[Federal Register Volume 68, Number 47 (Tuesday, March 11, 2003)]
[Rules and Regulations]
[Pages 11714-11728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-5653]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 906



Public Housing Homeownership Program; Final Rule

  Federal Register / Vol. 68, No. 47 / Tuesday, March 11, 2003 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 906

[Docket No. FR-4504-F-02]
RIN 2577-AC15


Public Housing Homeownership Program

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

ACTION: Final rule.

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SUMMARY: This rule states the requirements and procedures governing a 
new statutory homeownership program to be administered by public 
housing agencies (PHAs). Under this rule, a PHA makes public housing 
dwelling units, public housing developments, and other housing units 
available for purchase by low-income families as their principal 
residences.

DATES: Effective Date: April 10, 2003.

FOR FURTHER INFORMATION CONTACT: Dominique Blom, Office of Public 
Housing Investments, Office of Public and Indian Housing, Department of 
Housing and Urban Development, Room 4138, 451 Seventh Street, SW., 
Washington, DC 20410; telephone (202) 401-8812, ext. 4181 (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. The New Section 32 Homeownership Program

    Section 536 of the Quality Housing and Work Responsibility Act of 
1998 (title V of Public Law 105-276, 112 Stat. 2461, approved October 
21, 1998) (QHWRA) amended title I of the United States Housing Act of 
1937 (42 U.S.C. 1437 et seq.) (1937 Act) by adding a new section 32, 
which authorizes a new public housing homeownership program (section 32 
homeownership program). The new homeownership program replaces the 
public housing agency homeownership program that was authorized under 
section 5(h) of the 1937 Act (the 5(h) homeownership program or 5(h) 
program). Section 518 of the QHWRA repealed the section 5(h) 
homeownership program, and section 566 of the QHWRA added a new section 
5(h) that deals with an unrelated matter.

II. The 5(h) Program

    The regulations implementing the former 5(h) homeownership program 
are found at 24 CFR part 906 (April 1, 2002). The 5(h) program 
generally was a program, similar to the section 32 program, under which 
PHAs could sell public housing units subject to Annual Contributions 
Contract (ACC) to public housing and section 8 residents for purposes 
of homeownership (see Sec. Sec.  906.2, 906.3).
    The 5(h) program required submission of a homeownership plan with 
specified contents for HUD review and approval, including a property 
description, standards to be used for selection of purchasers, proposed 
conditions of sale, and other matters. In addition to the homeownership 
plan, the 5(h) program required various forms of supporting 
documentation.
    The 5(h) program permitted ``any appropriate'' method of sale, but 
was not specific in terms of what those methods might be. As examples, 
the program cited fee-simple conveyance of individual dwellings, or 
conversion of buildings to cooperative or condominium use. The program 
permitted ``indirect sale,'' that is, sale to an intermediary entity 
for sale to residents.
    Eligible purchasers in the 5(h) program were residents of public 
housing, or tenants assisted under section 8 who have been lawful 
residents of their units for some minimum time specified in the 
homeownership plan, but in any case not less than 30 days prior to 
conveyance of title of the dwelling to be purchased. In 24 CFR 906.8(e) 
(April 1, 2002), the 5(h) rule established affordability standards to 
ensure that residents are capable of assuming the financial obligations 
of homeownership.
    The 5(h) program required a plan for replacement of housing sold. 
(See 24 CFR 906.16 April 1, 2002.) This requirement is based on section 
18 of the 1937 Act, 42 U.S.C. 1437p, as it existed prior to the 
effective date of the QHWRA, which required some form of replacement 
for every disposed unit. However, the replacement housing requirement 
was removed from section 18 by the QHWRA, and so is not found in this 
rule implementing the section 32 homeownership program.
    The 5(h) program contained a number of other provisions necessary 
to the operation of the program, such as restrictions on resale profits 
to avoid windfalls, civil rights certifications, and provisions for HUD 
review and approval of applications to participate in the program. The 
proposed and final section 32 program rules retain many of these 
requirements and vary others, as described in sections III and IV of 
this preamble.

III. The September 14, 1999 Proposed Rule

    On September 14, 1999, HUD published for public comment a notice of 
proposed rulemaking (NPRM) to implement the section 32 Homeownership 
program. That rulemaking proposed amendments to the 5(h) homeownership 
program as implemented in 24 CFR part 906.
    The NPRM proposed reorganizing 24 CFR part 906 into five subparts 
according to the subjects covered: A general statement of the program; 
basic program requirements; purchaser requirements; program 
administration; and program submission and approval. The new statutory 
homeownership requirements were proposed to be integrated with the 5(h) 
requirements that HUD determined appropriate to retain, such as 
proposed Sec.  906.39, which is based upon Sec.  906.20 of the 5(h) 
rule and covers what must be contained in a homeownership program.
    The 5(h) statute and rule provided for sales only to the lower-
income tenants of a PHA, including section 8 assistance recipients 
(although the 5(h) program allowed for income-eligible non-tenants to 
meet the residency requirement in order to purchase a unit). In 
contrast, section 32 provides for three categories of eligible 
purchasers: (1) Low-income families assisted by a PHA; (2) other low-
income families; and (3) entities formed to purchase units for resale 
to low-income families. Therefore, the NPRM proposed that low-income 
families and purchase and resale entities (PREs) would be eligible to 
purchase units under the program (see Sec.  906.11 of the NPRM, 64 FR 
49935). The NPRM also proposed, at Sec.  906.15, that a family 
purchasing a property under a PHA homeownership program would have to 
be a low-income family, as defined in section 3 of the 1937 Act, at the 
time the contract to purchase the property is executed. The only 
exception to this requirement would be in the case of a public housing 
family currently residing in a unit to be sold, exercising their right 
of first refusal. Such families would have a right of first refusal 
even if they are over the income limit at the time their unit is 
offered for sale.
    The NPRM proposed expanding the definitions of units that may be 
sold. Whole existing Sec.  906.3 provides for sales of all or a portion 
of a public housing project, the NPRM notified the public that, in 
addition to public housing units, other units owned, operated, 
assisted, or acquired for homeownership sale that have received the 
benefit of 1937 Act funds could also

[[Page 11715]]

be sold (see proposed Sec.  906.5(a), 64 FR 49934.)
    As in the 5(h) rule, the NPRM proposed a resident consultation 
requirement. In the NPRM, resident consultation generally would occur 
through the PHA plan process under 24 CFR part 903 (see Sec.  
906.39(e)).
    As to permitted methods of sale, Sec.  906.25 of the NPRM followed 
closely the section 32 statute at paragraph (h) (42 U.S.C. 1437z-4(h)), 
stating that ``any homeownership interest'' that the PHA considers 
appropriate may be transferred to the purchasing family. Specific 
methods of sale listed include, but are not limited to: Fee simple; a 
condominium interest; an interest in a limited-dividend cooperative; or 
a shared appreciation interest with PHA financing.
    The NPRM proposed expanding the definition of eligible purchasers 
to low-income families, rather than tenants receiving assistance as 
provided in the 5(h) rule at Sec.  906.8. This proposed broader 
eligibility would follow the section 32 statute, (42 U.S.C. 1437z-
4(c)). In addition, entities formed to purchase units and resell them 
to eligible purchasers, known in the NPRM as purchase and resale 
entities, would be eligible (see 42 U.S.C. 1437z-4(c)(1) and Sec.  
906.11 of the NPRM (64 FR 49935)). The NPRM suggested specific 
requirements incumbent upon PREs in Sec.  906.19 (64 FR 49935). These 
proposed requirements would include financial and administrative 
capacity requirements, protection against fraud and abuse, and 
requirements that the Purchase and Resale Entity (PRE) fulfill the 
program goals of selling properties only to eligible families, enforced 
by deed and title restrictions. Also, the NPRM proposed requiring PREs 
to sell properties they acquire within five years, or transfer 
ownership to the PHA, as the statute requires (see 42 U.S.C. 1437z-
4(c)(2).)
    The NPRM proposed to retain the 5(h) program's financial capacity 
requirements found at 24 CFR 906.8(e). (See proposed Sec.  906.15(c) at 
64 FR 49935.) In addition, the NPRM, following the statute, proposed 
requiring purchasing families to make a downpayment. The downpayment 
could consist of grant amounts, gifts from relatives, and other 
contributions for the downpayment, with the exception that an amount 
equal to one percent of the purchase price would be required to come 
from the family's own resources. (See 42 U.S.C. 1437z-4(g) and proposed 
Sec.  906.15(d), 64 FR 49935.)
    An important difference between the 5(h) program on the one hand, 
and section 32 and the NPRM on the other, is that, where the 5(h) 
program prohibits displacement of in-place residents in order to make a 
sale, the section 32 program and NPRM would clearly permit such 
displacement subject to specified protections for the in-place 
resident. The NPRM proposed giving a right of first refusal to the 
resident or residents occupying a public housing unit to be sold. (See 
42 U.S.C. 1437z-4(d) and proposed Sec.  906.13(a) at 64 FR 49935.) 
Nonpurchasing residents of units other than public housing units would 
not have a right of first refusal, but would be entitled to Uniform 
Relocation Act (URA) benefits. (See proposed Sec.  906.24, 64 FR 
49936.) Public housing residents who do not exercise their right of 
first refusal and whose unit is sold would be statutorily entitled to 
benefits, including: 90 days advance notice prior to the displacement 
date; an offer of comparable housing that meets housing quality 
standards and is located in an area that is generally not less 
desirable than the location of the displacee's original housing; any 
necessary counseling; and payment of actual and reasonable moving 
expenses. (See 42 U.S.C, 1437z-4(e) and proposed Sec.  906.23 at 64 FR 
49936.) The only exception to the 90-day advance notice requirement 
would occur in the case where the unit presents an imminent threat to 
health and safety. This could occur, for example, in the case of a unit 
with a dangerous condition that the PHA plans to repair prior to 
selling the unit. In such a case, the NPRM proposed that the PHA could 
move the resident to another, safer unit without 90 days advance 
notice. (See 42 U.S.C, 1437z-4(e)(1) and proposed Sec.  906.23 at 64 FR 
49936.)
    Another difference between the 5(h) and proposed section 32 
programs is the treatment of profits on resale of a homeownership unit 
by the low-income family who originally purchased the unit under the 
program to a buyer on the open market. Where 5(h) was strict in 
preventing a windfall profit, that is, a profit based not on market 
appreciation but on a discount or government assistance provided to the 
purchaser, section 32 would provide a PHA with more flexibility in the 
recapture of assistance amounts on resale. A homeownership program 
under section 32 ``shall provide such limitations on resale as the 
(public housing) agency considers appropriate * * * for the agency to 
recapture'' all or a portion of the economic gain from resale in the 
first 5 years, and after that, only the gain attributable to assistance 
provided to the purchaser. (See 42 U.S.C. 1437z-4(i) and proposed Sec.  
906.27 at 64 FR 49936.) Therefore, a PHA would have broad flexibility 
in deciding how much to recapture; in HUD's view, ``a portion'' of the 
gain could include an amount that is de minimis, or even zero.
    The NPRM, like the current 5(h) rule codified at 24 CFR 906.20, 
proposed specific required contents of a homeownership plan. (See 
proposed Sec.  906.39.) The 5(h) rule and NPRM required or would 
require: A property description; a plan for any required repair or 
rehabilitation; standards for purchaser eligibility and selection; 
terms and conditions of sale and financing; information about resident 
consultation; counseling, training and technical assistance to be 
provided; a plan for nonpurchasing residents (with the important 
difference that under 5(h), such a resident may elect to move or stay 
in place as a tenant, and under section 32, the resident can be 
required to move if given certain protections stated in proposed Sec.  
906.23 at 64 FR 49936); an estimate of the sales proceeds and 
explanation of how they will be used; an administrative plan; records 
and reports; and a budget and timetable. The NPRM proposed to eliminate 
the requirement for a replacement housing plan, as replacement housing 
is no longer required by law. The NPRM also proposed a requirement 
that, in cases where sales will be through a PRE, the plan contain a 
description of the PRE's responsibilities and information demonstrating 
that regulatory requirements applicable to a PRE have been met.
    The supporting documentation that the NPRM proposed to be required 
(proposed Sec.  906.41 at 64 FR 49937) would be quite similar to the 
documentation required in the 5(h) program rule at 24 CFR 906.21. The 
main difference would be in the documentation of capacity to perform. 
Where the 5(h) program required broadly ``information to substantiate 
the commitment and capability of the PHA and any other entity with 
substantial responsibilities for implementing the plan,'' the NPRM 
would be more specific in its proposed documentary requirements in the 
analogous Sec.  906.41(d) (64 FR 49938). As proposed, the PHA would be 
required to include a description of its past experience in carrying 
out low-income homeownership programs, and its reasons for considering 
such programs to have been successful. If the PHA has not carried out 
low-income homeownership programs the PHA could substitute 
documentation of experience in public housing modernization and 
development projects.

