[Federal Register Volume 72, Number 226 (Monday, November 26, 2007)]
[Rules and Regulations]
[Pages 66034-66040]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-22908]



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Part II





Department of Housing and Urban Development





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24 CFR Parts 200 and 401



Implementation of Mark-to-Market Program Revisions; Final Rule

  Federal Register / Vol. 72, No. 226 / Monday, November 26, 2007 / 
Rules and Regulations  

[[Page 66034]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 200 and 401

[Docket No. FR-4751-F-02]
RIN 2502-AH86


Implementation of Mark-to-Market Program Revisions

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

ACTION: Final rule.

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SUMMARY: Based on statutory changes and HUD's technical operational 
experience in administering the program, this final rule implements a 
number of changes to the Mark-to-Market (M2M) program, HUD's mortgage 
restructuring program for FHA-insured projects with project-based 
Section 8 assistance, to facilitate processing. Unlike the M2M proposed 
and final rules addressing renewal of expiring Section 8 project-based 
assistance contracts that HUD published on January 12, 2006, this rule 
addresses a range of administrative and programmatic issues other than 
the project-based assistance contracts. This final rule follows 
publication of a March 14, 2006, proposed rule and takes into 
consideration the public comments received on the proposed rule.

DATES: Effective Date: December 26, 2007.

FOR FURTHER INFORMATION CONTACT: Theodore Toon, Deputy Assistant 
Secretary, Office of Affordable Housing Preservation (OAHP), Department 
of Housing and Urban Development, 451 Seventh Street, SW., Room 6230, 
Washington, DC 20024, telephone number (202) 708-0001 (this is not a 
toll-free number). Persons with hearing or speech impairments may 
access this number via TTY by calling the toll-free Federal Information 
Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The Multifamily Assisted Housing Reform and Affordability Act 
(MAHRA) became law on October 27, 1997. (See Pub. L. 105-65, 111 Stat. 
1384, 42 U.S.C. 1437f note.) 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, which 
prohibits mortgage restructuring and consideration of requests for 
contract renewals in the case of certain kinds of conduct by the 
project owner. On October 20, 1999, the Departments of Veterans 
Affairs, Housing and Urban Development, and Independent Agencies 
Appropriations Act for Fiscal Year 2000, Public Law 106-74, 113 Stat. 
1047, at 1110, extensively revised section 524 of MAHRA. Among other 
changes, the revisions changed the method for calculating rents when an 
expiring or terminating Section 8 contract is renewed, and required 
reduction to comparable market rents for certain projects that, prior 
to expiration or termination, had rents that exceeded such comparable 
market rents.
    The Mark-to-Market Extension Act of 2001 (Title VI of Pub. L. 107-
116, approved January 10, 2002) (Mark-to-Market Extension Act) made a 
number of amendments to MAHRA and a MAHRA-related amendment to section 
223(a)(7) of the National Housing Act (12 U.S.C. 1715n). A discussion 
of the implementation of those amendments and additional proposed 
revisions to HUD's mortgage restructuring program can be found in the 
preamble of the March 14, 2006, proposed rule (71 FR 13221).
    MAHRA is currently implemented in HUD's regulations at 24 CFR parts 
401 and 402. These regulations were initially published as an interim 
rule on September 11, 1998 (63 FR 48926). On March 22, 2000, HUD 
published a final rule implementing 24 CFR part 401 and portions of 24 
CFR part 402 (65 FR 15485).
    In order to facilitate restructurings under MAHRA, this rule also 
amends HUD's regulations at part 200. Part 200 is the introductory 
section addressing HUD's mortgage insurance programs under the National 
Housing Act, 12 U.S.C. 1701 et seq. The specific sections being amended 
are 24 CFR 200.20, which applies to the refinancing of insured 
mortgages, and 24 CFR 200.40, which sets HUD's fees and charges for its 
mortgage insurance programs.
    For more information on the implementation of the revisions being 
made to the M2M program, please see the preamble of the March 14, 2006, 
proposed rule.

II. This Final Rule; Changes to the March 14, 2006, Proposed Rule

    This final rule follows publication of the March 14, 2006, proposed 
rule, and takes into consideration the public comments received on the 
proposed rule. After careful review of the public comments, HUD has 
made the following changes to the proposed rule:
    1. Removal of references to the OMHAR. HUD has removed the 
definition and all references to the Office of Multifamily Housing 
Assistance Restructuring (OMHAR). The Office of Affordable Housing 
Preservation (OAHP) replaced OHMAR as of October 1, 2004. OAHP was 
established to assure the smooth continuation of the M2M program, 
utilizing authorities that continued after the legislative sunset of 
OMHAR. HUD has taken the opportunity afforded by this rule to update 
its regulations to reflect the organizational structure of the program 
as it is currently implemented. In addition, references to the 
``Director'' of OAHP have been replaced with more general references to 
``HUD'' to avoid having to amend the regulations whenever the title of 
a HUD official is changed. ``HUD'' is defined to include an official 
authorized to act under the provisions of MAHRA.
    2. Transfer Fee Exemption. The language of Sec.  200.40(h) is 
clarified to provide for a fee exemption for transfers that are 
contemporaneous with the restructuring of a mortgage pursuant to a 
restructuring plan, rather than for transfers ``in connection with'' a 
restructuring plan.
    3. Revised Tenant Endorsement Procedure. In response to public 
comment, HUD has revised the tenant endorsement procedure. A purchaser 
will now only be required to hold one informational meeting, but may 
hold additional meetings as necessary. Tenant endorsement will be based 
upon a potential priority purchaser receiving a majority of the tenant 
heads of household's written endorsement. Those tenants who do not 
attend the informational meeting, or any subsequent meeting, may be 
directly contacted by the purchaser to collect their written 
endorsement. Purchasers who are unable to obtain the majority of tenant 
heads of household's written endorsement after undertaking reasonable 
efforts will be able to submit a request, in writing, to HUD. Based 
upon the information and explanation contained in the request, HUD will 
make a determination whether or not to grant tenant endorsement to a 
purchaser based on a lower percentage of tenants' written endorsement.

