[Federal Register Volume 76, Number 242 (Friday, December 16, 2011)]
[Proposed Rules]
[Pages 78344-78382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31778]



[[Page 78343]]

Vol. 76

Friday,

No. 242

December 16, 2011

Part II





Department of Housing and Urban Development





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24 CFR Parts 91 and 92





 HOME Investment Partnerships Program: Improving Performance and 
Accountability; and Updating Property Standards; Proposed Rule

  Federal Register / Vol. 76 , No. 242 / Friday, December 16, 2011 / 
Proposed Rules  

[[Page 78344]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91 and 92

[Docket No. FR-5563-P-01]
RIN 2501-AC94


HOME Investment Partnerships Program: Improving Performance and 
Accountability; and Updating Property Standards

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Proposed rule.

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SUMMARY: HUD's HOME Investment Partnerships Program (HOME program or 
HOME) provides formula grants to states and units of local government 
to fund a wide range of activities directed to producing or maintaining 
affordable housing, both homes and rental housing. This proposed rule 
would amend the HOME regulations to address many of the operational 
challenges facing participating jurisdictions, particularly challenges 
related to recent housing market conditions and the alignment of 
federal housing programs. The proposed rule would also clarify certain 
existing regulatory requirements and establish new requirements 
designed to enhance accountability by States and units of local 
government in the use of HOME funds, strengthen performance standards 
and require more timely housing production. The proposed rule would 
also update property standards applicable to housing assisted by HOME 
funds.

DATES: Comment Due Date: February 14, 2012

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street 
SW., Room 10276, Washington, DC 20410-0500. Communications must refer 
to the above docket number and title. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at (202) 708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Virginia Sardone, Deputy Director, 
Office of Affordable Housing Programs, Office of Community Planning and 
Development, Department of Housing and Urban Development, 451 7th 
Street SW., Room 7164, Washington, DC 20410; telephone number (202) 
708-2684 (this is not a toll-free number). Persons with hearing or 
speech impairments may access this number through TTY by calling the 
toll-free Federal Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background--The HOME Program

    The HOME program was authorized by Title II of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 12721 et seq.), 
known as NAHA, and has been in operation for 20 years. The HOME program 
provides grants to states and local jurisdictions (collectively, 
participating jurisdictions) used, often in partnership with local 
nonprofit groups, to fund a wide range of activities that build, buy, 
and/or rehabilitate affordable housing for rent or homeownership or to 
fund direct rental assistance to low-income people. HOME program funds 
are awarded annually as formula grants to participating jurisdictions. 
HUD establishes a HOME Investment Trust Fund for each grantee, 
providing a line of credit that the jurisdiction may draw upon as 
needed. The participating jurisdictions are allowed to use their HOME 
funds as grants, direct loans, loan guarantees, or other forms of 
credit enhancement, or as rental assistance or security deposits.
    The HOME program is the largest federal block grant to States and 
local governments that is designed exclusively to create affordable 
housing for low-income households. Each year, the program allocates 
approximately $1 to $2 billion among the states and hundreds of 
localities nationwide. The program was designed to reinforce several 
important values and principles of community development. First, the 
HOME program's flexibility empowers people and communities to design 
and implement strategies tailored to their own needs and priorities. 
Second, the HOME program's emphasis on consolidated planning expands 
and strengthens partnerships among all levels of government and the 
relationship with the private sector in the development of affordable 
housing. Third, the HOME program's technical assistance activities and 
set-aside for qualified community-based nonprofit housing groups helps 
to build the capacity of these partners. Fourth, the HOME program's 
requirement that participating jurisdictions match 25 cents of every 
dollar in program funds helps to mobilize community resources in 
support of affordable housing.
    The regulations for the HOME program are codified in 24 CFR part 92 
and were last substantively revised by final rule issued on September 
16, 1996 (61 FR 48750). In the 15 years since the promulgation of the 
1996 final rule, many HOME participating jurisdictions have adopted 
more complex program designs. They have encountered new challenges in 
administering their programs and in managing their growing portfolios 
of older HOME projects. These challenges include reduced availability 
of states or local funding sources, reduced private lending, changes in 
housing property standards, and energy codes and reductions in states 
and local government workforces throughout the Nation. These challenges 
have been magnified by current housing and credit market conditions. 
Since establishment of the HOME program, HUD has monitored 
participating

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jurisdictions' use of HOME funds and measured participating 
jurisdictions' performance. Through such monitoring and audits by HUD's 
Office of Inspector General (OIG), HUD has identified and corrected 
compliance problems and has gained a fuller understanding of regulatory 
provisions that need to be strengthened or clarified to help avoid 
noncompliance and maximize effectiveness.
    HUD has invested significant time and resources in helping 
participating jurisdictions correct financial and physical problems 
that threaten the viability of some HOME-assisted rental projects in 
their portfolios. HUD has determined that participating jurisdictions 
need additional tools and flexibility to effectively address troubled 
projects. Over the last several years, HUD has developed numerous 
publicly available reports that measure the performance and 
effectiveness of each participating jurisdiction. HUD's review of these 
reports has identified performance and reporting problems among 
participating jurisdictions that cannot be addressed effectively under 
the current regulations.
    Accordingly, through this rule, HUD proposes regulatory changes to 
address many of the operational challenges facing participating 
jurisdictions, improve understanding of HOME program requirements, 
update property standards to which housing funded by HOME funds must 
adhere, and strengthen participating jurisdictions' accountability for 
both compliance with program requirements and performance.

II. This Proposed Rule

A. Changes to HUD's Consolidated Plan Regulations

Action Plan Amendments (Sec. Sec.  91.220, 91.320)
    This proposed rule would make several changes to the action plan 
sections of HUD's Consolidated Plan regulations in 24 CFR part 91, as 
well as those in HUD's HOME program regulations in 24 CFR part 92.
    Sections 91.220(l)(i) and (ii) of the Consolidated Plan regulations 
and Sec. Sec.  92.205(b) and 92.254(a)(5) of the HOME program 
regulations would be revised to clarify that HUD's approval (or failure 
to disapprove) a consolidated plan does not automatically approve forms 
of investment of HOME funds other than those described in Sec.  
92.205(b), or of resale or recapture guidelines submitted by the 
participating jurisdiction. Because the HOME regulations at Sec.  
92.205(b)(1) require that HUD determine that other forms of investment 
proposed by a participating jurisdiction be consistent with the 
purposes of 24 CFR part 92, the other forms of investment must be 
approved in writing by HUD separate from the consolidated plan approval 
letter. The consistency of other forms of investment with HOME program 
purposes is not indirectly established simply by HUD's approval of a 
consolidated plan that proposes such other forms of investment.
    This proposed rule also amends Sec.  91.220 to provide 
participating jurisdictions with some flexibility in determining the 
maximum purchase price for single family housing assisted with HOME 
funds for homebuyer assistance or rehabilitation of owner-occupied 
single family housing. Section 215(b) of NAHA requires that the value 
of homeownership units assisted with HOME funds not exceed 95 percent 
of the area median purchase price for single family housing, as 
determined by HUD. HUD's current regulations at Sec.  92.254(a)(2)(iii) 
permits participating jurisdictions to use the single family mortgage 
limits of the Federal Housing Administration (FHA) that are established 
under section 203(b) of the National Housing Act (12 U.S.C. 1709(b)) to 
determine the area median purchase price. The proposed rule would 
provide that a participating jurisdiction that opts not to use the HUD-
issued 95 percent of median purchase price for the purpose of 
determining ``modest housing'' for homebuyer assistance or 
rehabilitation of owner-occupied single family properties may instead 
calculate a limit based upon recent sales within the jurisdiction. The 
current regulations at 24 CFR 92.254(a)(2)(ii) require these 
participating jurisdictions to submit the limit and supporting sales 
price documentation to HUD. However, the regulations do not specify 
that this information be submitted as part of the consolidated plan 
annual action plan, making it possible for the participating 
jurisdiction to submit new limits at any point in its program year. HUD 
has concluded that it is most appropriate for this calculation to be 
just prior to the start of, and for the resulting value limit to be 
made applicable to, a participating jurisdiction's program year. 
Consequently, HUD proposes to amend Sec. Sec.  91.220(l)(2)(iv) and 
91.320(k)(2)(iv) to require such a participating jurisdiction to 
include in its action plan its calculation of 95 percent of the median 
area purchase, in accordance with the criteria and formula provided in 
Sec.  92.254(a)(2)(iii).
    The proposed rule would require participating jurisdictions to 
include more information about the expenditure of HOME program funds in 
their action plans. The inclusion of more information about the 
participating jurisdiction's planned expenditure of HOME funds not only 
assists HUD in its monitoring of the jurisdiction's expenditure of 
taxpayers' funds, but allows the citizens of the jurisdiction to weigh 
in with their views on the proposed expenditures as part of citizens' 
participation in the development and review of the consolidated plan. 
For example, the participating jurisdiction would be required under 
Sec. Sec.  91.220(l)(2)(v) and 91.320(k)(2)(v) to describe the 
applicants that are eligible to apply for the HOME program, as well as 
the jurisdiction's process for soliciting and funding applications or 
proposals. Sections 91.220(l)(2)(vi) and 91.320(k)(2)(vi) of the 
proposed rule would also permit the participating jurisdiction to limit 
the beneficiaries or give preferences in its programs to a particular 
segment of the low-income population.
    Participating jurisdictions have asked if they could limit rental 
projects to artists or nurses, or if they could limit a homebuyer 
program to persons in a specific occupation (e.g., artists, police 
officers, or teachers). Under HUD's authority to determine appropriate 
categories of persons to be targeted for housing assistance under the 
HOME program, the proposed rule would expressly permit these 
limitations. However, a participating jurisdiction would not be 
permitted to limit participation in a HOME-funded program or occupancy 
in a HOME-assisted project solely to its own employees of the 
jurisdiction because doing so would create at least the appearance of a 
conflict of interest and would require that the participating 
jurisdiction seek an exception to the conflict-of-interest provisions 
pursuant to 24 CFR 92.356(d) for every potential beneficiary. A rental 
project could be limited to a particular subpopulation only if the 
jurisdiction described the limitation or preference in its action plan, 
and specifically authorized the project owner to limit tenant selection 
in its written agreement with the owner, in accordance with the 
proposed revisions at Sec.  92.253(d). A limitation or preference must 
not violate such nondiscrimination laws as the Fair Housing Act (42 
U.S.C. 3601-19), title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d--2000d-4) (Nondiscrimination in Federally Assisted Programs), the 
Age Discrimination Act (42 U.S.C. 6101-6107), section 504 of the 
Rehabilitation

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Act of 1973 (29 U.S.C. 794), and the Americans with Disabilities Act 
(42 U.S.C. 12101 et seq.), and the implementing regulations of these 
statutes.

B. Changes to the HOME Program Regulations

1. Definitions (Sec.  92.2)
    For the convenience in use of the HOME program regulations, HUD 
proposes to add cross-references for the definitions of ``public 
housing,'' ``Community Development Block Grant (CDBG) program,'' and 
``Consolidated Plan'' in Sec.  92.2. These terms are used in the HOME 
regulations, and HUD determined that it would be helpful to readers to 
include cross-references to where these terms are defined in HUD 
regulations.
    Commitment. HUD proposes to make several changes to the definition 
of ``commitment'' in Sec.  92.2. This term is currently defined to 
mean, generally, that a participating jurisdiction has executed a 
legally binding agreement with a state recipient, a subrecipient, or a 
contractor to use a specific amount of HOME funds for a specified use 
or for a specified local project.
    First, a revision is proposed to include an agreement with a state 
recipient, a subrecipient, or a contractor to use a specific amount of 
HOME funds to provide downpayment assistance. Participating 
jurisdictions commonly fund such entities to produce affordable 
housing, provide downpayment assistance, or administer a tenant-based 
rental assistance program, but the regulation did not expressly include 
them in the definition of ``commitment.''
    Second, the definition of commitment is being revised to remove 
references to reserving funds to community housing development 
organizations (CHDOs), so that such reservations, which are not 
project-specific, would no longer be considered a commitment under the 
HOME regulation. This change is discussed further below with other 
proposed changes affecting funding for CHDOs under subpart G of the 
HOME program regulations.
    HUD has encountered situations in which participating jurisdictions 
have produced agreements without dated signatures as evidence of a 
commitment before the 24-month deadline. The HOME statute and 
regulations require HOME funds to be committed within 24 months after 
the last day of the month in which HUD notifies the participating 
jurisdiction of HUD's execution of the HOME Investment Partnership 
Agreement. The lack of a dated signature calls into question when the 
commitment was made, therefore making it difficult to determine whether 
the funds have been committed within the 24-month deadline. 
Accordingly, the definition of ``commitment'' is proposed to be amended 
to require that the signature of each party to the agreement must be 
dated. The definition is also proposed to be amended to include a 
cross-reference to the requirements for written agreements in Sec.  
92.504(c), which will help ensure that the agreements evidencing 
commitment meet the standards for written agreements as provided in 
Sec.  92.504(c).
    HUD further proposes to revise the definition of ``commitment'' to 
expressly exclude: (1) An agreement between a participating 
jurisdiction and a subrecipient that the participating jurisdiction 
controls, e.g., an agency whose officials or employees are officials or 
employees of the participating jurisdiction, and (2) an agreement 
between the jurisdiction that is the lead member of the consortium and 
local government that is a member of the consortium. The existing 
definition provides that a commitment is a legally binding agreement 
between the participating jurisdiction and another entity to provide 
funds to undertake specified HOME activities. In both of these 
instances, the participating jurisdiction is essentially entering into 
an agreement not with a separate entity, but with an entity that is 
part of the participating jurisdiction, such that a legally binding 
agreement with another entity is not created.
    Community housing development organization. The definition of 
``community housing development organization'' (CHDO) in Sec.  92.2 
would be amended to add a reference to the Internal Revenue Service 
(IRS) regulations that implement section 501(c)(4) of the Internal 
Revenue Code, which was inadvertently omitted from the regulation.
    The CHDO definition is also proposed to be revised to clarify the 
relationship between the CHDO and the organization that may create the 
CHDO. New paragraph (3)(iv) of the definition would clarify that if a 
for-profit entity creates or sponsors a nonprofit entity that seeks 
designation as a CHDO, the officers and employees of the for-profit 
entity would be prohibited from serving as officers or employees of the 
CHDO, and the nonprofit entity would be prohibited from using the 
office space of the for-profit entity. This requirement would add to 
the existing regulatory provisions that are intended to prevent the 
nonprofit entity from being influenced by the profit motive of the for-
profit entity.
    The proposed rule would also revise paragraph (5) of the definition 
to clarify that the CHDO must be separate from and not under the 
control of a governmental entity, in keeping with the statutory 
requirement that a CHDO maintain accountability to the low-income 
community it serves through its governing board make-up and otherwise. 
A governmental entity would still be permitted to create a CHDO, but it 
would not be permitted to control the CHDO by providing its employees 
to the CHDO as staff or officers.
    Paragraph (9) of the existing definition of CHDO at Sec.  92.2 
permits a nonprofit organization to meet the demonstrated capacity 
requirement for CHDO designation if the organization has engaged a 
consultant who will carry out activities while also training key CHDO 
staff. This provision was intended to facilitate capacity building of 
community-based nonprofit organizations transitioning into the role of 
housing developer. HUD is concerned that some CHDOs have continued to 
rely on the use of expert consultants for core development experience 
and have not developed the internal capacity to function effectively in 
the developer role. This proposed rule would revise paragraph (9) of 
the definition to strengthen the requirement that CHDOs must have paid 
employee staff with housing development experience in order to be 
designated as a CHDO. Nonprofit organizations would no longer be able 
to meet the demonstrated capacity requirement through the use of 
consultants and through a plan for staff to be trained by the 
consultants.
    The proposed rule would also provide that the demonstrated capacity 
requirement cannot be met through the use of volunteers. The continued 
use of consultants or volunteers to fill occasional skill gaps or 
undertake activities that are required only on a periodic basis (e.g., 
project underwriting) continues to be appropriate, but cannot be the 
basis of a determination that a CHDO has demonstrated capacity to 
develop affordable housing.
    Homeownership. The proposed rule would rearrange existing 
provisions in the definition of ``homeownership'' in Sec.  92.2 for 
improved organization of the definition. In addition, the revised 
definition would provide that a right to possession under a contract 
for deed, installment contract, or land sales contract (pursuant to 
which the deed is not given until the final payment is made) is not 
homeownership. These mechanisms, which are common in

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certain areas of the country, are financing arrangements through which 
interested homebuyers enter into a payment arrangement directly with 
the seller. In most cases, there is no language in the contract 
protecting the homebuyer in the event of a late or missed payment. 
Whereas mortgage principal payments increase the homeowner's equity in 
the property over time, and the title is transferred to the homebuyer 
at the closing, payments made under a land sales contract arrangement 
typically do not constitute equity, and the title is not required to be 
transferred to the homebuyer until the very last payment has been made. 
Even in states that have statutes recognizing the equitable interest of 
the homebuyer, the protections given to homebuyers under these 
financing mechanisms are not equal to those given to homebuyers who 
receive title to the housing and finance the purchase through a 
mortgage. For these reasons, land sales contracts are not considered to 
be an eligible form of homeownership under the HOME program. HUD 
encourages the use of HOME funds to assist low-income households who 
have entered into a contract for deed to obtain equitable title to the 
property.
    The definition of ``homeownership'' would also be revised to make 
explicit that mutual or cooperative housing that receives assistance 
through a Low-Income Housing Tax Credit (LIHTC) program is not 
considered homeownership housing under the HOME program because a 
project receiving LIHTC is a rental project.
    Housing. HUD proposes to amend the definition of ``housing'' in 
Sec.  92.2 to exclude all student housing. The current regulations 
exclude only student dormitories. However, the use of HOME funds for 
student housing in any configuration, is inconsistent with the 
statutory purposes of the program. The focus of the HOME program is 
affordable housing for low-income households, and student housing, 
regardless of the configuration, does not constitute affordable housing 
for low-income households as contemplated by the HOME statute. In 
addition, the proposed rule would amend the definition to clarify that 
dormitories, including those for farmworkers, do not constitute 
housing.
    With respect to what constitutes housing under the HOME program, 
HUD has encountered cases where participating jurisdictions have 
proposed to use HOME funds for buildings considered to be housing by 
the participating jurisdiction, but that do not constitute housing 
under the HOME program. Examples of such uses are hospice buildings, 
nursing homes, foster homes, halfway houses, and residential treatment 
facilities. HUD emphasizes that the mere fact that a building 
physically resembles housing or that a person lives in a building for 
some period of time does not qualify that building as housing for HOME 
program purposes. The use of HOME funds is statutorily limited to 
permanent and transitional housing. No HOME funds may be used for any 
activity that does not qualify as permanent or transitional housing. 
One indication that the building is a facility, not housing, is the 
lack of a lease for the residents. All HOME-assisted rental housing 
units must have leases for the tenants that provide the HOME tenant 
protections outlined in Sec.  92.253(a).
    Low-income families and very low-income families. HUD proposes to 
revise the definition of ``low-income families'' and ``very low-income 
families'' in Sec.  92.2 to exclude students from qualifying as a low-
income or very low-income family. Specifically, the regulation would be 
revised to be consistent with recent statutory changes to the Housing 
Choice Voucher program, which prohibit voucher assistance to 
individuals who are enrolled in an institution of higher learning from 
qualifying as a low-income family if the individual is under 24 years 
of age, is not a military veteran, is unmarried, does not have a 
dependent child, and is not otherwise individually low-income or does 
not have parents who are low-income.\1\ This statutory change was made 
to the Housing Choice Voucher program in response to incidents of 
college students who were obtaining federal housing assistance but did 
not meet the low-income eligibility requirements, and were therefore 
depriving eligible families from receiving voucher assistance. 
Adoption, in the HOME program, of the exclusion of assistance to 
students would achieve the same goals as those for which the 
prohibition was put in place in the Housing Choice Voucher program. 
Accordingly, in the HOME program, students would be prohibited from 
renting HOME-assisted rental units, receiving HOME tenant-based rental 
assistance, or otherwise participating in the HOME program independent 
of their families.
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    \1\ HUD's Housing Choice Voucher Program regulations were 
amended by final rule published on December 30, 2005 (70 FR 57743, 
as subsequently amended on August 21, 2008 at 73 FR 49333), which 
implemented this prohibition assistance, and which is codified at 24 
CFR 5.612.
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    Project completion. HUD proposes to amend the definition of 
``project completion'' in Sec.  92.2 to clarify the conditions that 
must be met for projects to be considered completed. This change is 
made in response to questions from participating jurisdictions 
regarding the point at which they can complete a project in the 
Integrated Disbursement and Information System (IDIS), the HOME data 
system. For example, the rule will make clear that a rental project may 
be designated as completed in IDIS once construction or rehabilitation 
is completed, but before all units are occupied.
    Program income. HUD proposes to amend the definition of ``program 
income'' in Sec.  92.2 to clarify that program income does not include 
gross income from the use, rental, or sale of real property received by 
the project owner, developer, or sponsor, unless the funds are paid by 
the project owner, developer, or sponsor to the participating 
jurisdiction, subrecipient, or state recipient. The existing 
regulations provide that program includes ``gross income from the use 
or rental of real property, owned by the participating jurisdiction, 
state recipient, or a subrecipient, that was acquired, rehabilitated, 
or constructed, with HOME funds or matching contributions, less costs 
incidental to generation of the income. However, gross income does not 
constitute program income in the case of the use, rental, or sale of 
real property when the gross income is that received by the project 
owner, developer, or sponsor. Owners, developers, and sponsors of 
housing are not the participating jurisdiction, a state recipient, or a 
subrecipient administering all or a portion of the participating 
jurisdiction's HOME program. Consequently, gross income received by 
these entities is not program income by the terms of the existing 
definition.
    Reconstruction. The definition of ``reconstruction'' at Sec.  92.2 
is proposed to be amended, based on difficulties encountered by 
participating jurisdictions attempting to rebuild housing after 
disasters. The current regulations state that housing can be rebuilt 
under the reconstruction category only if the housing was standing on 
the site at the time of project commitment. In the case of disasters or 
fires, the housing may no longer be standing on the site at the time 
when the opportunity for project commitment arises. Consequently, the 
current regulations require such reconstructed units to be classified 
as new construction, resulting in longer periods of affordability for 
rental projects and the imposition of resale or recapture provisions on 
displaced owner-occupants.

