[Federal Register Volume 70, Number 70 (Wednesday, April 13, 2005)]
[Rules and Regulations]
[Pages 19660-19663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-7351]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 200



Revised Guidelines for Previous Participation Certification; Final Rule

  Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / 
Rules and Regulations  

[[Page 19660]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-4870-F-02]
RIN 2502-AI10


Revised Guidelines for Previous Participation Certification

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

ACTION: Final rule.

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SUMMARY: This final rule revises the regulations to require all 
participants in HUD's Multifamily Housing Programs to file their 
Previous Participation Certificates by a specified date using the 
Active Partner Performance System on HUD's secure Internet site. This 
rule follows publication of a proposed rule and takes into 
consideration the public comments received on the proposed rule. This 
rule makes no substantive change to the proposed rule, but provides for 
a six-month delay in the effective date of the electronic submission 
requirement.

DATES: Effective Date: May 13, 2005.

FOR FURTHER INFORMATION CONTACT: James E. Collins, Management Analyst, 
Housing Policy and Participation Standards Division, Office of the 
Deputy Assistant Secretary for Multifamily Housing, Room 6180, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Washington, DC 20410-8000; telephone 202-708-1320, extension 3279 (this 
is not a toll-free number). Hearing- and speech-impaired persons may 
access this number through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of the Previous Participation Certification process is 
to ensure that prospective participants in HUD's Multifamily Housing 
Programs have a history of carrying out their past financial, legal, 
and administrative obligations in a satisfactory and timely manner. The 
current system requires HUD's business partners that want to 
participate in multifamily housing programs to file a paper Previous 
Participation Certificate using form HUD-2530 together with a 
description of all previous participation in multifamily programs every 
time they wish to do business with HUD.

II. The April 19, 2004, Proposed Rule

    On April 19, 2004 (69 FR 21036), HUD published a proposed rule that 
advised of HUD's intention to amend 24 CFR 200.217(a) to require that 
filing, by a specific date, of the Previous Participation Certificate 
by participants in HUD's Multifamily Housing programs be done 
electronically rather than by completing a paper form (form HUD-2530). 
In the proposed rule, HUD advised that the electronic filing would be 
accomplished by using a secure Internet-based application developed by 
HUD known as the Active Partner Performance System (APPS). The proposed 
rule also clarified the types of transactions for which a principal or 
participant in HUD multifamily mortgage insurance and project-based 
subsidy programs must complete an electronic Previous Participation 
Certificate.
    The proposed rule stated that APPS will provide participants with a 
secure environment within the HUD firewall where participants will 
record pertinent information about their specific relationship to any 
property. Using the APPS application, participants will be able to 
ensure that their individual records are complete, correct, and 
accurate at all times. APPS will provide participants with information 
about the physical condition of properties with which they are 
associated and will highlight any problems that may exist. Further, 
APPS will assist HUD in monitoring participants. APPS will allow HUD to 
maintain a history of participants, their various roles in property 
operations, and properties with which they are or were involved. A 
clear benefit of using APPS is that risk assessment of a party's new or 
revised participation will occur faster, as paper is not required to be 
sent back and forth across the country. Risk information will be shared 
automatically with participants, which will make the issues resolution 
process more efficient.

III. This Final Rule

    This final rule implements the proposed rule without substantive 
change, except that HUD has adopted the suggestion that there be a six-
month transition period. Hence, while the rule as a whole is effective 
30 days from the date of publication, the effective date of the 
provision requiring electronic submission of the Previous Participation 
Certificate is 180 days from the date of publication in the Federal 
Register. Prior to that date, participants are required to continue to 
file form HUD-2530 as a condition prerequisite to new or revised 
participation.

