[Federal Register Volume 71, Number 8 (Thursday, January 12, 2006)]
[Proposed Rules]
[Pages 2126-2129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-287]



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Part III





Department of Housing and Urban Development





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24 CFR Parts 401 and 402



Renewal of Expiring Section 8 Project-Based Assistance Contracts; 
Proposed Rule

  Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 401 and 402

[Docket No. FR-4551-P-02; HUD-2006-0001]
RIN 2502-AI35


Renewal of Expiring Section 8 Project-Based Assistance Contracts

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would revise current HUD regulations that 
govern the renewal of expiring Section 8 project-based assistance 
contracts. Specifically, the proposed rule would amend the regulations 
to include tenant protections in the case of a contract that is not 
renewed, and establish rent levels when an expiring contract is 
renewed. Certain other changes to these regulations are being made by a 
final rule, also published in today's Federal Register.

DATES: Comments Due Date: March 13, 2006.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 Seventh Street, SW., 
Room 10276, Washington, DC 20410-0500. Interested persons may also 
submit comments electronically through the HUD electronic Web site at: 
www.regulations.gov. Commenters should follow the instructions provided 
on that site to submit comments electronically.
    Facsimile (FAX) comments are not acceptable. In all cases, 
communications must refer to the docket number and title. All comments 
and communications submitted will be available, without revision, for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Copies are also available for inspection and downloading 
at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Willie Spearmon, Director, Office of 
Housing Assistance and Grants Administration, Department of Housing and 
Urban Development, 451 Seventh St. SW., Washington, DC 20410-8000, 
telephone 202-708-3000. (This not a toll-free number.) For hearing- and 
speech-impaired persons, this number may be accessed through TTY by 
calling the toll-free Federal Information Relay Service at 1-800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 11, 1998, HUD published an interim rule (63 FR 48926) 
that implemented certain provisions of the Multifamily Assisted Housing 
Reform and Affordability Act (42 U.S.C. 1437f note) (MAHRA). The 
September 11, 1998, interim rule established a new 24 CFR part 401, 
entitled ``Multifamily Housing Mortgage and Housing Assistance 
Restructuring Program (Mark-to-Market),'' and a new 24 CFR part 402, 
entitled ``Project-Based Section 8 Contract Renewal without 
Restructuring (Under Section 524(a) of MAHRA).'' Part 402 implemented 
section 524 of MAHRA, which relates to Section 8 contract renewals, and 
part 401 implemented the other portions of MAHRA, which involve 
mortgage restructuring in HUD-assisted projects with expiring 
assistance contracts.
    The Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act for Fiscal 
Year 1999 (Pub. L. 105-276, approved October 21, 1998) revised section 
524(a)(2) of MAHRA to make renewal of expiring contracts under that 
section subject to section 516 of MAHRA. Section 516 of MAHRA provides 
discretionary authority to prohibit mortgage restructuring and 
consideration of requests for contract renewals in cases where the 
project owner commits certain bad acts or omissions. The Departments of 
Veterans Affairs, Housing and Urban Development, and Independent 
Agencies Appropriations Act for Fiscal Year 2000 (Pub. L. 106-74, 
approved October 20, 1999) (the FY 2000 Appropriations Act) extensively 
revised section 524 of MAHRA. Among other changes, the FY 2000 
Appropriations Act revised the method for calculating rents when an 
expiring or terminating Section 8 contract is renewed, and requires 
reduction to comparable market rents for certain projects that, prior 
to expiration or termination, had rents that exceeded such comparable 
market rents. The FY 2000 Appropriations Act also revised the language 
in Section 8 of the U.S. Housing Act of 1937 (the Section 8 statute) 
regarding the notice that the owner must provide to tenants in the 
event of termination of a contract for project-based assistance (see 42 
U.S.C. 1437f(c)(8)(A)). The Section 8 statute, as revised, requires the 
notice to include a statement that, if Congress provides funds, the 
owner and HUD may agree to renew the contract to avoid termination. The 
notice must also provide that in the event of termination, HUD will 
provide tenant-based assistance to eligible tenants, enabling them to 
choose the place they wish to rent, which is likely to include the unit 
in which they currently reside.
    On March 22, 2000, HUD published its final rule on 24 CFR part 401, 
and sections of 24 CFR part 402 (65 FR 15485) (the 2000 final rule). 
The sections of 24 CFR part 402 that were made final are Sec.  402.1, a 
statement of the purpose of part 402; Sec.  402.4, related to renewals 
of expiring section 8 project-based assistance contracts and 
incorporating many of the statutory changes to section 524 of MAHRA; 
and one paragraph of Sec.  402.6, which states the actions a project 
owner must take to request Section 8 contract renewal. With respect to 
Sec.  402.4(a)(2), the preamble to the 2000 final rule stated, ``when 
the complete part 402 is published in final form, HUD will make any 
further changes to Sec.  402.4(a)(2) that are needed to reflect HUD's 
final resolution of the comments on this section.'' At the time of 
publication of the 2000 final rule, the public was provided notice that 
further changes based on public comments to Sec.  402.4(a)(2) would be 
addressed in a future rule. This proposed rule also advises of other 
changes to other provisions of Sec.  402.4, which were not contemplated 
at the time of the 2000, final rule.
    HUD is also publishing in today's Federal Register a final rule 
based on the interim rule of 1998 and that addresses the public 
comments received in response to the interim rule. The final rule being 
published today revises 24 CFR 401.2 to reference that the definition 
of ``eligible project'' is addressed in Sec.  401.100. The final rule 
also revises 24 CFR 401.600 to permit HUD to grant extensions of a 
contract for Section 8 assistance for longer than one year at current 
rents in the case of a project for which a Restructuring Plan has not 
yet been implemented. This change removes the need for case-by-case 
waivers, and is therefore less administratively burdensome.

