinancing of a home purchased with assistance under the 
homeownership option. This change will ensure that families who 
purchased their homes prior to issuance of this final rule also receive 
the benefit provided by removal of the onerous recapture requirements.
    Comment: HUD should allow recaptures of downpayment assistance as a 
local program option. One commenter wrote that, while the recapture of 
long-term mortgage assistance may be complex and serve as a 
disincentive for home maintenance, deferred second mortgages for the 
principal amount of downpayment assistance are common tools in 
homebuyer assistance programs and are important to local political 
support for this type of assistance.
    HUD Response. HUD has not adopted the suggestion made by the 
commenter. As noted, this final rule removes the recapture requirements 
for the homeownership option. HUD does not believe it would be 
appropriate to establish separate recapture policies for monthly 
homeownership assistance payments and downpayment grants. In order to 
have a consistent policy concerning recaptures of homeownership 
assistance, recaptures of downpayment grants are not authorized.

VI. Discussion of Other Public Comments

    Comment: Restrictions on future receipt of homeownership assistance 
should only apply to family members listed on the title to the home. 
Two commenters wrote that the prohibition of future receipt of 
homeownership assistance is unduly harsh for family members who may not 
be able to take title to, or own, the previous home (including minor 
children who are not legally able to contract for the purchase of a 
home). The commenters wrote that any prohibition against receipt of 
future homeownership assistance should be directed only to those family 
members who are taking title to the property.
    HUD Response. HUD agrees with the commenters that the current 
prohibitions may be too severe, especially for minor children who are 
not able to contract for purchase of the home. However, HUD does not 
agree that the restriction on future receipt of homeownership 
assistance should be limited to those members of the family who hold 
title to the property. The change suggested by the commenters would 
permit a family to circumvent the restriction by simply having another 
adult family member take title to the home. Accordingly, the final rule 
modifies the prohibitions on future receipt of assistance to those 
family members who were adults at the time the family received prior 
homeownership assistance. Specifically, a family that includes an 
individual who was an adult member of a family that previously received 
either of the two forms of homeownership assistance may not receive the 
other form of homeownership assistance from any PHA. Further, a PHA may 
not provide homeownership assistance for a family if any member was an 
adult member of a family at the time when such family received 
assistance under the homeownership option, and defaulted on the 
mortgage securing purchase of the home.
    Comment: Reasonable accommodation requirements are onerous. Two 
commenters objected to the language of Sec.  982.625(e)(2), which 
requires PHAs to offer either form of homeownership assistance as a 
reasonable accommodation for a person with disabilities. The commenters 
wrote that this provision would require a PHA that has elected not to 
offer homeownership assistance to create an entire homeownership 
program in order to address a single family's request. The commenters 
wrote that this requirement imposes an undue administrative burden on 
PHAs and should be removed at the final rule stage.
    HUD Response. HUD is cognizant of the financial difficulty of 
administering a single unit homeownership program on behalf of a 
disabled family. The preamble to HUD's September 17, 2000 (65 FR 
55134), final rule implementing the homeownership option provides 
useful guidance in this regard. As the preamble noted:

    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. (See 65 FR 55145, first column.)

    For purposes of clarity, the final rule amends HUD's homeownership 
option regulations to codify the preamble guidance quoted above. 
Codification will make this language easier to find, since PHAs and 
voucher families are more likely to refer to the regulations than to 
the preamble of the final rule for policy guidance. Further, HUD 
believes that codification of this guidance will clarify the 
regulations for voucher families, and better assist PHAs in determining 
whether homeownership assistance should be provided as a reasonable 
accommodation. HUD emphasizes that inclusion of this language in the 
regulations does not establish new procedures or modify existing 
policies concerning the reasonable accommodation requirements. Rather, 
the final rule simply repeats current HUD guidance on these 
requirements.
    Comment: Support for reasonable accommodation requirements. One 
commenter wrote in support of the reasonable accommodation 
requirements. The commenter urged HUD to require PHAs to offer the 
homeownership option as a reasonable accommodation, even if the PHA 
does not otherwise offer Section 8 homeownership assistance. The 
commenter wrote that accessible and affordable rental units are often 
difficult to locate. Accordingly, purchase of an accessible unit may be 
the only viable option for a person with disabilities.
    HUD Response. As noted above, it is the sole responsibility of the 
PHA to determine whether it is reasonable to implement a homeownership 
program as a reasonable accommodation. The PHA will determine what is 
reasonable based on the specific circumstances and individual needs of 
the person with a disability.
    Comment: Final rule should provide that voucher homeownership 
assistance may be used to purchase PHA-owned properties. Two commenters 
wrote that HUD should allow the purchase of PHA-owned units under the 
homeownership