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    HUD proposes to provide an exception to the reconstruction 
requirement that the housing must be standing on a site at the time of 
project commitment. The exception would permit housing that was 
destroyed or severely damaged and subsequently demolished to be rebuilt 
on the same lot under the reconstruction category, if the HOME funds 
are committed within 12 months of the date of destruction or damage. 
The one-year period for committing HOME funds to reconstruct a 
destroyed property by a disaster will provide sufficient flexibility to 
respond effectively to most natural disasters or fires. This period 
could be extended by waiver for good cause if the circumstances or 
scale of a particular disaster make the proposed time frames 
infeasible.
    Single room occupancy. The definition of ``single room occupancy 
(SRO)'' housing in Sec.  92.2 is proposed to be revised. The HOME 
regulations provide participating jurisdictions with flexibility with 
respect to classifying a property as a SRO project or a group home, 
depending on the physical configuration of the project. Classifying a 
project as a SRO results in larger potential subsidies and higher gross 
rent than could be obtained under a group home designation, because the 
SRO contains more than one unit and a group home is only one unit. 
However, some participating jurisdictions fail to take their own zoning 
and building code classifications into account when making this 
determination for HOME. This rule proposes to require that a project 
could be designated as an SRO for HOME purposes only if a project 
having the characteristics of an SRO would be consistent with the 
participating jurisdiction's applicable building and zoning code 
classifications.
    Subrecipient. HUD proposes to make minor revisions to the 
definition of ``subrecipient'' in Sec.  92.2. Participating 
jurisdictions have stated that the roles of subrecipients and 
developers in the HOME program are not always clearly distinguished. 
Language is therefore proposed to be added to the definition of 
``subrecipient'' that would state that HOME subrecipients receive funds 
to carry out programs (e.g., downpayment assistance programs, owner-
occupied rehabilitation programs, etc.), not to undertake specific 
projects.
2. Program Requirements
a. Jointly Funded Projects of Contiguous Jurisdictions (Sec.  92.201)
    Section 218(a) of the NAHA (42 U.S.C. 12748(a)) prohibits a 
participating jurisdiction from investing HOME funds in projects 
outside its boundaries, except for projects located in a contiguous 
jurisdiction that are joint projects that serve the residents of both 
jurisdictions. HUD has found that participating jurisdictions would be 
aided by HUD elaborating on what it means to jointly fund a project. 
HUD therefore proposes to revise Sec.  92.201 to provide that a jointly 
funded project is one in which both jurisdictions make a financial 
contribution to the project. A financial contribution would be 
permitted to take the form of a grant, loan, or relief of a significant 
tax or fee (such as waiver of impact fees, property taxes, or other 
taxes or fees customarily imposed on projects within the jurisdiction) 
and must contribute to the feasibility of the project.
b. Site and Neighborhood Standards (Sec.  92.202)
    This proposed rule includes a conforming change that would update 
the citation in Sec.  92.202 to the site and neighborhoods regulations, 
which were moved to 24 CFR 983.57(e)(2) and (3).
c. Income Determinations (Sec.  92.203)
    HUD proposes several changes related to the calculation of the 
annual income of a family or household for the purpose of determining 
the family's or household's eligibility for HOME assistance. HUD 
proposes to revise Sec.  92.203(a)(1)(i) and (a)(2) to require that, 
when performing income determinations for potential HOME beneficiaries 
using source documentation, the participating jurisdiction must examine 
at least 3 months of earning documentation (e.g., wage statements, 
interest statements, unemployment compensation). This change would 
codify the existing standard that is already outlined in the Technical 
Guide for Determining Income and Allowances for the HOME Program. This 
guide allows participating jurisdictions to calculate income 
eligibility by examining earnings over a 3-month period or 12-month 
period. While participating jurisdictions would continue to be allowed 
to select an earnings examination period of more than 3 months, HUD 
proposes to codify the 3-month standard as the minimum earnings 
examination period that participating jurisdictions must utilize. A 
minimum examination period of 3 months should be sufficient to 
accurately reflect the income eligibility of applicants for HOME units.
    HUD proposes to revise Sec.  92.203(b)(2) to eliminate the option 
currently available to participating jurisdictions to use the 
definition of ``annual income'' that is based on income reported on the 
Census long form. (See Form D-61B of the U.S. Census Bureau.) This 
option was rarely used by participating jurisdictions because the other 
definitions permitted by the regulations--the 24 CFR part 5 ``annual 
income'' definition and the Internal Revenue Service (IRS) ``adjusted 
gross income'' definition- are broadly used in other housing programs. 
Further, unlike the other definitions of annual income permitted under 
the HOME regulations, there is not adequate, accessible guidance 
available from the U.S. Census Bureau regarding how a wide range of 
situations that arise for HOME-assisted households should be treated. 
Participating jurisdictions would continue to have the option of using 
either the income definition in HUD's regulations at 24 CFR part 5 
(often referred to as the Section 8 definition) or the definition of 
adjusted gross income of the IRS.
    HUD is also proposing to revise the definition of annual income 
that is based on the IRS definition of ``adjusted gross income.'' This 
definition of annual income would be redesignated as Sec.  92.203(b)(2) 
and revised to require that federal government cost-of-living 
allowances that are not included in adjusted gross income (e.g., for a 
federal civilian employee or a federal court employee who is stationed 
in Alaska, Hawaii, or outside the United States) be added to the 
adjusted gross income of applicants for HOME assistance for the purpose 
of determining income eligibility. Currently, these employees receive 
substantial cost-of-living allowances that may not be subject to 
federal tax and may not be included in adjusted gross income. The 
result is that when participating jurisdictions in these areas use the 
adjusted gross income definition for their HOME programs, individuals 
who receive these special federal cost of living allowances may earn an 
actual income in excess of HUD's income limits and still qualify for 
HOME assistance, while other potential applicants for HOME assistance 
who have lower actual incomes are not qualified to participate in the 
program because their incomes exceed the maximum income limits for 
HOME. This proposed change would ensure that HOME assistance is 
targeted to households that are actually low-income and eliminate the 
potential for disparate treatment of federal and nonfederal workers in 
these areas.
    HUD proposes to revise Sec.  92.203(c) to clarify that a 
participating jurisdiction must designate and implement only one 
definition of income for each HOME-

[[Page 78349]]

assisted program (e.g., downpayment assistance program, rental housing 
program) that it administers. For example, a participating jurisdiction 
may designate the IRS-adjusted gross income definition as the 
definition for its downpayment assistance program. The participating 
jurisdiction would be required to use that definition to determine the 
income-eligibility of each applicant for that program, to ensure 
equitable treatment of all applicants. The designation of the IRS 
adjusted gross income definition for its downpayment assistance program 
would not preclude the participating jurisdiction from designating a 
different income definition for another of its HOME-funded programs 
(e.g., the participating jurisdiction could designate the Part 5 annual 
income definition for its rental housing or tenant-based rental 
assistance program). The revision would help to ensure that all 
applicants for a local HOME-funded program are treated equally.
    HUD proposes to revise Sec.  92.203(d)(1) to clarify the 
applicability of annual income determination requirements to households 
that include nonrelated individuals. The existing regulatory provision 
requires that the determination of annual income include income from 
``all family members.'' Participating jurisdictions have asked HUD how 
to handle the income determinations for households that are composed of 
nonrelated individuals or related individuals and one or more 
nonrelated individuals. HUD therefore proposes to update Sec.  
92.203(d)(1) to provide that the determination of annual income 
includes ``all persons in the household.''
d. Eligible Activities: General (Sec.  92.205)
    HUD is proposing to revise several provisions of Sec.  92.205.
    The proposed rule would add language to paragraph (a)(1) to clarify 
that activities and costs are eligible for HOME funding only if the 
housing meets the property standards in Sec.  92.251 upon project 
completion.
    Paragraph (a)(2) of Sec.  92.205 would be revised to specify that 
the acquisition of vacant land or demolition with HOME funds may be 
undertaken only with respect to a particular affordable housing project 
for which construction can reasonably be expected to start within the 
time frames established in paragraph (2) of the definition of 
``commitment'' in Sec.  92.2. Referring to these time frames for 
commencement of construction in the paragraph establishing the 
acquisition of land or demolition of existing structures to facilitate 
development on land as eligible project costs will improve the clarity 
of the regulation and emphasize that HOME funds may not be used to 
acquire property or demolish structures on land for which there is not 
an immediate planned HOME-eligible use.
    HUD is aware of some situations in which a participating 
jurisdiction determined, after completion of a HOME rental project, 
that the presence of a live-in manager would improve living conditions 
in a project or benefit tenants in service-enriched housing. In most 
rental projects, not all the units in the project are designated as 
HOME-assisted, so designating a non-HOME unit as a manager's unit is a 
simple matter. However, the existing HOME regulations do not 
contemplate a situation in which a participating jurisdiction has 
designated all the units in a project as HOME-assisted and subsequently 
determines that there is a need for a live-in manager. To address such 
situations, HUD proposes to revise paragraph (d) of Sec.  92.205, which 
addresses cost allocation and the designation of HOME-assisted units in 
multi-unit projects, to provide that after project completion, the 
number of HOME-assisted units in a project may be reduced only in 
accordance with the new regulatory provisions on troubled projects in 
Sec.  92.210. However, this paragraph, as revised, would permit, in a 
project consisting of all HOME units, one unit to be converted to an 
on-site manager's unit if the participating jurisdiction determines the 
conversion will contribute to the stability of the housing or 
effectiveness of the housing program and that, notwithstanding the loss 
of one HOME-assisted unit, the costs charged to the HOME program do not 
exceed the actual costs of the HOME-assisted units, and the total HOME 
investment to the project would not exceed the maximum per-unit HOME 
subsidy limit established in Sec.  92.250(a) for the number of HOME-
assisted units.
    Costs paid with HOME funds are eligible only if they result in a 
completed HOME project that meets all applicable HOME requirements 
(e.g., affordability provisions, income targeting, property standards, 
etc.). When HOME funds are expended for projects that are not 
completed, for whatever reason, the project is considered terminated 
before completion and the participating jurisdiction must repay the 
HOME funds. HUD proposes to add language to paragraph (e) of Sec.  
92.205 regarding terminated projects to better highlight the 
relationship of the repayment requirements of Sec.  92.503 to 
terminated projects in Sec.  92.205(e).
    In addition, the proposed changes to Sec.  92.205(e) would also 
provide that projects that are not completed within 4 years from the 
date of project commitment are deemed terminated and that the 
participating jurisdiction must repay the funds. When committing HOME 
funds to a project, the participating jurisdiction must have a 
reasonable expectation that construction on the project will begin 
within 12 months. Since large, multi-phase projects are usually funded 
as several separate projects for HOME purposes, most HOME projects 
should be completed within 4 years after the date of commitment. HUD's 
experience is that construction on large multi-unit properties 
typically is completed within 2 to 3 years, barring unusual 
circumstances. In the event that a project is not completed within 
these time frames, the participating jurisdiction may request a 12-
month extension of the completion deadline by submitting information 
about the status of the project, steps being taken to overcome any 
obstacles to completion, proof of adequate funding to complete the 
project, and a schedule with milestones for completion of the project 
for HUD's review and approval.
e. Eligible Project Costs and Eligible Administrative and Planning 
Costs (Sec.  92.206)
    HUD proposes to revise Sec.  92.206(a) to replace the term 
``housing'' with the term ``project'' in several sections of the HOME 
program regulations. While NAHA uses ``housing'' throughout, HUD, 
participating jurisdictions, and other HOME program practitioners 
generally use the term ``project'' or ``HOME-assisted project.''
    HUD also proposes to revise Sec.  92.206(b)(1) to emphasize that it 
is rehabilitation, rather than refinancing, which is the primary 
activity that makes refinancing an eligible cost under the HOME 
program. This rule adds language to Sec.  92.206(b)(1) to condition 
refinancing as an eligible cost to projects in which the cost of the 
actual rehabilitation is greater than the amount of debt that is 
refinanced with HOME funds.
    HUD proposes to amend Sec.  92.206(b)(2) to allow that the 
eligibility of costs of refinancing existing debt under paragraph 
(b)(2), as well as the requirement for participating jurisdictions to 
adopt accompanying refinancing guidelines, are intended to cover all 
rental housing--multifamily and single family. The existing language 
referenced only multifamily housing, necessitating a waiver of the 
regulation in one instance when a participating

[[Page 78350]]

jurisdiction wanted to provide HOME funds to refinance single family 
rental housing as part of a rehabilitation project.
    HUD proposes to revise Sec.  92.206(d)(1) to permit HOME funds to 
be used to pay for architectural and engineering costs and other 
related professional services that were incurred within 18 months of 
the date that HOME funds were committed to the project, provided that 
the HOME written agreement with the project owner authorizes such use 
of funds. Participating jurisdictions frequently have requested 
clarification on the eligibility of soft costs incurred prior to 
commitment of HOME funds. Permitting predevelopment costs incurred 
before commitment of HOME funds will provide increased flexibility to 
participating jurisdictions and affordable housing developers planning 
a project that is intended to eventually receive HOME financing. The 
revision would also permit participating jurisdictions to reimburse 
these costs for projects that are already under construction when it 
becomes clear that HOME financing is necessary to complete the project. 
In addition, HUD revises Sec.  92.206(d)(3) to make clear that energy 
audits are an eligible project-related soft cost. Note that the 
environmental review requirements must be met before HOME funds are 
committed to the project. Pursuant to HUD's regulations in 24 CFR 
58.22, in instances where a developer applies for HOME funds after 
construction has begun, construction activities must cease and may not 
resume until environmental clearance is obtained. The change would not 
permit HOME funds to reimburse developers for acquisition or 
construction costs incurred before HOME funds were committed to the 
project. HUD is proposing that the reimbursement of soft costs be 
limited to costs incurred during the 18-month period before commitment 
of HOME funds to a project, to ensure that the costs are associated 
with HOME funds and not previously planned activities on the site.
    HUD proposes to amend Sec.  92.206(d)(3) to provide that eligible 
costs of a project audit include the cost of certification of costs 
performed by a certified public accountant.
    HUD proposes to amend Sec. Sec.  92.206(d)(6) and 92.207(b), both 
of which address staff and overhead costs, to prohibit participating 
jurisdictions, state recipients, and subrecipients from charging their 
administrative costs to low-income beneficiaries. HUD has encountered 
cases in which low-income families are being charged construction 
management fees, loan processing fees, loan servicing fees, and 
underwriting fees. For example, participating jurisdictions have been 
found to be charging construction management fees as high as several 
thousand dollars per unit to low-income homeowners participating in 
owner-occupied rehabilitation programs. These fees are sometimes added 
to amortizing loans, increasing the monthly payment of low-income 
beneficiaries. Such costs are administrative costs of the participating 
jurisdiction, state recipient, or subrecipient and can be charged as 
either program administrative costs or project-related soft costs, 
without the costs being passed on to low-income beneficiaries. It is 
inappropriate to pass such program administration costs along to low-
income beneficiaries, and this change would prohibit the practice.
    Note, however, that participating jurisdictions, state recipients, 
and subrecipients would not be prohibited from charging reasonable and 
customary fees commonly charged to a loan applicant in unassisted real 
estate transactions, such as the cost of credit reports and appraisals 
fees that are customarily charged by a lender as part of a home 
purchase and paid to third parties performing services on behalf of the 
lender. Program participants, including project owners, would still be 
permitted to charge nominal application fees to applicants for 
assistance, pursuant to Sec.  92.214(b).
f. Eligible Community Housing Development Organization CHDO Operating 
Expense and Capacity Building Costs (Sec.  92.208)
    Under Sec.  92.208, as currently codified, a participating 
jurisdiction may use up to 5 percent of its fiscal year HOME allocation 
for operating expenses of CHDOs. HUD is proposing to add language to 
Sec.  92.208 to clarify that CHDO operating funds are separate from and 
not intended to supplant CHDO set-aside funds provided under Sec.  
92.300(a). HUD has found that some participating jurisdictions have 
awarded operating funds, which the regulation states are to cover 
general operating costs such as office rents and utilities, staff 
salaries, and insurance, to CHDOs to pay for project-related soft costs 
such as architectural or engineering costs or in lieu of developer's 
fees. Such costs are eligible to be paid with CHDO set-aside funds.
g. Tenant-Based Rental Assistance: Eligible Costs and Requirements 
(Sec.  92.209)
    HUD proposes several amendments to the tenant-based rental 
assistance provisions of Sec.  92.209. Language would be added to Sec.  
92.209(a) to expressly state that payment of utility deposits is an 
eligible HOME cost in conjunction with the provision of HOME tenant-
based rental assistance or security deposit assistance. HOME funds 
would not be permitted to be used for programs that provide only 
utility deposit assistance, since such assistance does not constitute 
tenant-based rental assistance. This prohibition is consistent with 
longstanding HUD policy, but the current regulation does not state that 
utility deposits in connection with rental assistance or security 
deposit assistance are eligible costs.
    HUD proposes to add language to Sec.  92.209(c) to clarify that a 
participating jurisdiction's tenant selection policies and criteria 
must be based on local housing needs and priorities consistent with the 
participating jurisdiction's consolidated plan. This is consistent with 
the requirement in Sec.  91.325(d)(1) that a participating jurisdiction 
that plans to use HOME funds for tenant-based rental assistance must 
certify that the tenant-based rental assistance is an essential part of 
its consolidated plan.
    HUD proposes to revise Sec.  92.209(c)(2) to add provisions on 
using HOME funds to target tenant-based assistance to special needs 
populations and to persons with disabilities. The rule would clarify 
that a participating jurisdiction may establish a preference for 
individuals with special needs (e.g., homeless persons or elderly 
persons) or persons with disabilities. In accordance with the existing 
provision in Sec.  92.209(c)(2)(ii), the participating jurisdiction may 
provide a preference for a specific category of individuals with 
disabilities (e.g., persons with HIV/AIDS or chronic mental illness) if 
the specific category is identified in the participating jurisdiction's 
consolidated plan as having unmet need and the preference is needed to 
narrow the gap in benefits and services received by such persons. This 
proposed rule would add a provision at Sec.  92.209(c)(2)(i) to specify 
that participation may be limited to persons with a specific disability 
if doing so is necessary to provide housing, aid, benefit, or services 
that are as effective as those provided to others, in accordance with 
the provisions in 24 CFR 8.4(b)(1)(iv). A participating jurisdiction 
may not require participation in medical or disability-related services 
as a condition of receiving or continuing to receive HOME-funded 
tenant-based rental assistance.
    HUD is also proposing to add new paragraphs (c)(2)(iii) and (iv) to 
Sec.  92.209

[[Page 78351]]

to specifically address the use of HOME tenant-based rental assistance 
in self-sufficiency and homeownership programs. (Existing paragraph 
(c)(2)(iii) would be redesignated paragraph (c)(2)(v) and revised as 
discussed below.) Program policy relating to these types of programs 
has been part of HUD's administrative guidance on the program for many 
years, and the proposed provision would not depart from that 
administrative guidance.
    A participating jurisdiction may use HOME tenant-based rental 
assistance to administer a self-sufficiency program in which the family 
is required to participate as a condition of selection for tenant-based 
rental assistance. Participating jurisdictions may not require persons 
with disabilities to participate in medical or disability-related 
services as a part of a self-sufficiency program under which HOME funds 
are provided for tenant-based rental assistance. The family's failure 
to continue participation in the self-sufficiency program would not be 
permitted as a basis for terminating the assistance, but renewal of the 
assistance would be permitted to be conditioned on participation in the 
program. Most tenant-based rental assistance contracts have a 2-year 
term. However, shorter terms can be established.
    The new paragraphs to be added would provide that the participating 
jurisdiction may select tenants to participate in a lease-purchase 
homebuyer program. The HOME tenant-based rental assistance payment 
would not be permitted to be used to accumulate a downpayment or 
closing costs for the purchase. The HOME tenant-based rental assistance 
payment must be used for the monthly rental payment. However, all or a 
portion of the homebuyer-tenant's own monthly contribution toward rent 
could be set aside for this purpose.
    An additional provision would be added to redesignated Sec.  
92.209(c)(2)(v), to specifically prohibit the exclusion of persons who 
are given preferences for HOME assistance from participating in any 
other program of the jurisdiction.
    Section 92.209(g) would be revised to make explicit that all 
tenants must have a lease and that the lease must comply with the 
requirements that are already cross-referenced in the existing 
provision.
    Section Sec.  92.209(h) would be revised to replace the existing 
description of one alternative for establishing the amount of rent for 
a unit with a cross- reference to the regulations in 24 CFR part 982, 
which govern the Section 8 Housing Choice Voucher program.
    Finally, a technical change would be made to Sec.  92.209(l) to 
clarify that the provision applies whenever Section 8 assistance 
becomes available, rather than just when it becomes available ``to a 
participating jurisdiction.''
h. Troubled HOME-Assisted Rental Housing Projects (Sec.  92.210)
    HUD proposes to add a new Sec.  92.210 to the HOME regulations to 
establish provisions that would be applicable to the efforts of 
participating jurisdictions to preserve HOME-assisted housing projects 
that have become financially unviable and, as a result, are at risk of 
failure or foreclosure. HUD has provided expert work-out technical 
assistance to a number of participating jurisdictions with projects 
that became troubled due to excessive debt, unsustainably high 
operating costs, poor physical conditions, or weak market conditions, 
and that were then able to avert foreclosure and were returned to 
financial viability. These workouts involved restructuring of private 
debt, investment of additional owner equity, and altering the terms of 
existing HOME financing. Some cases also often required HUD to grant 
waivers to permit the investment of additional HOME funds during the 
period of affordability or to permit HOME funds to be used to 
capitalize operating reserves. These changes resulted in the number of 
HOME-assisted units in a project being preserved. HUD can foresee 
circumstances where, to preserve financial viability of a project, it 
may be necessary to reduce the number of HOME-assisted units in 
projects in which more than the minimum number of units required under 
Sec.  92.205(d) were designated as HOME-assisted or to reduce a period 
of affordability that exceeded the minimum period required pursuant to 
Sec.  92.252(e).
    New Sec.  92.210 would provide participating jurisdictions with 
flexibility to assist in averting foreclosures and would enable HUD to 
approve these actions without the process required to grant waivers, 
which can be time-consuming. However, new Sec.  92.210 would limit 
total investment in the project to the maximum per-unit subsidy in 
Sec.  92.250(a), and would provide HUD with the option of requiring an 
extension of the period of affordability as a condition of permitting 
the investment of additional HOME funds in the project. New Sec.  
92.210 would also permit a reduction in the number of HOME-assisted 
units, but only if the project contains more than the minimum number of 
units required to be designated as HOME-assisted units under Sec.  
92.205(d). HUD does not anticipate that it would delegate authority to 
enter into the required memoranda of agreement or to grant the required 
approval outside of HUD Headquarters.
i. HOME Funds and Public Housing (Sec.  92.213)
    HUD is proposing to add a new Sec.  92.213 to the HOME regulations 
to address the use of HOME funds with public housing funds. The use of 
HOME funds in public housing projects, and, in particular, the use of 
HOME funds in HOPE VI projects is an area that would benefit from 
further regulatory elaboration, given that HOME funds and public 
housing funds are each governed by separate statutes.
    NAHA prohibits the use of HOME funds to provide assistance 
authorized under section 9 of the United States Housing Act of 1937 
(Public Housing Capital and Operating Funds). This prohibition is 
reflected in paragraph (a) of Sec.  92.213, which prohibits the use of 
HOME funds for public housing modernization or operating assistance. 
This provision also prohibits a HOME-assisted unit from receiving 
Operating Fund or Capital Fund assistance under Section 9 during the 
period of affordability. With respect to the development of new public 
housing, paragraph (a) also makes clear that HOME funds cannot be used 
for public housing units, whether funded under section 9 or another 
source.
    Paragraph (b) of Sec.  92.213 establishes an exception to this 
prohibition that permits the use of HOME funds to develop a unit that 
receives funds for development under section 24 (HOPE VI), so long as 
no Capital Funds are used to develop the unit.\2\ In projects receiving 
HOME, HOPE VI, and Capital funds for development of public housing 
units, this separation of HOME- and HOPE VI-funded public housing units 
from units receiving Capital Funds under section 9 must be accomplished 
through the cost allocation process for multi-unit HOME projects that 
is established at Sec.  92.205(d). Participating jurisdictions should 
note that, when HOME funds are used in a public housing unit, the HOME 
rent requirements of Sec.  92.252(a) and (b) apply. Consequently, the 
gross rent (tenant contribution and operating subsidy) for any public 
housing unit

[[Page 78352]]

that receives HOME funds that is occupied by a household with an income 
above 50 percent of area median income may not exceed the High HOME 
rent established under Sec.  92.252(a).
---------------------------------------------------------------------------

    \2\ The exception to the prohibition on use of HOME funds to 
develop a unit that receives funds under section 24 of the U.S. 
Housing Act of 1937 (the section that authorizes the HOPE VI 
programs) was addressed in a 2002 legal opinion by HUD's Office of 
General Counsel and such opinion is part of the docket file for this 
rulemaking, which can be found at http://www.regulations.gov.
---------------------------------------------------------------------------

    The use of HOME funds in a project triggers the requirements of 
Sec.  92.353(e) (Residential anti-displacement and relocation 
assistance plan), particularly the requirement for one-for-one 
replacement of lower-income dwelling units. These requirements, 
commonly referred to as 104(d) (section 104(d) of the Housing and 
Community Development Act), are applicable to HOME-funded projects that 
involve demolition, but not to HOPE VI projects. Consequently, the use 
of HOME funds in a HOPE VI project may trigger the 104(d) requirements 
for an entire phase of the project or for all phases of the project.
    Paragraph (c) of Sec.  92.213 makes clear that HOME funds may be 
used to develop or rehabilitate affordable housing units that are not 
public housing units in projects that also contain public housing units 
funded by Section 9, HOPE VI, or other funds. Again, the units must be 
separated through the cost allocation process required under Sec.  
92.205(d). In such projects, the HOME and public housing units would 
have separate waiting lists and rent structures. Note, however, that 
the residential anti-displacement and relocation assistance plan 
requirements of Sec.  92.353(e) are applicable to the entire project.
    Under the proposed provision, HOME funds would be permitted to be 
used in a project that also contains public housing units if the HOME 
funds are not used in the public housing units.
j. Prohibited Activities and Fees (Sec.  92.214)
    HUD is proposing several revisions to Sec.  92.214(b), including 
restructuring paragraph (b) into two distinct subparagraphs, in order 
to strengthen and clarify the prohibition against participating 
jurisdictions and other program participants from charging fees to 
cover their administrative costs, especially fees charged directly to 
low-income program beneficiaries. HUD has found participating 
jurisdictions, state recipients, and subrecipients charging 
construction management, homebuyer counseling, origination, and similar 
fees to low-income families seeking HOME assistance, often amounting to 
several thousand dollars per family. The proposed rule would clarify at 
Sec.  92.214(b)(1) that these practices are prohibited and would 
require participating jurisdictions to extend the prohibition to 
recipients, subrecipients, and program participants.
    HUD also proposes to eliminate the prohibition against 
participating jurisdictions charging fees to cover the cost of their 
ongoing monitoring and physical inspection of HOME-projects during 
their period of affordability. The rule would add a new subparagraph at 
Sec.  92.214(b)(1)(i), creating an exception to the prohibition on 
participating jurisdictions charging fees to cover administrative costs 
to permit participating jurisdictions to charge owners of rental 
projects a reasonable annual fee for compliance monitoring during the 
period of affordability. HUD recognizes that the cost of ongoing 
monitoring of HOME-assisted rental projects is not insignificant and 
that many participating jurisdictions with substantial portfolios of 
HOME-assisted rental projects must find other sources of funding to 
cover some of these administrative costs. HUD is proposing to permit 
participating jurisdictions to charge annual monitoring fees to owners 
of rental housing projects to which a commitment of HOME funds is made 
on or after the effective date of a final rule. Imposition of such 
monitoring fees is standard industry practice in other programs that 
require ongoing inspections, including in LIHTC programs. Permitting 
these fees will create an incentive for participating jurisdictions to 
impose periods of affordability on HOME-assisted projects that are 
longer than the minimum period required by Sec.  92.252(e) by 
eliminating the increased financial burden of fulfilling the required 
monitoring requirements.
    In addition, HUD is proposing to clarify at Sec.  92.214(b)(1)(ii) 
the existing exception for application fees charged by a participating 
jurisdiction. HUD is aware of cases in which application fees charged 
by project owners for HOME-assisted rental units were prohibitive such 
that they created an obstacle to low-income families accessing benefits 
intended for them. The provision would clarify that application fees 
must not create an undue impediment to the participation in the 
participating jurisdiction's program by a low-income family, a 
jurisdiction, or entity.
    A new provision at Sec.  92.214(b)(2) would prohibit owners of 
HOME-assisted rental projects from charging fees to tenants that are 
not reasonable or customary. An example of such a fee is a monthly fee 
for access to pay laundry facilities. There are several proposed 
exceptions to this prohibition, including reasonable application fees, 
parking fees in neighborhoods where such fees are customary, and the 
cost of nonmandatory services such as meal or bus service.
k. Match Credit (Sec.  92.221)
    HUD proposes to add a new paragraph (d) to Sec.  92.221 that would 
require that any contributions to HOME-assisted or HOME-eligible 
homeownership projects must be valued not at face value, but by the 
amount by which they reduced the sales price to the homebuyer. This 
would ensure that match credit is not provided for the value of 
contributions that are included in the homebuyer's mortgage (e.g., 
donated land or appliances).
l. Match Reduction (Sec.  92.222)
    HUD is proposing to revise Sec.  92.222(b), which addresses a 
request for a reduction of matching requirements in the event of major 
disaster. The revision would require HUD to consider the extent of a 
disaster's fiscal impact on a participating jurisdiction in determining 
whether to grant the reduction, as well as the amount and duration of 
any match reduction. HUD anticipates that it would develop and issue 
administrative guidance for determining the appropriate extent of match 
reduction.
m. Maximum Per-Unit Subsidy Amount, Underwriting, and Subsidy Layering 
(Sec.  92.250)
    This proposed rule would revise Sec.  92.250(a) to clarify that the 
maximum HOME per-unit subsidy may not be increased above 240 percent of 
the base limits authorized by section 221(d)(3)(ii) of the National 
Housing Act (12 U.S.C. 17151(d)(3)(iii)). This clarification is 
necessary because section 221 of the General Provisions of Title II, 
Division K of the Consolidated Appropriations Act, 2008 (Pub. L. 110-
161, approved December 26, 2007) increased the maximum exceptions that 
HUD may grant for the 221(d)(3) mortgage insurance program to up to 315 
percent of the base limits. However, section 212(e) of NAHA, which 
establishes the 221(d)(3) mortgage insurance limits as the per-unit 
cost limits for HOME-assisted units, was not amended. This section of 
NAHA permits HUD to adjust the HOME subsidy limit to reflect actual 
costs up to, but not to exceed, 240 percent of the 221(d)(3) mortgage 
limit. Consequently, a participating jurisdiction's maximum per-unit 
subsidy limit for HOME can never exceed 240 percent of the base limits 
for the 221(d)(3) mortgage insurance program even if the 221(d)(3) 
mortgage limit approved for the area exceeds that amount.