III. Discussion of Public Comments Received on the March 14, 2006, 
Proposed Rule

    The public comment period on the proposed rule closed on May 15, 
2006. HUD received three public comments in response to the proposed 
rule. One of the comments was submitted jointly by a group of national 
organizations

[[Page 66035]]

representing real estate managers, lessors, lenders, builders, and 
realtors. One of the comments was submitted on behalf of a group of 
regional, state, and national organizations with extensive experience 
in preserving and improving HUD's inventory of multifamily housing. One 
of the comments was submitted by a statewide renter's association. This 
section of the preamble presents a summary of the significant issues 
raised by the public commenters on the March 14, 2006, proposed rule, 
and HUD's responses to these issues.

Section 200.40 HUD Fees

    Comment: The charging of transactional fees does discourage 
participation in the M2M program. The commenter agrees with HUD that 
various transactional fees discourage owners from participating in the 
M2M program and that select fees should be exempt or eliminated.
    HUD Response: HUD appreciates the input of regulated entities in 
the formulation of its regulations. Based upon HUD's experience and 
that of regulated entities, the regulations at Sec.  200.40(h) and (j) 
will be revised to exempt transfer fees where the transfer of physical 
assets or substitution of mortgagors occurs contemporaneously with the 
restructuring of a mortgage pursuant to a restructuring plan and 
eliminated an application or commitment fee in connection with the 
insurance of a mortgage used to facilitate a restructuring plan, 
respectively.

Section 401.452 Property Standards for Rehabilitation

    Comment: The property standards for rehabilitation are reasonable. 
The commenter expressed approval of the objectives of the provision to 
ensure that the property can attract non-subsidized tenants, but 
competes on rents rather than amenities, which the commenter finds 
reasonable.
    HUD Response: HUD is implementing the property standards for 
rehabilitation as proposed. HUD believes that the property standards 
are realistic, by taking into consideration the resources of the 
project as well as ensuring the rehabilitation reflects current 
standards.

Section 401.461 HUD-held Second Mortgage

    Comment: The use of discretion in whether simple or compound 
interest on HUD-held second mortgages will be required is good policy. 
The commenter wrote that in Sec.  401.461(b)(1), HUD's proposed 
elimination of the reference to simple interests and its use of 
administrative discretion in requiring simple or compound interest, so 
that waivers will no longer be required, makes good sense. The 
commenter also appreciates HUD's willingness to make restructuring 
transactions using Low Income Housing Tax Credits (LIHTCs) feasible 
without the need for waiver.
    HUD Response: HUD appreciates the support expressed for the 
revisions to Sec.  401.461(b)(1). The regulatory change removes the 
reference to simple interest and, thereby, allows HUD to use its 
administrative discretion in requiring simple or compound interest. 
This enables HUD to make determinations that are in the best interest 
of the government and the individual debt restructuring.
    Comment: There should not be a time limit on the canceling, 
modifying, or assigning of a property's Mark-to-Market subsidiary 
mortgage(s) if transferring to a priority purchaser. The commenters 
wrote that Sec.  401.461(b)(1) should be revised to eliminate the time 
limit (i.e., 3-year window) for canceling, modifying, or assigning a 
property's Mark-to-Market subsidiary mortgage(s), so long as the 
transfer is to a priority purchaser. In addition, the commenters 
suggested that the regulation clarify that there is no time limit for 
transferring Mark-to-Market restructured properties to priority 
purchasers. Currently, Appendix C of the Operating Procedures Guide and 
the Standard Restructuring Commitment form allow the forgiveness of 
second and third debt to qualified purchasers only if the property 
transfers within 3 years of restructuring.
    HUD Response: HUD has not revised the regulations in response to 
this comment. Section 401.461(b)(5) states that HUD will consider 
modification, assignment of the second mortgage to an acquiring entity, 
or forgiveness of all or part of the second mortgage to a priority 
purchaser. No defined time period for making the request is contained 
in this section. In applying Sec.  401.461(b)(5), as described in 
Appendix C of the Operating Procedures Guide and the Standard 
Restructuring Commitment form, HUD has generally limited its 
consideration to requests made by priority purchasers within 3 years of 
the restructuring. HUD believes that this guidance provides an 
appropriate and reasonable time frame for a priority purchaser to 
request modification, assignment of the second mortgage to an acquiring 
entity, or forgiveness of all or part of the second mortgage. However, 
HUD will consider, on a case-by-case basis, requests made by a priority 
purchaser that are outside of this 3-year window. Such requests remain 
subject to continuing statutory authority.