[[Page 64492]]

option. The commenters also suggested that HUD establish appropriate 
procedures for inspection of these units to remove the potential of any 
conflict of interest.
    HUD Response. HUD has not incorporated the changes suggested by the 
commenters in this final rule. Rather, HUD is promulgating the 
necessary regulatory procedures regarding the sale of PHA-owned 
properties under the homeownership option in a separate rule.
    Comment: HUD should establish guidance regarding PHA coordination 
in offering the homeownership option. Two commenters wrote that HUD 
should encourage smaller PHAs to collaborate with neighboring PHAs that 
are offering the homeownership option. The commenters wrote that such 
efforts to pool resources will provide families with more housing 
choices (including more geographic flexibility on where they can live), 
attract more lenders to the program due to increased volume, and create 
more efficient homeownership programs.
    HUD Response. HUD encourages PHAs to develop strategies to 
facilitate efficient use of administrative and other resources in 
implementing voucher homeownership assistance. Nothing in the 
homeownership option regulations prohibits one or more PHAs from 
collaborating to administer a combined homeownership program or to 
administer complementary homeownership programs.
    Comment: HUD should establish homebuyer education requirement. One 
commenter wrote that HUD should require potential homebuyers to partake 
in homeownership education before the provision of voucher 
homeownership assistance.
    HUD Response. The existing homeownership regulations already 
address the concerns expressed by the commenter. As noted above in this 
preamble, families participating in the homeownership option are 
required to attend and satisfactorily complete the pre-assistance 
homeownership and housing counseling program offered by the PHA. 
Accordingly, no regulatory change is required.

VII. Findings and Certifications

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB 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 the rule as a 
result of that review are identified in the docket file, which is 
available for public inspection 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 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 final rule does 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 Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage in accordance with HUD regulations 
at 24 CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4223). That finding remains 
applicable to this final rule and is available for public inspection 
between the hours of 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 20410-0500.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) (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 
implements an alternative to the basic homeownership option under which 
a PHA may elect to provide a one-time downpayment assistance grant to 
eligible families. The final rule also makes several clarifying and 
streamlining amendments to the regulations governing basic 
homeownership voucher assistance, which is also administered by PHAs. 
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 does not change 
the amount of funding available under the Housing Choice 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 homeownership voucher assistance. This proposed 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 Housing Choice 
Voucher Program is 14.871.

List of Subjects in 24 CFR Part 982

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

    Accordingly, for the reasons described in the preamble, HUD amends 
24 CFR part 982 as follows:

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

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

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


    2. In Sec.  982.4(b), add the definition of ``Downpayment 
assistance grant'' in alphabetical order, and revise the definition of 
``Homeownership assistance'' to read as follows:


Sec.  982.4  Definitions.

* * * * *
    (b) * * *

[[Page 64493]]

    Downpayment assistance grant. A form of homeownership assistance in 
the homeownership option: A single downpayment assistance grant for the 
family. If a family receives a downpayment assistance grant, a PHA may 
not make monthly homeownership assistance payments for the family. A 
downpayment assistance grant is applied to the downpayment for purchase 
of the home or reasonable and customary closing costs required in 
connection with purchase of the home.
* * * * *
    Homeownership assistance. Assistance for a family under the 
homeownership option. There are two alternative and mutually exclusive 
forms of homeownership assistance by a PHA for a family: monthly 
homeownership assistance payments, or a single downpayment assistance 
grant. Either form of homeownership assistance may be paid to the 
family, or to a mortgage lender on behalf of the family.
* * * * *
    3. Section 982.601(d) is revised to read as follows:


Sec.  982.601  Overview.