[[Page 78353]]

    The current HOME regulations require that participating 
jurisdictions perform a subsidy layering analysis for any project that 
receives HOME funding in combination with other public funding sources. 
HUD proposes to amend Sec.  92.250(b) to require participating 
jurisdictions to evaluate subsidy layering and conduct or examine the 
underwriting of all projects. Evaluation of subsidy layering is simply 
a consideration of whether the combination or total amount of subsidies 
results in an undue or excessive return to the owners; that is, results 
in more federal assistance than is needed for a project. However, 
subsidy evaluation and underwriting of all HOME projects are 
fundamental to sound program administration and will help ensure cost 
reasonableness and the long-term viability of HOME-assisted projects. 
The proposed rule would amend this section by requiring subsidy 
evaluation and underwriting of all HOME projects, whether or not the 
project is assisted with other governmental assistance, in order to 
make a determination regarding the long-term viability of the project, 
as well as the reasonableness of amount of return to the owner. 
Participating jurisdictions are expected to incorporate sustainable 
underwriting practices (e.g., reserves for maintenance and replacement, 
an analysis of costs and vacancy rates of similar projects in the area, 
etc.).
    HUD also proposes to revise Sec.  92.250(b) to require a 
participating jurisdiction's underwriting and subsidy layering 
guidelines to include an assessment of, at minimum, the market 
conditions of the neighborhood in which the project will be located, 
the experience of the developer, the financial capacity of the 
developer, and firm financial commitments for the project. These 
practices will enable participating jurisdictions to better target HOME 
funds to neighborhoods in need of additional affordable housing, 
determine whether homeownership or rental development is more 
appropriate to specific neighborhoods, and evaluate the amount of 
subsidy appropriate to all projects seeking HOME funding.
n. Property Standards (Sec.  92.251)
    HUD is proposing several revisions to the property standards 
applicable to HOME-assisted properties. Given the various building 
codes and standards that may apply to HOME-assisted projects, HUD has 
determined that this regulatory section would benefit from further 
elaboration. HUD is concerned that there is misunderstanding about the 
applicability of these codes and standards, which has resulted in 
participating jurisdictions not ensuring an adequate level of 
improvements to HOME-assisted rental and homebuyer housing, thus 
threatening the viability of the project. In addition, many of the 
codes cited in the existing HOME regulations have been superseded and/
or updated. HUD also notes that substantial interest has developed in 
the housing industry in recent years in improving energy and water 
efficiency to conserve resources and reduce operating costs. Therefore, 
HUD will propose new standards for energy and water efficiency in a 
separate proposed rule. The sections that will cover energy standards 
have been reserved in Sec.  92.251 of this proposed rule.
    The proposed changes to Sec.  92.251 would reorganize the section 
and create separate requirements for projects involving: (1) New 
construction in Sec.  92.251(a), and (2) rehabilitation in Sec.  
92.251(b). The paragraph on new construction, found in Sec.  92.251(a), 
would be updated to reflect that the three former model code issuing 
groups (Building Officials and Code Administrators International, Inc., 
International Conference of Building Officials, and Southern Building 
Code Congress International, Inc.) created the International Code 
Council in 1994 to develop a single set of comprehensive and 
coordinated national model construction codes. The proposed rule would 
require that, in the absence of an applicable state or local code for 
new construction, HOME-assisted projects must meet the International 
Code Council's International Residential Code or International Building 
Code, whichever is applicable to the type of housing being developed. 
It would also continue to include requirements for compliance with lead 
hazard reduction and accessibility requirements. Participating 
jurisdictions would be required to have written standards for methods 
and materials to be used, to conduct inspections to ensure that work is 
performed in compliance with requirements, and to ensure that progress 
payments are consistent with the amount of work completed.
    The property standard requirements for rehabilitation, which would 
be in Sec.  92.251(b), are also proposed to be substantially revised. 
HUD has found that many jurisdictions lack specific rehabilitation 
codes. In jurisdictions that have rehabilitation codes, the codes 
frequently do not provide a standard for determining what 
rehabilitation work is needed, but instead set forth the requirements 
for methods and materials to be used in rehabilitation work being 
undertaken. Because there is no published rehabilitation standard that 
fully meets the goals of the HOME program and there is no ``one-size-
fits-all'' standard that is appropriate to all participating 
jurisdictions, the proposed rule would require at Sec.  92.251(b) that 
each participating jurisdiction must establish and comply with its own 
rehabilitation standards.
    These rehabilitation standards would provide the basis for 
determining what work is needed and, and along with the participating 
jurisdiction's construction requirements (materials and methods), 
provide the basis for inspecting the project. Further, to ensure that 
the housing is free of all known health and safety defects and in good 
repair, the proposed rule would require that each participating 
jurisdiction's rehabilitation standards, at a minimum, ensure that, 
upon project completion, all units would pass an inspection that 
addresses all of the inspectable items included in the Federal Register 
notice setting forth the Physical Condition Scoring Process under HUD's 
Uniform Physical Condition Standards (UPCS) for public housing, which 
is published pursuant to 24 CFR 5.705. See Appendix 1 and Appendix 2 of 
the notice published November 26, 2001 (66 FR 59084), which is 
available on HUD's Web site at http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_26169.pdf. The Uniform Physical Condition 
Standards, set forth in 24 CFR part 5, subpart G, which includes the 
inspection procedures in 24 CFR 5.701, have been in place and utilized 
in the majority of HUD's housing programs, as provided in 24 CFR 5.701, 
since 1998. This is a process well-familiar to HUD housing providers 
participating in these programs.
    The participating jurisdictions would also be required to specify a 
useful life for each major system (structural support, roofing, 
cladding, and weatherproofing (e.g., windows, doors, siding, gutters), 
plumbing, electrical and heating, ventilation, air conditioning) of 
rental housing. The amount of HOME funding for rehabilitation 
activities that is typically required for replacement of major systems 
requires a minimum affordability period of 15 years (see Sec.  92.252). 
Under the rehabilitation standards for rental housing, the proposed 
rule would require that the remaining useful life of each major system 
be, at a minimum, 15 years after project completion, or the major 
system must be rehabilitated or replaced to have a minimum useful life 
of 15 years. In addition to establishing rehabilitation standards, when 
awarding funds for the rehabilitation of multifamily projects,

[[Page 78354]]

the participating jurisdiction must require a capital needs assessment 
for all multifamily rental projects of 26 total units or more. A 
capital needs assessment would determine the long-term physical needs 
of the project.
    For owner-occupied housing undergoing rehabilitation with HOME 
funds, the participating jurisdiction would be required to ensure that 
each major system have a required remaining useful life of at least 5 
years at the time the project is completed; major systems with a useful 
life of less than 5 years after project completion must be 
rehabilitated or replaced as part of the rehabilitation activity to 
meet this requirement. Although periods of affordability are not 
imposed on owner-occupied units receiving HOME-funded rehabilitation, 
this requirement would help to ensure housing stability for the low-
income household for a period at least equal to the shortest period of 
affordability imposed on HOME-assisted rental housing or homebuyer 
housing. Lead-based paint requirements would continue to apply.
    Where applicable, the housing would be required to be improved to 
mitigate the impact of disasters such as earthquake, hurricane, 
flooding, and fires. A new paragraph, Sec.  92.251(b)(2)(viii) is 
proposed to clarify that discretionary housing improvements beyond 
those required to meet property standards may include modest amenities 
and aesthetic features that are in keeping with housing of similar type 
in the community and must avoid luxury improvements, such as air-jet 
tubs, saunas, outdoor spas, and granite countertops, to name a few.
    HUD is also concerned that some participating jurisdictions may not 
be properly inspecting HOME-assisted projects to ensure that the 
projects are in compliance with property standards. HUD's compliance 
monitoring has shown that some participating jurisdictions are not 
performing required inspections or developing work write-ups in 
connection with HOME-funded rehabilitation. Therefore, HUD also 
proposes to add new paragraphs to Sec.  92.251(b)(3) and (4) to provide 
additional detail on required inspections and work write-ups. 
Currently, participating jurisdictions are required to have written 
standards for rehabilitation work that prescribe the materials and 
methods to be used. The new regulatory language would make clear that a 
participating jurisdiction must inspect the property and prepare a work 
write-up for the project that describes the work needed to bring the 
project up to the participating jurisdiction's rehabilitation 
standards. The participating jurisdiction must have written 
construction progress inspection procedures (including a description of 
how and by whom the inspections will be carried out) and detailed 
inspection checklists reflecting all aspects of the property standards.
    HUD has become aware of many rental projects acquired with HOME 
assistance that were not in good repair at the time of their 
acquisition and subsequently became physically or financially troubled 
during the period of affordability required by Sec.  92.252(e). When 
HOME funds are used to purchase existing rental housing, such housing 
must be in good condition; otherwise, it must be rehabilitated with 
HOME funds at the time the project is acquired with HOME funds. In 
accordance with Sec.  92.214(a)(6), during the period of affordability 
established in Sec.  92.252(e), additional HOME funds may be expended 
on a HOME-assisted project only during the first year after project 
completion. Consequently, it is imperative that HOME-assisted 
affordable housing be in standard condition at the time of project 
completion so that its financial viability is not jeopardized.
    Section 92.251(c) of the proposed rule would set forth property 
standards for existing housing in standard condition that is acquired 
using HOME funds. If the housing was newly constructed or rehabilitated 
less than one year before HOME funds are used to acquire the housing as 
rental housing, the housing would be required to meet the property 
standards in Sec.  92.251(a). Builder warranties typically cover 
deficiencies during the first 12 months of completion in new 
construction or rehabilitation projects, and should reasonably be 
expected to meet the established property standards. The participating 
jurisdiction would be required to document this compliance based upon a 
review of approved building plans and Certificates of Occupancy, and a 
current inspection that is conducted no earlier than 30 days before the 
commitment of HOME assistance. It is a typical and prudent business 
practice when acquiring any property, be it market-rate or assisted, to 
obtain a physical inspection.
    Other existing housing that is acquired with HOME funds would be 
required to meet the requirements of Sec.  92.251(b). The participating 
jurisdiction would be required to document this compliance based upon a 
current inspection conducted no earlier than 30 days before the date of 
commitment of HOME assistance, in accordance with the inspection 
procedures that the participating jurisdiction established pursuant to 
this section. Existing housing that does not meet these standards would 
be required to be rehabilitated.
o. Qualification as Affordable Housing: Rental Housing (Sec.  92.252)
    HUD proposes to revise Sec.  92.252 to require that HOME-assisted 
rental units be occupied by an initial tenant within a specified period 
from the date of project completion. If units have not been leased to 
an eligible tenant within that time, HUD will require the participating 
jurisdiction to provide information about current marketing efforts 
and, if appropriate, a plan for marketing the unit so that it is leased 
as quickly as possible. If there is adequate market demand for the unit 
as indicated by the market assessment proposed to be required pursuant 
to Sec.  92.250(b) and adequate marketing to the eligible population is 
undertaken, then a unit should be occupied within a specified period of 
time from the date of project completion. The proposed rule currently 
includes a placeholder of what this specified time will be. It will be 
a period that is no less than 90 days but no more than 6 months. As 
provided below, HUD is specifically seeking comment on what is an 
appropriate time period within this range set by HUD. HUD seeks to 
impose a defined period and not a range as the proposed regulatory text 
now provides. Whatever the time period established for initial 
occupancy, if efforts to market the unit are unsuccessful and a unit is 
not occupied by an initial tenant after 18 months, HUD would require 
repayment of HOME funds invested in the units.
    Specific solicitation of comment. HUD specifically seeks comment on 
the time frames to be established in its proposal that participating 
jurisdictions be required to ensure that initial occupancy of a HOME-
assisted rental unit occurs following project completion and that they 
repay HOME funds invested in rental units that have not been initially 
occupied within 18 months.
    HUD proposes several other revisions to Sec.  92.252. A sentence 
would be added to the introductory paragraph to make explicit that 
leases are required for all HOME-assisted rental units, consistent with 
the clarification in Sec.  92.209(g) discussed above. The proposed rule 
would also incorporate the ``High HOME rent'' (i.e., ``maximum HOME 
rent'') and ``Low HOME rent'' (i.e., ``additional requirements'') 
terminology, which is commonly used by HUD, participating 
jurisdictions, and other HOME program participants including owners, 
developers, and property

[[Page 78355]]

managers, into paragraphs (a) and (b) for clarity.
    Paragraph (a) would be revised to specifically state that HOME rent 
limits include both rent and utilities or utility allowance.
    HUD proposes to add language to paragraph (b)(2) to make clear that 
participating jurisdictions may designate more than the minimum 20 
percent of units in a project as Low HOME rent units. HUD has received 
many questions from participating jurisdictions and potential owners or 
developers regarding this issue. This is a common practice in HOME 
projects, particularly in projects that also receive project-based 
rental assistance, because it permits the owner to charge project-based 
assistance rents, which typically exceed both the HOME high and low 
HOME rents, and makes serving extremely low-income households with HOME 
funds more economically feasible. In such projects, such as Section 202 
projects for the elderly or permanent supportive housing for the 
homeless, the participating jurisdiction may want to designate all 
HOME-assisted units as low HOME units to take advantage of project-
based rental subsidy to serve an extremely low-income population.
    The substance of existing paragraph (c), which addresses initial 
rent schedules and utility allowances, would be moved to paragraph (d), 
and redesignated paragraph (d) would be revised to outline the 
applicable rent limits for Single Room Occupancy (SRO) units assisted 
with HOME. Recognizing that a zero-bedroom rent was not appropriate for 
all SROs depending on the amenities located within the unit, HUD 
established these rent limitations in administrative guidance in 1994.
    The High HOME rent for a SRO unit with no sanitary or food 
preparation facilities or only one of the two is based on 75 percent of 
a zero-bedroom fair market rent (FMR). Because this rent is already 
very low, HUD did not apply the Low HOME rent provisions to these 
units, although the income targeting (20 percent of units occupied by 
persons with incomes at or below 50 percent of area median income, as 
determined by HUD) does apply to SRO projects with five or more HOME-
assisted units. The High HOME rent for a SRO unit that has both 
sanitary and food preparation facilities is the zero-bedroom FMR for 
the area. The Low HOME rent provisions of paragraph (b) apply to these 
units. HUD proposes to codify this longstanding policy, without change, 
in the HOME regulations.
    Redesignated paragraph (d) would also be revised to specifically 
reference the HUD Utility Schedule Model. This model was developed by 
HUD and enables the user to calculate utility schedules by housing type 
after inputting utility rate information. The IRS uses this model to 
determine utilities for its LIHTC program. The model can be found at: 
http://huduser.org/portal/resources/utilmodel.html. The provisions on 
nondiscrimination against rental assistance subsidy holders in existing 
Sec.  92.252(d) would be moved to Sec.  92.253(d)(4).
    HUD is proposing to add a sentence to Sec.  92.252(e) specifically 
stating that the termination of affordability restrictions under 
paragraph (e) does not relieve a participating jurisdiction of its 
repayment obligation for housing that did not remain affordable for the 
required period under Sec.  92.503(b). To increase local administrative 
flexibility, this paragraph would also be amended to specifically 
authorize use agreements to impose affordability restrictions, in 
addition to those currently included in the regulations (i.e., deed 
restrictions and covenants running with the land). HUD also proposes to 
add language clarifying that affordability restrictions must be 
recorded in accordance with state recordation laws.
    HUD is proposing to add a sentence to Sec.  92.252(f)(2) to require 
that a participating jurisdiction must review and approve the rents for 
its HOME-assisted rental projects each year to ensure that they comply 
with the HOME limits and do not result in undue increases from the 
previous year. Participating jurisdictions are currently required to 
provide the published maximum HOME rents to project owners and then to 
examine reports submitted by owners outlining for each HOME unit the 
rent being charged and the income of the tenant. The additional step 
codifies existing practice of most participating jurisdictions, which 
do not permit HOME project owners to raise rents without approval or to 
charge the maximum permissible HOME rent.
    HUD is proposing to add language to Sec.  92.252(j) to specify that 
the written agreement between the participating jurisdiction and a 
project owner must state whether HOME rental units will be fixed or 
floating during the period of affordability. The existing regulations 
state that the designation of whether units will be fixed or floating 
must be made at the time of commitment (i.e., the point at which the 
written agreement is signed). However, HUD has found that participating 
jurisdictions are not always documenting the determination or including 
the specific designation in its written agreement, sometimes resulting 
in uncertainty among owners.
    HUD is proposing to add two new paragraphs to Sec.  92.252 to make 
the regulations more user-friendly for persons attempting to locate 
requirements related to rental housing. First, a new Sec.  92.252(k) 
that cross-references the tenant selection requirements located in 
Sec.  92.253(d) would be added. Second, a new paragraph (l) would be 
added to Sec.  92.252 that cross-references participating 
jurisdictions' ongoing responsibilities for on-site inspections, and 
financial oversight located in Sec.  92.504(d) would also be added.
p. Tenant Protections and Selection (Sec.  92.253)
    The HOME statute provides for mandatory tenant protections for 
families occupying HOME-assisted rental housing or receiving HOME-
funded tenant-based rental assistance and establishes a minimum lease 
period. These provisions are promulgated at Sec.  92.253(a) of the 
existing HOME regulations and are required to be integrated into leases 
used for HOME-assisted unit or leases executed by recipients of HOME-
funded tenant-based rental assistance. Similar to other regulatory 
changes already discussed in the preamble that emphasize the importance 
of documenting compliance with HOME program requirements, HUD proposes 
to revise Sec.  92.253(a) to clarify that there must be a written lease 
for all HOME-assisted rental units and units rented by HOME tenant-
based rental assistance recipients.
    HUD proposes a new paragraph Sec.  92.253(b)(9) that would clarify 
that supportive services related to a disability cannot be mandatory 
for tenants of HOME-assisted units by adding this prohibition to the 
list of prohibited lease terms for HOME units. This clarification is 
consistent with section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794), which prohibits discrimination on the basis of disability 
in federally funded programs and activities and HUD's implementing 
regulations at 24 CFR part 8. In adding this provision, HUD is better 
integrating the part 8 requirements into the HOME regulations.
    Section 92.253(c) would be revised to provide that a tenant's 
failure to follow a transitional housing services plan is a permissible 
basis for terminating a tenancy or refusing to renew a lease. The 
provision is needed in order to ensure that transitional housing can be

[[Page 78356]]

made available to individuals who use the transitional housing for its 
intended purpose. Section 92.253(c) would be revised to make explicit 
that increase in a tenant's income does not constitute good cause for 
termination or refusal to renew. This revision will minimize the 
possibility that a misunderstanding of the HOME regulations will create 
disincentives for tenants of HOME-assisted units to increase their 
incomes for fear of losing their housing.
    HUD is proposing to revise Sec.  92.253(d) to address the use of 
HOME funds for special needs populations, including persons with 
disabilities. One change would provide that the owner's tenant 
selection policies must comply with requirements governing how and when 
HOME funds may be used for special needs populations, and that such 
policies must limit the housing to low- and very low-income families. 
The new regulatory provisions would also provide that the owner of 
HOME-assisted rental housing may limit eligibility or give a preference 
to a particular segment of the population only if permitted in its 
written agreement with the participating jurisdiction.
    Section 92.253(d)(3)(i) would provide that any limitation or 
preference must not violate nondiscrimination requirements listed in 
Sec.  92.350, and would clarify that a limitation or preference does 
not violate nondiscrimination requirements if the housing also receives 
funding from a federal program that limits eligibility to a particular 
segment of the population. Examples of such programs include the 
Housing Opportunity for Persons with AIDS program, HUD's homeless 
programs, HUD's Section 202 supportive housing for the elderly, and 
HUD's Section 811 housing for persons with disabilities. Section 
92.253(d)(3)(ii) would provide that preferences may be given to 
disabled families who need services offered at a project, if certain 
conditions are met. In particular, the preference must be limited to 
the population of families (including individuals) with disabilities 
that interfere with their ability to obtain and maintain housing; such 
families will not be able to obtain and maintain themselves in housing 
without appropriate supportive services; and such services are provided 
in a nonsegregated setting.
    Generally, separate or different housing or services for 
individuals with disabilities are not permitted. However, 24 CFR 8.4 
permits different or separate housing, aid benefits, or services to 
individuals with disabilities or to any class of individuals with 
disabilities from that provided to others in extremely limited 
circumstances: That is, when necessary to provide qualified individuals 
with disabilities with housing, aid, benefits, or services that are as 
effective as those provided to others. Even when separate housing or 
services are permitted, individuals with disabilities cannot be denied 
the opportunity to participate in programs that are not separate or 
different.
q. Qualification as Affordable Housing: Homeownership (Sec.  92.254)
    As discussed earlier in this preamble, section 215(b) of NAHA 
requires that the initial purchase price of homeownership units 
assisted with HOME funds not exceed 95 percent of the area median 
purchase price for single family housing, as determined by HUD. The 
existing regulation at Sec.  92.254(a)(2)(iii) permits participating 
jurisdictions to use the FHA Single Family Mortgage Limits under 
section 203(b) of the National Housing Act (12 U.S.C. 1709(b)) as the 
95 percent of median purchase price or after-rehabilitation value limit 
for HOME-assisted homeownership housing. The regulation also permits a 
participating jurisdiction to determine its own 95 percent of area 
median value limit using a prescribed methodology.
    Historically, HUD has based the annual FHA Single Family Mortgage 
Limits on 95 percent of area median purchase prices, except that there 
are national floor and ceiling loan amounts for low- and high-cost 
areas, which are percentages of conforming loan limits. Over time, 
statutory changes have increased the FHA section 203(b) floor, 
rendering the section 203(b) limits a less reliable surrogate for 
participating jurisdictions' 95 percent of area median purchase prices. 
As a consequence of these changes, HUD issued an interim policy in 
March 2008, permitting participating jurisdictions to use the Single 
Family Mortgage Limits issued in February 2008, before the passage of 
the Economic Stimulus Act, as the 95 percent of area median purchase 
price limit for HOME-assisted homeownership units until HUD could 
promulgate regulatory changes. (See http://www.hud.gov/offices/cpd/affordablehousing/library/homefires/volumes/vol9no3.cfm.) At the same 
time, HUD posted the actual 95 percent of median purchase price for 
each Metropolitan Statistical Area (MSA) and county in the country so 
that participating jurisdictions could become familiar with the true 95 
percent figure for their housing market.
    HUD is proposing to revise Sec.  92.254(a)(2)(iii) so that 
participating jurisdictions would no longer be permitted to use the FHA 
Single Family Mortgage Limit as a surrogate for 95 percent of area 
median purchase price. Once the proposed regulatory change is 
effective, HUD will calculate 95 percent of median purchase price for 
the area and provide the limits to participating jurisdictions 
annually. A participating jurisdiction would continue to have the 
option to determine its own 95 percent of area median value limit using 
the methodology in the regulation, which remains unchanged.
    HUD proposes to make an exception to this limitation for new 
construction homeownership units, in response to concerns expressed by 
State participating jurisdictions and nonmetropolitan or rural 
communities. These communities point out that 95 percent of area median 
purchase price figures in their communities are extremely low, due to 
the age, size, and poor condition of their housing stock; the 
relatively small number of sales of existing housing that take place; 
and the small number of new housing units that are produced and sold 
annually.
    HUD recognizes that the 95 percent of area median purchase price 
limits in these areas are so low that imposing them would make 
construction of new, standard single family units economically 
infeasible with HOME funds. However, HUD's data also show that the 
actual 95 percent of area median purchase price in many MSAs, primarily 
in the Midwest and South, while higher than those in many 
nonmetropolitan areas, are also too low to make the use of HOME funds 
for new construction of homeownership units economic. For instance, 
HUD's 2011, 95 percent of median purchase price figures for Omaha, 
Nebraska-Council Bluffs, Iowa MSA, Saginaw, Michigan MSA, and Kansas 
City, Kansas-Kansas City, Missouri MSA, are $60,653, $71,250, and 
$87,673, respectively. Nationally, there are hundreds of communities in 
which the use of HOME funds for new construction of homeownership units 
could be accomplished only through the write-off of large HOME 
development subsidies by participating jurisdictions. Further, 
imposition of an artificially low purchase price limit in these areas 
would result in homebuyers realizing large amounts of unrestricted 
equity attributable to HOME funds, due to the difference between the 
actual value of the housing and the purchase price cap.
    Section 215(b)(1) of NAHA permits HUD to make adjustments to the 95 
percent of the area median purchase price, including ``for new and old 
housing'' as the Secretary determines to