[[Page 11716]]

    As to HUD review and approval of homeownership plans, the NPRM 
proposed to include additional criteria to the 5(h) approval criteria 
of legality, workability, and clear and complete documentation. (See 24 
CFR 906.4.) In addition to these review criteria, under the NPRM, HUD 
would consider the PHA's performance in homeownership based on the 
experience criteria in proposed Sec.  906.41(d) at 64 FR 49938.

IV. This Final Rule

A. Brief overview of major changes in the final rule.

    [sbull] Financial capacity requirements have been adopted from the 
5(h) program, requiring a family to have sufficient income that their 
monthly housing payments do not exceed 35 percent of their income and 
any assistance that will be available for such payments.
    [sbull] On resale by the homeownership family, PHAs are given more 
flexibility in determining how much of the profit attributable to 
assistance to recapture.
    [sbull] Below-market sales are permitted to ensure that eligible, 
low-income buyers have adequate homeownership opportunities.
    [sbull] Provisions are added explicitly permitting lease-purchase 
arrangements, and regulating the disposition of lease income set aside 
for purchase, if no purchase occurs.
    [sbull] The final rule is more flexible in allowing the development 
of non-public housing units to be sold to the PHA and used for 
homeownership. Rather than trying to prevent this, the final rule 
permits such development as long as the development complies with 
Davis-Bacon wage requirements and applicable environmental 
requirements.
    [sbull] The environmental review procedure is made somewhat more 
flexible to allow for cases where all units to be sold may not be 
identified and fully reviewed prior to submission of the homeownership 
program. However, this flexibility does not affect the requirement that 
all sites or units must be approved for the program, and the PHA cannot 
commit to purchase or sell such sites or units, or commit funds for 
their construction and rehabilitation, until all applicable 
environmental requirements have been satisfied.
    [sbull] Section 8(y) assistance may now be used in conjunction with 
a homeownership program under this rule.

B. Detailed Discussion of the Final Rule

    Many of the 5(h) program requirements in part 906 were retained in 
this final rule, based on legislative indications that Congress based 
section 32 largely on HUD's part 906 regulations, and that Congress 
regarded favorably HUD's detailed implementation of section 5(h), as in 
effect before the enactment of the QHWRA. However, certain changes were 
made.
    In response to a public comment, a clarifying amendment was made to 
proposed Sec.  906.3(b) regarding whether a part of a prior existing 
homeownership program can be converted to a program under this rule. In 
response to two comments, HUD made a minor amendment to proposed Sec.  
906.25 to clarify that the list of ownership interests that may be 
conveyed is not exclusive.
    HUD has made a technical change to the section titles, removing the 
question and answer formatting, and has provided a more accurate 
description of the lead paint requirements in Sec.  906.7(a), by cross-
referencing to subparts A, B, L and R of the Lead Safe Housing 
regulations at 24 CFR part 35. Similarly, in Sec. Sec.  906.5 and 
906.7, HUD has more precisely described the accessibility requirements 
of 24 CFR part 8 as they apply to units sold under this program. These 
changes simply describe existing legal obligations and are not 
substantive changes in the rule.
    HUD has made some substantive changes as well in response to 
comments. HUD has accepted comments that the financial capacity 
guidance from HUD's 5(h) program regulations be included in this new 
homeownership regulation. Accordingly, HUD has added Sec.  
906.15(c)(1), a financial capacity requirement parallel to 24 CFR 
906.8(e)(1) (as of April 1, 2002). Also, Sec.  906.15(a) is revised to 
clarify that a family in-place in public housing exercising its right 
of first refusal is eligible to purchase the unit regardless of the 
low-income requirement. This revision reflects the requirement in 42 
U.S.C. 1437z-4(d) has an unqualified requirement that families 
occupying a public housing unit be given a right of first refusal for 
their unit.
    HUD has clarified the right of first refusal provision at Sec.  
906.13(a) to include the case where the PRE sells the unit. However, it 
should be understood that in the case of a sale by the PRE, the right 
of first refusal only pertains if the resident was originally occupying 
the unit as a public housing resident at the time the PHA transferred 
the unit to the PRE for the purpose of resale to lower-income families.
    HUD has revised Sec.  906.27, ``Limitations applicable to net 
proceeds on the sale of a property acquired through a homeownership 
program,'' to more closely adhere to the statute. The statute gives 
PHAs the authority to determine the amount of net proceeds to 
recapture, including amounts of assistance, as well as to determine the 
factors to be used in making the recapture decision. The rule now has a 
similar provision. In addition, HUD has added subsections defining 
certain terms used in Sec.  906.27, and clarifying that below-market 
financing, upon resale, is not counted when determining appreciation 
for recapture purposes under Sec.  906.27, although such financing may 
be considered assistance in other contexts.
    A new Sec.  906.29 has been added, making it clear that below-
market sales are permitted in order to ensure that eligible, low-income 
buyers have adequate homeownership opportunities. Such sales may be 
financed with below-market financing. A PHA may assist with purchases 
by providing second mortgages, including ``soft'' non-cash second 
mortgages, as well as other financing methods. Section 906.31 discusses 
the uses a PHA is permitted to make of the net proceeds of 
homeownership sales, after payment of the costs of sales. Generally, 
under Sec.  906.31(a), a PHA may use the proceeds for ``purposes 
related to low-income housing and in accordance with its PHA plan.'' If 
the PHA also uses section 8 assistance under the provisions of section 
8(y) of the 1937 Act to provide homeownership opportunities, proceeds 
from sales may be used for expenses in the 8(y) program, such as 
providing counseling and down payment assistance. HUD encourages such 
uses to promote homeownership. New Sec. Sec.  906.31(c) and (d) have 
been added to provide for situations where the Purchase and Resale 
Entity (PRE) fails to sell a unit within the statutorily allowed time 
(five years), and the unit reverts to the PHA. These sections are 
required to provide guidance in situations that may arise during the 
implementation of this program.
    Section 906.35 has been revised to clarify what was already 
implicit, that the provisions of section 18 of the 1937 Act do not 
govern disposition for homeownership purposes under this part, 
including to a PRE for resale to a low-income family.
    Revisions have been made to the required contents of a 
homeownership program in Sec.  906.39. In response to comment, HUD has 
added provisions permitting lease-purchase arrangements (see Sec.  
906.39(a)). A lease-purchase arrangement generally provides that a 
portion of the tenant's rent be set aside for the eventual purchase of 
the unit. As

[[Page 11717]]

