[Federal Register Volume 68, Number 146 (Wednesday, July 30, 2003)]
[Rules and Regulations]
[Pages 44844-44845]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19286]



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Part II





Department of Housing and Urban Development





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24 CFR Part 200



Distribution of Tax Credit Proceeds; Interim Rule

  Federal Register / Vol. 68, No. 146 / Wednesday, July 30, 2003 / 
Rules and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-4792-I-01]
RIN 2502-AH91


Distribution of Tax Credit Proceeds

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

ACTION: Interim rule.

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SUMMARY: This interim rule amends the Department's regulations with 
respect to funding for project completion. The current regulations 
require that funds provided by the mortgagor must be disbursed in full 
for project work, material, and incidental charges and expenses before 
any disbursement of the mortgage proceeds. An exception is made for 
federal, state, or local government or instrumentality grants or loans. 
These grants or loans need not be fully disbursed before the 
disbursement of mortgage proceeds, upon approval of the Assistant 
Secretary for Housing-Federal Housing Commissioner. This interim rule 
adds to the exception. This rule provides that the mortgagor's equity 
from the sale of low-income housing tax credits or historic tax 
credits, or both, need not be fully disbursed before the distribution 
of mortgage proceeds.

DATES: Effective date: August 29, 2003.
    Comment Due Date: September 29, 2003.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, Room 
10276, Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410-0500. Communications should refer to the 
above docket number and title. Facsimile (Fax) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 7:30 a.m. and 5:30 p.m. 
weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Michael McCullough, Director, Office 
of Multifamily Development, Office of the Deputy Assistant Secretary 
for Multifamily Housing, Room 6148, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-8000. 
Telephone (202) 708-1142, ext. 5426 (this is not a toll-free number). 
Hearing-or speech-impaired persons may access this number by calling 
the Federal Information Relay Service at 1-800-877-8339 (this is a 
toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    The Department's regulations at 24 CFR 200.54 describe the project 
funding completion requirements with respect to FHA insured multifamily 
projects. Paragraph (a) of Sec.  200.54 states that funds provided by 
the mortgagor must be disbursed in full for project work, material, and 
incidental charges and expenses before disbursement of any mortgage 
proceeds. The existing regulations at Sec.  200.54(b) provide that, 
with the approval of the Assistant Secretary for Housing-Federal 
Housing Commissioner, funds provided by a grant or loan to the 
mortgagor from a governmental agency do not have to be fully disbursed 
to complete a project before disbursement of the mortgage proceeds. A 
grant or loan from a federal agency does not include the proceeds from 
the sale of low-income housing tax credits or historic tax credits. 
Historic tax credit proceeds are generated from the financing of the 
preservation of historic properties that receive special tax treatment 
under the Internal Revenue Code. Syndication involves sale of historic 
properties to investors who share in the tax benefits that accrue to 
each investor in proportion to his/her investment in the property. The 
investors' cash investment is used to fund the preservation costs 
(i.e., the cost of rehabilitating an historic property).
    Tax credits are usually syndicated and sold to investors. The 
proceeds from the sale of low-income housing tax credits often amount 
to between forty and fifty percent of the cost of construction of the 
project. Because of the large amount of equity resulting in a 
substantially reduced mortgage, rents can be fixed at levels that may 
make them affordable to very low-income families. Historic tax credits 
are given for up to twenty percent of the cost of rehabilitation of a 
qualified historic building, thus encouraging the rehabilitation and 
preservation of historic buildings.
    Investors in Ginnie Mae securities anticipate a date certain for 
initial distribution of mortgage proceeds. If the mortgagor's equity is 
substantial and it must be fully distributed before distribution of 
mortgage proceeds, as is currently required, then the distribution of 
mortgage proceeds will not begin until months after the date of 
closing. With delayed distribution of mortgage proceeds, the borrower 
would have to pay extension fees to the Ginnie Mae investor. These 
extension fees can be expensive. By allowing the pro-rata distribution 
of the required borrower equity and of the mortgage proceeds, this rule 
helps to meet the Secretary's goal of simplifying the use of tax 
credits with the FHA mortgage insurance programs.
    To mitigate the effects of the delayed distribution of mortgage 
proceeds, the Assistant Secretary for Housing has issued over a dozen 
waivers this year to permit the pro-rata distribution of tax credits 
equity and the FHA mortgage insurance proceeds. The availability of 
funds for completion of the project is assured because the borrower 
equity, including tax credit proceeds, and the FHA mortgage proceeds, 
are placed into the lender's escrow account from which advances of the 
mortgage proceeds may be made only with the approval of the Multifamily 
Hub or Multifamily Program Center. If the borrower defaults and the 
lender files a claim for insurance benefits, all funds remaining in the 
lender's escrow are used to offset the claim.