[[Page 78357]]

be appropriate. Consequently, HUD is proposing to amend Sec.  
92.254(a)(2)(iii) to provide an exception to the new HUD-issued 95 
percent of median purchase price limits to permit participating 
jurisdictions to use the greater of the HUD-issued 95 percent of area 
median purchase price limit or the Bureau of the Census's median sales 
price for single family houses sold outside of MSA. The Census Bureau 
produces this figure annually. The 2010 figure, which would apply to 
the HOME program for 2011 if this proposed provision were in effect, is 
$179,900.
    Specific solicitation of comment. HUD specifically requests comment 
regarding the use of this figure as the sales price limitation for 
newly constructed HOME units. Additional information regarding how this 
figure is derived is available at: http://www.census.gov/const/www/characteristicsdoc.html#source. The HUD-issued actual 95 percent of 
median purchase price limits for all MSAs and counties can be found in 
column L of the spreadsheet posted at: http://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/maxprice.cfm.)
    HUD is proposing to revise Sec.  92.254(a)(3) to specify that the 
participating jurisdiction must include the income of all persons 
residing in the housing when determining the income eligibility of the 
family. The same change would be made in paragraph (b)(2) of this 
section for purposes of rehabilitation not involving acquisition. The 
change would also require the housing to be rented to an eligible 
tenant in accordance with Sec.  92.252 if the housing were not acquired 
by an eligible homeowner within 6 months of the date of project 
completion.
    In response to the national foreclosure crisis, HUD is proposing to 
add several new requirements with respect to HOME-assisted homebuyer 
programs. These changes are intended to ensure that homebuyers are 
well-prepared for the responsibilities of homeownership and receive 
financing that optimizes the sustainability of their homeownership, and 
to prevent them from becoming targets of predatory lenders as part of 
the initial purchase or a later refinancing of the housing. 
Specifically, HUD proposes to revise Sec.  92.254(a)(3) to require that 
all homebuyers receiving HOME assistance or purchasing units developed 
with HOME funds receive housing counseling.
    A 2008 national study of outcomes for HOME-assisted homebuyers 
found that 83 percent of participating jurisdictions that provide HOME-
funded homeownership assistance also provide homebuyer counseling (see 
http://www.huduser.org/portal/publications/hsgfin/addi.html.) This 
change would ensure that all HOME-assisted homebuyers receive some 
counseling before purchasing a home. The counseling could be provided 
by the participating jurisdiction, an organization under contract to 
participating jurisdiction, or a qualified third party independent of 
the participating jurisdiction (e.g., a HUD-approved housing counseling 
agency). The regulation would not specify the extent of the required 
counseling, but the counseling should be comprehensive by including 
post-purchase counseling, if feasible. The Dodd-Frank Wall-Street 
Reform and Consumer Protection Act (Pub. L. 111-203, approved July 21, 
2010) in section 1442 requires HUD to ensure that homeownership 
counseling provided through any HUD-funded program cover specific 
topics related to the selection, financing, ownership, and resale of a 
home. HUD will conduct separate rulemaking to establish the minimum 
requirements for homebuyer counseling provided in connection with HUD-
administered or -funded programs.
    A new paragraph (f) would be added to this section requiring 
participating jurisdictions that use HOME funds for homebuyer 
assistance to develop and follow written policies for: (1) Underwriting 
standards for homeownership assistance that take into account housing 
debt, overall household debt, the appropriateness of the amount of 
assistance, recurring household expenses, assets available to acquire 
the housing, and financial resources to sustain homeownership; (2) 
anti-predatory lending measures; and (3) measures that ensure that the 
terms of any loans that refinance debt to which HOME loans are 
subordinated are reasonable.
    Section 92.254(a)(5) would be revised to require the participating 
jurisdiction to obtain HUD's specific approval of its resale and 
recapture requirements. Section 215(b)(3) of NAHA requires HUD to 
determine that a participating jurisdiction's resale or recapture 
provisions are ``appropriate'' or consistent with HOME statute and 
regulations. These provisions are currently required to be submitted as 
part of the participating jurisdiction's annual action plan. HUD has 
found that participating jurisdictions frequently provide insufficient 
detail about the proposed resale or recapture provisions to permit HUD 
to make the required determination or to enable interested citizens to 
obtain a full understanding of the affordability restrictions to be 
imposed on the homebuyer program. Requiring that HUD issue specific, 
written approval of resale or recapture provisions, as opposed to an 
implicit approval as part of the consolidated plan or annual action 
plan approval, will emphasize that the participating jurisdiction is 
submitting the provisions for HUD's approval and must provide 
sufficient detail to enable HUD to assess their appropriateness.
    The proposed rule would also amend Sec.  92.254(a)(5)(i) to require 
the participating jurisdiction's resale requirements to specifically 
define ``fair return on investment'' and ``affordability to a 
reasonable range of low-income buyers,'' and to address how it will 
make the housing affordable if the resale price that is needed for a 
fair return on investment is too high to be within the affordable 
range. Section 215(b)(3)(A) of NAHA specifically requires resale 
provisions to provide a fair return and remain affordable for a 
reasonable range of low-income buyers. Requiring participating 
jurisdictions to develop specific standards for these requirements will 
improve their ability to design resale requirements that meet statutory 
and regulatory requirements.
    HUD proposes to amend Sec.  92.254(a)(5)(ii) to permit a subsequent 
low-income purchaser of a HOME-assisted homeownership unit to assume 
the HOME loan and recapture obligation entered into by the original 
buyer. The current regulations governing recapture provisions permit 
the HOME-assisted homebuyer to sell his or her unit during the period 
of affordability to any willing buyer at the prevailing market price. 
When a HOME-assisted unit is sold during the period of affordability, 
the participating jurisdiction exercises its recapture provisions and 
collects all or a portion of the original HOME subsidy regardless. 
Sometimes, a subsequent buyer who is low-income may require downpayment 
or other acquisition assistance to purchase the HOME assisted unit and 
the participating jurisdiction provides HOME assistance to the 
subsequent homebuyers and imposes new recapture provisions. To enhance 
administrative simplicity and encourage the efficient use of funds, 
some participating jurisdictions have expressed a desire to permit 
subsequent low-income purchasers of a HOME-assisted homebuyer unit 
under a recapture agreement to assume the remaining HOME loan and 
period of affordability. This proposed rule change would establish this 
as an option when the subsequent homebuyer qualifies as low-income, but 
would not eliminate the initial homebuyer's right to sell to a willing 
buyer at any income level.

[[Page 78358]]

    HUD proposes to amend the HOME regulation at Sec.  92.254(c) to 
permit rehabilitation assistance to be provided in three different 
situations to persons whose interest in the housing they occupy does 
not meet the requirements of ``homeownership'' as defined in Sec.  
92.2. In each case, there have been many instances in which an 
otherwise eligible low-income household was denied HOME funds for 
rehabilitation.
    The proposed changes are intended to remove regulatory impediments 
to participation in the HOME program. For each situation, the 
participating jurisdiction would have the right to establish the terms 
of assistance. The first of these exceptions is inherited property with 
multiple owners (often referred to as heir property)--housing for which 
title has been passed to several--heirs by inheritance, but in which 
not all heirs. (The occupant of the housing has a divided ownership 
interest.) This most often occurs when siblings inherit a family home 
that is occupied by one sibling. Rather than sell the home and split 
the proceeds, the siblings continue to hold the property in divided 
ownership, but permit a low-income sibling to occupy the property. The 
regulation would be amended to permit participating jurisdictions to 
provide rehabilitation assistance to the owner-occupant, if the 
occupant meets the following conditions: the occupant is low-income, 
occupies the housing as his or her principal residence, and pays all 
the costs associated with ownership and maintenance of the housing 
(e.g., mortgage, taxes, insurance, utilities).
    The second exception would address cases involving a life estate. 
Under a life estate, the occupant of the property has the right to live 
in the housing for the remainder of his or her life and does not pay 
rent. HUD has encountered situations in which a disabled adult occupies 
a dwelling owned by another family member under a life estate, or in 
which a deceased spouse leaves a property to the children of a previous 
marriage but permits the other spouse to occupy the property for the 
remainder of his or her life. In the latter situation, the life estate 
holder is responsible for expenses related to the dwelling (e.g., 
property taxes, insurance) and for maintenance and upkeep of the 
property. The regulation would be revised to permit participating 
jurisdictions to provide rehabilitation assistance to the person 
holding the life estate, if the person is low-income and occupies the 
housing as his or her principal residence.
    The third exception would address cases involving an inter vivos 
trust, also known as a living trust. A living trust is created when the 
owner of property conveys his or her property to a trust for his or her 
own benefit or for that of a third party (the beneficiaries). The trust 
holds legal title and the beneficiary holds equitable title. The person 
may name himself or herself as the beneficiary. The trustee is under a 
fiduciary responsibility to hold and manage the trust assets for the 
beneficiary. HUD has found that this is a very common estate-planning 
tool, even among the low-income elderly who wish their heirs to avoid 
probate. Currently, HUD must grant a waiver of the provision that an 
individual hold title to the property to permit these individuals to 
receive rehabilitation assistance. The regulation would be revised to 
permit participating jurisdictions to provide rehabilitation assistance 
to a property if all beneficiaries of the trust qualify as a low-income 
family and occupy the property as their principal residence (except 
that contingent beneficiaries, who receive no benefit from the trust 
nor have any control over the trust assets until the beneficiary is 
deceased, need not be low-income). The trust would be required to be 
valid and enforceable and to ensure that each beneficiary has the legal 
right to occupy the property for the remainder of his or her life.
    HUD recognizes that many participating jurisdictions provide HOME 
funds to for-profit and nonprofit organizations as a contractor or 
subrecipient respectively, so that those organizations may provide the 
homeownership assistance (e.g., downpayment assistance) to eligible 
families in conjunction with first mortgage financing funded by the 
same entity. However, HUD is concerned that these organizations may 
have a financial incentive to provide the first mortgage and, as a 
result, such organizations could provide HOME assistance to families 
that are not low-income families or for units that do not meet minimum 
standards.
    In order to put safeguards in place to prevent potential abuses, 
and to counter the built-in incentives for the lender to provide HOME 
assistance in such cases, a Sec.  92.254(e) would be added to require 
the participating jurisdiction to verify that the family is low-income 
and to inspect the housing for compliance with the property standards 
in Sec.  92.251. The for-profit or nonprofit organization would not be 
permitted to charge fees (e.g., origination fees or points) to the 
family for the HOME homeownership assistance the organization provides, 
although reasonable administrative costs could be charged to the HOME 
program as a project cost. In addition, the participating jurisdiction 
would be required to determine that the fees and other amounts charged 
to the family by the lender for the first mortgage financing are 
reasonable, based upon industry practice in the area, in order to 
ensure that the organization is not effectively charging fees for HOME 
funds disguised as mortgage-related fees. If a participating 
jurisdiction requires lenders to pay a fee to participate in the HOME 
program, the amount would be program income to the HOME program.
r. Converting Rental Units to Homeownership Units for Existing Tenants 
(Sec.  92.255)
    Section 92.55 permits rental units to be converted to homeownership 
units for existing tenants. This provision was added to the HOME 
regulations to facilitate efforts of in-place tenants to purchase the 
rental unit in which they reside. However, some HOME program 
participants have interpreted this section to permit conversion of an 
entire HOME-assisted multifamily rental project to condominium 
ownership during the period of affordability. HUD has encountered 
situations in which program participants have attempted to convert 
existing HOME rental housing into homeownership and sought to evict 
tenants who were unable or unwilling to buy the units they occupied. 
HUD proposes to revise this paragraph to provide that tenants' refusal 
to purchase their rental housing unit does not constitute grounds for 
eviction or for failure to renew the lease, in order to ensure that the 
rights of HOME tenants are clearly understood.
s. Set-Aside for CHDOs (Sec.  92.300)
    In this section, HUD proposes changes to redefine ``reservation of 
funds'' and to more thoroughly address the standards which a project 
must meet to qualify for CHDO set-aside funds. In Sec.  92.300(a)(1), 
HUD would redefine reservation of funds to a CHDO as occurring when a 
participating jurisdiction enters into a written agreement with the 
CHDO committing the funds to a specific project to be owned, developed, 
or sponsored by the CHDO. This change would make participating 
jurisdictions more accountable for ensuring that CHDOs perform in 
accordance with the HOME program requirements.
    With respect to the CHDO set-aside, NAHA requires participating 
jurisdictions to provide a minimum of 15 percent of their HOME 
allocations for housing that is owned, developed, or sponsored by 
community housing development organizations. In 1994,

[[Page 78359]]

HUD first provided guidance for what is considered housing owned, 
developed, or sponsored by CHDOs. HUD continues to receive questions 
about whether specific projects may be funded with the CHDO set-aside 
funds or must be funded with other HOME dollars. Frequently, the 
proposed projects do not meet standards in established in HUD's 
administrative guidance for housing that is owned, developed, or 
sponsored by a CHDO. Generally, such projects did not meet the 
standards because the role of the CHDO in the development process was 
too limited or the organization did not meet the definition of a CHDO 
at Sec.  92.2.
    HUD is proposing two changes to the regulations to address these 
situations. To ensure that participating jurisdictions provide CHDO 
set-aside funds only to organizations that qualify as CHDOs, HUD is 
proposing to revise Sec.  92.300 to require participating jurisdictions 
to certify that the organization meets the definition of ``community 
housing development organization.'' A participating jurisdiction would 
also be required to document that the organization has the capacity to 
own, develop, or sponsor housing, as required by the revised definition 
of CHDO in Sec.  92.2, each time it commits CHDO funds to an 
organization. The certification and documentation requirement would 
apply to commitments of funds to any CHDO after the effective date of 
the final rule.
    As discussed later in this preamble, the proposed rule would also 
alter minimum requirements for reserving funds to a CHDO. The concept 
of reservation of CHDO funds would change from being a general 
agreement to provide funds for a project to be identified at a future 
time to the execution of a written agreement between the participating 
jurisdiction and the CHDO committing the funds to a specific local 
project in accordance with paragraph (2) of the definition of 
``commitment'' in Sec.  92.2.
    HUD is proposing to codify definitions of housing that is owned, 
developed, or sponsored by a CHDO currently established in HUD's 
administrative guidance into the regulation in Sec.  92.300(a)(2) 
through (a)(6), with only minimal revisions.
    Paragraph (a)(2) of Sec.  92.300 would provide the minimum standard 
for a project to be considered to be ``owned'' by the CHDO. Housing 
meets the ``owned'' standard if the CHDO is the owner (in fee simple 
absolute) of multifamily or single housing that will be rented to low-
income families in accordance with Sec.  92.252.
    Paragraph (a)(3) would provide the minimum standards for a project 
to be considered to be ``developed'' by the CHDO. Housing would meet 
the ``developed'' standard, if the CHDO is the owner (in fee simple 
absolute) and developer of: (1) New single family housing that is or 
will be constructed or (2) existing single family substandard housing 
that is or will be acquired and rehabilitated for sale to low-income 
families in accordance with Sec.  92.254.
    To be the developer, the CHDO would be required to arrange 
financing of the project and be in sole charge of construction. The 
CHDO would be permitted to provide direct homeownership assistance 
(e.g., downpayment assistance) when the CHDO sells this housing to low-
income families without being considered a subrecipient of HOME funds, 
subject to the condition that the HOME funding for downpayment 
assistance is not greater than 10 percent of the amount of HOME funds 
for development of the housing.
    The participating jurisdiction would be required to determine and 
set forth in its written agreement with the CHDO either the actual 
sales prices or the method by which the sales prices for the housing 
will be established and whether the proceeds from the sale of the 
housing must be returned to the participating jurisdiction or may be 
retained by the CHDO. While the proceeds the participating jurisdiction 
permits the CHDO to retain would not be subject to the requirements of 
24 CFR part 92, the participating jurisdiction would be required to 
specify in the written agreement with the CHDO whether the proceeds are 
to be used for HOME-eligible or other housing activities to benefit 
low-income families. However, funds recaptured because the housing no 
longer meets the affordability requirements under Sec.  
92.254(a)(5)(ii) would then be subject to the requirements of this part 
in accordance with Sec.  92.503.
    Paragraph (a)(4) would provide the minimum standards for a rental 
project to be considered ``sponsored'' by the CHDO. Rental housing 
would meet the ``sponsored'' standard if it is rental housing that is 
owned (in fee simple absolute) by a subsidiary of a CHDO, a limited 
partnership of which the CHDO or its subsidiary is the sole general 
partner, or a limited liability company of which the CHDO or its 
subsidiary is the sole managing member. The subsidiary of the CHDO 
would be permitted to be for-profit or nonprofit organization and would 
be required to be wholly owned by the CHDO. Paragraph (a)(4) would 
provide that, if the limited partnership or limited liability company 
agreement permits the CHDO to be removed as general partner or sole 
managing member, the agreement would have to require that the removal 
be ``for cause'' and that the CHDO must be replaced with another CHDO. 
In addition, the HOME funds would be required to be provided to the 
CHDO, its subsidiary, the limited partnership, or the limited liability 
company.
    Paragraph (a)(5) would clarify that HUD also recognizes as 
``sponsorship'' of HOME-assisted rental housing, situations in which 
the CHDO owns and develops the housing and agrees to convey the housing 
to a private nonprofit organization (that is not created by a 
governmental entity) at a predetermined time after completion of the 
development of the project. Such arrangements typically occur when the 
CHDO has the development expertise and the nonprofit organization has 
the capacity to own and operate the housing. Because the CHDO is the 
owner and developer, the CHDO would be required to own the property 
before the development phase of the project. The CHDO sponsor would be 
required to select the nonprofit organization before the CHDO enters 
into the agreement with the participating jurisdiction that commits 
HOME funds to the CHDO project. The nonprofit organization would assume 
the CHDO's HOME obligation (including any repayment of loans) for the 
project at a specified time after completion of development. If the 
property is not transferred to the nonprofit organization, the CHDO 
sponsor would remain liable for the HOME assistance and the HOME 
project.
    Paragraph (a)(6) would be revised to provide that it is the 
participating jurisdiction that determines the form of assistance 
(e.g., a grant or loan) to the CHDO.
    Finally, minor conforming changes would be made to paragraph (e), 
in accordance with the proposed requirement for a written agreement 
between the participating jurisdiction and the CHDO, and paragraph (f) 
would be revised to clarify that the participating jurisdiction is 
responsible for ensuring that CHDOs do not receive more than the 
permitted amount in operating funds.
t. Other Federal Requirements
1. Affirmative Marketing; Minority Outreach Program (Sec.  92.351)
    HUD is proposing to revise Sec.  92.351 by removing the provision 
that affirmative marketing requirements do

[[Page 78360]]

not apply to tenants with tenant-based rental assistance. In all cases, 
HOME-assisted rental housing must be affirmatively marketed without 
regard to whether the potential tenant has rental assistance. 
Accordingly, HUD proposes to eliminate this exception to affirmative 
marketing. In addition, HUD is proposing to expand the applicability to 
affirmative marketing requirements and procedures to include HOME-
funded programs, such as tenant-based rental assistance and down-
payment assistance programs.
    Corresponding changes would also be made to the provisions on 
written agreements (Sec.  92.504) and applicability of affirmative 
marketing requirements (Sec.  92.614) for funds remaining under the 
American Dream Downpayment Initiative.
    Finally, Sec.  92.351 would be revised to clarify that 
participating jurisdictions must not only adopt, but also follow their 
affirmative marketing procedures, and that the requirements apply to 
subrecipients as well as owners.
2. Environmental Review (Sec.  92.352)
    HUD proposes to revise Sec.  92.352 to address the applicability of 
the environmental review regulations in 24 CFR parts 50 and 58. This 
change would clarify that the applicability of environmental review 
regulations is based on the type of HOME project (new construction, 
rehabilitation, acquisition) or activity (tenant-based rental 
assistance), not the particular cost paid with HOME funds. For example, 
if the project is a new construction project, but the HOME funds will 
be used for acquisition of vacant land for the project, the 
environmental review is based on new construction of housing, as well 
as the acquisition of the land.
3. Labor (Sec.  92.352)
    Section 92.354(a)(3) would be revised to remove reference to HUD 
Handbook 1344.1, Federal Labor Standards Compliance in Housing and 
Community Development Programs. The monitoring and oversight 
responsibilities of participating jurisdictions, which were addressed 
in the handbook, have been incorporated in the regulations to ensure 
that it is clear that participating jurisdictions retain these 
responsibilities. While the procedures and processing provisions of the 
handbook remain applicable to participating jurisdictions, the 
regulation's reference to the handbook is not needed.
4. Conflict of Interest (Sec.  92.356)
    While not required by statute, for many years HUD has, by 
regulation, prohibited conflicts of interest in the use of HOME funds. 
HUD proposes to revise the conflict of interest provisions of Sec.  
92.356(b) by clarifying that the covered conflict involves a financial 
benefit or interest and that covered familial relationships are limited 
to immediate family members. Because the existing language of this 
paragraph differs somewhat from the corresponding regulation for the 
CDBG program, some program participants have been reading the HOME 
regulation more broadly than intended.
    The HOME regulation currently defines prohibited conflicts to 
include situations where a covered person may obtain ``a financial 
interest or benefit from a HOME-assisted activity, or have an interest 
in any contract, subcontract or agreement with respect to a HOME-
assisted activity.'' The regulation provides no further definition of 
what type of ``benefit'' or ``interest in any contract, subcontract or 
agreement'' is prohibited. This lack of detail led to many questions 
and ambiguity as to the circumstances that would constitute a 
prohibited conflict.
    One problematic area has been with respect to public officials 
participating in the affairs of local nonprofit organizations. It is 
common for state and local governments to designate elected or 
appointed officials to serve on the boards of nonprofit organizations 
that may provide affordable housing within their communities. In such 
situations, the question arises whether the provision of HOME funds to 
a nonprofit organization constitutes a conflict when a public official 
serves on the nonprofit group's board. If the public official is not 
receiving a salary or any other compensation for serving on the board, 
the official's interest would only be a personal one. However, HUD has 
found that this kind of public participation often is beneficial and 
should not be discouraged.
    Currently, under the CDBG conflict- of-interest regulations, 
interests or benefits of a personal nature do not create prohibited 
conflicts of interest. HUD believes that the HOME conflict rules should 
also be expressly limited to the prohibition of situations that provide 
a financial interest or benefit. Accordingly, this rule proposes to add 
``financial'' to qualify the terms ``benefit'' and ``interest.'' 
Similar questions have surfaced with respect to the phrase ``family or 
business ties.'' For some communities with histories of extended family 
relationships, it could be difficult to avoid a conflict. The proposed 
rule adds the word ``immediate'' to be consistent with the phrase 
``immediate family,'' as used in the CDBG conflict regulation and the 
procurement conflict provisions in 24 CFR 85.36.
    In addition, HUD proposes to revise Sec.  92.356(f)(1) by 
prohibiting an immediate family members of an officer, employee, agent, 
elected or appointed official or consultant of an owner, developer, or 
sponsor from occupying a HOME-assisted affordable housing unit in a 
project. A developer or owner (including their employees, agents, 
consultants, and officers) will generally have a financial interest or 
benefit from a HOME-assisted activity; for example, developer's fees. 
To address this situation, the HOME rule established specific conflict 
provisions in paragraph (f) to guard against owners and developers 
receiving an unfair advantage in the occupancy of HOME-assisted 
affordable housing. The range of situations in which a conflict may 
arise under paragraph (f) includes, for example, a nonprofit group 
receives HOME funds to construct rental housing as an owner, and then 
the executive director gives its employees first choice to occupy a 
rental unit.
    While the current regulations prohibit officers or employees of the 
owner or developer of HOME-assisted housing to reside in or purchase 
HOME units unless the participating jurisdiction provides a written 
exception based upon specified regulatory criteria, this prohibition 
does not extend to their immediate family members. In other words, the 
executive director of the nonprofit owner in the above example rents 
the first unit to his child, sibling, or parent. Similar to the 
employment context, in HUD's view, this situation also conveys an 
unfair advantage for occupying HOME-assisted affordable housing. While 
there may be some instances where it is not inappropriate for immediate 
family members of the owners or developer of HOME-assisted housing to 
purchase or occupy a HOME unit, to ensure complete transparency these 
instances should be subject to the same exception process used for 
employees or officers of the owners or developers themselves.
u. Program Administration
1. The HOME Investment Trust Fund (Sec.  92.500)
    HUD proposes to amend Sec.  92.500(c) to require that participating 
jurisdictions' local HOME accounts be interest-bearing. NAHA states 
that participating jurisdictions must expend HOME funds for an eligible 
project cost within 15 days of the date of drawing HOME funds from the 
Federal HOME Investment Trust Fund and depositing