a consequence of allowing for lease-purchases, HUD had to further 
determine what would happen to the amount set aside if no purchase 
occurred. Section 906.39(a) provides that in such a situation, the set 
aside amount that represents a portion of the rent would go to the PHA; 
otherwise, the tenant would in effect be getting an additional rental 
subsidy. Of course, if the tenant has placed additional amounts in 
excess of rent in the account out of his or her own funds, those would 
revert to the tenant.
    In response to public comments, HUD has amended the NPRM to require 
PHAs selling units to include in their program descriptions a 
description of the exact method or methods of conveyance to be used 
(see Sec.  906.39(a)). In addition, in response to comments as to 
whether a leasehold interest is the kind of interest that can be 
transferred in a homeownership program, the rule clarifies that lease 
with option to purchase is such an interest. However, a traditional 
leasehold is not considered a type of ownership interest.
    A new Sec.  906.39(n) has been added to require a deed restriction 
or restrictive covenant to enforce the primary residence requirement 
and the requirement that the PHA have a recapture policy for resales 
where there is gain from appreciation. This section creates no new 
substantive requirements, but provides for continuing enforceability of 
an already existing requirement.
    Proposed Sec.  906.41 on supporting documentation has been 
redesignated as Sec.  906.40 and revised. Section 906.40(a) relates 
specifically to sale to a PRE, and requires material specifically 
relevant to that situation. Section 906.40(b)-906.40(i) contains the 
general supporting documentation requirements from the NPRM. Proposed 
Sec.  906.40(a) (the requirement of a property value estimate) is 
removed. This requirement related to proposed Sec.  906.27, in which 
stricter recapture provisions were contemplated. Since, in response to 
comments, HUD is making recapture of proceeds on resale discretionary, 
this requirement for a property value estimate is no longer needed.
    In the case where the PRE expects to operate the unit as public 
housing and the unit receives operating subsidy, the PHA must submit, 
along with its homeownership plan, certain information similar to that 
submitted in a mixed-finance development where both private funds and 
HUD funds are involved, and must comply with all rules and regulations 
regarding operation of public housing units. The information to be 
submitted in this case is specified in Sec.  906.40(a), and includes 
information regarding the provision of operating subsidy for the unit 
or units while owned by the PRE, amending the ACC governing the units, 
and a covenant running with the land that the units will be operated in 
accordance with public housing laws and regulations.
    Proposed Sec.  906.40, requirements applicable to acquisition of 
non-public housing, has been redesignated as Sec.  906.41 and revised. 
This final rule revises the certification requirement of proposed Sec.  
906.40(a)(2), relating to non-public housing units acquired by the PHA 
for homeownership purposes (see Sec.  906.41(a)(2)). The NPRM would 
have attempted to restrict non-public housing properties from being 
developed privately with the intent that they be sold to the PHA. HUD 
now believes that such a provision would not only be difficult to 
police but might unduly restrict homeownership opportunities. HUD is 
only concerned that such units be developed under appropriate 
conditions. Therefore, in the final rule, Sec.  906.41(a)(2) requires 
the developer, which developed units under an agreement providing that 
they would be sold to the PHA, to certify that the units were developed 
according to Davis-Bacon wage rate requirements and applicable 
environmental requirements. Section 906.41(a)(8) of the final rule adds 
a requirement for a market analysis of the potential market for the 
homeownership units. This requirement will assist HUD in determining 
the program's feasibility under Sec.  906.45(a).
    The final rule revises Sec.  906.45(b) to be consistent with Sec.  
906.40(f). Thus, the HUD review criteria in Sec.  906.45 now include a 
certification of counsel for the PHA that the program meets legal 
requirements, rather than simply a general statement that the program 
must meet legal requirements.
    HUD has revised proposed Sec. Sec.  906.47 and 906.49 to clarify 
the intent that properties to be sold may be identified and subject to 
environmental reviews after the homeownership program is conditionally 
approved by HUD, rather than requiring the PHA to identify and fully 
review all properties beforehand. However, no specific sites or units 
can be finally approved for the homeownership program, and the PHA 
cannot commit to purchase or sell such sites or units, or commit funds 
for their construction and rehabilitation, until all applicable 
environmental requirements have been satisfied. HUD's regulations at 24 
CFR 50.3(h) of this title provide for this possibility in the case 
where HUD performs the environmental review, which is reflected in the 
rule in order to make implementation of a homeownership program more 
efficient. In cases where a responsible entity performs the review 
under 24 CFR part 58, HUD believes that a similar approach is 
warranted. The environmental provisions in Sec.  906.47 have also been 
revised to clarify which environmental procedures apply for different 
situations that may arise under this program.
    HUD has decided to allow homeownership assistance under section 
8(y) of the 1937 Act, 42 U.S.C. 1437f(y) (the section 8(y) program or 
section 8(y) assistance), to be used in conjunction with a 
homeownership program pursuant to this rule. Accordingly, amendments 
have been made throughout this final rule where necessary to 
specifically allow such use of section 8(y) assistance. Section 
906.5(b)(3) includes section 8(y) assistance among the assistance that 
a PHA may provide to a family purchasing a unit under the section 32 
program. Such a family must meet the requirements of both programs, and 
the section 8(y) assistance must be provided under the 8(y) program 
rules. Section 906.7(b) specifies that a unit receiving such assistance 
must be an eligible unit for purposes of the section 8(y) implementing 
regulations at 24 CFR part 982, subpart M. If section 8(y) assistance 
is to be provided, a certificate of compliance with the 8(y) program is 
among the required supporting documentation in Sec.  906.40 (see Sec.  
906.40(h)).
    The section 32 program provides for the participation of purchase 
and resale entities (PREs), who may, under the requirements of Sec.  
906.19, purchase units for later resale to eligible low-income 
families. PREs may be, for example, non-profit housing organizations, 
community development corporations (CDCs), and private developers 
involved with public housing mixed-finance transactions that would 
administer 5-year lease-purchase programs.
    Finally, in Sec.  906.19(b)(7) and in Sec.  906.40(e), which are 
sections referencing civil rights obligations, HUD has included cross-
references to 24 CFR 5.105(a), which is the HUD regulation that lists 
applicable civil rights requirements.
    Other specific issues have been addressed in responses to public 
comments, which are summarized below.

V. Public Comments on the NPRM

    The NPRM, in addition to seeking comments on the rule generally, 
invited comments on whether HUD should specify underwriting standards 
or the

[[Page 11718]]

types of documents to be used to secure that HUD's investment in a 
property ultimately serves program purposes. HUD received 12 public 
comments. This section of the preamble presents a summary of the 
significant issues raised by the public commenters on the NPRM, and 
HUD's responses to those comments.
    Comment: Four commenters questioned or made comments regarding the 
interplay between other homeownership programs and the new section 32 
program.
    A. One commenter asked whether a portion of an existing 5(h) 
homeownership program can be converted to a section 32 program.
    HUD Response. Proposed Sec.  906.3(b) states that ``A PHA may 
convert an existing homeownership program to a homeownership program 
under this part with HUD approval.'' HUD believes that nothing 
prohibits converting specified units or developments from an existing 
homeownership program to the section 32 program, so long as all HUD 
approval requirements are met, including resident consultation as 
provided in proposed Sec.  906.39(e). This final rule makes a 
clarifying amendment to proposed Sec.  906.3(b).
    B. One commenter asked whether a PHA may operate two separate 
homeownership programs under the new rule.
    HUD Response. Nothing in the statute or this rule purports to 
prohibit a PHA from operating separate homeownership programs. HUD does 
not believe any amendment to the NPRM is necessary as a result of this 
comment.
    C. One commenter asked how existing homeownership programs (other 
than 5(h) or Turnkey III) previously approved by HUD but not yet 
achieving financial closing, are to be treated under the new rule.
    HUD Response. This rule does not cover any other homeownership 
programs in any express or implied manner, but is limited to the 
requirements of the section 32 homeownership program. HUD does not 
believe any amendment to the NPRM is necessary as a result of this 
comment.
    D. One commenter stated that PHAs that currently operate an 
existing HUD-approved homeownership program should not be required to 
obtain separate approval for operating a homeownership program under 
this rule.
    HUD Response. Congress has explicitly mandated HUD approval, 
whether or not the PHA already has a homeownership program. See 42 
U.S.C. 1437z-4(a), which states that ``an agency may transfer a unit 
pursuant to a homeownership program only if the program is authorized 
under this section and approved by the Secretary.'' Therefore, HUD has 
made no change as a result of this comment.
    Comment: Four commenters questioned either the types of dwelling 
units that may be sold or the homeownership interest that may be 
conveyed.
    A. One commenter stated that the types of permissible dwelling 
units defined in proposed Sec.  906.5 should be revised to explicitly 
include newly constructed housing.
    HUD Response. Proposed Sec.  906.5 does not purport to specifically 
list the types of units that may be sold, but rather sets forth a 
definition applicable to all units that may be sold in the program. 
These are units that are either public housing or non-public housing 
units that have received or will be sold using 1937 Act funds. If a 
newly constructed unit meets one of these requirements and all other 
applicable requirements, the unit can be sold in the program. 
Therefore, no change is made in response to this comment.
    B. Two commenters stated that the list of ownership interests that 
may be conveyed in proposed Sec.  906.25 should be expanded to include 
leasehold interests and cooperative housing, and another commenter 
raised a question regarding whether a ``shared appreciation interest'' 
may be sold only with PHA financing.
    HUD Response. The NPRM provides that the homeownership program may 
convey ``any ownership interest that the PHA considers appropriate.'' 
With respect to cooperative and other forms of ownership interest, 
nothing in the list of examples is meant to be exclusive. Therefore, 
there is no need to add additional specific types of ownership 
interests to the list of examples. HUD has added the clause ``but not 
limited to'' after the word ``including'' to clarify this intent.
    With respect to leasehold interests, a pure leasehold is not 
generally considered a homeownership interest and would not be 
included. However, sale via a bona fide lease-purchase arrangement 
would be permissible, and HUD is making a change to Sec.  906.39 to 
permit such sales.
    Comment: Two commenters suggested changes to proposed Sec.  906.7, 
which sets forth the physical condition standards for units offered for 
sale.
    A. One commenter stated that property should be required to meet 
Real Estate Assessment Center (``REAC'') guidelines.
    HUD Response. For housing that will, once it is sold, no longer 
receive funding under an ACC, HUD believes that the local code 
standards (or, if none exist, the Housing Quality Standards used in the 
Housing Choice Voucher program under 24 CFR part 982) are more 
appropriate. In addition, the current proposed Sec.  906.7 is 
essentially similar to the parallel section in HUD's 5(h) program 
regulations, albeit slightly more stringent in that Sec.  906.7 
eliminates an escape clause for assurances of future repairs. Congress 
has generally approved HUD's implementation of the 5(h) program, and 
patterned the new statutory section 32 after the 5(h) regulations. (See 
64 FR 49932.) Thus, HUD has made no change as a result of this comment.
    B. One commenter stated that the rule should clarify the 
relationship between local code standards and the physical requirements 
for public housing.
    HUD Response. Proposed Sec.  906.7 provides that a property offered 
for sale must meet local code requirements or, if no local code exists, 
housing quality standards established by HUD under 24 CFR part 982. HUD 
believes that this description of the relationship between local code 
and public housing standards does not require further clarification. In 
addition, this final rule adds in Sec.  906.7(a) a more precise 
description and citations for the lead paint requirements.
    Comment: Two commenters stated that the final rule should address 
``the fact that the ACC subsidy that is attached to the particular unit 
that is sold could be transferred to another unit being brought on 
line'' by the PHA.
    HUD Response. Section 32 does not provide a basis for changing the 
ordinary public housing development requirements in part 941 of this 
title. Once the property is sold and the ACC terminates, as long as the 
PHA is under the total development limit set forth in 24 CFR 
941.102(c), the PHA can develop another unit according to the normal 
development requirements. HUD has made no change as a result of this 
comment.
    Comment: One commenter stated that the right of first refusal 
should be extended to residents of non-public housing units in the 
program.
    HUD Response. Section 32 expressly grants the right of first 
refusal to residents occupying a public housing unit, but has made no 
similar provision for residents of non-public housing units. Non-public 
housing residents are entitled to Uniform Relocation Act benefits (See 
49 CFR part 24 and part 42 of this title.) (See also proposed Sec.  
906.24). Therefore, HUD has made no change as a result of this comment.