IV. Discussion of Public Comments

    The public comment period for the proposed rule closed on May 19, 
2004. HUD received seven comments in response to the rule: One from a 
local residential services association; three from national 
associations representing management groups and builders; one from a 
government sponsored enterprise; one from a mortgage group; and one 
from a national law firm. Each of the seven commenters expressed their 
general support for HUD's effort to require electronic filing of 
multifamily Previous Participation Certificates. One commenter 
supported ``any procedural changes that reduce the paperwork burden.'' 
One commenter agreed that ``there are clear benefits to an electronic 
submission, including faster reviews by HUD staff, which is critical to 
the timely approval of FHA mortgage insurance for new projects.''
    The following presents the significant issues raised by the 
commenters and HUD's response to the comments.
    Comment: Alternate Form for Submission: One comment noted a desire 
to see a provision in the rule for transmission of participation data 
in a form other than through APPS: ``HUD electronic systems are often 
less than user friendly. If HUD-2530s could be sent via the Internet to 
local offices, the process would be faster and less cumbersome.''
    HUD Response: At this time HUD does not plan to provide such 
alternatives. HUD has explored other forms of submission, but has so 
far found none as effective as APPS. HUD has continued to develop some 
alternatives within the system to ease the burden of initial inputs of 
organization and participant data. For example, HUD now makes data 
regarding the participant's portfolio available on-line and has 
adjusted the system to remove some redundant and repetitive steps. The 
Department continues to work to make the system efficient and easy to 
use. HUD believes, based on its experience, that the solution that the 
commenter suggests would actually decrease the system's efficiency.
    Comment: Effective Date and Transition Period: Three commenters 
stated their concern of being required to use the electronic system 
immediately, beginning 30 days following the date the final rule is 
published in the Federal Register. One comment requested an effective 
date of at least six months because ``[t]he effective date of this rule 
should recognize that experience with [APPS] varies across the 
affordable housing industry.'' Two commenters

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suggested a transition period during which the applicants could submit 
certifications on paper while any difficulties or technical issues with 
the system are being resolved. One commenter also suggested that ``HUD 
must allow itself sufficient time to make this requirement practical,'' 
and two commenters noted that training on the electronic system should 
be widely available prior to the effective date.
    HUD Response: HUD plans a transition period of six months from the 
effective date of this final rule. This will allow time for 
registration and entry of data by participants and for participants to 
become familiar with the processes. The APPS process requires the entry 
of baseline data about individuals and companies, collectively known as 
participants. It is similar in nature to the paper process where the 
parties listed on the paper form HUD-2530 listed names, addresses, 
employer identification, taxpayer identification, and other data. After 
the baseline is entered, the participant is responsible to keep the 
data updated at all times. The second and final step is to link 
individual property experience to the participant. All work is on-line 
through HUD's secure servers. During the transition period, 
participants will be required to file paper form HUD-2530 Previous 
Participation Certifications for all new business. On and after the 
effective date, paper forms will not be accepted.
    In order to facilitate the transition, HUD is providing 
informational materials, including the APPS user guide, on HUD's Web 
site at http://www.hud.gov/offices/hsg/mfh/apps/appsmfhm.cfm. The APPS 
online application itself has on-line help functions to assist while 
the participant is entering data.
    Comment: Information Collection: Three commenters discussed the 
issue of information collection generally. One commenter ``urge[d] HUD 
to carefully review all information requested under the new submission 
procedure to ensure that it is consistent with current 2530 
regulations.'' Another commenter noted ``[t]he computerized system 
should clearly allow for similar entries to the system as currently 
structured, and not increase the scope of entities subject to 
submission.'' The commenters also suggested that HUD use the new 
electronic system to communicate to users, for example, any changes 
that affect the system should be promptly posted. Two commenters 
suggested specifically for HUD to be able to notify participants when 
flags are placed and/or resolved to their account.
    HUD Response: HUD does not believe that the requirements of this 
final rule seek information beyond the scope of what is required now. 
The APPS will reduce the burden on the public through on-line storage 
of all required data, which will be secure, accessible, and able to be 
updated by the participant.
    On the point raised about electronic communication, HUD agrees that 
digital communications to participants about APPS-related events would 
be beneficial. HUD is considering this functionality for the future. 
Presently, HUD communicates with participants using various methods. 
Inspection report information is presently sent to participants by e-
mail.
    Comment: Definition of ``Participant'': Three commenters expressed 
their concern over the lack of a definition for ``participant.'' One 
commenter noted that `` `principal' is defined under 24 CFR 200.215, 
but `participant' is not, and there is no definition for that term in 
the Proposed Rule.'' One commenter stated they were advised that the 
``three-tier rule in the 2530 handbook would be effectively eliminated 
and thus numerous additional (undefined) `participants' would be 
required to file certifications.'' Because ``principal'' and 
``participant'' are important terms, the commenters suggested that they 
should be clearly defined in the regulations.
    HUD Response: ``Participant'' is the term that refers generically 
to all principals, affiliates, etc. referred to in existing 
regulations. So as not to confuse users, HUD has replaced references to 
``participant'' with ``principal.''
    As to the so-called ``three-tier rule,'' that ``rule'' is not based 
on a regulation promulgated after notice-and-comment rulemaking, but 
rather is a procedural guideline. A careful reading of HUD's codified 
regulations does not include any limitation on organizational levels 
that must file certifications. HUD Handbook 4065.1 will be updated to 
reflect this regulation and more current policy.
    Comment: Program References: Two commenters noted that the proposed 
rule appears to reference HUD programs which no longer exist and fails 
to reference current HUD program activities. One commenter suggested 
that HUD should ``delete or revise 24 C.F.R. Section 200.213.''
    HUD Response: This change would be beyond the scope of the current 
rulemaking. HUD plans to update this section in the future.
    Comment: Limited Liability Companies (LLCs) and Limited 
Partnerships (LPs): Two commenters stated that it is unclear whether 
the proposed rule would apply to LLCs and LPs equally or whether 
different standards would apply. Both commenters suggested that the 
final rule should clarify that equal requirements apply to both LLCs 
and LPs. Moreover, one commenter maintained that ``passive investors,'' 
such as Limited Partners, should not be made to track some of the 
information required in the HUD-2530 because they are not actively 
involved in the management of the property.
    HUD Response: HUD is considering changes to 24 CFR, Subpart H that 
will clarify treatment of ``passive investors'' and recently created 
business entity types. Under existing regulations at 24 CFR part 
200.215, other public and private entities proposing to participate in 
HUD programs are covered. Therefore, even where not specifically 
mentioned, LLCs and LPs are covered.
    At the present time, the Department has chosen to treat LLCs as if 
they were partnerships. The Managing Member will be considered a 
general partner and the members limited partners for participation 
clearance purposes.
    Comment: Interest Reduction Payment Contract: One commenter 
requested clarification as to whether the HUD-2530 would have to be 
filed by the owner of the property or the lender, in connection with 
the assumption of an Interest Reduction Contract. The commenter 
suggested that only the owner should be required to file the HUD-2530.
    HUD Response: The previous participation process requires a HUD-
2530, Previous Participation Certification, to be submitted when there 
is new or significantly expanded participation. To determine whether a 
submission or application is required, Field Offices have been advised 
to require a Previous Participation Certification when there is any 
apparent change in control, including introduction of new entities. 
Each case must be evaluated on its own terms as to whether it requires 
a new filing.
    Comment: 30-Day Advance Filing: One commenter stated that the 
existing rule requires only that a HUD-2530 be filed prior to the date 
of the proposed transaction, whereas the proposed rule requires that 
the HUD-2530 be filed a least 30 days prior to the transaction. The 
commenter requested clarification on this apparent discrepancy.
    HUD Response: HUD is making this change because recent experience 
has shown that in order to prevent delays from occurring in business 
transactions, HUD needs this material to be filed earlier than 
previously.