[[Page 78361]]

them in its local HOME Investment Trust Fund account. Requiring that 
this local account be interest-bearing will ensure that participating 
jurisdictions maximize these funds, as well as the accumulation of HOME 
program income, since, by virtue of being deposited in the local HOME 
Investment Trust Fund account by ensuring some level of return on the 
funds in the account.
    NAHA requires each participating jurisdiction to reserve 15 percent 
of their HOME allocations to CHDOs. However, some participating 
jurisdictions encounter challenges in finding CHDOs with the adequate 
capacity to plan, undertake, and complete development of affordable 
housing, or to improve the capacity of existing CHDOs. To avoid losing 
CHDO set-aside funds to deobligation at the end of 24 months, many 
participating jurisdictions reserve funds to CHDOs. In some cases, 
these reservations never result in project commitments, expenditures, 
or completed projects. The reserved funds remain reserved to 
nonperforming organizations--in many cases for years--but the low-
income communities the CHDOs are intended to serve never realize any 
benefit in the form of standard, affordable housing units. As long as 
the participating jurisdiction's rate of expenditure for other HOME 
funds is adequate, the unspent CHDO funds are not subject to 
deobligation until they expire at the end of 8 years under the 
provisions of the National Defense Authorization Act.
    To provide an incentive for participating jurisdictions to 
proactively manage CHDO set-aside funds by moving them from 
nonperforming CHDOs to performing CHDOs before they expire, this 
proposed rule would add a new paragraph at Sec.  92.502(d)(1)(C) that 
establishes a separate 5-year expenditure deadline for community 
housing development organization set-aside funds. The 5-year deadline 
for expending CHDO set-aside funds parallels the existing regulatory 5-
year deadline for expenditure of other HOME funds.
2. Program Disbursement and Information System (Sec.  92.502)
    HUD proposes to add a provision to Sec.  92.502(a) that would 
clarify that participating jurisdictions are required to report all 
program income earned on HOME funds in the Integrated Disbursement and 
Information System (IDIS). HUD has found that some participating 
jurisdictions are not consistently reporting program income they earn 
in IDIS and are not always expending program income before drawing down 
additional HOME funds from their HOME Treasury Accounts.
    Additionally, Sec.  92.502(e) would clarify that even though other 
participants may be permitted to access HUD's disbursement and 
information system, only participating jurisdictions and State 
recipients (if permitted by the State) may request disbursement. This 
change would codify HUD's longstanding IDIS administrative guidance.
3. Repayments (Sec.  92.503)
    Section 92.503 would be revised to provide that when repayment of 
HOME funds is required, HUD will instruct a participating jurisdiction 
whether to repay funds to the HOME Investment Trust Fund Treasury 
account or the local account.
4. Participating Jurisdiction Responsibilities; Written Agreements; On-
Site Inspection (Sec.  92.504)
    HUD is proposing several revisions to Sec.  92.504 to reflect 
programmatic changes proposed by this rule to strengthen the 
performance of participating jurisdictions, and help ensure that 
participating jurisdictions are able to require other HOME program 
participants to comply with applicable requirements.
    Specifically, Sec.  92.504(a) would be revised to require 
participating jurisdictions to develop and follow written policies, 
procedures, and systems, including a system for assessing risk of 
activities and projects and a system for monitoring entities, to ensure 
that the requirements of this part are met. While the existence of such 
written policies and procedures does not guarantee that a participating 
jurisdiction's program will be compliant and efficient, HUD's 
monitoring has shown that the absence of or failure to follow systemic 
program procedures for assessing risk and monitoring participating 
entities is strongly correlated with poor performance and noncompliance 
with HOME regulations.
    The proposed rule would also make explicit that State recipients 
are included in the entities that must be evaluated annually, and it 
would clarify that the evaluation must include a review of each 
entity's compliance with HOME program requirements.
    Many participating jurisdictions have requested HUD's assistance in 
improving the written agreements that they use when awarding HOME funds 
to program participants, so that the agreements are comprehensive with 
respect to compliance with all aspects of HOME regulations and 
effective management and enforcement tools. HUD shares this interest in 
making HOME written agreements better compliance, management, and 
enforcement tools for participating jurisdictions.
    The proposed rule would make several revisions to Sec.  92.504(c), 
which sets forth the provisions that are required to be contained in 
participating jurisdictions' written agreements with participants in 
their HOME programs, including state recipients, subrecipients, owners, 
developers, sponsors, contractors, and CHDOs. The proposed changes 
would require the inclusion of provisions in order to ensure that 
participating jurisdictions are able to meet their obligations to 
ensure participants' compliance with existing requirements, as well as 
requirements that would be added under this proposed rule.
    Under Sec.  92.504(c)(1), agreements between state participating 
jurisdictions and state recipients would include a provision to carry 
out the existing requirement in Sec.  92.201(b)(3)(i). Under the 
existing requirement, states must require the state recipient to comply 
with either requirements established by the State or, alternatively, 
may require the state recipient to establish and comply with its own 
requirements to comply with part 92. The proposed revision would 
specify that under either alternative, the requirements must include 
provisions for income determinations, underwriting and subsidy layering 
review, rehabilitation standards, refinancing standards, homebuyer 
program policies, and affordability.
    Section 92.504(c)(1)(i) would be revised to require agreements with 
state recipients to include greater detail about the state recipients' 
use of HOME funds, including amounts and uses for specific programs and 
activities, the number of housing projects to be funded, and any 
requirements for matching contributions. Under Sec.  92.504(c)(1), the 
agreement would be required to specify whether repaid and recaptured 
HOME funds must be returned to the state or retained by the state 
recipient and expended on eligible activities.
    Section 92.504(c)(1)(xi) would be revised to clarify that the 
written agreement required under that paragraph as a condition of 
providing HOME funds to other entities and persons must be in place 
before the HOME funds are provided, and new Sec.  92.504(c)(1)(xiii) 
would require inclusion of a provision to implement the prohibition on 
charging fees in Sec.  92.214(b), as proposed to be revised under this 
rule.

[[Page 78362]]

    Section 92.504(c)(2) would be revised to include requirements in 
agreements with subrecipients reflecting those that this rule would 
require in agreements with state recipients, as described above. In 
addition, agreements with subrecipients would be required to provide 
requirements that they must follow to enable participating 
jurisdictions to carry out their environmental review responsibilities 
before HOME funds are committed to a project.
    HUD further proposes to revise Sec.  92.504(c)(3), which enumerates 
the requirements for written agreements between participating 
jurisdictions and project owners, developers, and sponsors, clarifying 
that the preliminary award of HOME funds (i.e., early awards of HOME 
funds before other necessary sources of financing have been secured) 
does not constitute a ``commitment'' pursuant to the definition at 
Sec.  92.2 and may not be entered into IDIS until a legally binding 
written agreement containing all required provisions is executed.
    Section 92.504(c)(3)(i) would specify that the agreements must also 
include the address of the project and other information specific to 
the project that is the subject of the agreement.
    Section 92.504(c)(3)(ii) would be revised to specify that 
affordability requirements must be imposed by legal restrictions and 
mechanisms under which the participating jurisdiction may require and 
seek specific performance under state law. For homeownership projects, 
agreements would have to specify sales prices and the required 
disposition of sales proceeds.
    Agreements would also be required to specify the number and size of 
HOME assistance units, to provide whether the units are to be fixed or 
``floating,'' and to require provision of the address of each unit to 
the participating jurisdiction by the time of project completion. Such 
agreements would be required under revised Sec.  92.504(c)(3)(v) to 
specify that owners of rental housing must report annually information 
on rents, occupancy, the status of floating units, and the financial 
condition of the rental project.
    Revised Sec.  92.504(c)(3)(xi) would require inclusion of a 
provision to implement the prohibition on charging fees in Sec.  
92.214(b), as proposed to be revised under this rule. If a nonprofit 
owner is a CHDO, the agreement would also have to require compliance 
with Sec.  92.303, which governs tenant grievances and tenant 
participation in management decisions.
    A new paragraph (c)(6) would be added to Sec.  92.504 that would 
enumerate the required provisions for written agreements providing 
operating expense funds to CHDOs, pursuant to Sec.  92.208. The new 
paragraph would require the agreement to describe the uses of operating 
funds and, if the CHDO is not also receiving HOME funds for a project 
that it is to own, develop, or sponsor, also to state the expectation 
that such funds will be provided to the CHDO within 24 months, as also 
required in Sec.  92.300(e).
    HUD is proposing to revise Sec.  92.504(d) to make clear that the 
participating jurisdiction must inspect each HOME project at the time 
of completion and during the period of affordability to determine 
compliance with the property standards applicable under Sec.  92.251. 
Several participating jurisdictions have told HUD that they can 
effectively monitor their HOME rental projects through risk-based on-
site monitoring plans that they use for rental housing developed 
through other funding sources. HUD is proposing changes to the 
inspection schedule and sample of inspected HOME-assisted units that 
will provide flexibility to participating jurisdictions with respect to 
the frequency of inspections.
    Specific solicitation of comment. HUD specifically requests public 
comment from states and other affected members of the public about the 
criteria used in and characteristics of an effective risk-based system 
for on-site monitoring by states.
    HUD is also proposing to add a new paragraph at Sec.  92.504(d)(2) 
to require participating jurisdictions to examine, at least annually 
during the HOME period of affordability, the financial condition of 
rental projects with at least 10 HOME-assisted units. These provisions 
would be added to increase the likelihood that participating 
jurisdictions become aware to financial problems early enough to 
attempt to successfully correct problems or conduct a financial workout 
to sustain the viability of the project. HUD proposes to require this 
review to projects with 10 or more HOME-assisted units, so as to reduce 
the financial and administrative burden of these reviews on 
participating jurisdictions and to focus attention on projects which 
have large HOME investments. HUD recommends that participating 
jurisdictions perform such reviews periodically on smaller projects.
    Specific solicitation of comment. HUD specifically seeks comment on 
its proposal that participating jurisdictions perform such reviews 
regularly. HUD is particularly interested in input regarding the unit-
threshold for triggering annual reviews and whether it would be 
appropriate to establish a regulatory requirement for less frequent 
financial reviews of smaller projects.
    HUD's proposed addition of a new section on troubled projects at 
Sec.  92.210 is a companion to this new requirement and is intended to 
facilitate participating jurisdictions' efforts to return financially 
troubled projects to viability.
5. Applicability of Uniform Administrative Requirements (Sec.  92.505)
    Section 92.505(a) and (b) would be revised to add a reference to 
the regulations implementing OMB Circular No. A-87 (2 CFR part 225) and 
OMB Circular No. A-122 (2 CFR part 230). Circular A-87 is entitled 
``Cost Principles for States, Local, and Indian Tribal Governments.'' 
Circular A-122 is entitled ``Cost Principles for Non-Profit 
Organizations.'' The provisions of these cost principle circulates are 
codified in the governmentwide regulations found at 2 CFR part 225 and 
2 CFR part 230, respectively. The circulars can also be found on OMB's 
Web site at http://www.whitehouse.gov/omb/circulars/index.html.
6. Recordkeeping (Sec.  92.508)
    HUD is proposing to make revisions throughout Sec.  92.508 to 
require participating jurisdictions to maintain records pertaining to 
new requirements that would be established in this rule.
7. Corrective and Remedial Actions (Sec.  92.551)
    Section 92.551(c) would be amended by revising and adding to the 
remedial actions available for imposition on a participating 
jurisdiction. The current provision for requiring matching 
contributions would be expanded to include establishment of a remedial 
plan to make up a matching contributions deficit.
    Two new remedial actions, which--are establishing procedures to 
ensure compliance with HOME requirements, and forming a consortium with 
the urban county--would also be added. The existing provision under 
which HUD may change the method of payment from advance to 
reimbursement would be expanded to require submission of supporting 
documentation before payment is made. Finally, the proposed change 
would provide that HUD may determine the participating jurisdiction to 
be high risk and impose special conditions or restrictions in 
accordance with 24 CFR 85.12.

[[Page 78363]]

8. Hearing Proceedings (Sec.  92.552)
    Section 92.552(b) would be revised to remove the reference that it 
is specifically subpart B of 24 CFR part 26 that governs hearing 
proceedings.
9. Other Federal Requirements (Sec.  92.614)
    HUD makes a minor technical change to Sec.  92.614. HUD moves the 
reference to the affirmative marketing requirements in Sec.  92.351(a) 
from Sec.  92.614(b) to Sec.  92.614(b).

III. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. This rule was 
determined to be a ``significant regulatory action'', as defined in 
section 3(f) of the Order (although not an economically significant 
regulatory action under the Order). The docket file is available for 
public inspection in the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street 
SW., Room 10276, Washington, DC 20410-0500. 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).

 Paperwork Reduction Act

    The information collection requirements contained in this rule have 
been submitted to the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In accordance 
with the Paperwork Reduction Act, 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 OMB 
control number.
    The burden of the information collections in this rule is estimated 
as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                     Response
     Information collection          Number of       frequency     Total annual    Burden hours    Total annual
                                    respondents      (average)       responses     per response        hours
----------------------------------------------------------------------------------------------------------------
Sec.   91.320 (Action Plan).....             645               1               1               1             645
Sec.   92.205(e) (Terminated                 180               1               1               5             900
 Projects)......................
Sec.   92.252 (Qualification as               50               1               1               5             250
 affordable housing: Rental
 Housing).......................
Sec.   92.254(f) (Homeownership)             600               1               1               5           3,000
Sec.   92.351 (Affirmative                 1,290               1               1               5           6,450
 Marketing).....................
Sec.   92.504 (Participating                 645               1               1               1             645
 Jurisdiction Inspection).......
Sec.   92.508 (Recordkeeping--            13,032               1               1               4          52,128
 Subsidy Layering and
 Underwriting--Sec.   92.250)...
                                 -------------------------------------------------------------------------------
    Total.......................          16,442               1               1              26         64, 018
----------------------------------------------------------------------------------------------------------------

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology; e.g., 
permitting the electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Comments must refer 
to the proposal by name and docket number (FR-5563) and must be sent 
to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax: (202) 395-6947,
 and
Reports Liaison Officer, Office of Community Planning and Development, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
7233, Washington, DC 20410.

    Interested persons may submit comments regarding the information 
collection requirements electronically through the Federal eRulemaking 
Portal at http://www.regulations.gov. HUD strongly encourages 
commenters to submit comments electronically. Electronic submission of 
comments allows the commenter maximum time to prepare and submit a 
comment, ensures timely receipt by HUD, and enables HUD to make them 
immediately available to the public. Comments submitted electronically 
through http://www.regulations.gov can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

Regulatory Flexibility Act

    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 solely 
addresses the allocation and use of formula grant funds by state and 
local jurisdictions (participating jurisdictions) under the HOME 
program. As discussed in the preamble, this proposed rule updates the 
regulations governing the HOME program, which have not been updated in 
15 years. The proposed rule does not alter the allocation of funds 
under the HOME program, but is directed to revising the HOME program 
regulations to reflect changes in the housing market that have occurred 
over the last 15 years, to clarify and enhance the roles and 
responsibilities and accountability of participating jurisdictions, and 
strengthen HUD's own oversight of the program. The

[[Page 78364]]

program is a voluntary grant program and the regulations are designed 
to ensure the use of HOME program grant funds by participating 
jurisdictions and their subrecipients in a manner consistent with 
statutory requirement and objectives, and with HUD's mission. 
Accordingly, HUD has determined that this rule would not have a 
significant economic impact on a substantial number of small entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either (1) imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (2) preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Order. This proposed rule does not have federalism 
implications and would not impose substantial direct compliance costs 
on state and local governments nor preempt state law within the meaning 
of the Order.

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4332(2)(C)). The Finding is available for public 
inspection during regular business hours in the Regulations Division, 
Office of General Counsel, Department of Housing and Urban Development, 
451 7th Street SW., Room 10276, Washington, DC 20410-0500. Due to 
security measures at the HUD Headquarters building, please schedule an 
appointment to review the Finding by calling the Regulations Division 
at (202) 402-3055 (this is not a toll-free number). Individuals with 
speech or hearing impairments may access this number via TTY by calling 
the Federal Relay Service at (800) 877-8339.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 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 will not impose any federal mandates on any 
state, local, or tribal governments or the private sector within the 
meaning of the Unfunded Mandates Reform Act of 1995.

List of Subjects

24 CFR Part 91

    Aged, Grant programs--housing and community development, Homeless, 
Individuals with disabilities, Low and moderate income housing, and 
Reporting and recordkeeping requirements.

24 CFR Part 92

    Administrative practice and procedure, Grant programs--housing and 
community development, Low and moderate income housing, Manufactured 
homes, Rent subsidies, and Reporting and recordkeeping requirements.

    For the reasons stated in the preamble, HUD proposes to amend 24 
CFR parts 91and 92 as follows:

PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND 
DEVELOPMENT PROGRAMS

    1. The authority citation for part 30 continues to read as follows:

    Authority:  42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-
11388, 12701-12711, 12741-12756, and 12901-12912.

    2. In Sec.  91.220, revise paragraphs (l)(2)(i) and (ii), 
redesignate existing paragraph (l)(2)(iv) as paragraph (l)(2)(vii), and 
add new paragraphs (l)(2)(iv), (v), and (vi), to read as follows:


Sec.  91.220  Action plan.

* * * * *
    (l) * * *
    (2) HOME. (i) For HOME funds, a participating jurisdiction shall 
describe other forms of investment that are not described in Sec.  
92.205(b). HUD's specific written approval to the jurisdiction is 
required for other forms of investment, as provided in Sec.  92.205(b). 
Approval of the consolidated plan or action plan under Sec.  91.500 or 
the failure to disapprove the consolidated plan or action plan does not 
satisfy the requirement for specific HUD approval for other forms of 
investment.
    (ii) If the participating jurisdiction intends to use HOME funds 
for homebuyers, it must set forth the guidelines for resale or 
recapture, and obtain HUD's specific, written approval, as required in 
Sec.  92.254. Approval of the consolidated plan or action plan under 
Sec.  91.500 or the failure to disapprove the consolidated plan or 
action does not satisfy the requirement for specific HUD approval for 
other forms of investment.
* * * * *
    (iv) If the participating jurisdiction intends to use HOME funds 
for homebuyer assistance or for rehabilitation of owner-occupied single 
family housing and does not use the Single Family 95 percent Median 
Area Purchase Price Limit for the area provided by HUD, it must 
determine 95 percent of the median area purchase price and set forth 
the information in accordance with Sec.  92.254(a)(2)(iii).
    (v) The jurisdiction must describe eligible applicants and describe 
its process for soliciting and funding applications or proposals.
    (vi) The participating jurisdiction may limit the beneficiaries or 
give preferences to a particular segment of the low-income population 
only if described in the action plan.
    (A) Any limitation or preference must not violate nondiscrimination 
requirements in 24 CFR 92.350, and the participating jurisdiction must 
not limit or give preferences to students.
    (B) A limitation or preference may include, in addition to 
targeting tenant-based rental assistance to persons with special needs, 
as provided in 24 CFR 92.209(c)(2), limiting beneficiaries or giving 
preferences to such professions as police officers, teachers, or 
artists.
    (C) The participating jurisdiction must not limit beneficiaries or 
give a preference to all employees of the jurisdiction.
    (D) The participating jurisdiction may permit rental housing owners 
to limit tenants or give a preference in accordance with 24 CFR 
92.253(d) only if such limitation or preference is described in the 
action plan.
* * * * *
    3. In Sec.  91.320, revise paragraphs (k)(2)(i) and (ii), 
redesignate existing paragraph (k)(2)(iv) as paragraph (k)(2)(vii), and 
add new paragraphs (k)(2)(iv), (v), and (vi) to read as follows:


Sec.  91.320  Action plan.

* * * * *
    (k) * * *
    (2) HOME. (i) The State shall describe other forms of investment 
that are not described in 24 CFR 92.205(b). HUD's specific written 
approval is required for other forms of investment, as provided in 
Sec.  92.205(b). Approval of the consolidated plan or action plan under 
Sec.  91.500 or the failure to disapprove the consolidated plan or 
action plan does not satisfy the requirement for specific HUD approval 
for other forms of investment.

[[Page 78365]]

    (ii) If the State intends to use HOME funds for homebuyers, it must 
set forth the guidelines for resale or recapture, and obtain HUD's 
specific, written approval, as required in 24 CFR 92.254. Approval of 
the consolidated plan or action plan under Sec.  91.500 or the failure 
to disapprove the consolidated plan or action does not satisfy the 
requirement for specific HUD approval for other forms of investment.
* * * * *
    (iv) If the participating jurisdiction intends to use HOME funds 
for homebuyer assistance or for rehabilitation of owner-occupied single 
family housing and does not use the Single Family Median Area Purchase 
Price Limit for the area provided by HUD, it must determine 95 percent 
of the median area purchase price and set forth the information in 
accordance with Sec.  92.254(a)(2)(iii).
    (v) The State must describe eligible applicants and describe its 
process for soliciting and funding applications or proposals.
    (vi) The participating jurisdiction may limit the beneficiaries or 
give preferences to a particular segment of the low-income population 
only if described in the action plan.
    (A) Any limitation or preference must not violate nondiscrimination 
requirements in Sec.  92.350 of this chapter, and the participating 
jurisdiction must not limit or give preferences to students.
    (B) A limitation or preference may include, in addition to 
targeting tenant-based rental assistance to persons with special needs 
as provided in 24 CFR 92.209(c)(2), limiting beneficiaries or giving 
preferences to persons in certain occupations, such as police officers, 
firefighters, or teachers.
    (C) The participating jurisdiction must not limit beneficiaries or 
give a preference to all employees of the jurisdiction.
    (D) The participating jurisdiction may permit rental housing owners 
to limit tenants or give a preference in accordance with 24 CFR 
92.253(d) only if such limitation or preference is described in the 
action plan.
* * * * *

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

    4. The authority citation for part 92 continues to read as follows:

    Authority:  42 U.S.C. 3535(d) and 12701-12839.

    5. In Sec.  92.2:
    a. Revise the introductory text;
    b. Add, in alphabetical order, the definition of CDBG program;
    c. Revise paragraph (1) of the definition of Commitment;
    d. Revise paragraphs (3)(ii) and (iii); add paragraph (3)(iv); and 
revise paragraphs (4), (5), and (9) of the definition of Community 
housing development organization;
    e. Add, in alphabetical order, the definition of Consolidated plan;
    f. Revise the definitions of Homeownership, Housing, and Low-income 
families;
    g. Add a definition of Observed deficiency (OD);
    h. Revise paragraph (2) of the definition of Program income; and
    i. Revise the definitions of Project completion, Reconstruction, 
Single room occupancy (SRO) housing, and Subrecipient
    j. Add a definition of Uniform Physical Condition Standards (UPCS); 
and
    k. Revise the definition of Very low-income families.
    The revisions and additions read as follows:


Sec.  92.2  Definitions.