[[Page 11719]]

    Comment: Four commenters suggested changing or eliminating the down 
payment requirement in proposed Sec.  906.15(c).
    A. Two commenters stated that the down payment requirement of 1 
percent should be calculated based on the mortgage amount, rather than 
the purchase price.
    HUD Response. The statute explicitly directs that the family must 
contribute not less than 1 percent of the purchase price from its own 
resources. (See 42 U.S.C. 1437z-4(g)(2)). Therefore, HUD has made no 
change as a result of these comments.
    B. One commenter stated that the down payment requirement could 
reduce the number of potential home buyers and should be determined at 
the local level, and another commenter stated that it should be removed 
because ``it is too difficult to enforce.''
    HUD Response. In addition to the fact that the down payment 
requirement is statutory, HUD disagrees with the premise of the 
comment. HUD believes that there are sufficient mechanisms built into 
the mortgage process, the recordkeeping and audit requirements of Sec.  
906.33, and the requirement under Sec.  906.40 to submit supporting 
documentation, including documentation of the financing, to reasonably 
ensure compliance with the requirement.
    Comment: Ten commenters opposed the requirement in proposed Sec.  
906.15(a) that families purchasing units in the program be low-income 
families. These commenters recommended that the final rule adopt the 
eligibility requirements of the 5(h) program. The commenters' reasons 
included: The restriction would disqualify families who have 
participated in Family Self-Sufficiency and other programs designed to 
raise their incomes; if higher-income residents could purchase units, 
the PHA could make public housing units available to lower-income 
families who truly need them; and the limitation might conflict with 
the ceiling rent option.
    HUD Response. The statute establishes the requirement that only 
low-income families and PREs are eligible to purchase units through the 
program. (See 42 U.S.C. 1437z-4(c)(1).) Therefore, HUD has made no 
change as a result of this comment.
    Comment: Two commenters stated that proposed Sec.  906.15(c) should 
be more specific as to financial capacity requirements for purchasing 
families. One of these commenters stated that Sec.  906.8(e)(1) of the 
current 5(h) homeownership regulations in this title should be 
retained. That section provides that ``[o]n an average monthly 
estimate, the applicant's payments for mortgage principal and interest, 
plus insurance, real estate taxes, utilities and other recurring 
homeownership costs . . . [must] not exceed . . . 35 percent of the 
applicant's adjusted income,'' taking into account any subsidy that 
will be available to the applicant for such payments. The other 
commenter stated that the final rule should provide guidance to PHAs on 
establishing an affordability ratio based on various homeownership 
costs, including factors to be taken into account, methods for 
calculating affordability and maximum percentages.
    HUD Response. The statute does not prohibit HUD from setting 
financial capacity guidance. HUD agrees that the guidance provided in 
the 5(h) regulations was reasonable and workable in practice, in that 
it set a baseline standard to insure that PHAs sell units to families 
that can afford the debt burden involved in owning them. Such a 
guideline will help to insure that the program is successful in the 
long term. Therefore, HUD has integrated the financial capacity rule 
from the 5(h) regulations into the final rule. See 24 CFR 906.15(c).
    Comment: Two commenters stated that the requirement of proposed 
Sec.  906.15(b) that the dwelling unit sold to a family must be used as 
the principal residence of the family fails to take into account the 
possibility that a family may purchase a duplex and rent out the second 
unit.
    HUD Response. The statute requires that units be purchased ``for 
use only as principal residences.'' (See 42 U.S.C. 1437z-4(a).) In 
addition, a PHA may only provide assistance to families under the 
statute to assist them in purchasing a principal residence. (See 42 
U.S.C. 1437z-4(k).) Therefore, the statute precludes the type of duplex 
sales suggested by the comment, and the rule retains this requirement 
and makes it enforceable through a deed restriction or covenant running 
with the land. (See 24 CFR 906.39(n).)
    Comment: Two commenters questioned provisions relating to PREs in 
proposed Sec.  906.19.
    A. The commenters suggested that the final rule should provide for 
the lifting of the deed restriction required in proposed Sec.  
906.19(c) upon the resale by the PRE to the low-income family to 
prevent encumbering the purchasing family.
    HUD Response. The specific deed restriction to which this comment 
refers is an encumbrance only on the PRE's title, not that of the 
subsequent purchasing family (although it should be kept in mind that 
there are continuing restrictions on resale by the family under section 
32(i), 42 U.S.C. 1437z-4(i)). HUD has made no changes as a result of 
this comment.
    B. The commenters requested a provision for a waiver if the PRE 
cannot sell a unit ``due to a condition that is outside the control of 
the PRE'' of the requirement in proposed Sec.  906.19(d) that the PRE 
agree to transfer ownership of a unit to the PHA if it fails to resell 
the unit under the program within 5 years.
    HUD Response. The statute requires that a PRE ``shall sell'' units 
within 5 years from the date of its acquisition of the units (see 42 
U.S.C. 1437z-4(c)(2). Thus, HUD has no leeway to extend this time 
limit. By requiring a reversion if the PRE violates this statutory 
requirement, HUD has chosen what it believes to be the best means 
available to enforce this requirement. Therefore, HUD has made no 
changes as a result of this comment.
    C. The commenters asked that the final rule clarify whether a unit 
that is transferred to a PRE retains its ACC contract subsidy.
    HUD Response. Proposed Sec.  906.9(b) states that, upon sale, HUD 
will execute a release of the title restrictions imposed by the ACC and 
the property will no longer be subject to the ACC. On its face, this 
proposed language applied to all sales, including to PREs. This is true 
if the PRE operates the property as non-public housing. However, if the 
transfer takes place in accordance with regulatory requirements for 
maintaining the unit as public housing, and if the PRE operates the 
units as public housing during the interim period before final sale, it 
would be subject to requirements of the 1937 Act, including that the 
unit be sold to low-income families, that Davis-Bacon wage requirements 
apply to work such as repair, rehabilitation, or modification for the 
purposes of accessibility, that HUD-determined wage rates apply to 
routine and nonroutine maintenance, and that the unit be operated in 
accordance with public housing rules and requirements. This final rule 
amends Sec. Sec.  906.9 to specify that the release applies to PREs 
operating the units as non-public housing.
    Comment: Two commenters raised issues regarding the protections for 
non-purchasing residents.
    A. Proposed Sec.  906.23 provides, as one of the protections for 
residents who are displaced because of a sale under the program, that 
the residents will receive counseling regarding their rights to 
comparable housing. ``Comparable housing'' includes housing that meets

[[Page 11720]]

housing quality standards. One commenter requested clarification 
regarding the relationship between housing quality standards and the 
HUD physical requirements applicable to housing units. The same 
commenter stated that local code requirements and physical requirements 
for public housing may be inconsistent.
    HUD Response. In HUD's regulations, housing quality standards 
generally refer to the standards for decent, safe, and sanitary housing 
in good repair. These standards are well described in HUD's regulations 
(see 24 CFR 982.401). HUD does not believe that further clarification 
of the term in this rule is necessary.
    As to the comment regarding inconsistency between physical 
requirements for public housing and local code requirements, proposed 
Sec.  906.7 clarifies that relationship.
    B. One commenter suggested that the URA protection granted by 
proposed Sec.  906.24 to residents of non-public housing who are 
displaced by a sale under the program, be extended to public housing 
residents.
    HUD Response. Section 32 of the [chyph]U.S. Housing Act provides 
specifically for protections for non-purchasing public housing 
residents, including relocation assistance. (See 42 U.S.C. 1437z-4(e).) 
HUD believes that Congress intended for these protections exclusively 
to apply to the relocation of non-purchasing public housing residents, 
rather than the URA, and so has not adopted the suggested change. Non-
public housing residents displaced by a sale are entitled to 
protections under the URA.
    Comment: Three commenters suggested changes to proposed Sec.  
906.27, ``Limitations applicable to net proceeds on the sale of a 
property acquired through a homeownership program.'' One commenter 
argued that the rule should not specify the time period during which 
appreciation may be recaptured by the PHA to help ``curb speculation 
and . . . enable the state to preserve and recover a fair return on the 
state's resources upon resale, transfer, and rental of the property.'' 
Another commenter stated that the required resale period should be 
increased to 10 years ``to secure a reduction in real estate taxes to 
assist in the affordability of housing'' for new homeowners. A third 
commenter stated that recapturing the difference between the cost of 
construction and the sale price is a disincentive to potential 
purchasers.
    HUD Response. Regarding the first two comments on the time period 
for resale with recapture, the statute sets 5 years as the time period 
during which the PHA may recapture some or all of the economic gain 
derived from such resale. Since the time period is statutory, HUD 
cannot alter or eliminate the time period. As to the third of these 
comments, the statute provides for recapture; however, the PHA need not 
recapture all the net proceeds, but may recapture a portion that it 
deems appropriate based on the factors it considers. These factors may 
include such things as the equity contribution of the purchasing family 
and the time elapsed prior to the sale. Also, the rule is now more 
flexible in this area since it has been revised to permit recapture of 
``all or a portion'' of assistance provided.
    Comment: Two commenters noted that proposed Sec.  906.27(c), which 
provides for an appraisal by a certified appraiser within 1 month 
before the resale, does not specify who pays for the appraisal. These 
commenters requested clarification.
    HUD Response. HUD has eliminated this requirement from the rule as 
it has produced unnecessary confusion. Appraisals related to a resale 
by the family would be governed by the normal rules of the marketplace, 
under which an appraisal would ordinarily be required by the buyer or 
buyer's lender. Allocation of the costs of appraisal would follow 
normal practice.
    Comment: Two commenters opposed the requirement in proposed Sec.  
906.31 that PHAs use proceeds of sales for purposes related to low-
income housing, stating that by restricting the use of proceeds in this 
manner, the PHA would be prohibited from using the proceeds to develop 
programs for low-income families such as economic development programs, 
children's activity programs, gang related prevention programs, and 
scholarship programs.
    HUD Response. The language in the rule is mandated by the statute 
(see 42 U.S.C. 1437z-4(j)). HUD believes that the phrase ``for purposes 
related to low-income housing'' is flexible and would include programs 
that would assist the residents of low-income housing as long as they 
are in accordance with the PHA's plan and otherwise lawful. For 
example, ``purposes related to low-income housing'' could include 
purposes related to the section 8(y) homeownership program. HUD has not 
made any change as a result of this comment.
    Comment: One commenter asked what Davis-Bacon and HUD wage rate 
requirements apply to new construction in the program.
    HUD Response. Section 906.37 is revised to clarify the 
applicability of Davis-Bacon and HUD wage rates. Applicability of rates 
for rehabilitation, repairs, and accessibility modifications performed 
by, or under contract with, the PHA; new construction of non-public 
housing units pursuant to a contract for acquisition for use in a 
homeownership program; and operation, rehabilitation, and repair of 
units operated as public housing units by a PRE pending sale is 
specified. Davis-Bacon wage rates are rates not less than the wage 
rates prevailing in the locality for workers in specified categories, 
as determined by the Secretary of Labor pursuant to the Davis-Bacon 
Act, 40 U.S.C. 276a-276a-5. HUD wage rates are rates adopted by HUD 
pursuant to section 12 of the 1937 Act, 42 U.S.C. 1437j. (See 24 CFR 
968.110(e).)
    Comment: Three commenters suggested additions to proposed Sec.  
906.39, which sets forth the required components of a homeownership 
program.
    A. Two commenters suggested that the homeownership program should 
be required to include a description of the method of sale that will be 
used, such as fee simple, lease-purchase, etc.
    HUD Response. HUD agrees and has amended the NPRM to so indicate. 
(See 24 CFR 906.39(a).)
    B. Proposed Sec.  906.39(c) (final rule Sec.  906.39(d)) requires 
an affirmative fair housing marketing strategy (AFHM) for families who 
are not public housing or section 8 residents and are not on the PHA's 
waiting lists, if such families are eligible for the PHA's 
homeownership program. One commenter stated that the rule should 
specify what constitutes an acceptable fair housing marketing strategy.
    HUD Response. HUD Directive 8025.1 rev-2, Implementing Affirmative 
Fair Housing Marketing Requirements, gives detailed guidelines 
regarding implementing AFHMs. In addition, each AFHM plan must be 
tailored to the local situation, and each local situation cannot be 
adequately addressed through a regulation of general applicability. 
Finally, PHAs already have experience with AFHM plans in other 
contexts, and are best positioned to implement appropriate AFHM 
strategies. Thus, HUD has made no changes as a result of this comment.
    Comment: Among the documents that proposed Sec.  906.41 requires to 
be submitted as supporting documentation for the proposed homeownership 
program is an opinion from the PHA's legal counsel that the proposed 
program complies with all Federal and local laws and regulations. One 
commenter suggested that HUD, rather than the