II. This Proposed Rule

    In this rule, HUD is proposing additional changes to implement 
recent statutory changes regarding the renewal of expiring Section 8 
project-based assistance contracts, and to provide clarification of 
certain existing regulations. The proposed would amend Sec. Sec.  
401.602 and 402.4 as follows:

A. Section 401.602

    This proposed rule would revise 24 CFR 401.602 with respect to the 
provisions regarding notices to be provided by the project owner. 
Section

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401.602(a) (i) requires the owner to give the notice required under 
Section 8(c)(8) of the United States Housing Act of 1937. The notice 
required by Section 8(c)(8) pertains to termination of a Section 8 
contract. The FY 2000 Appropriations Act amended Section 8(c)(8) as 
discussed in Section I of this preamble. Therefore, Sec.  
401.602(a)(ii) would be revised to clarify that an owner who has given 
notice but who later decides not to undergo mortgage restructuring, or 
who is rejected for restructuring, is not required to give a new 12-
month notice of a decision to opt out of the Section 8 program. Current 
Sec.  401.602(a)(1)(ii) requires an owner who elects not to renew a 
Section 8 assistance contract to give an additional notice 120 days 
before the expiration of the contract. Section 401.602(a)(1)(ii) would 
be redesignated as Sec.  401.602(a)(1)(iii).
    Section 401.602(a)(2) would be revised to comply with statutory 
tenant notification requirements in the event of termination of a 
Section 8 contract, and would provide for a notification process 
similar to the one in Sec.  402.8. Currently, Sec.  401.602(a)(2) 
requires an owner whose Restructuring Plan has been rejected to give 
the appropriate 12-month notice under Section 8, unless project-based 
assistance is renewed under the provisions of 24 CFR 402.4, which 
implements section 524 of MAHRA. This proposed rule also would impose 
this obligation on an owner who is eligible for restructuring but who 
has not requested restructuring.
    Finally, a revision would be made to Sec.  401.602(c)(1)(i) to 
include the failure of the owner to extend the assistance contract as 
well as failure to renew, as a basis for tenants residing in the 
affected units to be eligible for tenant-based assistance.

B. Section 402.4

    To reflect recent statutory revisions, this proposed rule would 
revise Sec.  402.4 to:
     Use mandatory rather than discretionary language regarding 
renewals;
     Incorporate the various statutory directions on the 
required rent levels in different circumstances;
     Contain the statutory provisions for periodic comparison 
and adjustment of rents to market levels;
     Provide that budget-based adjustments will be used instead 
of operating cost adjustment factors (OCAF) only at the request of the 
owner, and will be subject to HUD approval;
     Generally refer to terminating contracts in addition to 
expiring contracts; and
     Clarify that renewal requests from owners of moderate 
rehabilitation projects entitled to exception rents will always be 
governed by Sec.  402.5(c).

III. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this proposed 
rule are currently approved by the Office of Management and Budget 
(OMB) under section 3504(h) of the Paperwork Reduction Act of 1980 (44 
U.S.C. 3501-3520) and assigned OMB control number 2502-0533. 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 currently 
valid control number.

Environmental Impact

    A finding of no significant impact with respect to the environment 
was made regarding this rule 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(2)(C)). 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 Regulations Division, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-
0500.