II. This Interim Rule

    This interim rule would amend 24 CFR 200.54(b) to allow the 
proceeds from syndication of low-income housing tax credits and 
historic tax credits to be treated in the same manner as loan or grant 
funding provided through federal, state, or local government agencies. 
This amendment eliminates the need for a waiver of the regulation as 
obtained in the past, thereby eliminating the additional cost to the 
project resulting from the delays associated with receiving a waiver of 
the regulation. As amended, Sec.  200.54(b) reads as follows:
    (b) Low-income housing tax credit syndication proceeds, historic 
tax credit syndication proceeds, or funds provided by a grant or loan 
from a federal, state, or local governmental agency or instrumentality 
under requirements of this section need not be fully disbursed before 
the disbursement of mortgage proceeds, where approved by the 
Commissioner in accordance with terms, conditions, and standards 
established by the Commissioner.

III. Findings and Certifications

Justification for Interim Rulemaking

    In general, HUD publishes a rule for public comment before issuing 
a rule for effect, in accordance with its own regulations on rulemaking 
at 24 CFR part 10. Part 10, however, does provide for exceptions from 
that general rule where HUD finds good cause to omit advance notice and 
public participation. The good cause requirement is satisfied when the 
prior public procedure is ``impracticable, unnecessary, or contrary to 
the public interest'' (24 CFR part 10).

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    HUD finds that good cause exists to publish this interim rule for 
effect without first soliciting public comment, in that prior public 
procedure is contrary to the public interest. The reason for HUD's 
determination is that this rule eliminates the need for projects funded 
with tax credits to seek a waiver from HUD to allow mortgage proceeds 
to be disbursed before the distribution of the mortgagor's equity from 
the sale of low-income housing tax credits or historic tax credits. 
This change will result in savings in time and money for projects 
funded with tax credits, thereby making rents more affordable in these 
projects.

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled ``Regulatory Planning and Review''). 
OMB determined that this rule is a ``significant regulatory action'' as 
defined in section (3)(f) of the Order (although not an economically 
significant regulatory action under the Order). Any changes made to 
this rule as a result of that review are identified in the docket file, 
which is available for public inspection in the Regulations Division, 
Room 10276, 451 Seventh Street, SW., Washington, DC 20410-0500.

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
for this rule has been made in accordance with HUD regulations at 24 
CFR part 50, which implement section 102(2)(C) of the National 
Environmental Policy Act of 1969. The Finding of No Significant Impact 
is available for public inspection between 7:30 a.m. and 5:30 p.m. 
weekdays in the office of the Rules Docket Clerk, Office of the General 
Counsel, Department of Housing and Urban Development, Room 10276, 451 
Seventh Street, SW., Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
establishes requirements for federal agencies to assess the effects of 
their regulatory actions on state, local, and tribal governments and 
the private sector. This interim rule does not impose a federal mandate 
that will result in expenditure by state, local, or tribal governments, 
within the meaning of the Unfunded Mandates Reform Act of 1995.

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities. There are no 
anti-competitive discriminatory aspects of the rule with regard to 
small entities, and there are no unusual procedures that would need to 
be complied with by small entities. Although HUD has determined that 
this interim rule will not have a significant economic impact on a 
substantial number of small entities, HUD welcomes comments regarding 
any less burdensome alternatives to this rule that will meet HUD's 
objectives as described in this preamble.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Order. This interim rule does not have federalism 
implications and will not impose substantial direct compliance costs on 
state and local governments nor preempt state law within the meaning of 
the Order.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for 24 CFR part 
200 are 14.135 and 14.139.

List of Subjects in 24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing standards, Lead poisoning, Loan 
programs-housing and community development, Manufactured homes, 
Mortgage insurance, Reporting and recordkeeping requirements.

0
Accordingly, for the reasons described in the preamble, HUD amends 24 
CFR part 200 to read as follows:

PART 200--INTRODUCTION TO FHA PROGRAMS

0
1. The authority citation for 24 CFR part 200 continues to read as 
follows:

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


0
2. Amend Sec.  200.54 by revising paragraph (b) to read as follows:


Sec.  200.54  Project completion funding.

* * * * *
    (b) Low-income housing tax credit syndication proceeds, historic 
tax credit syndication proceeds, or funds provided by a grant or loan 
from a federal, state, or local governmental agency or instrumentality 
under requirements of this section need not be fully disbursed before 
the disbursement of mortgage proceeds, where approved by the 
Commissioner in accordance with terms, conditions, and standards 
established by the Commissioner.

    Dated: June 30, 2003.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 03-19286 Filed 7-29-03; 8:45 am]
BILLING CODE 4210-27-P