* * * * *
    (d) Family choice of housing and housing type. The family chooses 
whether to use housing that qualifies as a special housing type under 
this subpart, or as any specific special housing type, or to use other 
eligible housing in accordance with requirements of the program. The 
PHA may not restrict the family's freedom to choose among available 
units in accordance with Sec.  982.353.
* * * * *

    4. Section 982.625 is amended by:
    a. Redesignating paragraphs (c) and (d) as paragraphs (f) and (g), 
respectively;
    b. Adding new paragraphs (c), (d), (e), (h) and (i); and
    c. In the introductory paragraph of newly redesignated paragraph 
(g), remove the reference to ``(d)(1), (d)(2), or (d)(3)'' and add 
``(g)(1), (g)(2), or (g)(3)'' in its place. The additions and revisions 
read as follows:


Sec.  982.625  Homeownership option: General.

* * * * *
    (c) Forms of homeownership assistance. (1) A PHA may provide one of 
two forms of homeownership assistance for a family:
    (i) Monthly homeownership assistance payments; or
    (ii) A single downpayment assistance grant.
    (2) Prohibition against combining forms of homeownership 
assistance. A family may only receive one form of homeownership 
assistance. Accordingly, a family that includes a person who was an 
adult member of a family that previously received either of the two 
forms of homeownership assistance may not receive the other form of 
homeownership assistance from any PHA.
    (d) PHA choice to offer homeownership options. (1) The PHA may 
choose to offer either or both forms of homeownership assistance under 
this subpart, or choose not to offer either form of assistance. 
However, the PHA must offer either form of homeownership assistance if 
necessary as a reasonable accommodation for a person with disabilities 
in accordance with Sec.  982.601(b)(3).
    (2) It is the sole responsibility of the PHA to determine whether 
it is reasonable to implement a homeownership program as a reasonable 
accommodation. The PHA will determine what is reasonable based on the 
specific circumstances and individual needs of the person with a 
disability. The PHA may determine that it is not reasonable to offer 
homeownership assistance as a reasonable accommodation in cases where 
the PHA has otherwise opted not to implement a homeownership program.
    (e) Family choice. (1) The family chooses whether to participate in 
the homeownership option if offered by the PHA.
    (2) If the PHA offers both forms of homeownership assistance, the 
family chooses which form of homeownership assistance to receive.
* * * * *
    (h) Recapture of homeownership assistance. A PHA shall not impose 
or enforce any requirement for the recapture of voucher homeownership 
assistance on the sale or refinancing of a home purchased with 
assistance under the homeownership option.
    (i) Applicable requirements. The following specify what regulatory 
provisions (under the heading ``homeownership option'') are applicable 
to either or both forms of homeownership assistance (except as 
otherwise specifically provided):
    (1) Common provisions. The following provisions apply to both forms 
of homeownership assistance:
    (i) Section 982.625 (General);
    (ii) Section 982.626 (Initial requirements);
    (iii) Section 982.627 (Eligibility requirements for families);
    (iv) Section 982.628 (Eligible units);
    (v) Section 982.629 (Additional PHA requirements for family search 
and purchase);
    (vi) Section 982.630 (Homeownership counseling);
    (vii) Section 982.631 (Home inspections, contract of sale, and PHA 
disapproval of seller);
    (viii) Section 982.632 (Financing purchase of home; affordability 
of purchase);
    (ix) Section 982.636 (Portability);
    (x) Section 982.638 (Denial or termination of assistance for 
family); and
    (xi) Section 982.641 (Applicability of other requirements).
    (2) Monthly homeownership assistance payments. The following 
provisions only apply to homeownership assistance in the form of 
monthly homeownership assistance payments:
    (i) Section 982.633 (Continued assistance requirements; family 
obligations);
    (ii) Section 982.634 (Maximum term of homeownership assistance);
    (iii) Section 982.635 (Amount and distribution of monthly 
homeownership assistance payment);
    (iv) Section 982.637 (Move with continued tenant-based assistance); 
and
    (v) Section 982.639 (Administrative fees).
    (3) Downpayment assistance grant. The following provision only 
applies to homeownership assistance in the form of a downpayment 
assistance grant: Section 982.643 (Downpayment assistance grants).