Executive Order 12866

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866, Regulatory Planning and Review. OMB 
determined that this rule is a ``significant regulatory action'' (but 
not economically significant) as defined in section 3(f) of the Order. 
Any changes made in this proposed rule subsequent to its submission to 
OMB are identified in the docket file. The docket file is available for 
public inspection between 8 a.m. and 5 p.m. weekdays in the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-
0500.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA)(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 affects only multifamily Section 8 owners. There are very 
few multifamily Section 8 owners who are small entities. Therefore, 
this rule would not affect a substantial number of small entities. 
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.
    Notwithstanding the determination that this rule would not have a 
significant impact on a substantial number of small entities, HUD 
specifically invites any comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

    This proposed 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 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and the private sector. This proposed rule would 
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

24 CFR Part 401

    Grant programs--Housing and Community Development, Housing, Housing 
assistance payments, Housing standards, Insured loans, Loan programs--
Housing and community development, Low and moderate income housing, 
Mortgage insurance, Mortgages, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 402

    Housing, Housing assistance payments, Low and moderate income 
housing, Rent subsidies.
    The Catalogue of Federal Domestic Assistance number for the 
programs affected by this rule is 14.871.
    For the reasons set forth in the preamble, HUD proposes to amend 24 
CFR parts 401 and 402 as follows:

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PART 401--MULTIFAMILY HOUSING MORTGAGE AND HOUSING ASSISTANCE 
RESTRUCTURING PROGRAM (MARK-TO-MARKET)

    1. The authority citation for part 401 is revised to read as 
follows:

    Authority: 12 U.S.C. 1715z-1 and 1735f-19(b); 42 U.S.C. 
1437f(c)(8), 1437f(t), 1437f note, and 3535(d).
    2. Revise Sec.  401.602 to read as follows:


Sec.  401.602  Tenant protections if an expiring contract is not 
renewed.

    (a) Required notices. (1)(i) An owner is required to give a 12-
month notice of contract expiration or termination under section 
8(c)(8) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(c)(8)). This one-year notification must state whether or not the 
owner intends to renew at the time of the contract's expiration.
    (ii) An owner is not required to give a new 12-month notice under 
paragraph (a)(1)(i) of this section if:
    (A) The owner properly gives the one-year notice required by 
paragraph (a)(1)(i) of this section and elects to enter into 
restructuring negotiations but later voluntarily decides not to undergo 
restructuring; or
    (B) The owner requests restructuring and the request is rejected 
under Sec. Sec.  401.101, 401.403, 401.405, or 401.451.
    (iii) Not less than 120 days before the contract expiration, any 
owner described in paragraph (a)(1)(ii) of this section must notify all 
affected tenants and HUD's local Hub, Program Center Director, or 
Contract Administrator (whichever is applicable) in writing of the 
owner's ultimate decision to renew or opt out of their Section 8 
contract.
    (2) The owner of a Mark-to-Market eligible project who has not 
requested a Restructuring Plan, or an owner who requested a 
Restructuring Plan but who has been rejected under Sec. Sec.  401.101, 
401.403, 401.405, or 401.451, must provide 12 months advance notice of 
the expiration of the project-based assistance under section 8(c)(8)(A) 
of the United States Housing Act of 1937 (or notice as otherwise 
provided in section 8(c)(8)(C) of such Act), unless project-based 
assistance is renewed under Sec.  402.4.
    (3) Notices required by paragraphs (a)(1) and (a)(2) of this 
section must be provided to tenants and to HUD or the contract 
administrator. HUD will prescribe the form of notices under paragraph 
(a)(3) of this section to the extent that the form is not prescribed by 
section 8(c)(8) of the United States Housing Act of 1937.
    (b) If owner does not give notice. If an owner described in 
paragraph (a)(1) or (a)(2) of this section does not give timely notice 
of non-renewal or termination, the owner must permit the tenants in 
assisted units to remain in their units and may not increase the 
tenants' rent payment until the owner has provided the notice and one 
year has elapsed.
    (c) Availability of tenant-based assistance. (1) Subject to the 
availability of amounts provided in advance in appropriations and the 
eligibility requirements of the tenant-based assistance program 
regulations, HUD will make tenant-based assistance available under the 
following circumstances:
    (i) If the owner of an eligible project does not extend or renew 
the project-based assistance, any eligible tenant residing in a unit 
assisted under the expiring contract on the date of expiration will be 
eligible to receive assistance on the later of the date of expiration 
or the date the owner's obligations under paragraph (b) of this section 
expire; and
    (ii) If a request for a Restructuring Plan is rejected under Sec.  
401.101, Sec.  401.403, Sec.  401.405, or Sec.  401.451, and project-
based assistance is not otherwise renewed, any eligible tenant who is a 
low-income family or who resides in a project-based assisted unit on 
the date of Restructuring Plan rejection will be eligible to receive 
assistance on the later of the date the Restructuring Plan is rejected, 
or the date the owner's obligations under paragraph (b) of this section 
expire.
    (2) If the tenant was assisted under the expiring contract, 
assistance under this paragraph will be in the form of enhanced 
vouchers as provided in section 8(t) of the United States Housing Act 
of 1937.