[[Page 11721]]

PHA's counsel, should provide the certification.
    HUD Response. It is the responsibility of the PHA to determine that 
the program that it has submitted for approval complies with law, 
particularly given the variety of state and local laws that conceivably 
could apply. HUD has given this comment careful consideration, but 
declines to revise the rule to incorporate it. The requirement for a 
legal opinion is found at Sec.  906.40(f) of this final rule.
    Comment: The preamble to the September 14, 1999, NPRM specifically 
invited comments on whether HUD should specify underwriting standards 
or the types of documents to be used to secure that the investment of 
HUD funds in a property ultimately serves program purposes (see 64 FR 
49932, third column). Four commenters responded that HUD should not 
specify underwriting standards or the types of documents to be used. 
These commenters stated the local mortgage industry should retain the 
discretion to provide loan products needed for the success of low-
income homeownership programs. One commenter stated that cooperatives 
should be able to set their own requirements on the basis of their 
unique circumstances.
    HUD Response. Pursuant to these comments, HUD has not at this time 
implemented specific underwriting standards or types of documents 
required. However, if, after further experience, it becomes clear that 
questionable practices are occurring or that standardized practices 
will enhance the program, HUD will propose further regulations in this 
area.

Findings and Certifications

Paperwork Reduction Act Statement
    The information collection requirements contained in Sec. Sec.  
906.17, 906.19, 906.33, 906.39, 906.40 (906.41 in the NPRM), 906.41, 
and 906.49 of this rule have been approved by the Office of Management 
and Budget in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501-3520), and assigned OMB control number 2577-0233. 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.
Executive Order 12866
    The Office of Management and Budget (OMB) reviewed this final rule 
under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this final rule is a ``significant regulatory action,'' 
as defined in section 3(f) of the Order (although not economically 
significant, as provided in section 3(f)(1) of the Order). Any changes 
made to the final rule subsequent to its submission to OMB are 
identified in the docket file, which is available for public inspection 
in the office of the Department's Rules Docket Clerk, Room 10276, 451 
Seventh Street, SW., Washington, DC 20410-0500.
Regulatory Flexibility Act
    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), 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 rule provides the 
parameters for the use of public housing properties to create 
homeownership opportunities for low-income residents of public housing 
and other low-income families should a public housing agency choose to 
do so with, at most, an incidental effect on small entities.
Environmental Impact
    At the time of publication of the proposed rule, a finding of no 
significant impact 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. 4332). The proposed rule is adopted by this final rule without 
significant change. Accordingly, the initial finding of no significant 
impact remains applicable, and is available for public inspection 
between 8 a.m. and 5 p.m. weekdays in the office of the Rules Docket 
Clerk, Office of the General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 Seventh Street, SW., Washington, DC 20410.
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 rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive Order.
Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on state, 
local, and tribal governments, and on the private sector. This final 
rule does not impose any Federal mandates on any state, local, or 
tribal governments, or on the private sector, within the meaning of the 
UMRA.

List of Subjects in 24 CFR Part 906

    Grant programs--housing and community development, Low- and 
moderate-income housing, Public housing, Reporting and recordkeeping 
requirements.

    The Catalogue of Federal Domestic Assistance number for the public 
housing program is 14.850.
    For the reasons discussed in the preamble, HUD revises part 906 of 
title 24 to read as follows:

PART 906--PUBLIC HOUSING HOMEOWNERSHIP PROGRAMS

Subpart A--General

Sec.
906.1 Purpose.
906.2 Definitions.
906.3 Requirements applicable to homeownership programs previously 
approved by HUD.

Subpart B--Basic Program Requirements

906.5 Dwelling units and types of assistance that a PHA may make 
available under a homeownership program under this part.
906.7 Physical requirements that a property offered for sale under 
this part must meet.
906.9 Title restrictions and encumbrances on properties sold under a 
homeownership program.

Subpart C--Purchaser Requirements

906.11 Eligible purchasers.
906.13 Right of first refusal.
906.15 Requirements applicable to a family purchasing a property 
under a homeownership program.
906.17 PHA handling of homeownership applications.
906.19 Requirements applicable to a purchase and resale entity 
(PRE).

Subpart D--Program Administration

906.23 Protections available to non-purchasing public housing 
residents.
906.24 Protections available to non-purchasing residents of housing 
other than public housing.
906.25 Ownership interests that may be conveyed to a purchaser.
906.27 Limitations applicable to net proceeds on the sale of a 
property acquired through a homeownership program.

[[Page 11722]]

906.29 Below-Market sales and financing.
906.31 Requirements applicable to net proceeds resulting from sale.
906.33 Reporting and recordkeeping requirements.
906.35 Inapplicability of section 18 of the United States Housing 
Act of 1937.
906.37 Davis-Bacon and HUD wage rate requirements.

Subpart E--Program Submission and Approval

906.38 Requirement of HUD approval to implement a homeownership 
program under this part.
906.39 Contents of a homeownership program.
906.40 Supporting documentation.
906.41 Additional supporting documentation for acquisition of non-
public housing for homeownership.
906.43 Where a PHA is to submit a homeownership program for HUD 
approval.
906.45 HUD criteria for reviewing a proposed homeownership program.
906.47 Environmental requirements.
906.49 HUD approval; implementing agreements.

    Authority: 42 U.S.C. 1437z-4 and 3535(d).

Subpart A--General


Sec.  906.1  Purpose.

    (a) This part states the requirements and procedures governing 
public housing homeownership programs involving sales of individual 
dwelling units to families or to purchase and resale entities (PREs) 
for resale to families carried out by public housing agencies (PHAs), 
as authorized by section 32 of the United States Housing Act of 1937 
(42 U.S.C. 1437z-4) (1937 Act). A PHA may only transfer public housing 
units for homeownership under a homeownership program approved by HUD 
under this part, except as provided under Sec.  906.3. This section 
does not govern new construction or substantial rehabilitation of units 
sold under this part. Such construction or rehabilitation is governed 
by the public housing development and modernization regulations.
    (b) Under a public housing homeownership program, a PHA makes 
available for purchase by low-income families for use as their 
principal residences public housing dwelling units, public housing 
developments, and other housing units or developments owned, assisted, 
or operated, or otherwise acquired by the PHA for sale under a 
homeownership program in connection with the use of assistance provided 
under the 1937 Act (1937 Act funds). A PHA may sell all or a portion of 
a property for purposes of homeownership in accordance with a HUD-
approved homeownership program, and in accordance with the PHA's annual 
plan under part 903 of this title.


Sec.  906.2  Definitions.

    Annual Contributions Contract (ACC) is defined in 24 CFR 5.403.
    Low-income family is defined in the 1937 Act, 42 U.S.C. 
1437a(b)(2).
    Non-public housing unit means a housing unit that does not receive 
assistance under the 1937 Act (other than Section 8 assistance).
    PHA Plan means the 5-year or annual plan required under section 5A 
of the 1937 Act, 42 U.S.C. 1437c-1, and its implementing regulations at 
24 CFR part 903.
    Purchase and Resale Entity (PRE) means an entity that acquires 
units for resale to low-income families in accordance with this part.


Sec.  906.3  Requirements applicable to homeownership programs 
previously approved by HUD.

    (a) Any existing section 5(h) or Turnkey III homeownership program 
continues to be governed by the requirements of part 906 or part 904 of 
this title, respectively, contained in the April 1, 2002, edition of 24 
CFR, parts 700 to 1699. The use of other program income for 
homeownership activities continues to be governed by agreements 
executed with HUD.
    (b) A PHA may convert an existing homeownership program, or a 
specific number of the units in such a program, to a homeownership 
program under this part with HUD approval.

Subpart B--Basic Program Requirements


Sec.  906.5  Dwelling units and types of assistance that a PHA may make 
available under a homeownership program under this part.

    (a) A homeownership program under this part may provide for sale 
of:
    (1) Units that are public housing units; and
    (2) Other units owned, operated, assisted, or acquired for 
homeownership sale and that have received the benefit of 1937 Act funds 
or are to be sold with the benefit of 1937 Act funds (non-public 
housing units). In selecting such units to be sold in a homeownership 
program under this part, the PHA shall not select units such that it 
could not comply with Sec.  906.7(a).
    (b) A homeownership program under this part may provide for 
financing to eligible families (see Sec.  905.15 of this title) 
purchasing dwelling units eligible under paragraph (a) of this section 
under the program, or for acquisition of housing units or developments 
by the PHA for sale under the program.
    (1) Under this part, a PHA may use assistance from amounts it 
receives under the Capital Fund under section 9(d) of the 1937 Act or 
from other income earned from its 1937 Act programs to provide 
assistance to public housing residents only to facilitate the purchase 
of homes (e.g., counseling, closing costs, that portion of the down 
payment not required to be supplied from the purchaser's funds under 
the provisions of Sec.  906.15(c), financing, and moving assistance). 
Public housing residents may use such assistance to purchase the unit 
in which they reside, another public housing unit, or a residence not 
located in a public housing development.
    (2) A PHA may provide financing assistance for other eligible 
purchasers from other income, i.e., funds not from 1937 Act programs, 
such as proceeds from selling public housing units, loan repayments, 
and public housing debt forgiveness funding not already committed to 
another purpose.
    (3) In accordance with the rules and regulations governing the 
Section 8(y) Homeownership Option, found in 24 CFR part 982 subpart M, 
a PHA may make its housing choice voucher funds available to provide 
assistance to a family purchasing a unit under this part. A family 
receiving assistance under the Section 8(y) program and participating 
in a homeownership program under this part must meet the requirements 
of both programs.
    (c) A PHA must not use 1937 Act funds to rehabilitate units that 
are not public housing units.


Sec.  906.7  Physical requirements that a property offered for sale 
under this part must meet.