Section 401.480 Sale or Transfer of Project

    Comment: The tenant endorsement procedure for attaining priority 
purchaser status should be revised. The commenters wrote that all 
provisions pertaining to a second meeting devoted to a formal voting 
process should be eliminated. This would also eliminate the need for 
proxies and, thereby, eliminate the increased possibility of undue 
influence (monetary or other promised favors), which distort the 
endorsement process. In place of the second meeting, the commenters 
suggested revising the regulations to require that 51 percent of the 
tenants provide written endorsement. The commenters believe that this 
would encourage a priority purchaser to thoroughly engage tenants in 
order to gain their informed, genuine, and meaningful support.
    HUD Response: HUD specifically requested comment on the procedure 
for demonstrating tenant endorsement and solicited recommendations for 
a less prescriptive and more streamlined procedure that will meet the 
goal of providing an opportunity for the informed participation of 
tenants in an endorsement process that can reasonably be considered to 
be valid. In response to these comments and recommendations, HUD is 
revising the rule by adopting the commenters' suggested endorsement 
procedure with some modifications. A purchaser is only required to hold 
an informational meeting under this final rule; however, additional 
meetings may be scheduled in accordance with the notice requirements of 
Sec.  401.480(e). Tenant endorsement under Sec.  401.480(e) is to be 
demonstrated by a purchaser submitting documentation, such as ballots, 
letters of support, or petitions, to HUD from a majority (51 percent) 
of the tenant heads of household. A purchaser may contact tenant heads 
of households who did not attend the meeting, to collect a written 
endorsement.
    HUD is also implementing a process by which a purchaser who has 
made a reasonable effort to obtain the majority of the tenants' 
endorsement but was unsuccessful can ask HUD to make a determination as 
to whether endorsement can be obtained with a lower percentage of 
endorsing tenants. The purchaser will have to make the request in 
writing and include a description of the efforts undertaken to secure 
the endorsement, an explanation of the circumstances that resulted in 
failing to receive endorsement from a majority of tenant heads of 
household, and any comments received from

[[Page 66036]]