    The terms ``1937 Act'', ``ALJ'', ``Fair Housing Act'', ``HUD'', 
``Indian Housing Authority (IHA)'', ``Public housing'', ``Public 
Housing Agency (PHA)'', and ``Secretary'' are defined in 24 CFR 5.100.
* * * * *
    CDBG program means the Community Development Block Grant program 
under 24 CFR part 570.
* * * * *
    Commitment * * *
    (1) The participating jurisdiction has executed a legally binding 
written agreement (that includes the date of the signature of each 
person signing the agreement) with a State recipient, a subrecipient, 
or a contractor to use a specific amount of HOME funds to produce 
affordable housing, provide downpayment assistance, or provide tenant-
based rental assistance; or has met the requirements to commit to a 
specific local project, as defined in paragraph (2) of this definition. 
(See Sec.  92.504(c) for minimum requirements for a written agreement.) 
An agreement between the participating jurisdiction and a subrecipient 
that is controlled by the participating jurisdiction (e.g., an agency 
whose officials or employees are official or employees of the 
participating jurisdiction) does not constitute a commitment. An 
agreement between the representative unit and a member unit of general 
local government of a consortium does not constitute a commitment.
* * * * *
    Community housing development organization * * *
    (3) * * *
    (ii) The for-profit entity may not have the right to appoint more 
than one-third of the membership of the organization's governing body. 
Board members appointed by the for-profit entity may not appoint the 
remaining two-thirds of the board members;
    (iii) The community housing development organization must be free 
to contract for goods and services from vendors of its own choosing; 
and
    (iv) The officers and employees of the for-profit entity may not be 
officers or employees of the community housing development 
organization, and the community housing development organization may 
not use office space of the for-profit entity.
    (4) Has a tax exemption ruling from the Internal Revenue Service 
under section 501(c)(3) or (4) of the Internal Revenue Code of 1986 (26 
CFR 1.501(c)(3)-1 or 1.501(c)(4)-1));
    (5) Is not a governmental entity (including the participating 
jurisdiction, other jurisdiction, Indian tribe, public housing 
authority, Indian housing authority, housing finance agency, or 
redevelopment authority) and is not controlled by a governmental 
entity. An organization that is created by a governmental entity may 
qualify as a community housing development organization; however, the 
governmental entity may not have the right to appoint more than one-
third of the membership of the organization's governing body and no 
more than one-third of the board members may be public officials or 
employees of recipient governmental entity. Board members appointed by 
a governmental entity may not appoint the remaining two-thirds of the 
board members. The officers or employees of a governmental entity may 
not be officers or employees of a community housing development 
organization, and the community housing development organization may 
not use office space of a governmental entity;
* * * * *
    (9) Has a demonstrated capacity for carrying out housing projects 
assisted with HOME funds. An organization satisfies this requirement by 
having paid employees with housing development experience. A nonprofit 
organization does not meet the test of demonstrated capacity based on 
any person who is a volunteer or whose services are donated by another 
organization; and
* * * * *

[[Page 78366]]

    Consolidated plan means the plan submitted and approved in 
accordance with 24 CFR part 91.
* * * * *
    Homeownership means ownership in fee simple title in a 1- to 4-unit 
dwelling or in a condominium unit, or equivalent form of ownership 
approved by HUD.
    (1) The land may be owned in fee simple or the homeowner may have a 
99- year ground lease.
    (i) For housing located in the insular areas, the ground lease must 
be 40 years or more.
    (ii) For housing located on trust or restricted Indian lands, the 
ground lease must be 50 years or more.
    (2) Right to possession under a contract for deed, installment 
contract, or land contract (pursuant to which the deed is not given 
until the final payment is made) is not an equivalent form of 
ownership.
    (3) The ownership interest may be subject only to the restrictions 
on resale required under Sec.  92.254(a); mortgages, deeds of trust, or 
other liens or instruments securing debt on the property as approved by 
the participating jurisdiction; or any other restrictions or 
encumbrances that do not impair the good and marketable nature of title 
to the ownership interest.
    (4) The participating jurisdiction must determine whether or not 
ownership or membership in a cooperative or mutual housing project 
constitutes homeownership under State law; however, if the cooperative 
or mutual housing project receives Low Income Housing Tax Credits, the 
ownership or membership does not constitute homeownership.
* * * * *
    Housing includes manufactured housing and manufactured housing 
lots, permanent housing for disabled homeless persons, transitional 
housing, single-room occupancy housing, and group homes. Housing also 
includes elder cottage housing opportunity (ECHO) units that are small, 
free-standing, barrier-free, energy-efficient, removable, and designed 
to be installed adjacent to existing single-family dwellings. Housing 
does not include emergency shelters (including shelters for disaster 
victims) or facilities such as nursing homes, convalescent homes, 
hospitals, residential treatment facilities, correctional facilities, 
halfway houses, housing for students, or dormitories (including 
farmworker dormitories).
* * * * *
    Low-income families means families whose annual incomes do not 
exceed 80 percent of the median income for the area, as determined by 
HUD, with adjustments for smaller and larger families, except that HUD 
may establish income ceilings higher or lower than 80 percent of the 
median for the area on the basis of HUD findings that such variations 
are necessary because of prevailing levels of construction costs or 
fair market rents, or unusually high or low family incomes. An 
individual does not qualify as a low-income family if the individual is 
enrolled as a student at an institution of higher education, as defined 
under section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002); 
is under 24 years of age; is not a veteran of the United States 
military; is unmarried; does not have a dependent child; and is not 
otherwise individually low-income or does not have parents who qualify 
as low-income.
* * * * *
    Observed deficiency (OD) means any deficiency identified during an 
on-site inspection of each inspectable item for each inspected area. 
The participating jurisdiction may establish its own standards for an 
observed deficiency for each inspectable item, except that at a 
minimum, the participating jurisdiction's standards must identify each 
deficiency (regardless of the level of severity) for each inspectable 
item and inspected area included in the most recent Uniform Physical 
Condition Standards (UPCS) Dictionary of Definitions established by HUD 
pursuant to 24 CFR 5.703 and 5.705, or such other requirements that HUD 
may establish.
* * * * *
    Program income * * *
    (2) Gross income from the use or rental of real property, owned by 
the participating jurisdiction, State recipient, or a subrecipient, 
that was acquired, rehabilitated, or constructed, with HOME funds or 
matching contributions, less costs incidental to generation of the 
income (Program income does not include gross income from the use, 
rental or sale of real property received by the project owner, 
developer, or sponsor, unless the funds are paid by the project owner, 
developer, or sponsor to the participating jurisdiction, subrecipient 
or State recipient);
* * * * *
    Project completion means that all necessary title transfer 
requirements and construction work have been performed; the project 
complies with the requirements of this part (including the property 
standards under Sec.  92.251); the final drawdown has been disbursed 
for the project; and the project completion information has been 
entered into the disbursement and information system established by 
HUD, except that with respect to rental housing project completion, for 
the purposes of Sec.  92.502(d) of this part, project completion occurs 
upon completion of construction and prior to occupancy. For tenant-
based rental assistance, project completion means the final drawdown 
has been disbursed for the project.
    Reconstruction means the rebuilding, on the same lot, of housing 
standing on a site at the time of project commitment, except that 
housing that was destroyed may be rebuilt on the same lot if HOME funds 
are committed within 6 months of the date of destruction. The number of 
housing units on the lot may not be decreased or increased as part of a 
reconstruction project, but the number of rooms per unit may be 
increased or decreased. Reconstruction also includes replacing an 
existing substandard unit of manufactured housing with a new or 
standard unit of manufactured housing. Reconstruction is rehabilitation 
for purposes of this part.
* * * * *
    Single room occupancy (SRO) housing means housing (consisting of 
single-room dwelling units) that is the primary residence of its 
occupant or occupants. The unit must contain either food preparation or 
sanitary facilities (and may contain both) if the project consists of 
new construction, conversion of nonresidential space, or 
reconstruction. For acquisition or rehabilitation of an existing 
residential structure or hotel, neither food preparation nor sanitary 
facilities are required to be in the unit. If the units do not contain 
sanitary facilities, the building must contain sanitary facilities that 
are shared by tenants. A project's designation as an SRO must be 
consistent with the building's zoning and building code classification.
* * * * *
    Subrecipient means a public agency or nonprofit organization 
selected by the participating jurisdiction to administer all or some of 
the participating jurisdiction's HOME programs to produce affordable 
housing, provide downpayment assistance, or provide tenant-based rental 
assistance. A public agency or nonprofit organization that receives 
HOME funds solely as a developer or owner of a housing project is not a 
subrecipient. The participating jurisdiction's selection of a 
subrecipient is not subject to the procurement procedures and 
requirements.
* * * * *
    Uniform Physical Condition Standards (UPCS) means uniform

[[Page 78367]]

national standards established by HUD pursuant to Sec.  5.703 of this 
title for housing that is decent, safe, sanitary, and in good repair. 
Standards are established for inspectable items for each of the 
following areas: site, building exterior, building systems, dwelling 
units, and common areas.
* * * * *
    Very low-income families means low-income families whose annual 
incomes do not exceed 50 percent of the median family income for the 
area, as determined by HUD with adjustments for smaller and larger 
families, except that HUD may establish income ceilings higher or lower 
than 50 percent of the median for the area on the basis of HUD findings 
that such variations are necessary because of prevailing levels of 
construction costs or fair market rents, or unusually high or low 
family incomes. An individual does not qualify as a very low-income 
family if the individual is enrolled as a student at an institution of 
higher education, as defined under section 102 of the Higher Education 
Act of 1965 (20 U.S.C. 1002); is under 24 years of age; is not a 
veteran of the United States military; is unmarried; does not have a 
dependent child; and is not otherwise individually very low-income or 
does not have parents who qualify as very low-income.
    6. In Sec.  92.201, revise paragraph (a)(2) to read as follows:


Sec.  92.201  Distribution of assistance.

    (a) * * *
    (2) The participating jurisdiction may only invest its HOME funds 
in eligible projects within its boundaries, or in jointly funded 
projects within the boundaries of contiguous local jurisdictions which 
serve residents from both jurisdictions. For a project to be jointly 
funded, both jurisdictions must make a financial contribution to the 
project. A jurisdiction's financial contribution may take the form of a 
grant or loan (including a loan of funds that comes from other federal 
sources and that are in the jurisdiction's control, such as CDBG 
program funds) or relief of a significant tax or fee (such as waiver of 
impact fees, property taxes, or other taxes or fees customarily imposed 
on projects within the jurisdiction).
* * * * *
    7. In Sec.  92.202, revise paragraph (b) to read as follows:


Sec.  92.202  Site and neighborhood standards.

* * * * *
    (b) New rental housing. In carrying out the site and neighborhood 
requirements with respect to new construction of rental housing, a 
participating jurisdiction is responsible for making the determination 
that proposed sites for new construction meet the requirements in 24 
CFR 983.57(e)(2) and (3).
    8. In Sec.  92.203, revise paragraphs (a)(1)(i), (a)(2), (b), (c), 
and (d)(1) to read as follows:


Sec.  92.203  Income determinations.

    (a) * * *
    (1) * * *
    (i) Examine at least 3 months of source documents evidencing annual 
income (e.g., wage statement, interest statement, unemployment 
compensation statement) for the family.
* * * * *
    (2) For all other families (i.e., homeowners receiving 
rehabilitation assistance, homebuyers, and recipients of HOME tenant-
based rental assistance), the participating jurisdiction must determine 
annual income by examining at least 3 months of source documents 
evidencing annual income (e.g., wage statement, interest statement, 
unemployment compensation statement) for the family.
    (b) When determining whether a family is income eligible, the 
participating jurisdiction must use one of the following two 
definitions of ``annual income'':
    (1) Annual income as defined at 24 CFR 5.609 (except when 
determining the income of a homeowner for an owner-occupied 
rehabilitation project, the value of the homeowner's principal 
residence may be excluded from the calculation of Net Family Assets, as 
defined in 24 CFR 5.603); or
    (2) Adjusted gross income as defined for purposes of reporting 
under Internal Revenue Service Form 1040 series for individual Federal 
annual income tax purposes, except that government cost-of-living 
allowances that not are included in income (e.g., for a Federal 
civilian employee or a federal court employee who is stationed in 
Alaska, Hawaii, or outside the United States) must be added to adjusted 
gross income.
    (c) Although the participating jurisdiction may use either of the 
definitions of ``annual income'' permitted in paragraph (b) of this 
section to calculate adjusted income, it must apply exclusions from 
income established at 24 CFR 5.611. The HOME rents for very low-income 
families established under Sec.  92.252(b)(2) are based on adjusted 
income. In addition, the participating jurisdiction may base the amount 
of tenant-based rental assistance on the adjusted income of the family. 
The participating jurisdiction may use only one definition for each 
HOME-assisted program (e.g., downpayment assistance program, rental 
housing program) that it administers.
    (d)(1) The participating jurisdiction must calculate the annual 
income of the family by projecting the prevailing rate of income of the 
family at the time the participating jurisdiction determines that the 
family is income eligible. Annual income shall include income from all 
persons in the household. Income or asset enhancement derived from the 
HOME-assisted project shall not be considered in calculating annual 
income.
* * * * *
    9. In Sec.  92.205, revise paragraphs (a)(1), (a)(2), (b)(1), (d), 
and (e) to read as follows:


Sec.  92.205  Eligible activities: General.

    (a) * * *
    (1) HOME funds may be used by a participating jurisdiction to 
provide incentives to develop and support affordable rental housing and 
homeownership affordability through the acquisition (including 
assistance to homebuyers), new construction, reconstruction, or 
rehabilitation of nonluxury housing with suitable amenities, including 
real property acquisition, site improvements, conversion, demolition, 
and other expenses, including financing costs, relocation expenses of 
any displaced persons, families, businesses, or organizations; to 
provide tenant-based rental assistance, including security deposits; to 
provide payment of reasonable administrative and planning costs; and to 
provide for the payment of operating expenses of community housing 
development organizations. The housing must be permanent or 
transitional housing. The specific eligible costs for these activities 
are set forth in Sec. Sec.  92.206 through 92.209. The activities and 
costs are eligible only if the housing meets the property standards in 
Sec.  92.251 upon project completion.
    (2) Acquisition of vacant land or demolition must be undertaken 
only with respect to a particular housing project intended to provide 
affordable housing within the time frames established in paragraph (2) 
of the definition of ``commitment'' in Sec.  92.2.
* * * * *
    (b) * * *
    (1) A participating jurisdiction may invest HOME funds as equity 
investments, interest-bearing loans or advances, non-interest-bearing 
loans or advances, interest subsidies consistent with the purposes of 
this part, deferred payment loans, grants, or other forms of assistance 
that HUD determines to be

[[Page 78368]]

consistent with the purposes of this part and specifically approves in 
writing. Each participating jurisdiction has the right to establish the 
terms of assistance, subject to the requirements of this part.
* * * * *
    (d) Multi-unit projects. HOME funds may be used to assist one or 
more housing units in a multi-unit project.
    (1) Only the actual HOME eligible development costs of the assisted 
units may be charged to the HOME program. If the assisted and 
nonassisted units are not comparable, the actual costs may be 
determined based on a method of cost allocation. If the assisted and 
non-assisted units are comparable in terms of size, features, and 
number of bedrooms, the actual cost of the HOME-assisted units can be 
determined by prorating the total HOME eligible development costs of 
the project so that the proportion of the total development costs 
charged to the HOME program does not exceed the proportion of the HOME-
assisted units in the project.
    (2) After project completion, the number of units designated as 
HOME-assisted may be reduced only in accordance with Sec.  92.210, 
except that in a project consisting of all HOME-assisted units, one 
unit may be subsequently converted to an on-site manager's unit if the 
participating jurisdiction determines that the conversion will 
contribute to the stability or effectiveness of the housing and that, 
notwithstanding the loss of one HOME-assisted unit, the costs charged 
to the HOME program do not exceed the actual costs of the HOME-assisted 
units and do not exceed the subsidy limit in Sec.  92.250(b).
    (e) Terminated projects. A HOME assisted project that is terminated 
before completion, either voluntarily or involuntary, constitutes an 
ineligible activity, and any HOME funds invested in the project must be 
repaid to the participating jurisdiction's HOME Investment Trust Fund 
in accordance with Sec.  92.503(b) (except for project-specific 
assistance to community housing development organizations as provided 
in Sec.  92.301(a)(3) and (b)(3)).
    (1) A project that does not meet the requirements for affordable 
housing must be terminated and must repay all HOME funds invested in 
the project to the participating jurisdiction's HOME Investment Trust 
Fund in accordance with Sec.  92.503(b).
    (2) If a participating jurisdiction does not complete a project 
within 4 years of the date of commitment of funds, the project is 
considered to be terminated and the participating jurisdiction must 
repay all funds invested in the project to the participating 
jurisdiction's HOME Investment Trust Fund in accordance with Sec.  
92.503(b). The participating jurisdiction may request a one-year 
extension of this deadline in writing, by submitting information about 
the status of the project, steps being taken to overcome any obstacles 
to completion, proof of adequate funding to complete the project, and a 
schedule with milestones for completion of the project for HUD's review 
and approval.
    10. In Sec.  92.206, revise paragraphs (a)(1), (a)(2), (a)(3) 
introductory text, (a)(4), (b) introductory text, (b)(1), (b)(2) 
introductory text, (b)(2)(vi), (d)(1), (d)(3), and (d)(6) to read as 
follows:


Sec.  92.206  Eligible project costs.

* * * * *
    (a) * * *
    (1) For new construction projects, costs to meet the new 
construction standards in Sec.  92.251;
    (2) For rehabilitation, costs to meet the property standards for 
rehabilitation projects in Sec.  92.251;
    (3) For both new construction and rehabilitation projects, costs:
* * * * *
    (4) For both new construction and rehabilitation of multifamily 
rental housing projects, costs to construct or rehabilitate laundry and 
community facilities that are located within the same building as the 
housing and which are for the use of the project residents and their 
guests.
* * * * *
    (b) Refinancing costs. The cost to refinance existing debt secured 
by a housing project that is being rehabilitated with HOME funds. These 
costs include the following:
    (1) For single-family (one- to four-family) owner-occupied housing, 
when loaning HOME funds to rehabilitate the housing, if the refinancing 
is necessary to reduce the overall housing costs to the borrower and 
make the housing more affordable and if the rehabilitation cost is 
greater than the amount of debt that is refinanced.
    (2) For single family or multifamily projects, when loaning HOME 
funds to rehabilitate the units if refinancing is necessary to permit 
or continue affordability under Sec.  92.252. The participating 
jurisdiction must establish refinancing guidelines and state them in 
its consolidated plan described in 24 CFR part 91. Regardless of the 
amount of HOME funds invested, the minimum affordability period shall 
be 15 years. The guidelines shall describe the conditions under which 
the participating jurisdictions will refinance existing debt. At 
minimum, the guidelines must:
* * * * *
    (vi) State that HOME funds cannot be used to refinance single 
family or multifamily housing loans made or insured by any Federal 
program, including CDBG.
* * * * *
    (d) * * *
    (1) Architectural, engineering, or related professional services 
required to prepare plans, drawings, specifications, or work write-ups. 
The costs may be paid if they were incurred not more than 18 months 
before the date that HOME funds are committed to the project and the 
participating jurisdiction expressly permits HOME funds to be used to 
pay the costs in the written agreement committing the funds.
* * * * *
    (3) Costs of a project audit, including certification of costs 
performed by a certified public accountant, that the participating 
jurisdiction may require with respect to the development of the 
project.
* * * * *
    (6) Staff and overhead costs of the participating jurisdiction 
directly related to carrying out the project, such as work 
specifications preparation, loan processing inspections, and other 
services related to assisting potential owners, tenants, and 
homebuyers, e.g., housing counseling, may be charged to project costs 
only if the project is funded and the individual becomes the owner or 
tenant of the HOME-assisted project. For multi-unit projects, such 
costs must be allocated among HOME-assisted units in a reasonable 
manner and documented. Although these costs may be charged as project 
costs, they must not be charged to or paid by low-income families.
* * * * *
    11. In Sec.  92.207, revise paragraph (b) to read as follows:


Sec.  92.207  Eligible administrative and planning costs.

* * * * *
    (b) Staff and overhead. Staff and overhead costs of the 
participating jurisdiction directly related to carrying out the 
project, such as work specifications preparation, loan processing, 
inspections, lead-based paint inspections (visual assessments, 
inspections, and risk assessments) and other services related to 
assisting potential owners, tenants, and homebuyers (e.g., housing 
counseling); and staff and overhead costs directly related to providing 
advisory and other relocation services to persons displaced

[[Page 78369]]

by the project, including timely written notices to occupants, 
referrals to comparable and suitable replacement property, property 
inspections, counseling, and other assistance necessary to minimize 
hardship. These costs may be charged as administrative costs or as 
project costs under Sec.  92.206(d)(6) and (f)(2), at the discretion of 
the participating jurisdiction; however, these costs cannot be charged 
to or paid by the low-income families.
* * * * *
    12. In Sec.  92.208, revise paragraph (a) to read as follows:


Sec.  92.208  Eligible community housing development organization 
(CHDO) operating expense and capacity building costs.

    (a) Up to 5 percent of a participating jurisdiction's fiscal year 
HOME allocation may be used for the operating expenses of community 
housing development organizations (CHDOs). This amount is in addition 
to amounts set aside for housing projects that are owned, developed, or 
sponsored by CHDOs as described in Sec.  92.300(a). These funds may not 
be used to pay operating expenses incurred by a CHDO acting as a 
subrecipient or contractor under the HOME Program. Operating expenses 
means reasonable and necessary costs for the operation of the community 
housing development organization. Such costs include salaries, wages, 
and other employee compensation and benefits; employee education, 
training, and travel; rent; utilities; communication costs; taxes; 
insurance; equipment; materials; and supplies. The requirements and 
limitations on the receipt of these funds by CHDOs are set forth in 
Sec.  92.300(e) and (f).
* * * * *
    13. In Sec.  92.209, revise paragraphs (a), (c) introductory text, 
(c)(2), (g), (h)(3)(ii), and (l) to read as follows:


Sec.  92.209  Tenant-based rental assistance: Eligible costs and 
requirements.

    (a) Eligible costs. Eligible costs are the rental assistance and 
security deposit payments made to provide tenant-based rental 
assistance for a family pursuant to this section. Eligible costs also 
include utility deposit assistance, but only if this assistance is 
provided with tenant-based rental assistance or security deposit 
payment. Administration of tenant-based rental assistance is eligible 
only under general management oversight and coordination at Sec.  
92.207(a).
* * * * *
    (c) Tenant selection. The participating jurisdiction must select 
low-income families in accordance with written tenant selection 
policies and criteria that are based on local housing needs and 
priorities established in the participating jurisdiction's consolidated 
plan.
* * * * *
    (2) Targeted assistance. (i) The participating jurisdiction may 
establish a preference for individuals with special needs (e.g., 
homeless persons or elderly persons) or persons with disabilities. The 
participating jurisdiction may offer, in conjunction with a tenant-
based rental assistance program, particular types of nonmandatory 
services that may be most appropriate for persons with a special need 
or a particular disability. Generally, tenant-based rental assistance 
and the related services should be made available to all persons with 
special needs or disabilities who can benefit from such services. 
Participation may be limited to persons with a specific disability if 
necessary to provide as effective housing, aid, benefit, or services as 
those provided to others in accordance with 24 CFR 8.4(b)(1)(iv).
    (ii) The participating jurisdiction may also provide a preference 
for a specific category of individuals with disabilities (e.g., persons 
with HIV/AIDS or chronic mental illness) if the specific category is 
identified in the participating jurisdiction's consolidated plan as 
having unmet need and the preference is needed to narrow the gap in 
benefits and services received by such persons.
    (iii) Self-sufficiency program. The participating jurisdiction may 
require the family to participate in a self-sufficiency program as a 
condition of selection for assistance. The family's failure to continue 
participation in the self-sufficiency program is not a basis for 
terminating the assistance; however, renewal of the assistance may be 
conditioned on participation in the program. Tenants living in a HOME-
assisted rental project who receive tenant-based rental assistance as 
relocation assistance must not be required to participate in a self-
sufficiency program as a condition of receiving assistance.
    (iv) Homebuyer program. HOME tenant-based rental assistance may 
assist a tenant who has been identified as a potential low-income 
homebuyer through a lease-purchase agreement, with monthly rental 
payments for a period up to 36 months (i.e., 24 months, with a 12-month 
renewal in accordance with paragraph (e) of this section). The HOME 
tenant-based rental assistance payment may not be used to accumulate a 
downpayment or closing costs for the purchase; however, all or a 
portion of the homebuyer-tenant's monthly contribution toward rent may 
be set aside for this purpose. If a participating jurisdiction 
determines that the tenant has met the lease-purchase criteria and is 
ready to assume ownership, HOME funds may be provided for downpayment 
assistance in accordance with the requirements of this part.
    (v) Preferences cannot be administered in a manner that limits the 
opportunities of persons on any basis prohibited by the laws listed 
under 24 CFR 5.105(a). For example, a participating jurisdiction may 
not determine that persons given a preference under the program are 
therefore prohibited from applying for or participating in other 
programs or forms of assistance. Persons who are eligible for a 
preference must have the opportunity to participate in all programs of 
the participating jurisdiction, including programs that are not 
separate or different.
* * * * *
    (g) Tenant protections. The tenant must have a lease that complies 
with the requirements in Sec.  92.253 (a) and (b).
    (h) * * *
    (3) * * *
    (ii) The Section 8 Housing Choice Voucher Program (24 CFR part 
982).
* * * * *
    (l) Use of Section 8 assistance. In any case where assistance under 
section 8 of the 1937 Act becomes available, recipients of tenant-based 
rental assistance under this part will qualify for tenant selection 
preferences to the same extent as when they received the tenant-based 
rental assistance under this part.
    14. Add Sec.  92.210 to read as follows:


Sec.  92.210  Troubled HOME-assisted rental housing projects.