    (a) Property standards. A property offered for sale under a 
homeownership program must meet local code requirements (or, if no 
local code exists, the housing quality standards established by HUD for 
the Section 8 Housing Choice Voucher Program, 24 CFR part 982) and the 
relevant requirements of the Lead-Based Paint Poisoning Prevention Act 
(42 U.S.C. 4821-4846), the Residential Lead-Based Paint Hazard 
Reduction Act of 1992 (42 U.S.C. 4851-4856), and the implementing 
regulations at 24 CFR part 35, subparts A, B, L, and R of this title. 
When a prospective purchaser who has known disabilities, or who has a 
family member with known disabilities requires accessible features, the 
features must be added as a reasonable accommodation to the disability, 
in accordance with the requirements of Sec.  8.29 of this title. 
Further, the property must be in good repair, with the major

[[Page 11723]]

components having a remaining useful life that is sufficient to justify 
a reasonable expectation that homeownership will be affordable by the 
purchasers. These standards must be met as a condition for conveyance 
of a dwelling to an individual purchaser.
    (b) A unit in this program for which the purchasing family is 
receiving assistance under Section 8(y) must be an eligible unit for 
purposes of the Homeownership Option under 24 CFR part 982, subpart M.


Sec.  906.9  Title restrictions and encumbrances on properties sold 
under a homeownership program.

    (a) If the property is subject to indebtedness under the Annual 
Contributions Contract (ACC), HUD will continue to make any debt 
service contributions for which it is obligated under the ACC, and the 
property sold will not be subject to the encumbrance of that 
indebtedness.
    (b) Upon sale of a public housing unit to a public housing tenant 
or eligible family, or to a PRE operating the units as non-public 
housing, in accordance with the HUD-approved homeownership program, HUD 
will execute a release of the title restrictions prescribed by the ACC. 
Because the property will no longer be subject to the ACC after sale, 
it will cease to be eligible for public housing Operating Fund or 
Capital Fund payments.

Subpart C--Purchaser Requirements


Sec.  906.11  Eligible purchasers.

    Entities that purchase units from the PHA for resale to low-income 
families (purchase and resale entities or PREs) and low-income families 
are eligible to purchase properties made available for sale under a PHA 
homeownership program.


Sec.  906.13  Right of first refusal.

    (a) In selling a public housing unit under a homeownership program, 
the PHA or PRE must initially offer the unit to the resident occupying 
the unit, if any, notwithstanding the requirements of Sec. Sec.  
906.15(a) and 906.15(c).
    (b) This program does not require the PHA, when selling a unit that 
is a non-public housing unit, to offer the unit for sale first to the 
current resident of the unit.


Sec.  906.15  Requirements applicable to a family purchasing a property 
under a homeownership program.

    (a) Low-income requirement. Except in the case of a PHA's offer of 
first refusal to a resident occupying the unit under Sec.  906.13, a 
family purchasing a property under a PHA homeownership program must be 
a low-income family, as defined in section 3 of the 1937 Act (42 U.S.C. 
1437a), at the time the contract to purchase the property is executed.
    (b) Principal residence requirement. The dwelling unit sold to an 
eligible family must be used as the principal residence of the family.
    (c) Financial capacity requirement. Eligibility must be limited to 
families who are capable of assuming the financial obligations of 
homeownership, under minimum income standards for affordability, taking 
into account the unavailability of public housing operating subsidies 
and modernization funds after conveyance of the property by the PHA. A 
homeownership program may, however, take account of any available 
subsidy from other sources. Under this affordability standard, an 
applicant must meet the following requirements:
    (1) Cost/income ratio. On an average monthly estimate, the amount 
of the applicant's payments for mortgage principal and interest, plus 
insurance, real estate taxes, utilities, maintenance, and other 
regularly recurring homeownership costs (such as condominium, 
cooperative, or other homeownership association fees) will not exceed 
the sum of:
    (i) 35 percent of the applicant's adjusted income as defined in 24 
CFR part 913; and
    (ii) Any subsidy that will be available for such payments;
    (2) Down payment requirement. Each family purchasing housing under 
a homeownership program must provide a down payment in connection with 
any loan for acquisition of the housing, in an amount determined by the 
PHA or PRE, in accordance with an approved homeownership program. 
Except as provided in paragraph (c)(3) of this section, the PHA or PRE 
must permit the family to use grant amounts, gifts from relatives, 
contributions from private sources, and other similar amounts in making 
the down payment;
    (3) The family must use its own resources other than grants, gifts, 
contributions, or similar amounts, to contribute an amount of the down 
payment that is not less than one percent of the purchase price of the 
housing. The PHA or PRE must maintain records that are verifiable by 
HUD through audits regarding the source of this one percent 
contribution.
    (d) Other requirements established by the PHA. A PHA may establish 
requirements or limitations for families to purchase housing under a 
homeownership program, including but not limited to requirements or 
limitations regarding:
    (1) Employment or participation in employment counseling or 
training activities;
    (2) Criminal activity;
    (3) Participation in homeownership counseling programs; and
    (4) Evidence of regular income.


Sec.  906.17  PHA handling of homeownership applications.

    Families who are interested in purchasing a unit must submit 
applications to the PHA or PRE for that specific purpose, and those 
applications must be handled separately from applications for other PHA 
programs. Application for homeownership must not affect an applicant's 
place on any other PHA waiting list for rental units.


Sec.  906.19  Requirements applicable to a purchase and resale entity 
(PRE).

    (a) In general. In the case of a purchase of units for resale to 
low-income families by a PRE, the PHA must have an approved 
homeownership program that describes the use of a PRE to sell the units 
to low-income families within 5 years from the date of the PRE's 
acquisition of the units.
    (b) PRE requirements. The PHA must demonstrate in its homeownership 
program that the PRE has the necessary legal capacity and 
administrative capability to carry out its responsibilities under the 
program. The PHA's homeownership program also must contain a written 
agreement (not required to be submitted as part of the homeownership 
plan) that specifies the respective rights and obligations of the PHA 
and the PRE, and which includes:
    (1) Assurances that the PRE will comply with all provisions of the 
HUD-approved homeownership program;
    (2) Assurances that the PRE will be subject to a title restriction 
providing that the property must be resold or otherwise transferred 
only by conveyance of individual dwellings to eligible families, in 
accordance with the HUD-approved homeownership program, or by 
reconveyance to the PHA, and that the property will not be encumbered 
by the PRE without the written consent of the PHA;
    (3) Protection against fraud or misuse of funds or other property 
on the part of the PRE, its employees, and agents;
    (4) Assurances that the resale proceeds will be used only for the 
purposes specified by the HUD-approved homeownership program;
    (5) Limitation of the PRE's administrative and overhead costs, and 
of any compensation or profit that may be realized by the PRE, to 
amounts that

[[Page 11724]]

are reasonable in relation to its responsibilities and risks;
    (6) Accountability to the PHA and residents for the recordkeeping, 
reporting, and audit requirements of Sec.  906.33;
    (7) Assurances that the PRE will administer its responsibilities 
under the plan on a nondiscriminatory basis, in accordance with the 
Fair Housing Act, its implementing regulations, and other applicable 
civil rights statutes and authorities, including the authorities cited 
in Sec.  5.105(a) of this title; and
    (8) Adequate legal remedies for the PHA and residents, in the event 
of the PRE's failure to perform in accordance with the agreement.
    (c) Sale to low-income families. The requirement for a PRE to sell 
units under a homeownership program only to low-income families must be 
recorded as a deed restriction at the time of purchase by the PRE.
    (d) Resale within five years. A PRE must agree that, with respect 
to any units it acquires under a homeownership program under this part, 
it will transfer ownership to the PHA if the PRE fails to resell the 
unit to a low-income family within 5 years of the PRE's acquisition of 
the unit.

Subpart D--Program Administration


Sec.  906.23  Protections available to non-purchasing public housing 
residents.

    (a) If a public housing resident does not exercise the right of 
first refusal under Sec.  906.13, and the PHA determines to move the 
tenant for the purpose of transferring possession of the unit, the PHA 
must provide the notice stated in this section 90 days before the date 
the resident is displaced, and may not displace the resident, except as 
stated in paragraph (a)(1) of this section, for the full 90-day period. 
The PHA:
    (1) Must notify the resident residing in the unit 90 days prior to 
the displacement date, except in cases of imminent threat to health or 
safety, that:
    (i) The public housing unit will be sold;
    (ii) The transfer of possession of the unit will not occur until 
the resident is relocated; and
    (iii) Each resident displaced by such action will be offered 
comparable housing (as defined in paragraph (b) of this section);
    (2) Must provide for the payment of the actual costs and reasonable 
relocation expenses of the resident to be displaced;
    (3) Must ensure that the resident is offered comparable housing 
under paragraph (a)(1)(iii) of this section;
    (4) Must provide counseling for displaced residents regarding their 
rights to comparable housing, including their rights under the Fair 
Housing Act to choice of a unit on a nondiscriminatory basis, without 
regard to race, color, religion, national origin, disability, age, sex, 
or familial status; and
    (5) Must not transfer possession of the unit until the resident is 
relocated.
    (b) For purposes of this section, the term ``comparable housing'' 
means housing:
    (1) That meets housing quality standards;
    (2) That is located in an area that is generally not less desirable 
than the displaced resident's original development; and
    (3) Which may include:
    (i) Tenant-based assistance (tenant-based assistance must only be 
provided upon the relocation of the resident to the comparable 
housing);
    (ii) Project-based assistance; or
    (iii) Occupancy in a unit owned, operated, or assisted by the PHA 
at a rental rate paid by the resident that is comparable to the rental 
rate applicable to the unit from which the resident is vacating.


Sec.  906.24  Protections available to non-purchasing residents of 
housing other than public housing.

    Residents of non-public housing that would be displaced by a 
homeownership program are eligible for assistance under the Uniform 
Relocation Act and part 42 of this title. For purposes of this part, a 
family that was over-income (i.e., an individual or family that is not 
a low-income family) at the time of initial occupancy of public housing 
and was admitted in accordance with section 3(a)(5) of the 1937 Act, is 
treated as a non-purchasing resident of non-public housing.


Sec.  906.25  Ownership interests that may be conveyed to a purchaser.

    A homeownership program may provide for sale to the purchasing 
family of any ownership interest that the PHA considers appropriate 
under the homeownership program, including but not limited to:
    (a) Ownership in fee simple;
    (b) A condominium interest;
    (c) An interest in a limited dividend cooperative;
    (d) A shared appreciation interest with a PHA providing financing; 
or
    (e) A leasehold under a bona fide lease-purchase arrangement.


Sec.  906.27  Limitations applicable to net proceeds on the sale of a 
property acquired through a homeownership program.