tenants regarding the approval of the endorsement.
    HUD believes that this process is less prescriptive than the 
procedures that were proposed and serves the interests of both 
purchasers and tenants.
    Comment: The informational meeting should be held at a convenient 
time and location and conducted by a neutral third party. The commenter 
wrote that the proposed regulation should be revised to require that 
the informational meeting be held at a time and location convenient to 
the majority of the tenants, and should be conducted by the 
Participating Administrative Entity (PAE) or other neutral third party.
    HUD Response: HUD has not revised the rule in response to this 
comment. It is HUD's intent to allow flexibility in the conduct of 
tenant meetings so as to allow the needs and resources of each project 
to be addressed. Further, since tenant endorsement will be determined 
based on receiving endorsement of 51 percent of the tenant heads of 
household, it is in the interest of all involved to hold meetings that 
are convenient as to time and location with competent facilitators. HUD 
will issue guidance, as needed, that outlines informational meeting 
best practices.
    Comment: The final rule should state that there must be at least 3 
weeks between the informational meeting and final endorsement of the 
purchaser. Two commenters supported the requirement of an informational 
meeting, but would revise the regulation to require that 3 weeks elapse 
between the date of the informational meeting and when final 
endorsement of the purchaser is made.
    HUD Response: HUD has not revised the rule in response to this 
comment. HUD does not believe that a required time interval between a 
tenant meeting and the final endorsement of the purchaser would be 
beneficial. HUD acknowledges that time is needed for adequate 
consideration and deliberation; however, HUD chooses not to prescribe 
how much time is necessary.
    Comment: Additional elements should be required for the 
informational meeting. The commenters wrote that the regulations should 
require prospective priority purchasers to prepare materials that must 
be readily available at no cost to residents before and after the 
informational meeting. Included among the materials suggested by the 
commenters were any plans for repairs and improvements to the property; 
any changes in the on-site manager or management company; any changes 
in utility billing; the names and locations of other properties owned 
by the potential purchaser, specifically identifying properties that 
are HUD-assisted; and the names and affiliations of the prospective 
purchaser's directors and officers. The commenters also wrote that if 
English is not the primary language of a significant number of tenants, 
then the final rule should require the prospective owner to provide 
interpreters and written materials for the informational meeting in 
other languages spoken by 15 percent of the tenants.
    HUD Response: HUD has not revised the rule in response to this 
comment. As stated above, HUD does not want to impose overly 
prescriptive requirements on the tenant endorsement procedure. HUD has 
created the endorsement framework and believes that the needs and 
resources of the project and the restructuring of that project should 
dictate the conduct of the meeting(s) and endorsement process. HUD will 
supplement this framework by issuing guidance containing best 
practices, as needed.
    Comment: A representative of the purchaser must attend the 
informational meeting. The commenters also wrote that the final rule 
should require that a representative of the prospective purchaser must 
be present at the informational meeting. The representative should be 
prepared to discuss plans for improving the property and capable of 
addressing tenant questions and concerns.
    HUD Response: HUD agrees with this comment and has included a 
provision at Sec.  401.480(e)(1), which requires that a representative 
of the purchasing entity attend the required tenant meeting(s), present 
its plan for the acquisition and improvement of the project, and answer 
the questions of tenants attending the meeting.
    Comment: The provisions governing how tenants are to be notified of 
the informational meeting should be revised. The commenters wrote that 
Sec.  401.480(e)(2), regarding notice to tenants and tenant 
organizations, should be modified to require that notice must be 
delivered directly or by mail to the parties listed in Sec.  401.501, 
which include local government, the public housing authority, the 
Outreach and Training Grant (OTAG) or Intermediary Technical Assistance 
Grant (ITAG) organization, other appropriate neighborhood 
representatives, and other affected parties. Additionally, the 
commenters suggested the regulations must state that notice of the 
informational meeting must also be posted in three conspicuous places 
on the property and provided in appropriate languages. The commenters 
wrote that if the informational meeting is not part of the second PAE-
convened tenant comment meeting, then the regulations must require 
notice no less than 3 days and no more than 10 days prior to the 
informational meeting.
    HUD Response: HUD has not revised the rule in response to this 
comment. HUD believes that the imposition of such prescriptive 
requirements would not be beneficial to the tenant endorsement process. 
HUD envisions an endorsement procedure that reflects the needs and 
resources of the project. However, HUD will issue, as determined to be 
necessary, guidance outlining best practices.
    Comment: The definition of ``tenant organization'' should be 
amended to be more inclusive. The commenters wrote that the final rule 
should state that a ``tenant organization'' includes any organization 
based on the property, as well as any nonprofit organizing group 
working with the property's residents.
    HUD Response: HUD has not revised the rule in response to this 
comment. HUD believes that the scope of the definition of ``tenant 
organization,'' which is limited to households of occupied units of the 
property, is appropriate. Tenant-organizing groups may help establish a 
tenant organization, but do not themselves constitute tenant 
organizations for purposes of the rule.
    Comment: The regulations should contain the Operating Procedures 
Guide regarding the posting of notices, meeting times and location, and 
priority purchaser ``independence'' criteria.
    HUD Response: HUD has not revised the rule in response to this 
comment. HUD does not want to impose requirements as to all aspects of 
the tenant endorsement procedure. HUD intends to promote flexibility 
and responsiveness to each project. HUD will issue guidance, as needed, 
to inform participants of best practices for the endorsement process.
    Comment: A record of the informational meeting should be submitted 
with the restructuring plan or as an addendum to the restructuring 
plan. The commenters wrote that the final rule should require that 
comments made by tenants at the informational meeting regarding needed 
repairs, current management, and other concerns must be captured in 
writing and submitted with the restructuring plan or as an addendum to 
the restructuring plan.
    HUD Response: HUD has not revised the rule in response to this 
comment. HUD does not believe that a record of the informational 
meeting should be submitted with the restructuring plan,

[[Page 66037]]

because the meeting is outside the scope of HUD's review. This does not 
preclude tenants from conditioning their endorsement on the potential 
priority purchaser including such items in the restructuring plan; 
however, HUD chooses not to make this a requirement.
    Comment: Claims or promises made by potential priority purchasers 
should be made a binding provision of the restructuring plan. The 
commenters stated that the final rule should provide that any claims or 
promises made to tenants in order to ensure their endorsement must be a 
binding provision in the restructuring plan, and enforceable by 
tenants.
    HUD Response: HUD has not revised the rule in response to this 
comment. HUD believes that the rule adequately requires and encourages 
extensive tenant participation in the sale or transfer process when the 
sale or transfer is to a priority purchaser.

IV. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this final 
rule have been approved by the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 
assigned OMB Control Number 2502-0563. In accordance with the Paperwork 
Reduction Act, HUD 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 OMB control number.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (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 rule, which implements 
a statutory mandate to establish a program for the resolution of a 
narrow category of disputes, will not impose any federal mandates on 
any state, local, or tribal government, or the private sector within 
the meaning of UMRA.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
was made at the proposed rule stage in accordance with HUD regulations 
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 finding 
continues to apply and remains available for public inspection during 
regular business hours in the Office of the Rules Docket Clerk, Office 
of General Counsel, Department of Housing and Urban Development, 451 
Seventh Street, SW., Room 10276, Washington, DC 20410. Due to security 
measures at the HUD Headquarters building, please schedule an 
appointment to review the docket file by calling the Regulations 
Division at (202) 708-3055 (this is not a toll-free number). Persons 
with hearing or speech impairments may access this number via TTY by 
calling the toll-free Federal Information Relay Service at (800) 877-
8339.