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    Comment: Disclosure of Principals: One commenter noted that ``the 
proposed rule places no limitation or qualification for disclosure and 
places companies at risk of violating a rule unless they spend 
significant time documenting information clearly relevant to a 
transaction.'' The commenter suggested that the disclosure of up to 
``three tiers'' in the organizational structure, per guidance contained 
in HUD Handbook 4065.1, be required. Additionally, the commenter 
suggested that disclosure of principals in large public entities should 
be limited to ``affiliates, persons or divisions with operational 
control over the property at issue.''
    HUD Response: As stated earlier, the so-called ``three-tier rule'' 
is derived from Handbook policy and is not a rule promulgated under the 
Administrative Procedure Act. A careful reading of the regulations does 
not include any limitation on organizational levels. HUD Handbook 
4065.1 will be updated to reflect this regulation and current policy. 
HUD Handbook 4065.1 allows the Department to limit disclosure of the 
principals in large public entities. HUD may clarify this distinction 
in future rule changes.
    Comment: Definition of Interest: One commenter noted that the 
proposed rule does not contain a definition of interest. The commenter 
stated ``[t]he previous participation procedures require submission for 
all limited partners with more than 25% interest and stockholders with 
more than 10% interest in the property. However, there is no definition 
of what constitutes an interest.''
    HUD Response: The definition of ``interest'' in this regulation is 
the ordinary legal definition: ``A legal share in something; all or 
part of a legal or equitable claim to or right in property'' (Black's 
Law Dictionary 828 (8th ed. 2004)). Because the commonly-understood 
definition of ``interest'' is being used, it is not necessary to 
specifically define the term in this rule.
    Comment: Migration of Data: One commenter stated that APPS should 
allow the migration of data from other commonly-used databases.
    HUD Response: HUD does not plan to provide this functionality at 
this time due to budgetary constraints.
    Comment: Task Force: One commenter states that a task force review 
should be completed prior to requiring the use of a computerized 
system, and that such a delay would provide for a transitional period.
    HUD Response: HUD has considered this comment, and believes that it 
is appropriate at this time to go forward with the transition to 
electronic filing. HUD has built a six-month transition period into the 
rule, making any further delay unnecessary.

V. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in Sec.  200.217 
have been approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) and assigned OMB control number 2502-0118. 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.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was 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 (42 U.S.C. 4332(2)(C)). The Finding of No Significant Impact 
remains applicable to this final rule and is available for public 
inspection between the hours of 8 a.m. and 5 p.m. weekdays in the 
Regulations Division, Office of General Counsel, Room 10276, Department 
of Housing and Urban Development, 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 on 
the private sector. This rule does not impose a federal mandate on any 
state, local, or tribal government, or on the private sector, within 
the meaning of the Unfunded Mandates Reform Act of 1995.

Impact on Small Entities

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. This rule does not 
change informational obligations for entities, but simply provides for 
electronic filing of the same information that is currently required.
    Therefore, the undersigned certifies that this proposed rule will 
not have a significant economic impact on a substantial number of small 
entities, and an initial regulatory flexibility analysis is not 
required.

Executive Order 13132, Federalism

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

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance number is 14.117.

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, Mortgage insurance, 
Organization and functions (Government agencies), Penalties, Reporting 
and recordkeeping requirements, Social security, Unemployment 
compensation, Wages.


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

PART 200--INTRODUCTION TO FHA PROGRAMS

0
1. The authority citation for 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.  200.217 by revising paragraph (a) to read as follows:


Sec.  200.217  Filing of previous participation certificate on 
prescribed form.

    (a) Effective October 11, 2005, or on such later date as may be 
allowed by HUD, all principals in HUD multifamily mortgage and project 
based subsidy programs must submit an electronic Previous Participation 
Certificate (form HUD-2530) via HUD's secure web server as a condition 
prerequisite to new or revised participation. Prior to this date, 
principals are required to file form HUD-2530 as a condition 
prerequisite to new or revised participation. Filing requirements are 
as prescribed by the Assistant Secretary for Housing-Federal Housing 
Commissioner at the occurrence of any of the events below:

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    (1) With an Application for a Site Appraisal/Market Analysis 
Letter, Feasibility Letter, Conditional Commitment for Mortgage 
Insurance, or Firm Commitment for Mortgage Insurance, whichever 
application is first filed, for projects to be financed or refinanced 
with mortgages insured under the National Housing Act;
    (2) With an Application for a Fund Reservation for projects 
financed or to be financed with direct loans or capital advances under 
section 202 of the Housing Act of 1959 (Housing for the Elderly and 
Handicapped);
    (3) With an Application for a Fund Reservation for projects 
financed or to be financed with direct loans or capital advances under 
Section 811 of the Cranston-Gonzales National Affordable Housing Act 
(Supportive Housing for Persons with Disabilities);
    (4) With the first request for a reservation of funds for 
assistance payments for projects in which 20 percent or more of the 
units are to receive a subsidy described in Sec.  200.213(c);
    (5) With an Application for any Transfer of Physical Assets;
    (6) With a request to assume any existing Housing Assistance 
Payments Contract, Interest Reduction Contract, Rent Supplement 
Contract, or Rental Assistance Payments Contract;
    (7) With a request to change ownership of a property regulated or 
controlled by a HUD ``use agreement'';
    (8) With an application or request to change the approved lessee 
operating a nursing home, assisted living, or skilled care facility;
    (9) With a bid to purchase a project being sold at foreclosure by 
HUD or by a foreclosure commissioner acting for HUD, when the terms of 
the sale permit HUD to disapprove a bidder;
    (10) With a bid to purchase a Secretary-owned project;
    (11) With a bid to purchase a mortgage note held by the 
Commissioner;
    (12) At least 30 days prior to the date of any proposed 
substitution or addition of a new principal in an existing project, 
such as management agents, LLC members, directors, or partners, or 
proposed participation in a different capacity from that previously 
approved for the same project;
    (13) At least 30 days prior to the proposed acquisition by an 
existing limited partner, stockholder, or any principal of additional 
interests resulting in a total interest of at least 25 percent 
(partners) or 10 percent (non-partners); or
    (14) Certificates of participation must be submitted for interests 
acquired by any party or organization by inheritance or court decree 
within 30 days after said acquisition or decree, but will not be 
subject to review or disapproval.
* * * * *

    Dated: April 4, 2005.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 05-7351 Filed 4-12-05; 8:45 am]
BILLING CODE 4210-27-P