    (a) Where the family has owned a unit under this part, the 
following rules apply:
    (1) In this section, the term gain from appreciation means the 
financial gain on resale attributable solely to the home's appreciation 
in value over time, and not attributable to government-provided 
assistance or any below-market financing provided under Sec.  906.29.
    (2) In this section, the term net proceeds means the financial gain 
on resale received by the seller after satisfying all amounts owing 
under mortgages, paying closing costs, and receiving an amount equal to 
the down payment (made from the seller's own funds) and principal 
payments on the mortgage(s).
    (3) A PHA must have a policy that provides for the recapture of net 
proceeds in an amount that the PHA considers appropriate under the 
guidelines in this section.
    (4) A PHA must have a policy that provides the recapture of the 
following amounts, if a family resells a homeownership unit it 
purchased under this part during the 5-year period beginning upon 
purchase of the dwelling unit:
    (i) All or a portion of the gain from appreciation; and
    (ii) All or a portion of the assistance provided (which includes 
below-market financing, but which does not include Section 8(y) 
assistance used for mortgage payments under this part) under the 
homeownership program to the family to the extent there are net 
proceeds, considering the factors the PHA establishes under paragraphs 
(b)(1)-(7) of this section.
    (b) The PHA's program under this part may provide for consideration 
of any factors the PHA considers appropriate in determining how much of 
the gain from appreciation and assistance to recapture, including but 
not limited to the following:
    (1) The aggregate amount of assistance provided under the 
homeownership program to the family;
    (2) The contribution of equity by the purchasing family;
    (3) The period of time elapsed between purchase by the homebuyer 
under the homeownership program and resale by the homebuyer;
    (4) The reason for resale;
    (5) Any improvements made by the family purchasing under the 
homeownership program;
    (6) Any appreciation in the value of the property; and
    (7) Any other factors that the PHA considers appropriate in making 
the recapture determination under this section.
    (c) After the expiration of the 5-year period in paragraph (a)(4) 
of this

[[Page 11725]]

section, the PHA must recapture all or a portion of the assistance 
provided under the homeownership program to the family to the extent 
there are net proceeds.
    (d) The PHA must enforce its recapture policy through an 
appropriate form of title restriction.


Sec.  906.29  Below-Market sales and financing.

    A homeownership plan may provide for below-market purchase prices 
or below-market financing to enable below-market purchases, or a 
combination of the two. Discounted purchase prices may be determined on 
a unit-by-unit basis, based on the particular purchaser's ability to 
pay, or may be determined by any other fair and reasonable method 
(e.g., uniform prices for a group of comparable dwellings, within a 
range of affordability by potential purchases). Below-market financing 
may include any lawful type of public or private financing, including 
but not limited to purchase-money mortgages, non-cash second mortgages, 
promissory notes, guarantees of mortgage loans from other lenders, 
shared equity, or lease-purchase arrangements.


Sec.  906.31  Requirements applicable to net proceeds resulting from 
sale.

    (a) PHA use of net proceeds. The PHA must use any net proceeds of 
any sales under a homeownership program remaining after payment of all 
costs of the sale for purposes relating to low-income housing and in 
accordance with its PHA plan.
    (b) PRE use of resale net proceeds. The PHA may require the PRE to 
return the net proceeds from the resale of the units to the PHA. If the 
PHA permits the PRE to retain the net proceeds, the PRE must use these 
proceeds for low-income housing purposes.
    (c) Transfer of unsold unit to PHA. In a situation where the PRE 
fails to sell a unit to an eligible family within 5 years, and the 
provision of Sec.  906.19(d) requiring that the unit be transferred to 
the PHA applies:
    (1) If the unit has not been operated by the PRE as a public 
housing unit at any time during the 5-year period, the PHA may resell 
the unit in accordance with this part or any successor homeownership 
program of the department, or apply to have the unit included in its 
public housing program, if it meets all statutory and regulatory 
requirements of the public housing program; or
    (2) If the unit has been operated by the PRE as a public housing 
unit within such a 5-year period, the PHA must return the unit to 
operation in its regular public housing program.
    (d) Transfer of unsold unit operated as public housing to PHA. 
Where the PRE operates the unit as public housing during the 5-year 
interim period under Sec.  960.40, and fails to sell the unit to an 
eligible family within such 5-year period and the provision of Sec.  
906.19(d) applies, the PHA must return the unit to operation in its 
regular public housing program.


Sec.  906.33  Reporting and recordkeeping requirements.

    The PHA is responsible for the maintenance of records (including 
sale and financial records) for all activities incident to 
implementation of the HUD-approved homeownership program. Where a PRE 
is responsible for the sale of units, the PHA must ensure that the 
PRE's responsibilities include proper recordkeeping and accountability 
to the PHA, sufficient to enable the PHA to monitor compliance with the 
approved homeownership program and to meet its audit responsibilities. 
All books and records must be subject to inspection and audit by HUD 
and the General Accounting Office (GAO). The PHA must report annually 
to HUD on the progress of each program approved under this part. The 
PHA must report as part of the Annual Plan process under Sec.  903.7(k) 
of this title, except for those PHAs under Sec. Sec.  903.11(c)(1) and 
(2) of this title who are not required to include information on their 
public housing homeownership programs in their Annual Plan. Those PHAs 
must report by providing a description of the homeownership program to 
HUD, including the cumulative number of units sold.


Sec.  906.35  Inapplicability of section 18 of the United States 
Housing Act of 1937.

    The provisions of section 18 of the 1937 Act (42 U.S.C. 1437p) do 
not apply to disposition of public housing dwelling units under a 
homeownership program approved by HUD under this part, or to the sale 
of a unit to a PRE to operate as public housing and sell to a low-
income family within 5 years, under the requirements of Sec.  906.19.


Sec.  906.37  Davis-Bacon and HUD wage rate requirements.

    (a) Wage rates applicable to laborers and mechanics. Wage rate 
requirements in accordance with Sec.  968.110(e) of this title apply to 
the following activities:
    (1) Rehabilitation, repairs, and accessibility modifications 
performed under an agreement or contract with the PHA or by the PHA, 
pursuant to Sec.  906.7. Davis-Bacon or HUD-determined wage rates apply 
as follows:
    (i) Existing public housing units that will be sold under a 
homeownership program: Davis-Bacon rates apply, except that HUD rates 
apply to nonroutine maintenance as defined in Sec.  968.105 of this 
title;
    (ii) Non-public housing units acquired by a PHA using Capital Funds 
that will be sold under a homeownership program: Davis-Bacon rates 
apply; and
    (iii) Non-public housing units owned or acquired by a PHA with the 
intent to use 1937 Act funds to finance the sale of the units, or 
otherwise provide assistance to purchasers of the units: Davis-Bacon 
rates apply;
    (2) New construction of non-public housing units pursuant to a 
contract for acquisition by a PHA for the purpose of sale under a 
homeownership program: Davis-Bacon rates apply;
    (3) Operation, rehabilitation, and repair of units operated as 
public housing units by a PRE: HUD rates apply to nonroutine 
maintenance, as defined in Sec.  968.105 of this title, and routine 
maintenance. Davis-Bacon rates apply to rehabilitation and repair that 
does not qualify as nonroutine maintenance.
    (b) Technical wage rates. All architects, technical engineers, 
draftsmen, and technicians employed in the development of units under a 
homeownership program shall be paid not less than the HUD-determined 
wage rates in accordance with Sec.  968.100(f) of this title.

Subpart E--Program Submission and Approval


Sec.  906.38  Requirement of HUD approval to implement a homeownership 
program under this part.

    A PHA must obtain HUD approval before implementing a homeownership 
program under this part. A homeownership program under this part must 
be carried out in accordance with the requirements of this part and the 
PHA Plan submitted under part 903 of this title.


Sec.  906.39  Contents of a homeownership program.

    A homeownership program must include the following matters, as 
applicable to the particular factual situation:
    (a) Method of Sale: The PHA should indicate how units will be sold, 
including a description of the exact method of sale, such as, for 
example, fee simple conveyance, lease-purchase, or sale of a 
cooperative share. PHAs may sell units directly to a tenant or eligible 
family directly or via a bona fide lease-purchase arrangement. The PHA 
must indicate whether it, or a PRE will sell

[[Page 11726]]

units to families directly or via such lease-purchase method. If the 
PHA or PRE will use a lease-purchase method the proposal should 
indicate the terms of the lease-purchase arrangement. The terms of the 
lease-purchase arrangement shall include, but are not limited to the 
periodic documentation to be provided to the family regarding the 
amount they have accrued toward the down payment, and the length of the 
lease period (with regard to PREs the sales must be completed within 
the statutory 5-year period.);
    (b) Property description. (1) If the program involves only 
financing assistance to the family purchasing the unit, the PHA need 
not specify property addresses, but it must describe the area(s) in 
which the assistance is to be used;
    (2) If the PHA is selling existing public housing, it must describe 
the property, including identification of the property by project 
number, or street address if there is no project number, and the 
specific dwellings to be sold, with bedroom distribution by size and 
type broken down by development;
    (3) If the PHA is acquiring units with 1937 Act funds to sell under 
the program, it must comply with the provisions of Sec.  906.40 
concerning this element of the program;
    (c) Repair or rehabilitation. If applicable, a plan for any repair 
or rehabilitation needed to meet the requirements of Sec.  906.7, based 
on the assessment of the physical condition of the property that is 
included in the supporting documentation. The restriction in 906.5(c) 
of this part applies to such repair or rehabilitation;
    (d) Purchaser eligibility and selection. The standards and 
procedures to be used for homeownership applications and the 
eligibility and selection of purchasers, consistent with the 
requirements of Sec.  906.15. If the homeownership program allows 
application for purchase of units by families who are not presently 
public housing or Section 8 residents and not already on the PHA's 
waiting lists for those programs, the program must include an 
affirmative fair housing marketing strategy for such families, 
including specific steps to inform them of their eligibility to apply, 
and to solicit applications from those in the housing market who are 
least likely to apply for the program without special outreach, 
including persons with disabilities;
    (e) Sale and financing. Terms and conditions of sale and financing, 
including any below-market financing under Sec.  906.29;
    (f) Consultation with residents and purchasers. A description of 
resident input obtained during the resident consultation process 
required by the PHA Plan under part 903 of this title. If the PHA is 
one whose Plan does not require information regarding homeownership 
under Sec.  903.11(b)(1) of this title, the PHA must consult with the 
Resident Advisory Board or Boards regarding the homeownership plan, and 
provide the information required in this paragraph;
    (g) Counseling. Counseling, training, and technical assistance to 
be provided to purchasers;
    (h) Sale via PRE. If the program contemplates sale to residents by 
an entity other than the PHA, a description of that entity's 
responsibilities and information demonstrating that the requirements of 
Sec.  906.19 have been met or will be met in a timely fashion;
    (i) Non-purchasing residents. If applicable, a plan for non-
purchasing residents, in accordance with Sec.  906.23;
    (j) Sale proceeds. An estimate of the sale proceeds and an 
explanation of how they will be used, in accordance with Sec.  906.31;
    (k) Records, accounts, and reports. A description of the 
recordkeeping, accounting, and reporting procedures to be used, 
including those required by Sec.  906.33;
    (l) Budget. A budget estimate, showing any rehabilitation or repair 
cost, any financing assistance, and the costs of implementing the 
program, and the sources of the funds that will be used;
    (m) Timetable. An estimated timetable for the major steps required 
to carry out the program;
    (n) Deed restrictions. A deed restriction or covenant running with 
the land that will assure to HUD's satisfaction that the requirements 
of Sec. Sec.  906.27 and 906.15(b) are met.