    (a) The provisions of this section apply only to an existing HOME-
assisted rental project that, within the HOME period of affordability, 
is no longer financially viable. For purposes of this section, a HOME 
assisted rental project is no longer financially viable if its 
operating costs significantly exceed its operating revenue. HUD may 
approve one or both of the actions described in paragraphs (b) and (c) 
of this section to strategically preserve a rental project after 
consideration of market needs, available resources, and the likelihood 
of long-term viability of the project.
    (b) Notwithstanding Sec.  92.214, HUD may permit, pursuant to a 
written memorandum of agreement, a

[[Page 78370]]

participating jurisdiction to invest additional HOME funds in the 
existing HOME-assisted rental project. The total HOME funding for the 
project (original investment plus additional investment) must not 
exceed the per-unit subsidy limit in Sec.  92.250(a). The use of HOME 
funds may include, but is not limited to, rehabilitation of the HOME 
units and recapitalization of project reserves for the HOME units (to 
fund capital costs). If additional HOME funds are invested, HUD may 
require the period of affordability to be extended, based on such 
considerations as the amount of additional HOME funds or additional 
units.
    (c) HUD may, through written approval, permit the participating 
jurisdiction to reduce the number of HOME-assisted units, if the 
project contains more than the minimum number of units required to be 
designated as HOME-assisted under Sec.  92.205(d). In determining 
whether to permit a reduction in the number of HOME-assisted units, HUD 
will take into account the required period of affordability and the 
amount of HOME assistance provided to the project.
    15. Add Sec.  92.213 to read as follows:


Sec.  92.213  HOME Funds and Public Housing.

    (a) General Rule. HOME funds may not be used for public housing 
units. HOME-assisted housing units may not receive Operating Fund or 
Capital Fund assistance under section 9 of the 1937 Act during the HOME 
period of affordability.
    (b) Exception. HOME funds may be used for the development of public 
housing units, if the units are developed under section 24 of the 1937 
Act (HOPE VI) and no Capital Fund assistance under section 9(d) of the 
Act is used for the development of the unit. Units developed with both 
HOME and HOPE VI may receive operating assistance under section 9 of 
the 1937 Act. Units developed with HOME and HOPE VI funds under this 
paragraph may subsequently receive Capital Funds for rehabilitation or 
modernization.
    (c) Using HOME Funds in Public Housing Projects. Consistent with 
Sec.  92.205(d), HOME funds may be used for affordable housing units in 
a project that also contains public housing units, provided that the 
HOME funds are not used for the public housing units (except as 
provided in paragraph (b) of this section) and HOME funds are used only 
for eligible costs in accordance with this part.
    16. In Sec.  92.214, revise the section heading and paragraphs 
(a)(4) and (b) to read as follows:


Sec.  92.214  Prohibited activities and fees.

    (a) * * *
    (4) Provide assistance for uses authorized under section 9 of the 
1937 Act (Public Housing Capital and Operating Funds);
* * * * *
    (b)(1) Participating jurisdictions may not charge (and must 
prohibit State recipients, subrecipients, and other program 
participants from charging) servicing, origination, or other fees for 
the purpose of covering costs of administering the HOME program (e.g., 
fees on low-income families for construction management or for 
inspections for compliance with property standards) (see Sec.  
92.206(d)(6) and Sec.  92.207), except that participating 
jurisdictions:
    (i) May charge owners of rental projects reasonable annual fees for 
compliance monitoring during the period of affordability; and
    (ii) May charge nominal application fees (although these fees are 
not an eligible HOME cost) to project owners to discourage frivolous 
applications. The amount of application fees must be appropriate to the 
type of application and may not create an undue impediment to a low-
income family's, subrecipient's, State recipient's, or other entity's 
participation in the participating jurisdiction's program. All such 
fees are applicable credits under 2 CFR 225 (OMB Circular A-87, 
entitled ``Cost Principles for State, Local, and Indian Tribal 
Governments'').
    (2) The participating jurisdiction must prohibit project owners 
from charging fees that are not customarily charged in rental housing 
(e.g., laundry room access fees), except that rental project owners 
may:
    (i) Charge reasonable application fees to prospective tenants;
    (ii) May charge parking fees to tenants only if such fees are 
customary for rental housing projects in the neighborhood; and
    (iii) May charge fees for services such as bus transportation or 
meals, as long as such services are voluntary.
    17. In Sec.  92.221, add paragraph (d) to read as follows:


Sec.  92.221  Match credit.

* * * * *
    (d) Match credit for affordable homeownership housing. 
Contributions to homeownership housing may be credited as a match only 
to the extent that the sales price of the housing is reduced by the 
amount of the contribution.
    18. In Sec.  92.222, revise paragraph (b) to read as follows:


Sec.  92.222  Reduction of matching contribution requirement.

* * * * *
    (b) Reduction of match for participating jurisdictions in disaster 
areas. If a participating jurisdiction is located in an area in which a 
declaration of major disaster is made pursuant to the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121-
5206), the participating jurisdiction may request a reduction of its 
matching requirement.
    (1) In determining whether to grant the request and the amount and 
duration of the reduction, if any, HUD must consider the fiscal impact 
of the disaster on the participating jurisdiction.
    (i) For a local participating jurisdiction, the HUD Field office 
may reduce the matching requirement specified in Sec.  92.218 by up to 
100 percent for the fiscal year in which the declaration of major 
disaster is made and the following fiscal year.
    (ii) For a State participating jurisdiction, the HUD Field office 
may reduce the matching requirement specified in Sec.  92.218, by up to 
100 percent for the fiscal year in which the declaration of major 
disaster is made and the following fiscal year with respect to any HOME 
funds expended in an area to which the declaration of a major disaster 
applies.
    (2) At its discretion and upon request of the participating 
jurisdiction, the HUD Field Office may extend the reduction for an 
additional year.
    19. Revise Sec.  92.250 to read as follows:


Sec.  92.250  Maximum per-unit subsidy amount, underwriting, and 
subsidy layering.

    (a) Maximum per-unit subsidy amount. The total amount of HOME funds 
and ADDI funds that a participating jurisdiction may invest on a per-
unit basis in affordable housing may not exceed the per-unit dollar 
limitations established under section 221(d)(3)(ii) of the National 
Housing Act (12 U.S.C.17151(d)(3)(ii)) for elevator-type projects that 
apply to the area in which the housing is located. HUD will allow the 
per-unit subsidy amount to be increased on a programwide basis to an 
amount, up to 240 percent of the original per unit limits, to the 
extent that the costs of multifamily housing construction exceed the 
section 221(d)(3)(ii) limit.
    (b) Underwriting and subsidy layering. Before committing funds to a 
project, the participating jurisdiction must evaluate the project in 
accordance with guidelines that it has adopted for determining a 
reasonable level of profit

[[Page 78371]]

or return on owner's or developer's investment in a project and must 
not invest any more HOME funds, alone or in combination with other 
governmental assistance, than is necessary to provide quality 
affordable housing that is financially viable for a reasonable period 
(at minimum, the period of affordability in Sec.  92.252 or Sec.  
92.254) and that will not provide a profit or return on the owner's or 
developer's investment that exceeds the participating jurisdiction's 
established standards for the size, type, and complexity of the 
project. The participating jurisdiction's guidelines must require the 
participating jurisdiction to undertake:
    (1) An examination of the sources and uses of funds for the project 
and a determination that the costs are reasonable; and
    (2) An assessment, at minimum, of the market conditions of the 
neighborhood in which the project will be located, the experience of 
the developer, the financial capacity of the developer, and firm 
financial commitments for the project.
    20. Revise Sec.  92.251 to read as follows:


Sec.  92.251  Property standards.

    (a) New construction projects. (1) State and local codes, 
ordinances, and zoning requirements. Housing that is newly constructed 
with HOME funds must meet all applicable State and local codes, 
ordinances, and zoning requirements. HOME-assisted new construction 
projects must meet State or local residential and building codes, as 
applicable or, in the absence of a State or local building code, the 
International Residential Code or International Building Code (as 
applicable to the type of housing) of the International Code Council. 
The housing must meet the applicable requirements upon project 
completion.
    (2) HUD requirements. All new construction projects must also meet 
the requirements described in paragraphs (a)(2)(i) through (vii) of 
this section:
    (i) Lead-based paint. The housing must meet the lead-based paint 
requirements at 24 CFR part 35.
    (ii) Accessibility. The housing must meet the accessibility 
requirements of part 8 of this title, which implements Section 504 of 
the Rehabilitation Act of 1973 (29 U.S.C. 794). Covered multifamily 
dwellings, as defined at 24 CFR 100.201, must also meet the design and 
construction requirements at 24 CFR 100.205, which implements the Fair 
Housing Act (42 U.S.C. 3601-3619).
    (iii) [Reserved.]
    (iv) Disaster mitigation. Where relevant, the housing must be 
constructed to mitigate the impact of potential disasters (e.g., 
earthquakes, hurricanes, flooding, and wildfires), in accordance with 
State and local codes, ordinances, or other State and local 
requirements, or such other requirements as HUD may establish.
    (v) Written standards for methods and materials, plans, 
specifications, work write-ups, and cost estimates. The participating 
jurisdiction must establish written standards for methods and materials 
to be used for new construction. The participating jurisdiction must 
ensure that plans and specifications for new construction that describe 
the work to be undertaken are in compliance with State and local codes, 
ordinances, requirements, and the participating jurisdiction's 
standards for methods and materials. The participating jurisdiction 
must review and approve a written cost estimate for construction after 
a determination that costs are reasonable.
    (vi) Construction progress inspections. The participating 
jurisdiction must conduct progress and final inspections of 
construction to ensure that work is done in accordance with approved 
standards for methods and materials, plans, specifications, and work 
write-ups. The participating jurisdiction must establish written 
procedures for initial, progress, and final inspections of 
construction, including the following: Detailed inspection checklists, 
description of how and by whom inspections will be carried out, 
procedures for training and certifying qualified inspectors, and 
frequency of inspections.
    (vii) Payment schedule. The participating jurisdiction must have 
procedures to ensure that progress payments are consistent with the 
amount of work performed and that final payment does not occur until 
project completion.
    (b) Rehabilitation projects. All rehabilitation that is performed 
using HOME funds must meet the requirements of this paragraph (b).
    (1) State and local codes, ordinances, and zoning requirements. 
Housing that is rehabilitated with HOME funds must meet all applicable 
State and local codes, ordinances, and requirements. The housing must 
meet the applicable requirements upon project completion.
    (2) Rehabilitation standards. The participating jurisdiction must 
establish rehabilitation standards for all HOME-assisted housing 
rehabilitation activities. The housing must meet the participating 
jurisdiction's rehabilitation standards upon project completion. The 
participating jurisdiction's description of its standards must be in 
sufficient detail to establish the basis for a uniform inspection of 
the property. At a minimum, the standards of the participating 
jurisdictions must be such that, upon completion, the HUD-assisted 
project and units will have no observed deficiencies, using the most 
recent physical inspection procedures prescribed by HUD pursuant to 24 
CFR 5.705 for public housing under the Uniform Physical Condition 
Standards. For multifamily housing projects of 26 or more total units, 
the participating jurisdiction must determine all work that will be 
performed in the rehabilitation of the housing and the long-term 
physical needs of the project through a capital needs assessment of the 
project. The rehabilitation standards must address each of the 
following:
    (i) Written standards for methods and materials. The participating 
jurisdiction must establish written standards for methods and materials 
to be used for rehabilitation work, whether or not there are applicable 
State or local rehabilitation codes.
    (ii) Health and safety. The housing must be free of all health and 
safety defects. The participating jurisdiction's standards must 
identify life-threatening deficiencies that must be addressed 
immediately.
    (iii) Major systems. For rental housing, upon project completion, 
each of the following major systems must have a remaining useful life 
for a minimum of 15 years or for such longer period specified by the 
participating jurisdiction, or the major systems must be rehabilitated 
or replaced as part of the rehabilitation work: structural support; 
roofing; cladding and weatherproofing (e.g., windows, doors, siding, 
gutters); plumbing; electrical; and heating, ventilation, and air 
conditioning. For multifamily housing projects of 26 units or more, the 
participating jurisdiction must determine the useful life of major 
systems through a capital needs assessment of the project. For owner-
occupied housing, upon project completion, each of the following major 
systems must have a remaining useful life for a minimum of 5 years or 
for such longer period specified by the participating jurisdiction, or 
the major systems must be rehabilitated or replaced as part of the 
rehabilitation work: Structural support; roofing; cladding and 
weatherproofing (e.g., windows, doors, siding, gutters); plumbing; 
electrical; and heating, ventilation, and air conditioning.
    (iv) Lead-based paint. The housing must meet the lead-based paint 
requirements at 24 CFR part 35.

[[Page 78372]]

    (v) Accessibility. The housing must meet the accessibility 
requirements in 24 CFR part 8, which implements Section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794). Covered multifamily 
dwellings, as defined at 24 CFR 100.201, must also meet the design and 
construction requirements at 24 CFR 100.205, which implements the Fair 
Housing Act (42 U.S.C. 3601-3619). Rehabilitation may include 
improvements that are not required by regulation or statute that permit 
use by a person with disabilities.
    (vi) [Reserved]
    (vii) Disaster mitigation. Where relevant, the housing must be 
improved to mitigate the impact of potential disasters (e.g., 
earthquake, hurricanes, flooding, wildfires) in accordance with State 
and local codes, ordinances, and requirements.
    (viii) Other improvements. Discretionary housing improvements 
beyond those described in paragraphs (b)(2)(i) through (vii) of this 
section may include modest amenities and aesthetic features that are in 
keeping with housing of similar type in the community and must avoid 
luxury improvements, as defined by the participating jurisdiction.
    (3) Work write-ups and cost estimates. The participating 
jurisdiction must ensure that a work write-up that describes the work 
to be undertaken is in compliance with State and local codes, 
ordinances, requirements, and the participating jurisdiction's 
standards for methods and materials. The participating jurisdiction 
must review and approve a written cost estimate for construction after 
a determination that costs are reasonable.
    (4) Construction progress inspections. The participating 
jurisdiction must establish written inspection procedures for initial, 
progress, and final inspections during construction (see Sec.  
92.504(d) for the participating jurisdiction's ongoing responsibilities 
for on-site inspections during the affordability period), including 
detailed inspection checklists, description of how and by whom 
inspections will be carried out, and procedures for training and 
certifying qualified inspectors.
    (5) Frequency of inspections. The participating jurisdiction must 
conduct an initial property inspection to identify the deficiencies 
that must be addressed. The participating jurisdiction must conduct 
progress and final inspections to ensure that work is done in 
accordance with approved standards for methods and materials, and with 
work write-ups. In accordance with Sec.  92.504(d), the participating 
jurisdiction must comply with ongoing responsibilities for on-site 
inspections during the affordability period.
    (6) Payment schedule. The participating jurisdiction must have 
procedures to ensure that progress payments are consistent with the 
amount of work performed and that final payment does not occur until 
all of the required work is completed.
    (c) Acquisition of standard housing. (1) Existing housing that is 
acquired with HOME assistance for rental housing, and that was newly 
constructed or rehabilitated less than 12 months before the date of 
commitment of HOME funds, must meet the property standards of paragraph 
(a) or paragraph (b) of this section, as applicable, of this section 
for new construction and rehabilitation projects. The participating 
jurisdiction must document this compliance based upon a review of 
approved building plans and Certificates of Occupancy, and an 
inspection that is conducted no earlier than 30 days before the 
commitment of HOME assistance.
    (2) All other existing housing that is acquired with HOME 
assistance for rental housing must meet the rehabilitation property 
standards requirements of paragraph (b) of this section. The 
participating jurisdiction must document this compliance based upon an 
inspection that is conducted no earlier than 30 days before the 
commitment of HOME assistance, in accordance with the inspection 
procedures that the participating jurisdiction established pursuant to 
this section. If the property does not meet these standards, the 
property must be rehabilitated to meet the standards of paragraph (b) 
of this section.
    (3) For acquisition projects that are homebuyer projects, before 
the transfer of the housing to the homebuyer, the participating 
jurisdiction must inspect the housing and notify the prospective 
homebuyer of the work needed to cure any defects, and the time by which 
defects must be cured and applicable property standards met. The 
housing must be free from all health and safety defects before 
occupancy and must meet the property standards of this section not 
later than 6 months after the date of transfer of ownership. The 
participating jurisdiction must inspect the housing to verify that the 
defects were corrected and the standards are met.
    (d) All housing occupied by tenants receiving HOME tenant-based 
rental assistance must meet the standards in 24 CFR 982.401, or the 
successor requirements as established by HUD.
    (e) Manufactured housing. Construction of all manufactured housing 
must meet the Manufactured Home Construction and Safety Standards 
codified at 24 CFR part 3280. These standards preempt State and local 
codes covering the same aspects of performance for such housing. 
Participating jurisdictions providing HOME assistance to install 
manufactured housing units must comply with applicable State and local 
laws or codes. In the absence of such laws or codes, the installation 
must comply with the manufacturer's written instructions for 
installation of manufactured housing units. Manufactured housing must 
be on a permanent foundation. Manufactured housing that is 
rehabilitated using HOME funds must meet the property standards 
requirements in paragraph (b) of this section, as applicable. The 
participating jurisdiction must document this compliance in accordance 
with the inspection procedures that the participating jurisdiction has 
established pursuant to Sec.  92.251, as applicable.
    (f) Ongoing property condition standards: Rental housing. (1) 
Ongoing property standards. The participating jurisdiction must 
establish property standards for rental housing (including manufactured 
housing) that apply throughout the affordability period. The standards 
must ensure that owners maintain the housing as decent, safe, and 
sanitary housing in good repair. The participating jurisdiction's 
description of its property standards must be in sufficient detail to 
establish the basis for a uniform inspection of HOME rental projects. 
The participating jurisdiction's ongoing property standards must 
address each of the following:
    (i) Compliance with State and local codes, ordinances, and 
requirements. The housing must meet all applicable State and local code 
requirements and ordinances. At a minimum, the participating 
jurisdiction's ongoing property standards must include all inspectable 
items in the most recent notice setting forth the physical inspection 
procedures prescribed by HUD pursuant to 24 CFR 5.705 for public 
housing under the Uniform Physical Condition Standards. The 
participating jurisdiction's property standards are not required to use 
any scoring, item weight, or level of criticality in the notice.
    (ii) Health and safety. The housing must be free of all health and 
safety defects. The standards must identify life-threatening 
deficiencies that the owner must immediately correct and the time 
frames for addressing these deficiencies.

[[Page 78373]]

    (iii) Lead-based paint. The housing must meet the lead-based paint 
requirements in 24 CFR part 35.
    (2) Inspection procedures. The participating jurisdiction must have 
written inspection procedures for ongoing property inspections, in 
accordance with Sec.  92.504(d). These procedures must include: 
Detailed inspection checklists, description of how frequently the 
property inspections will be undertaken, description of how and by whom 
inspections will be carried out, and procedures for training and 
certifying qualified inspectors.
    (3) Corrective and remedial actions. The participating jurisdiction 
must have procedures for ensuring that timely corrective and remedial 
actions are taken by the project owner to address identified 
deficiencies.
    21. In Sec.  92.252:
    a. Revise the introductory text, paragraph (a) introductory text, 
paragraph (b) introductory text, paragraphs (c), (d), (e), (f)(2), 
paragraph (g) heading, and paragraph (j); and
    b. Add paragraphs (k) and (l).
    The revisions and additions read as follows:


Sec.  92.252  Qualification as affordable housing: Rental housing.

    The HOME-assisted units in a rental housing project must be 
occupied only by households that are eligible as low-income families 
and must meet the requirements of this section to qualify as affordable 
housing. If multifamily housing is not occupied by eligible tenants 
within the time period to be specified by HUD following the date of 
project completion, HUD will require the participating jurisdiction to 
submit marketing information and, if appropriate, submit a marketing 
plan. HUD will require repayment of HOME funds invested in any housing 
unit that has not been rented to eligible tenants 18 months after the 
date of project completion. The affordability requirements also apply 
to the HOME-assisted nonowner-occupied units in single-family housing 
purchased with HOME funds in accordance with Sec.  92.254. The tenant 
must have a written lease that complies with Sec.  92.253.
    (a) Rent limitation. HUD provides the following maximum HOME rent 
limits. The rent limits apply to the rent plus the utilities or the 
utility allowance. The maximum HOME rents (High HOME Rents) are the 
lesser of:
* * * * *
    (b) Additional rent limitations (Low HOME Rents). The participating 
jurisdiction may designate (in its written agreement with the project 
owner) more than the minimum HOME units in a rental housing project, 
regardless of project size, to have Low HOME Rents that meet the 
requirements of this paragraph (b). In rental projects with five or 
more HOME-assisted rental units, at least 20 percent of the HOME-
assisted units must be occupied by very low-income families and meet 
one of the following rent requirements:
* * * * *
    (c) Additional rent limitations for SRO projects. (1) For SRO units 
that have both sanitary and food preparation facilities, the fair 
market rent is based on the zero-bedroom fair market rent. The project 
must meet the requirements of paragraphs (a) and (b) of this section.
    (2) For SRO units that have no sanitary or food preparation 
facilities or only one of the two, the fair market rent is based on 75 
percent of the zero-bedroom fair market rent. The project is not 
required to have low HOME rents in accordance with paragraph (b)(1) or 
(2) of this section, but must meet the occupancy requirements of 
paragraph (b) of this section.
    (d) Initial rent schedule and utility allowances. (1) The 
participating jurisdiction must establish maximum monthly allowances 
for utilities and services (excluding telephone) and update the 
allowances annually. The participating jurisdiction must use the HUD 
Utility Schedule Model or otherwise determine the utility allowance for 
the project based on the type of utilities used at the project.
    (2) The participating jurisdiction must review and approve rents 
proposed by the owner for units, subject to the maximum rent 
limitations in paragraphs (a) or (b) of this section. For all units 
subject to the maximum rent limitations in paragraphs (a) or (b) of 
this section for which the tenant is paying utilities and services, the 
participating jurisdiction must ensure that the rents do not exceed the 
maximum rent minus the monthly allowances for utilities and services.
    (e) Periods of affordability. The HOME-assisted units must meet the 
affordability requirements for not less than the applicable period 
specified in the following table, beginning after project completion.
    (1) The affordability requirements:
    (i) Apply without regard to the term of any loan or mortgage, 
repayment of the HOME investment, or the transfer of ownership;
    (ii) Must be imposed by deed restrictions, use restrictions, 
covenants running with the land, or other mechanisms approved by HUD 
and under which the participating jurisdiction may require specific 
performance, except that the participating jurisdiction may provide 
that the affordability restrictions may terminate upon foreclosure or 
transfer in lieu of foreclosure; and
    (iii) Must be recorded in accordance with State recordation laws.
    (2) The participating jurisdiction may use purchase options, rights 
of first refusal or other preemptive rights to purchase the housing 
before foreclosure or deed in lieu of foreclosure in order to preserve 
affordability.
    (3) The affordability restrictions shall be revived according to 
the original terms if, during the original affordability period, the 
owner of record before the foreclosure, or deed in lieu of foreclosure, 
or any entity that includes the former owner or those with whom the 
former owner has or had family or business ties, obtains an ownership 
interest in the project or property.
    (4) The termination of the restrictions on the project does not 
terminate the participating jurisdiction's repayment obligation under 
Sec.  92.503(b).

------------------------------------------------------------------------
                                                          Minimum period
                                                                of
                 Rental housing activity                   affordability
                                                             in years
------------------------------------------------------------------------
Rehabilitation or acquisition of existing housing per                  5
 unit amount of HOME funds: Under $15,000...............
$15,000 to $40,000......................................              10
Over $40,000 or rehabilitation involving refinancing....              15
New construction or acquisition of newly constructed                  20
 housing................................................
------------------------------------------------------------------------

     (f) * * *
    (2) The participating jurisdiction must provide project owners with 
information on updated HOME rent limits so that rents may be adjusted 
(not to exceed the maximum HOME rent limits in paragraph (f)(1) of this 
section) in accordance with the written agreement between the 
participating jurisdiction and the owner. Owners must annually provide 
the participating jurisdiction with information on rents and occupancy 
of HOME-assisted units to demonstrate compliance with this section. The 
participating jurisdiction must review rents for compliance and approve 
or disapprove them every year.
* * * * *
    (g) Adjustment of HOME rent limits for an existing project.
* * * * *
    (j) Fixed and floating HOME units. In a project containing HOME-
assisted and other units, the participating jurisdiction may designate 
fixed or floating HOME units. This designation

[[Page 78374]]

must be made at the time of project commitment in the written agreement 
between the participating jurisdiction and the owner, and the HOME 
units must be identified not later than the time of project completion. 
Fixed units remain the same throughout the period of affordability. 
Floating units are changed to maintain conformity with the requirements 
of this section during the period of affordability so that the total 
number of housing units meeting the requirements of this section 
remains the same, and each substituted unit is comparable in terms of 
size, features, and number of bedrooms to the originally designated 
HOME-assisted unit.
    (k) Tenant selection. The tenants must be selected in accordance 
with Sec.  92.253(d).
    (l) Ongoing responsibilities. The participating jurisdiction's 
responsibilities for on-site inspections and financial oversight of 
rental projects are set forth in Sec.  92.504(d).
    22. In Sec.  92.253, revise the section heading and paragraphs (a), 
(c), and (d), and add paragraph (b)(9), to read as follows:


Sec.  92.253  Tenant protections and selection.