    5. Revise Sec.  982.627(c)(1), (c)(2)(iii), (c)(3), and (e) to read 
as follows:


Sec.  982.627  Homeownership option: Eligibility requirements for 
families.

* * * * *
    (c) Minimum income requirements. (1) At commencement of monthly 
homeownership assistance payments for the family, or at the time of a 
downpayment assistance grant for the family, the family must 
demonstrate that the annual income, as determined by the PHA in 
accordance with Sec.  5.609 of this title, of the adult family members 
who will own the home at commencement of homeownership assistance is 
not less than:
    (i) In the case of a disabled family (as defined in Sec.  5.403(b) 
of this title), the monthly Federal Supplemental Security Income (SSI) 
benefit for an individual living alone (or paying his or her share of 
food and housing costs) multiplied by twelve; or
    (ii) In the case of other families, the Federal minimum wage 
multiplied by 2,000 hours.

[[Page 64494]]

    (2) * * *
    (iii) In the case of an elderly or disabled family, the PHA shall 
include welfare assistance for the adult family members who will own 
the home in determining if the family meets the minimum income 
requirement.
    (3) A PHA may establish a minimum income standard that is higher 
than those described in paragraph (c)(1) of this section for either or 
both types of families. However, a family that meets the applicable HUD 
minimum income requirement described in paragraph (c)(1) of this 
section, but not the higher standard established by the PHA shall be 
considered to satisfy the minimum income requirement if:
    (i) The family demonstrates that it has been pre-qualified or pre-
approved for financing;
    (ii) The pre-qualified or pre-approved financing meets any PHA 
established requirements under Sec.  982.632 for financing the purchase 
of the home (including qualifications of lenders and terms of 
financing); and
    (iii) The pre-qualified or pre-approved financing amount is 
sufficient to purchase housing that meets HQS in the PHA's 
jurisdiction.
* * * * *
    (e) Prohibition against assistance to family that has defaulted. 
The PHA shall not commence homeownership assistance for a family that 
includes an individual who was an adult member of a family at the time 
when such family received homeownership assistance and defaulted on a 
mortgage securing debt incurred to purchase the home.

    6. Amend Sec.  982.628 as follows:
    a. Revise paragraphs (a)(2) and (a)(3);
    b. Redesignate paragraph (b) as paragraph (c); and
    c. Add new paragraph (b). The revisions and additions read as 
follows:


Sec.  982.628  Homeownership option: Eligible units.

    (a) * * *
    (2) The unit is either under construction or already existing at 
the time the family enters into the contract of sale.
    (3) The unit is either a one-unit property (including a 
manufactured home) or a single dwelling unit in a cooperative or 
condominium.
* * * * *
    (b) Purchase of home where family will not own fee title to the 
real property. Homeownership assistance may be provided for the 
purchase of a home where the family will not own fee title to the real 
property on which the home is located, but only if:
    (1) The home is located on a permanent foundation; and
    (2) The family has the right to occupy the home site for at least 
forty years.
* * * * *

    7. Amend Sec.  982.631 as follows:
    a. Revise the section heading;
    b. Revise paragraph (a);
    c. Revise the second sentence of paragraph (b)(4);
    d. Revise the first sentence of paragraph (c)(1); and
    e. Add paragraph (d). The revisions and addition read as follows:


Sec.  982.631  Homeownership option: Home inspections, contract of 
sale, and PHA disapproval of seller.