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 owners of multifamily projects with Section 8 
assistance. There are very few multifamily Section 8 owners who are 
small businesses. Therefore, this rule will not have a significant 
economic impact on a substantial number of small entities. Accordingly, 
the undersigned certifies that this rule will not have a significant 
economic impact on a substantial number of small entities.

Executive Order 13132, Federalism

    This rule does not have federalism implications and does not impose 
substantial direct compliance costs on state and local governments or 
preempt state law within the meaning of the Executive Order.

List of Subjects

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Home improvement, 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.

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.

0
Accordingly, HUD amends 24 CFR parts 200 and 401 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. Revise Sec.  200.20 to read as follows:


Sec.  200.20  Refinancing insured mortgages.

    An existing mortgage insured under the Act, or an existing mortgage 
held by the Secretary that is subject to a mortgage restructuring and 
rental assistance sufficiency plan under the Multifamily Assisted 
Housing Reform and Affordability Act, 42 U.S.C. 1437f note (MAHRA), may 
be refinanced pursuant to section 223(a)(7) of the Act and such terms 
and conditions as may be established by the Commissioner. The term of 
such refinancing in connection with the implementation of an approved 
restructuring plan under section 401, subpart C of this title, may be 
up to, but not more than, 30 years.

0
3. In Sec.  200.40, revise paragraphs (h) and (j) to read as follows:


Sec.  200.40  HUD fees.

* * * * *
    (h) Transfer fee. Upon application for the approval of a transfer 
of physical assets or the substitution of mortgagors, a transfer fee of 
50 cents per thousand dollars shall be paid on the original face amount 
of the mortgage in all cases, except that a transfer fee shall not be 
paid where both parties to the transfer transaction are nonprofit 
purchasers, or when the transfer of physical assets or the substitution 
of mortgagors occurs contemporaneously with the restructuring of a 
mortgage pursuant to a restructuring plan under part 401, subpart C of 
this title.
* * * * *
    (j) Fees not required. (1) The payment of an application, 
commitment, inspection, or reopening fee shall not be required in 
connection with the insurance of a mortgage involving the sale by the 
Secretary of any property acquired under any section or title of the 
Act.
    (2) The payment of an application or commitment fee shall not be 
required in connection with the insurance of a mortgage used to 
facilitate a restructuring plan under part 401, subpart C of this 
title.

[[Page 66038]]

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

0
4. The authority citation for part 401 continues to read as follows:

    Authority: 12 U.S.C. 1715z-1 and 1735f-19(b); 42 U.S.C. 
1437(c)(8), 1437f(t), 1437f note, and 3535(d).

0
5. In Sec.  401.2(c), remove the definition of OMHAR, revise the 
definition of HUD, and add the definition of OAHP to read as follows:


Sec.  401.2  What special definitions apply to this part?

* * * * *
    (c) * * *
    HUD means a HUD official authorized to act under the provisions of 
MAHRA, and otherwise has the meaning given in Sec.  5.100 of this 
title.
* * * * *
    OAHP means the Office of Affordable Housing Preservation, and any 
successor office.
* * * * *

0
6. In Sec.  401.101, add a new paragraph (d) to read as follows:


Sec.  401.101  Which owners are ineligible to request Restructuring 
Plans?

* * * * *
    (d) Notice to tenants. The PAE or HUD will give notice to tenants 
of a rejection in accordance with Sec. Sec.  401.500(f)(2), 401.501, 
and 401.502.

0
7. In Sec.  401.304, revise paragraphs (a)(2), (b), and (d) to read as 
follows:


Sec.  401.304  PRA provisions on PAE compensation.

    (a) * * *
    (2) HUD will establish a substantially uniform baseline for base 
fees for public entities. The base fee for a PAE will be adjusted, if 
necessary, after the first term of the PRA.
* * * * *
    (b) Incentives. The PRA may provide for incentives to be paid by 
HUD. While individual components may vary between PAEs (both public and 
private), the total amount potentially payable under the incentive 
package will be uniform. Objectives may include maximizing savings to 
the Federal Government, timely performance, tenant satisfaction with 
the PAE's performance, the infusion of public funds from non-HUD 
sources, and other benchmarks that HUD considers appropriate.
* * * * *
    (d) Other matters. HUD will retain the right of final approval of 
any fee schedule. HUD will publish the standard form of PRA and the 
compensation package annually on its Internet Web site.

0
8. In Sec.  401.309, revise the section heading and paragraphs (b)(2) 
and (c) to read as follows:


Sec.  401.309  PRA term and termination provisions; other provisions.

* * * * *
    (b) * * *
    (2) Termination for convenience of Federal Government. HUD may 
terminate a PRA, and may remove an eligible property from a PRA, at any 
time in accordance with the PRA or applicable law, regardless of 
whether the PAE is in default of any of its obligations under the PRA, 
if such termination is in the best interests of the Federal Government. 
The PRA will provide for payment to the PAE of a specified percentage 
of the base fee authorized by Sec.  401.304(a) and amounts for 
reimbursement of third-party vendors to the PAE authorized by Sec.  
401.304(c).
* * * * *
    (c) Liability for damages. During the term of a PRA, and 
notwithstanding any termination of a PRA, HUD may seek its actual, 
direct, and consequential damages from any PAE for failure to comply 
with its obligations under PRA.
* * * * *

0
9. Revise the section heading and add a new sentence to the end of 
Sec.  401.401 to read as follows:


Sec.  401.401  Consolidated Restructuring Plans.