PART 402--PROJECT BASED SECTION 8 CONTRACT RENEWAL WITHOUT 
RESTRUCTURING (UNDER SECTION 524(a) OF MAHRA)

    3. The authority citation for part 402 is revised to read as 
follows:

    Authority: 42 U.S.C. 1437f(c)(8), 1437f note and 3535(d).

    4. Amend 24 CFR 402.4 as follows:
    a. Revise the section heading;
    b. Revise paragraph (a)(1);
    c. Add paragraph (a)(3), (4), and (5); and
    d. Revise paragraph (b).


Sec.  402.4  Contract renewals under section 524(a) of MAHRA.

    (a) Renewal. (1) Offer to renew. At the request of the owner, HUD 
will offer to renew any expiring or terminating project-based 
assistance contract, except as provided in this paragraph and Sec.  
402.7. The rent level for an eligible project will be as provided in 
paragraphs (a)(3), (4), or (5) of this section, as applicable, except 
that the rent level for a project with a moderate rehabilitation 
contract described in section 524(b)(3) of MAHRA will always be 
determined under Sec.  402.5(b)(3).
* * * * *
    (3) Marking up to market under section 524(a)(4)(A) and (D) of 
MAHRA.
    (i) Paragraph (a)(3) of this section applies if rent levels under 
the expiring or terminating contract do not exceed comparable market 
rents for the market area and the project meets the other requirements 
of section 524(a)(4)(A) of MAHRA (including any HUD adjustments to 
percentages in that section as authorized by that section of MAHRA).
    (ii) HUD will approve rent levels at the lesser of:
    (A) Comparable market rents; or
    (B) 150 percent of fair market rents (or a HUD-adjusted percentage 
as authorized by section 524(a)(4)(A) of MAHRA).
    (iii) If paragraph (a)(3)(ii) of this section would restrict rents 
for a project to 150 percent of fair market value (or a HUD-adjusted 
percentage as authorized by section 524(a)(4)(A) of MAHRA), the owner 
may request, and HUD may approve higher rents up to comparable market 
rents if the project satisfies at least one of the requirements stated 
in paragraph (a)(4)(ii) of this section.
    (4) Approval of rents at or below market under sections 
524(a)(4)(C) of MAHRA.
    (i) If rent levels under the expiring or terminating contract do 
not exceed comparable market rents and the project does not meet the 
requirements of paragraph (a)(3) of this section, or the owner requests 
approval of rents higher than allowed by paragraph (a)(3), HUD will 
approve rent levels that:
    (A) Are not less than either existing rents as adjusted by an 
operating cost adjustment factor (OCAF) or budget-based rents; and
    (B) Are not greater than comparable market rents.
    (ii) When considering approval of rent levels under paragraph 
(a)(4) of this section that are higher than budget-based rents, HUD 
will give greater consideration to approving higher rents based on the 
number of the following criteria that the project meets:
    (A) The project has residents who are a particularly vulnerable 
population, as demonstrated by a high percentage of units being rented 
to elderly families, disabled families, or large families;

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    (B) The project is located in an area in which tenant-based 
assistance would be difficult to use, as demonstrated by a low vacancy 
rate for affordable housing, a high turnback rate for vouchers, or a 
lack of comparable rental housing; or
    (C) The project is a high priority for the local community, as 
demonstrated by a contribution of state or local funds to the property.
    (5) Reduction of rents to market under section 524(a)(4)(B) of 
MAHRA. If rent levels under the expiring or terminating contract exceed 
comparable market rents, HUD will approve rent levels at comparable 
market rents, provided that, in the case of an eligible project, HUD 
first determines that renewal without a Restructuring Plan is 
sufficient under paragraph (a)(2) of this section.
    (b) Rent adjustments. (1) After rents have been established under 
this section, any rent adjustments will be determined by using an OCAF, 
except that rents may be re-determined using a budget-based rent 
adjustment from time to time at the request of the owner and subject to 
the approval of HUD.
    (2) HUD will compare existing rents under a contract with 
comparable market rents at the expiration of each five-year period, and 
may make an additional comparison once during each five-year period. On 
the basis of such a comparison, HUD may reduce rents to a level no 
greater than comparable market rents, or increase rents to such a 
level.

    Dated: December 16, 2005.
Brian D. Montgomery,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 06-287 Filed 1-11-06; 8:45 am]
BILLING CODE 4210-27-P