    (a) HQS inspection by PHA. The PHA may not commence monthly 
homeownership assistance payments or provide a downpayment assistance 
grant for the family until the PHA has inspected the unit and has 
determined that the unit passes HQS.
    (b) * * *
    (4) * * * The PHA may not commence monthly homeownership assistance 
payments, or provide a downpayment assistance grant for the family, 
until the PHA has reviewed the inspection report of the independent 
inspector.
* * * * *
    (c) Contract of sale. (1) Before commencement of monthly 
homeownership assistance payments or receipt of a downpayment 
assistance grant, 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. * * *
* * * * *
    (d) PHA disapproval of seller. In its administrative discretion, 
the PHA may deny approval of a seller for any reason provided for 
disapproval of an owner in Sec.  982.306(c).

    8. Amend Sec.  982.635 as follows:
    a. In paragraph (c)(2)(vi), remove the word ``and'';
    b. In paragraph (c)(2)(vii), replace the period at the end of the 
paragraph with ``; and'';
    c. Add paragraph (c)(2)(viii); and
    d. In paragraph (e), revise the first sentence. The revisions and 
additions read as follows:


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

* * * * *
    (c) * * *
    (2) * * *
    (viii) Land lease payments (where a family does not own fee title 
to the real property on which the home is located; see Sec.  
982.628(b)).
* * * * *
    (e) Automatic termination of homeownership assistance. 
Homeownership assistance for a family terminates automatically 180 
calendar days after the last homeownership assistance payment on behalf 
of the family. * * *


Sec.  982.640  [Removed]

    9. Remove Sec.  982.640.

    10. Revise Sec.  982.641(b)(4) to read as follows:


Sec.  982.641  Homeownership option: Applicability of other 
requirements.

* * * * *
    (b) * * *
    (4) Section 982.306 (PHA disapproval of owner) (except that a PHA 
may disapprove a seller for any reason described in paragraph (c), see 
Sec.  982.631(d)).
* * * * *

    11. Add Sec.  982.643 to read as follows:


Sec.  982.643  Homeownership option: Downpayment assistance grants.

    (a) General. (1) A PHA may provide a single downpayment assistance 
grant for a participant that has received tenant-based or project-based 
rental assistance in the Housing Choice Voucher Program.
    (2) The downpayment assistance grant must be applied toward the 
downpayment required in connection with the purchase of the home and/or 
reasonable and customary closing costs in connection with the purchase 
of the home.
    (3) If the PHA permits the downpayment grant to be applied to 
closing costs, the PHA must define what fees and charges constitute 
reasonable and customary closing costs. However, if the purchase of a 
home is financed with FHA mortgage insurance, such financing is subject 
to FHA mortgage insurance requirements, including any requirements 
concerning closing costs (see Sec.  982.632(b) of this part regarding 
the applicability of FHA requirements to voucher homeownership 
assistance and Sec.  203.27 of this title regarding allowable fees, 
charges and discounts for FHA-insured mortgages).
    (b) Maximum downpayment grant. A downpayment assistance grant may 
not exceed twelve times the difference between the payment standard and 
the total tenant payment.
    (c) Payment of downpayment grant. The downpayment assistance grant 
shall be paid at the closing of the family's purchase of the home.
    (d) Administrative fee. For each downpayment assistance grant made 
by the PHA, HUD will pay the PHA a one-

[[Page 64495]]

time administrative fee in accordance with Sec.  982.152(a)(1)(iii).
    (e) Return to tenant-based assistance. A family that has received a 
downpayment assistance grant may apply for and receive tenant-based 
rental assistance, in accordance with program requirements and PHA 
policies. However, the PHA may not commence tenant-based rental 
assistance for occupancy of the new unit so long as any member of the 
family owns any title or other interest in the home purchased with 
homeownership assistance. Further, eighteen months must have passed 
since the family's receipt of the downpayment assistance grant.
    (f) Implementation of downpayment assistance grants. A PHA may not 
offer downpayment assistance under this paragraph until HUD publishes a 
notice in the Federal Register.

    Dated: October 8, 2002.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 02-26343 Filed 10-17-02; 8:45 am]
BILLING CODE 4210-33-P