Sec.  906.40  Supporting documentation.

    The following supporting documentation must be submitted to HUD 
with the proposed homeownership program, as appropriate for the 
particular program:
    (a) Supporting documentation--PREs. In approving homeownership 
programs in which the PHA contemplates selling public housing units to 
a PRE for operation as public housing during the 5 year interim period 
the department will require evidentiary materials including but not 
limited to:
    (1) Organizational documents of the PRE;
    (2) Regulatory and operating agreement between the PHA and PRE 
regarding the provision of operating subsidy and the operation of the 
public housing units in accordance with all applicable public housing 
requirements;
    (3) Management agreement and plan;
    (4) Financing documents, if any;
    (5) A description of the use of operating subsidy during the PRE's 
period of ownership, in the form of an operating pro forma;
    (6) A mixed-finance ACC amendment governing these units;
    (7) A deed restriction or covenant running with the land that will 
assure to HUD's satisfaction that the PRE will operate the units in 
accordance with public housing laws and regulations, including Sec.  
906.19.
    (8) A bond for repairs or proof of insurance to cover any damage to 
the property during the period of PRE ownership and operation;
    (9) Such other materials as may be required by HUD.
    (b) Physical assessment. An assessment of the physical condition of 
the properties, based on the standards specified in Sec.  906.7;
    (c) Feasibility. A statement demonstrating the practical 
feasibility of the program, based on analysis of data on such elements 
as purchase prices, costs of repair or rehabilitation, accessibility 
costs, if applicable, homeownership costs, family incomes, availability 
of financing, and the extent to which there are eligible residents who 
are expected to be interested in purchase (See Sec.  906.45(a));
    (d) PHA performance in homeownership. A statement of the commitment 
and capability of the PHA (and any other entity with substantial 
responsibility for implementing the homeownership program) to 
successfully carry out the homeownership program. The statement must 
describe the PHA's (and other entity's) past experience in carrying out 
homeownership programs for low-income families, and (if applicable) its 
reasons for considering such programs to have been successful. A PHA 
that has not previously implemented a homeownership program for low-
income families instead must submit a statement describing its 
experience in carrying out public housing modernization and development 
projects under part 905 of this title, respectively;
    (e) Nondiscrimination certification. The PHA's or PRE's 
certification that it will administer the plan on a nondiscriminatory 
basis, in accordance with the Fair Housing Act, Title VI of the Civil 
Rights Act of 1964, Executive Order 11063, other authorities cited in 
Sec.  5.105(a) of this title, and the implementing regulations, and 
will assure compliance with those

[[Page 11727]]

requirements by any other entity that may assume substantial 
responsibilities for implementing the program;
    (f) Legal opinion. An opinion by legal counsel to the PHA, stating 
that counsel has reviewed the program and finds it consistent with all 
applicable requirements of federal, state, and local law, including 
regulations as well as statutes. At a minimum, the attorney must 
certify that the documents to be used will ensure sales only to 
eligible families under Sec.  906.15, compliance with the 5-year PRE 
sale guarantee in Sec.  906.19(d), and compliance with the restriction 
of use of resale proceeds of Sec.  906.27;
    (g) Board resolution. A resolution by the PHA's Board of 
Commissioners, evidencing its approval of the program;
    (h) Section 8(y). In any case where the PHA plans to provide 
families with assistance under the Section 8(y) homeownership option in 
connection with homeownership under this part, a certification that the 
PHA will comply with the requirements of the Section 8(y) statute and 
implementing regulations;
    (i) Other information. Any other information that may reasonably be 
required for HUD review of the program. Except for the PHA-HUD 
implementing agreement under Sec.  906.49 and the deed restriction 
required by Sec.  906.39(n), HUD approval is not required for documents 
to be prepared and used by the PHA in implementing the program (such as 
contracts, applications, deeds, mortgages, promissory notes, and 
cooperative or condominium documents), if their essential terms and 
conditions are described in the program. Consequently, those documents 
need not be submitted as part of the program or the supporting 
documentation.


Sec.  906.41  Additional supporting documentation for acquisition of 
non-public housing for homeownership.

    (a) Proposal contents. The PHA must submit an acquisition proposal 
to the HUD field office for review and approval before its 
homeownership plan containing acquisition of non-public housing can be 
approved. This proposal must contain the following:
    (1) Property description. A description of the properties, 
including the number of housing units, unit types, and number of 
bedrooms, and any non-dwelling facilities on the properties to be 
acquired;
    (2) Certification. If the housing units were constructed under a 
contract or an agreement that they be sold to the PHA, a certification 
that the developer/owner complied with all Davis-Bacon wage rate 
requirements under Sec.  906.37, including all required contractual 
provisions and compliance measures, and that the PHA received all 
applicable HUD environmental approvals and all applicable HUD releases 
of funds before executing the contract or agreement, in accordance with 
Sec.  906.47(d).
    (3) Site information. A description of the proposed general 
location of the properties to be acquired, or where specific properties 
have been identified, street addresses of the properties;
    (4) Property costs. The detailed budget of costs for acquiring the 
properties, including relocation and closing costs, and an 
identification of the sources of funding;
    (5) Appraisal. An appraisal of the proposed properties by an 
independent, state-certified appraiser (when the sites have been 
identified);
    (6) Property acquisition schedule. A copy of the PHA acquisition 
schedule;
    (7) Environmental information. (i) The environmental information 
required by Sec.  906.47(f), where HUD will perform the environmental 
review under 24 CFR part 50, or a statement identifying the responsible 
entity that has performed or will perform the review under 24 CFR part 
58. This paragraph (a)(7)(i) does not apply to a property where a 
contract or agreement for sale to the PHA has already been executed and 
HUD has already given prior approval of the property following 
environmental review under 24 CFR part 50.
    (ii) Where the PHA's homeownership program is submitted for 
approval to HUD and contemplates acquisition of properties not 
identified at the time of submission or approval, the procedures at 
Sec.  906.47(e) apply.
    (8) Market analysis. An analysis of the potential market of 
eligible purchasers for the homeownership units.
    (9) Additional HUD-requested information. Any additional 
information that may be needed for HUD to determine whether it can 
approve the proposal.
    (b) Cost limit. The acquisition cost of each property is limited by 
the housing cost cap limit, as determined by HUD.


Sec.  906.43  Where a PHA is to submit a homeownership program for HUD 
approval.

    A PHA must submit its proposed homeownership program together with 
supporting documentation, in a format prescribed by HUD, to the Special 
Applications Center with a copy to the appropriate HUD field office.


Sec.  906.45  HUD criteria for reviewing a proposed homeownership 
program.

    HUD will use the following criteria in reviewing a homeownership 
program:
    (a) Feasibility. The program must be practically feasible, with 
sound potential for long-term success. Financial viability, including 
the capability of purchasers to meet the financial obligations of 
homeownership, is a critical requirement.
    (b) Legality. Counsel for the PHA shall certify that the 
homeownership program is consistent with applicable law, including the 
requirements of this part and any other applicable federal, state, and 
local statutes and regulations, including existing contracts, and HUD 
shall accept such certification unless HUD has information indicating 
that the certification is incorrect.
    (c) Documentation. The program must be clear and complete enough to 
serve as a working document for implementation, as well as a basis for 
HUD review.
    (d) PHA performance in homeownership. The PHA (and any other entity 
with substantial responsibility for implementing the homeownership 
program) must have demonstrated the commitment and capability to 
successfully implement the homeownership program based upon the 
criteria stated in Sec.  906.41(d).


Sec.  906.47  Environmental requirements.

    (a) General. HUD environmental regulations at 24 CFR part 58 apply 
to this part, unless, under Sec.  58.11 of this title, HUD itself 
performs the environmental review under 24 CFR part 50. The PHA 
conducting a homeownership program under this part must comply with 
this section and part 50 or 58, as applicable.
    (b) Assistance to facilitate the purchase of homes. Where the PHA's 
homeownership program involves assistance provided under the 1937 Act 
solely to assist homebuyers to purchase existing dwelling units or 
dwelling units under construction, an environmental review is not 
required under part 58 or part 50 of this title. However, the 
requirements of Sec.  58.6 or Sec.  50.19(b)(15) of this title are 
still applicable.
    (c) Public housing units in the PHA's inventory. Before the PHA 
rehabilitates or repairs units in its inventory for use for 
homeownership, or expends or commits HUD or local funds for such 
activities, the responsible entity must comply with part 58 and the 
PHA, where required, must submit and receive HUD approval of its 
request for release of funds, or HUD must have completed any part 50 
environmental review and notified the PHA of its approval of the 
property. HUD may not release funds under this part before the 
appropriate approval is obtained.
    (d) Units to be acquired with federal funds and used for public 
housing

[[Page 11728]]

homeownership. A PHA may not enter into any contract for acquisition of 
real property to be used in a homeownership program unless the required 
environmental reviews have been performed and approvals have been 
obtained.
    (e) Specific units unidentified. Where the PHA's homeownership 
program contemplates acquisition of properties not identified at the 
time of submission, the PHA must certify that it will comply with this 
section, including paragraph (f) of this section, prior to such 
acquisition or construction. HUD may conditionally approve such a 
homeownership program; however, HUD will not give final approval of any 
site or unit until the required environmental review has been 
completed.
    (f) Information. The PHA shall supply all relevant information 
necessary for the responsible entity, or HUD, if applicable, to perform 
the environmental review for each property included in the 
homeownership program, and, if necessary, shall carry out mitigating 
measures or select alternate eligible properties. Where HUD performs 
the environmental review, the PHA shall comply with 24 CFR 50.3(h).
    (g) Non-exclusivity. Nothing in this section relieves the 
participating PHA, and its partners and contractors, from complying 
with all requirements of 24 CFR part 50 or part 58, as applicable.


Sec.  906.49  HUD approval; implementing agreement.

    HUD may approve a homeownership program as submitted, conditionally 
approve it under Sec.  906.47(e), or return it to the PHA for revision 
and resubmission. Where such conditional approval is given, the PHA, 
partners, and contractors remain subject to the restrictions in Sec.  
906.47. Upon HUD notification to the PHA that the homeownership program 
is approvable (in final form that satisfies all applicable requirements 
of this part), the PHA and HUD will execute a written implementing 
agreement, in a form prescribed by HUD, to evidence HUD approval and 
authorization for implementation. The program itself, as approved by 
HUD, must be incorporated in the implementing agreement. Any of the 
items of supporting documentation may also be incorporated, if 
agreeable to the PHA and HUD. The PHA is obligated to carry out the 
approved homeownership program and other provisions of the implementing 
agreement without modification, except with written approval by HUD.

    Dated: March 4, 2003.
Michael M. Liu,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 03-5653 Filed 3-10-03; 8:45 am]
BILLING CODE 4210-33-P