     * * * HUD's decision to approve or disapprove a Consolidated 
Restructuring Plan will be made on a case-by-case basis.

0
10. Revise Sec.  401.452 to read as follows:


Sec.  401.452  Property standards for rehabilitation.

    The restructuring plan must provide for the level of rehabilitation 
needed to restore the property to the non-luxury standard adequate for 
the rental market for which the project was originally approved. If the 
standard has changed over time, the rehabilitation may include 
improvements to meet the current standards. The rehabilitation also may 
include the addition of significant features, in accordance with Sec.  
401.472. The result of the rehabilitation should be a project that can 
attract non-subsidized tenants, but competes on rent rather than on 
amenities. When a range of options exists for satisfying the 
rehabilitation standard, the PAE must choose the least costly option 
considering both capital and operating costs and taking into account 
the marketability of the property and the remaining useful life of all 
building systems. Nothing in this part exempts rehabilitation from the 
requirements of part 8 of this title concerning accessibility to 
persons with disabilities.

0
11. In Sec.  401.461, revise paragraphs (a)(1), (a)(2)(ii), (b)(1), 
(b)(5), and (c) to read as follows:


Sec.  401.461  HUD-held second mortgage.

    (a) Amount. (1) The Restructuring Plan must provide for a second 
mortgage to HUD whenever the Plan provides for either payment of a 
claim under section 541(b) of the National Housing Act (541(b) claim) 
or the modification or refinancing of a HUD-held first mortgage that 
results in a first mortgage with a lower principal amount. The term 
``second mortgage'' in this section also includes a new HUD-held first 
mortgage (not a refinancing mortgage), if a full payment of claim is 
made under Sec.  401.471 or if a full payment of claim is unnecessary 
because surplus project accounts are available to facilitate the 
Restructuring Plan, pursuant to section 517(b)(6) of MAHRA, or if Sec.  
401.460(a) does not permit a restructured first mortgage in any amount.
    (2) * * *
    (ii) The greater of:
    (A) The section 541(b) claim (or the difference between the unpaid 
principal balance on HUD-held mortgage debt immediately before and 
after the restructuring), plus surplus project accounts from residual 
receipts accumulated pursuant to 24 CFR 880.205(e), 881.205(e), or 
883.306(e) and derived from an expiring Section 8 Housing Assistance 
Payments contract and not otherwise distributed to the owner and made 
available to facilitate the Restructuring Plan pursuant to section 
517(b)(6) of MAHRA, and
    (B) The difference between the unpaid balance on the first mortgage 
immediately before and after the restructuring.
    (b) Terms and conditions. (1) The second mortgage must have an 
interest rate of at least one percent, but not more than the applicable 
Federal rate.
* * * * *
    (5) HUD will consider modification, assignment to the acquiring 
entity, or forgiveness of all or part of the second mortgage, if: The 
Secretary holds the second mortgage; and if the project has been sold 
or transferred to a tenant organization or tenant-endorsed community-
based nonprofit or public agency that meets eligibility guidelines 
determined by HUD; accepts additional

[[Page 66039]]

affordability requirements acceptable to HUD; and requests such 
modification, assignment, or forgiveness. A community-based nonprofit 
group or public agency demonstrates that it is tenant-endorsed in 
accordance with Sec.  401.480(e).
    (c) Additional mortgage to HUD. (1) A Restructuring Plan shall 
require the owner to give an additional mortgage on the project to HUD 
in an amount that:
    (i) For the restructuring of a mortgage insured by HUD, does not 
exceed the difference between:
    (A) The amount of a section 541(b) claim paid under Sec.  401.471 
increased by any residual receipts, pursuant to 24 CFR 880.205(e), 
881.205(e), or 883.306(e); and
    (B) The principal amount of the second mortgage; or
    (ii) For the restructuring of a mortgage held by HUD, does not 
exceed the difference between:
    (A) The principal amount of a restructured HUD-held mortgage and 
the sum of, as applicable, a restructured HUD-held first mortgage at 
reduced principal amount, new mortgage funds paid to HUD at closing, 
and surplus project accounts other than residual receipts, pursuant to 
24 CFR 880.205(e), 881.205(e), or 883.306(e); and
    (B) The principal amount of the second mortgage.
    (2) HUD may approve a Plan that does not require an additional 
mortgage, or provides for less than the full difference to be payable 
under the additional mortgage, or allows for subsequent modification, 
assignment, or forgiveness of the additional mortgage under any of the 
following circumstances:
    (i) The anticipated recovery on the additional mortgage is less 
than the servicing costs; or
    (ii) HUD has approved modification, assignment, or forgiveness of 
the second mortgage, pursuant to paragraph (b)(5) of this section.
    (3) With respect to the second mortgage required by paragraph (a) 
of this section, any additional mortgage must:
    (i) Be junior in priority;
    (ii) Bear interest at the same rate; and
    (iii) Require no payment until the second mortgage is satisfied, at 
which time it will be payable upon demand of HUD or as otherwise agreed 
by HUD.

0
12. Revise Sec.  401.472(b) to read as follows:


Sec.  401.472  Rehabilitation funding.

* * * * *
    (b) Statutory restrictions. Any rehabilitation funded from the 
sources described in paragraph (a) of this section is subject to the 
requirements in section 517(c) of MAHRA for an owner contribution.
    (1) Addition of significant features. With respect to significant 
added features, the required owner contribution will be as proposed by 
the PAE and approved by HUD, and not to exceed 20 percent of the total 
cost. Significant added features include the addition of air 
conditioning (including conversions from window air conditioning to 
central air conditioning), an elevator, or additional community space.
    (2) Cap on owner contribution. If a restructuring plan includes 
additions other than those specified, and the PAE considers the 
additions significant, the PAE may propose to make those additions 
subject to the cap on owner contribution. In general, the owner will 
contribute 3 percent toward the cost of each significant addition. The 
PAE may propose a lower or higher owner contribution, not to exceed 20 
percent, with respect to significant additions.
    (3) Other rehabilitation. With respect to other rehabilitation, the 
required owner contribution will be calculated as 20 percent of the 
total cost of rehabilitation, unless HUD or the PAE determines that a 
higher percentage is required. The owner contribution must include a 
reasonable proportion (as determined by HUD) of the total cost of 
rehabilitation from nongovernmental resources.
    (4) Cooperatives. The PAE may exempt housing cooperatives from the 
owner contribution requirement.
* * * * *

0
13. In Sec.  401.480 revise paragraph (b) and add paragraph (e) to read 
as follows:


Sec.  401.480  Sale or transfer of project.

* * * * *
    (b) When must the restructuring plan include sale or transfer of 
the property? If the owner is determined to be ineligible pursuant to 
Sec.  401.101 or Sec.  401.403, or if the property is subject to an 
approved plan of action under the Emergency Low Income Housing 
Preservation Act of 1987 or the Low Income Housing Preservation and 
Resident Homeownership Act of 1990, as described in section 524(e)(3) 
of MAHRA, the property must be sold or transferred as a condition of 
implementation of a restructuring plan, which must include a condition 
that the owner sell or transfer the property to a purchaser acceptable 
to HUD, in accordance with paragraph (c) of this section. Such sale or 
transfer shall be a condition to the implementation of the 
Restructuring Plan.
* * * * *
    (e) Tenant endorsement procedure for priority purchaser status. (1) 
Required meeting. (i) A community-based nonprofit or public agency 
purchaser requesting tenant endorsement to obtain priority purchaser 
status must conduct an informational meeting with the tenants of the 
project to disseminate information about both the endorsement request 
and the purchaser's plans for the project.
    (ii) If the purchaser is acting contemporaneously with the 
Restructuring Plan, the informational meeting must occur at the second 
meeting of tenants convened by the PAE to discuss the restructuring 
plan pursuant to Sec.  401.500(d).
    (iii) A representative of the purchasing entity must attend the 
informational meeting to present its plans for the acquisition and 
improvement of the project and to respond to questions about the 
purchaser's plans for the property.
    (iv) Tenants shall have the opportunity, but are not to be 
required, to vote for or against the acquisition at the informational 
meeting.
    (v) For the purpose of obtaining tenant endorsement, a purchaser 
may conduct additional meetings with tenants in accordance with the 
notice requirements of paragraphs (e)(2) and (e)(3) of this section.
    (2) Parties who must receive notice. The purchaser must deliver 
notice of the informational meeting, and any subsequent meeting, to 
each tenant household in the project and any tenant organization for 
the project, and post notices of the meeting in the project.
    (3) Notice contents. The notice must identify the place, date, and 
time of the informational meeting, and any subsequent meeting. Include 
a brief description of the purpose of the meeting and provide a 
narrative outlining the purchaser's plans for the project, including 
any request made to HUD for debt relief under Sec.  401.461(b)(5) of 
the second and any additional mortgage.
    (4) Tenant endorsement. (i) A purchaser may demonstrate that it is 
tenant endorsed by submitting documentation to HUD that a majority (51 
percent) of the tenant heads of household have given their endorsement 
in writing. Such documentation may include, but is not limited to, 
ballots, letters of support, or petitions. The endorsement of tenants 
who did not attend, or vote at, the informational meeting, or any 
subsequent meeting, may be sought directly from each of these tenants 
subsequent to the meeting.

[[Page 66040]]

    (ii)(A) If the purchaser has made a reasonable effort to obtain the 
endorsement of a majority (51 percent) of the tenants and the necessary 
percentage of votes was not obtained, the purchaser may seek HUD 
approval to obtain endorsement based on a lower percentage of endorsing 
tenants.
    (B) The purchaser must deliver notice to each tenant household that 
the purchaser is seeking HUD approval of a tenant endorsement based on 
less than 51 percent of tenant approval and provide tenants with at 
least 10 days from the date of the notice to submit comments to the 
purchaser on the approval of endorsement.
    (C) The purchaser and/or seller must submit, in writing, to HUD an 
account of the efforts taken to secure tenant endorsement, the number 
and percentage of tenants voting for and against endorsement, and any 
comments received from tenants regarding the approval of endorsement.
    (D) HUD will determine whether or not to approve endorsement on the 
basis of all the information available to HUD and will promptly notify 
the purchaser of HUD's determination.

0
14. Revise Sec.  401.500(f)(2) to read as follows:


Sec.  401.500  Required notices to third parties and meeting with third 
parties.

* * * * *
    (f) * * *
    (2) Within 10 days after a determination that the Restructuring 
Plan will not move forward for any reason, HUD or the PAE shall provide 
notice to affected tenants that describes the reasons for the failure 
of the Plan to move forward and the availability of tenant-based 
assistance under Sec.  401.602(c).

0
15. Revise Sec.  401.645 to read as follows:


Sec.  401.645  Owner request to review HUD decision.

    (a) HUD notice of decision. (1) HUD will provide notice to the 
owner of:
    (i) A decision that the owner or project is not eligible for the 
Mark-to-Market program;
    (ii) A decision not to offer a proposed Restructuring Commitment to 
the owner; and
    (iii) A decision to offer a proposed Restructuring Commitment. The 
proposed Restructuring Commitment provided to the owner constitutes the 
notice of decision for purposes of requesting a review of a HUD 
decision.
    (2) The notice of decision will include the reasons for the 
decision.
    (3) The notice of decision will also notify the owner of the right 
to request a review of the decision or to cure any deficiencies on 
which the decision was based; the date by which the review request must 
be submitted or the deficiencies must be cured, which will be at least 
30 days after the date of the notice of decision; and the address to 
which the review request is to be submitted.
    (b) Review request by owner. (1) Written statement. The review 
request must specify in writing:
    (i) Each item of the decision to which the owner objects;
    (ii) The reasons for the owner's objections; and
    (iii) All information in support of the objections that the owner 
wants HUD to consider.
    (2) Scope of information submitted. HUD will not consider 
information first submitted to HUD in conjunction with an owner's 
request for review except for:
    (i) Information that could not have been submitted previously; and
    (ii) New health and safety information.
    (c) HUD review and final decision. (1) HUD may expand the scope of 
review beyond the issues raised by the owner and may review and modify 
any term within the Restructuring Commitment without regard to whether 
the owner has raised an objection to that term, including adjustments 
to rents or expenses as underwritten by the PAE. If HUD does expand the 
scope of review, HUD will notify the owner of such action and provide 
an additional 30 days for the owner to raise any additional objections 
and provide additional information.
    (2) Within 30 days of HUD's receipt of the owner's review request 
and any additional objections and information, HUD will review the 
request and, using a standard of what is reasonable in light of all of 
the evidence presented, issue a final decision. The final decision 
will:
    (i) Affirm the notice of decision; or
    (ii) Modify the notice of decision and, if applicable, modify the 
Restructuring Commitment, in which event HUD will issue an amended or 
restated Restructuring Commitment that incorporates the final decision; 
or
    (iii) Revoke the notice of decision and, if applicable, terminate 
the Restructuring Commitment and notify the owner that the owner is not 
eligible for participation in the Mark-to-Market program or that a 
restructuring of the property is not feasible.

0
16. Revise Sec.  401.650 to read as follows:


Sec.  401.650  When may the owner request an administrative appeal?

    (a) No review request by owner. If the owner does not request a 
review of the notice of decision under Sec.  401.645 or does not 
execute the proposed Restructuring Commitment within the time provided 
in the notice of decision, HUD will send a written notice to the owner 
stating that the notice of decision is HUD's final decision and that 
the owner has 10 days after receipt of the letter to accept the 
decision, including a Restructuring Commitment, if applicable, or 
request an administrative appeal in accordance with Sec.  401.651.
    (b) Upon receipt of final decision. HUD will send the owner a 
written notice of the final decision under Sec.  401.645 that will also 
provide the owner with 10 days to request an administrative appeal of 
the final decision.
    (c) HUD decision to accelerate the second mortgage. Upon receipt of 
notice from HUD of a decision to accelerate the second mortgage under 
Sec.  401.461(b)(4), the owner may request an administrative appeal in 
accordance with Sec.  401.651.

0
17. In Sec.  401.651, revise paragraph (b) to read as follows:


Sec.  401.651  Appeal procedures.

* * * * *
    (b) Written decision. Within 20 days after the conference, or 20 
days after any agreed-upon extension of time for submission of 
additional materials by or on behalf of the owner, HUD will review the 
evidence presented for the administrative appeal and, using the 
standard of whether the determination of the final decision was 
reasonable, will advise the owner in writing of the decision to 
terminate, modify, or affirm the original decision. HUD will act, as 
necessary, to implement the decision, for example, by offering a 
revised Restructuring Commitment to the owner.
* * * * *

    Dated: November 14, 2007.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. E7-22908 Filed 11-23-07; 8:45 am]
BILLING CODE 4210-67-P