    (a) Lease. There must be a written lease between the tenant and the 
owner of rental housing assisted with HOME funds that is for a period 
of not less than one year, unless by mutual agreement between the 
tenant and the owner a shorter period is specified.
    (b) * * *
    (9) Mandatory supportive services. Agreement by the tenant (other 
than a tenant in transitional housing) to accept supportive services 
that are offered.
    (c) Termination of tenancy. An owner may not terminate the tenancy 
or refuse to renew the lease of a tenant of rental housing assisted 
with HOME funds, except for serious or repeated violation of the terms 
and conditions of the lease; for violation of applicable Federal, 
State, or local law; for completion of the tenancy period for 
transitional housing or failure to follow a transitional housing 
services plan; or for other good cause. Good cause does not include an 
increase in the tenant's income. To terminate or refuse to renew 
tenancy, the owner must serve written notice upon the tenant specifying 
the grounds for the action at least 30 days before the termination of 
tenancy.
    (d) Tenant selection. An owner of rental housing assisted with HOME 
funds must comply with the affirmative marketing requirements 
established by the participating jurisdiction pursuant to Sec.  
92.351(a). The owner must adopt and follow written tenant selection 
policies and criteria that:
    (1) Limit the housing to very low-income and low-income families;
    (2) Are reasonably related to the applicants' ability to perform 
the obligations of the lease (i.e., to pay the rent, not to damage the 
housing; not to interfere with the rights and quiet enjoyment of other 
tenants);
    (3) Limit eligibility or give a preference to a particular segment 
of the population if permitted in its written agreement with the 
participating jurisdiction (and only if the limitation or preference is 
described in the participating jurisdiction's consolidated plan).
    (i) Any limitation or preference must not violate nondiscrimination 
requirements in Sec.  92.350 of this part. A limitation or preference 
does not violate nondiscrimination requirements if the housing also 
receives funding from a Federal program that limits eligibility to a 
particular segment of the population (e.g., the Housing Opportunity for 
Persons with AIDS program under 24 CFR part 574, the Shelter Plus Care 
program under 24 CFR part 582, the Supportive Housing program under 24 
CFR part 583, supportive housing for the elderly or persons with 
disabilities under 24 CFR part 891), and the limit or preference is 
tailored to serve that segment of the population.
    (ii) A project may have a limitation or preference for persons with 
disabilities who need services offered at a project only if:
    (A) The limitation or preference is limited to the population of 
families (including individuals) with disabilities that significantly 
interfere with their ability to obtain and maintain housing;
    (B) Such families will not be able to obtain or maintain themselves 
in housing without appropriate supportive services; and
    (C) Such services cannot be provided in a nonsegregated setting. 
The families must not be required to accept the services offered at the 
project. In advertising the project, the owner may advertise the 
project as offering services for a particular type of disability; 
however, the project must be open to all otherwise eligible persons 
with disabilities who may benefit from the services provided in the 
project.
    (4) Do not exclude an applicant with a certificate or voucher under 
the Section 8 Tenant-Based Assistance: Housing Choice Voucher Program 
(24 CFR part 982) or an applicant participating in a HOME tenant-based 
rental assistance program because of the status of the prospective 
tenant as a holder of such certificate, voucher, or comparable HOME 
tenant-based assistance document.
    (5) Provide for the selection of tenants from a written waiting 
list in the chronological order of their application, insofar as is 
practicable; and
    (6) Give prompt written notification to any rejected applicant of 
the grounds for any rejection.
    23. In Sec.  92.254, revise paragraph (a)(2)(iii), (a)(3), (a)(5) 
introductory text, (a)(5)(i) introductory text, (a)(5)(ii) introductory 
text, (b)(2), and (c), and add paragraphs (e) and (f) to read as 
follows:


Sec.  92.254  Qualification as affordable housing: Homeownership.

    (a) * * *
    (2) * * *
    (iii) If a participating jurisdiction intends to use HOME funds for 
homebuyer assistance or for the rehabilitation of owner-occupied 
single-family properties, the participating jurisdiction must use the 
HOME affordable homeownership limits provided by HUD ((i.e., 95 percent 
of the median purchase price for the area, except that the affordable 
homeownership limit for newly constructed HOME-assisted housing need 
not be lower than the 95th percentile of the U.S. median purchase price 
for new construction for nonmetropolitan areas, as provided by HUD) or 
it may determine 95 percent of the median area purchase price for 
single family housing in the jurisdiction annually, as follows. The 
participating jurisdiction must set forth the price for different types 
of single family housing for the jurisdiction. The participating 
jurisdiction may determine separate limits for existing housing and 
newly constructed housing. For housing located outside of metropolitan 
areas, a State may aggregate sales data from more than one county, if 
the counties are contiguous and similarly situated. The following 
information must be included in the annual action plan of the 
Consolidated Plan submitted to HUD for review and updated in each 
action plan.
    (A) The 95 percent of median area purchase price must be 
established in accordance with a market analysis that ensured that a 
sufficient number of recent housing sales are included in the survey.
    (B) Sales must cover the requisite number of months based on 
volume: For 500 or more sales per month, a one-month reporting period; 
for 250 through 499 sales per month, a 2-month reporting period; for 
less than 250 sales per month, at least a 3-month reporting

[[Page 78375]]

period. The data must be listed in ascending order of sales price.
    (C) The address of the listed properties must include the location 
within the participating jurisdiction. Lot, square, and subdivision 
data may be substituted for the street address.
    (D) The housing sales data must reflect all, or nearly all, of the 
one-family house sales in the entire participating jurisdiction.
    (E) To determine the median, take the middle sale on the list if an 
odd number of sales, and if an even number, take the higher of the 
middle numbers and consider it the median. After identifying the median 
sales price, the amount should be multiplied by 0.95 to determine the 
95 percent of the median area purchase price.
    (3) The housing must be acquired by a homebuyer whose family 
qualifies as a low-income family, and the housing must be the principal 
residence of the family throughout the period described in paragraph 
(a)(4) of this section. If the housing is not acquired by an eligible 
homebuyer within 6 months of the date of project completion, the 
housing must be rented to an eligible tenant in accordance with Sec.  
92.252. In determining the income eligibility of the family, the 
participating jurisdiction must include the income of all persons 
living in the housing. The homebuyer must receive housing counseling.
* * * * *
    (5) Resale and recapture. To ensure affordability, the 
participating jurisdiction must impose either resale or recapture 
requirements, at its option. The participating jurisdiction must 
establish the resale or recapture requirements that comply with the 
standards of this section and set forth the requirements in its 
consolidated plan. HUD must determine that they are appropriate and 
must specifically approve them in writing.
    (i) Resale. Resale requirements must ensure, if the housing does 
not continue to be the principal residence of the family for the 
duration of the period of affordability, that the housing is made 
available for subsequent purchase only to a buyer whose family 
qualifies as a low-income family and will use the property as the 
family's principal residence. The resale requirement must also ensure 
that the price at resale provides the original HOME-assisted owner a 
fair return on investment (including the homeowner's investment and any 
capital improvement) and ensure that the housing will remain affordable 
to a reasonable range of low-income homebuyers. The participating 
jurisdiction must specifically define ``fair return on investment'' and 
``affordability to a reasonable range of low-income homebuyers,'' and 
specifically address how it will make the housing affordable to a low-
income homebuyer in the event that the resale price necessary to 
provide fair return is not affordable to the subsequent buyer. The 
period of affordability is based on the total amount of HOME funds 
invested in the housing.
* * * * *
    (ii) Recapture. Recapture provisions must ensure that the 
participating jurisdiction recoups all or a portion of the HOME 
assistance to the homebuyers, if the housing does not continue to be 
the principal residence of the family for the duration of the period of 
affordability. The participating jurisdiction may structure its 
recapture provisions based on its program design and market conditions. 
The period of affordability is based upon the total amount of HOME 
funds subject to recapture described in paragraph (a)(5)(ii)(A)(5) of 
this section. Recapture provisions may permit the subsequent homebuyer 
to assume the HOME assistance (subject to the HOME requirements for the 
remainder of the period of affordability) if the subsequent homebuyer 
is low-income.
* * * * *
    (b) * * *
    (2) The housing is the principal residence of an owner whose family 
qualifies as a low-income family at the time HOME funds are committed 
to the housing. In determining the income eligibility of the family, 
the participating jurisdiction must include the income of all persons 
living in the housing.
    (c) Ownership interest. The ownership in the housing assisted under 
this section must meet the definition of ``homeownership'' in Sec.  
92.2, except that housing that is rehabilitated pursuant to paragraph 
(b) of this section may also include inherited property with multiple 
owners, life estates, and living trusts under the following conditions. 
The participating jurisdiction has the right to establish the terms of 
assistance.
    (1) Inherited property. Inherited property with multiple owners: 
Housing for which title has been passed to several individuals by 
inheritance, but not all heirs reside in the housing, sharing ownership 
with other nonresident heirs. (The occupant of the housing has a 
divided ownership interest.) The participating jurisdiction may assist 
the owner-occupant if the occupant is low-income, occupies the housing 
as his or her principal residence, and pays all the costs associated 
with ownership and maintenance of the housing (e.g., mortgage, taxes, 
insurance, utilities).
    (2) Life estate. The person who has the life estate has the right 
to live in the housing for the remainder of his or her life and does 
not pay rent. The participating jurisdiction may assist the person 
holding the life estate if the person is low-income and occupies the 
housing as his or her principal residence.
    (3) Inter vivos trust, also known as a living trust. A living trust 
is created when the owner of property conveys his or her property to a 
trust for his or her own benefit or for that of a third party (the 
beneficiaries). The trust holds legal title and the beneficiary holds 
equitable title. The person may name him or herself as the beneficiary. 
The trustee is under a fiduciary responsibility to hold and manage the 
trust assets for the beneficiary. The participating jurisdiction may 
assist if all beneficiaries of the trust qualify as a low-income family 
and occupy the property as their principal residence (except that 
contingent beneficiaries, who receive no benefit from the trust nor 
have any control over the trust assets until the beneficiary is 
deceased, need not be low-income). The trust must be valid and 
enforceable and ensure that each beneficiary has the legal right to 
occupy the property for the remainder of his or her life.
* * * * *
    (e) Providing homeownership assistance through lenders. Subject to 
the requirements of this paragraph (e), the participating jurisdiction 
may provide homeownership assistance through for-profit or nonprofit 
lending institutions that provide the first mortgage loan to a low-
income family.
    (1) The homeownership assistance may be provided only as specified 
in a written agreement between the participating jurisdiction and the 
lender. The written agreement must specify the forms and amounts of 
homeownership assistance that the participating jurisdiction authorizes 
the lender to provide to families and any conditions that apply to the 
provision of such homeownership assistance.
    (2) Prior to the lender providing any homeownership assistance to a 
family, the participating jurisdiction must verify that the family is 
low-income and must inspect the housing for compliance with the 
property standards in Sec.  92.251.
    (3) No fees (e.g., origination fees or points) may be charged to a 
family for the HOME homeownership assistance provided pursuant to this 
paragraph (e),

[[Page 78376]]

and the participating jurisdiction must determine that the fees and 
other amounts charged to the family by the lender for the first 
mortgage financing are reasonable. Reasonable administrative costs may 
be charged to the HOME program as a project cost. If the participating 
jurisdiction requires lenders to pay a fee to participate in the HOME 
program, the fee is program income to the HOME program.
    (f) Homebuyer program policies. The participating jurisdiction must 
have and follow written policies for:
    (1) Underwriting standards for homeownership assistance that 
evaluate housing debt and overall debt of the family, the 
appropriateness of the amount of assistance, monthly expenses of the 
family, assets available to acquire the housing, and financial 
resources to sustain homeownership;
    (2) Anti-predatory lending, and
    (3) Refinancing loans to which HOME loans are subordinated to 
ensure that the terms of the new loan are reasonable.
    24. Revise Sec.  92.255 to read as follows:


Sec.  92.255  Converting rental units to homeownership units for 
existing tenants.

    (a) The participating jurisdiction may permit the owner of HOME-
assisted rental units to convert the rental units to homeownership 
units by selling, donating, or otherwise conveying the units to the 
existing tenants to enable the tenants to become homeowners in 
accordance with the requirements of Sec.  92.254. However, refusal by 
the tenant to purchase the housing does not constitute grounds for 
eviction or for failure to renew the lease.
    (b) If no additional HOME funds are used to enable the tenants to 
become homeowners, the homeownership units are subject to a minimum 
period of affordability equal to the remaining affordable period if the 
units continued as rental units. If additional HOME funds are used to 
directly assist the tenants to become homeowners, the minimum period of 
affordability is the affordability period under Sec.  92.254(a)(4), 
based on the amount of direct homeownership assistance provided.
    25. In Sec.  92.300, revise paragraphs (a), (e), and (f) to read as 
follows:


Sec.  92.300  Set-aside for community housing development organizations 
(CHDOs).

    (a) Within 24 months after the date that HUD notifies the 
participating jurisdiction of HUD's execution of the HOME Investment 
Partnerships Agreement, the participating jurisdiction must reserve not 
less than 15 percent of the HOME allocation for investment only in 
housing to be developed, sponsored, or owned by community housing 
development organizations. For a State, the HOME allocation includes 
funds reallocated under Sec.  92.451(c)(2)(i) and, for a unit of 
general local government, includes funds transferred from a State under 
Sec.  92.102(b). The participating jurisdiction must certify the 
organization as meeting the definition of ``community housing 
development organization'' and must document that the organization has 
capacity to own, develop, or sponsor housing each time it commits funds 
to the organization. For purposes of this paragraph:
    (1) Funds are reserved when a participating jurisdiction enters 
into a written agreement with the community housing development 
organization (or project owner as described in paragraph (a)(4) of this 
section) committing the funds to a specific local project in accordance 
with paragraph (2) of the definition of ``commitment'' in Sec.  92.2.
    (2) Housing is ``owned'' by the community housing development 
organization if the community housing development organization is the 
owner in fee simple absolute of multifamily or single family housing 
that is or will be rented to low-income families in accordance with 
Sec.  92.252.
    (3) Housing is ``developed'' by the community development housing 
organization if the community housing development organization is the 
owner (in fee simple absolute) and developer of new housing that is or 
will be constructed or existing substandard housing that is or will be 
acquired and rehabilitated for sale to low-income families in 
accordance with Sec.  92.254.
    (i) To be the ``developer,'' the community development housing 
organization must arrange financing of the project and be in sole 
charge of construction. The community housing development organization 
may provide direct homeownership assistance (e.g., downpayment 
assistance) when it sells the housing to low-income families and the 
community housing development organization will not be considered a 
subrecipient, provided that the HOME funds for downpayment assistance 
are not greater than 10 percent of the amount of HOME funds for 
development of the housing.
    (ii) The participating jurisdiction must determine and set forth in 
its written agreement with the community housing development 
organization the actual sales prices of the housing or the method by 
which the sales prices for the housing will be established and whether 
the proceeds must be returned to the participating jurisdiction or may 
be retained by the community housing development organization.
    (A) While proceeds that the participating jurisdiction permits the 
community housing development organization to retain are not subject to 
the requirements of this part, the participating jurisdiction must 
specify in the written agreement with the community housing development 
organization whether the proceeds are to be used for HOME-eligible 
activities or other housing activities to benefit low-income families.
    (B) Funds that are recaptured because the housing no longer meets 
the affordability requirements under Sec.  92.254(a)(5)(ii) are subject 
to the requirements of this part in accordance with Sec.  92.503.
    (4) Housing is ``sponsored'' by the community development housing 
organization if it is rental housing owned (in fee simple absolute) by 
a subsidiary of a community housing development organization, a limited 
partnership of which the community housing development organization or 
its subsidiary is the sole general partner, or a limited liability 
company of which the community housing development organization or its 
subsidiary is the sole managing member.
    (i) The subsidiary of the community housing development 
organization may be a for-profit or nonprofit organization and must be 
wholly owned by the community housing development organization. If the 
limited partnership or limited liability company agreement permits the 
community housing development organization to be removed as general 
partner or sole managing member, the applicable agreement must provide 
that the removal must be for cause and that the community housing 
development organization must be replaced with another community 
housing development organization.
    (ii) The HOME funds must be provided to the entity that owns the 
project.
    (5) HOME-assisted rental housing is also ``sponsored'' by a 
community housing development organization if the community housing 
development organization owns and develops the rental housing project 
that it agrees to convey to a private nonprofit organization at a 
predetermined time after completion of the development of the project. 
Sponsored rental housing, as provided in this paragraph (a)(5), is 
subject to the following requirements:
    (i) The private nonprofit organization may not be created by a 
governmental entity.

[[Page 78377]]

    (ii) The HOME funds must be invested in the project that is owned 
by the community housing development organization.
    (iii) Because the community housing development organization owns 
and develops the housing, the community housing development 
organization must own the property before the development phase of the 
project.
    (iv) Before commitment of HOME funds, the community housing 
development organization sponsor must select the nonprofit organization 
that will obtain ownership of the property.
    (A) The nonprofit organization assumes the community housing 
development organization's HOME obligations (including any repayment of 
loans) for the project at a specified time after completion of 
development.
    (B) If the housing is not transferred to the nonprofit 
organization, the community housing development organization sponsor 
remains liable for the HOME assistance and the HOME project.
    (6) The participating jurisdiction determines the form of 
assistance (e.g., grant or loan) that the community housing development 
organization receives.
* * * * *
    (e) If funds for operating expenses are provided under Sec.  92.208 
to a community housing development organization that is not also 
receiving funds under paragraph (a) of this section for housing to be 
developed, sponsored, or owned by the community housing development 
organization, the participating jurisdiction's written agreement with 
the community housing development organization must provide that the 
community housing development organization is expected to receive funds 
under paragraph (a) of this section for a project within 24 months of 
the date of receiving the funds for operating expenses, and specifies 
the terms and conditions upon which this expectation is based.
    (f) The participating jurisdiction must ensure that a community 
housing development organization does not receive HOME funding for any 
fiscal year in an amount that provides more than 50 percent or $50,000, 
whichever is greater, of the community housing development 
organization's total operating expenses in that fiscal year. This also 
includes organizational support and housing education provided under 
section 233(b)(1), (2), and (6) of the Act, as well as funds for 
operating expenses provided under Sec.  92.208.
    26. In Sec.  92.351, revise paragraphs (a)(1) and (a)(2)(ii) 
through (iv) to read as follows:


Sec.  92.351  Affirmative marketing; minority outreach program.

    (a) Affirmative marketing. (1) Each participating jurisdiction must 
adopt and follow affirmative marketing procedures and requirements for 
rental and homebuyer projects containing five or more HOME-assisted 
housing units. Affirmative marketing requirements and procedures also 
apply to all HOME-funded programs, including, but not limited to, 
tenant-based rental assistance and downpayment assistance programs. 
Affirmative marketing steps consist of actions to provide information 
and otherwise attract eligible persons in the housing market area to 
the available housing without regard to race, color, national origin, 
sex, religion, familial status, or disability
    (2) * * *
    (ii) Requirements and practices each subrecipient and owner must 
adhere to in order to carry out the participating jurisdiction's 
affirmative marketing procedures and requirements (e.g., use of 
commercial media, use of community contacts, use of the Equal Housing 
Opportunity logotype or slogan, and display of fair housing poster);
    (iii) Procedures to be used by subrecipients and owners to inform 
and solicit applications from persons in the housing market area who 
are not likely to apply for the housing program or the housing without 
special outreach (e.g., through the use of community organizations, 
places of worship, employment centers, fair housing groups, or housing 
counseling agencies);
    (iv) Records that will be kept describing actions taken by the 
participating jurisdiction and by subrecipients and owners to 
affirmatively market the program and units and records to assess the 
results of these actions; and
* * * * *
    27. In Sec.  92.352, revise paragraph (a) to read as follows:


Sec.  92.352  Environmental review.

    (a) General. The environmental effects of each activity carried out 
with HOME funds must be assessed in accordance with the provisions of 
the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321) 
and the related authorities listed in HUD's implementing regulations at 
24 CFR parts 50 and 58. The applicability of the provisions of 24 CFR 
part 50 or part 58 is based on the HOME project (new construction, 
rehabilitation, acquisition) or activity (tenant-based rental 
assistance) as a whole, not on the type of the cost paid with HOME 
funds.
* * * * *
    28. In Sec.  92.354, paragraphs (a)(1) and (3) are revised to read 
as follows:


Sec.  92.354  Labor.

    (a) * * *
    (1) Every contract for the construction (rehabilitation or new 
construction) of housing that includes 12 or more units assisted with 
HOME funds must contain a provision requiring the payment of not less 
than the wages prevailing in the locality, as predetermined by the 
Secretary of Labor pursuant to the Davis-Bacon Act (40 U.S.C. 3141), to 
all laborers and mechanics employed in the development of any part of 
the housing. Such contracts must also be subject to the overtime 
provisions, as applicable, of the Contract Work Hours and Safety 
Standards Act (40 U.S.C. 3701).
* * * * *
    (3) Participating jurisdictions, contractors, subcontractors, and 
other participants must comply with regulations issued under these acts 
and with other Federal laws and regulations pertaining to labor 
standards, as applicable. Participating jurisdictions shall be 
responsible for ensuring compliance by contractors and subcontractors 
with labor standards described in this section. In accordance with 
procedures specified by HUD, participating jurisdictions shall:
    (i) Ensure that bid and contract documents contain required labor 
standards provisions and the appropriate Department of Labor wage 
determinations;
    (ii) Conduct on-site inspections and employee interviews;
    (iii) Collect and review certified weekly payroll reports;
    (iv) Correct all labor standards violations promptly;
    (v) Maintain documentation of administrative and enforcement 
activities; and
    (vi) Require certification as to compliance with the provisions of 
this section before making any payment under such contracts.
* * * * *
    29. In Sec.  92.356, paragraphs (b) and (f)(1) are revised to read 
as follows:


Sec.  92.356  Conflict of interest.

* * * * *
    (b) Conflicts prohibited. No persons described in paragraph (c) of 
this section who exercise or have exercised any functions or 
responsibilities with respect to activities assisted with HOME funds or 
who are in a position to participate in a decision-making process

[[Page 78378]]

or gain inside information with regard to these activities may obtain a 
financial interest or financial benefit from a HOME-assisted activity, 
or have a financial interest in any contract, subcontract, or agreement 
with respect to the HOME-assisted activity, or the proceeds from such 
activity, either for themselves or those with whom they have business 
or immediate family ties, during their tenure or for one year 
thereafter.
* * * * *
    (f) * * *
    (1) No owner, developer, or sponsor of a project assisted with HOME 
funds (or officer, employee, agent, elected or appointed official, or 
consultant of the owner, developer, or sponsor or immediate family 
member or immediate family member of an officer, employee, agent, 
elected or appointed official, or consultant of the owner, developer, 
or sponsor) whether private, for-profit or nonprofit (including a 
community housing development organization (CHDO) when acting as an 
owner, developer, or sponsor) may occupy a HOME-assisted affordable 
housing unit in a project. This provision does not apply to an 
individual who receives HOME funds to acquire or rehabilitate his or 
her principal residence or to an employee or agent of the owner or 
developer of a rental housing project who occupies a housing unit as 
the project manager or maintenance worker.
* * * * *
    30. In Sec.  92.500, paragraphs (c)(1) and (d)(1)(A) and (C) are 
revised to read as follows:


Sec.  92.500  The HOME Investment Trust Fund.

* * * * *
    (c) * * *
    (1) The local account of the HOME Investment Trust Fund includes 
deposits of HOME funds disbursed from the Treasury account; the deposit 
of any State funds (other than HOME funds transferred pursuant to Sec.  
92.102(b)(2)) or local funds that enable the jurisdiction to meet the 
participating threshold amount in Sec.  92.102, any program income 
(from both the allocated funds and matching contributions in accordance 
with the definition of program income), and any repayments or 
recaptured funds as required by Sec.  92.503. The local account must be 
interest-bearing.
* * * * *
    (d)(1) * * *
    (A) Any funds in the United States Treasury account that are 
required to be reserved (i.e., 15 percent of the funds) by a 
participating jurisdiction under Sec.  92.300 that are not committed to 
a community housing development organization project within 24 months 
after the last day of the month in which HUD notifies the participating 
jurisdiction of HUD's execution of the HOME Investment Partnership 
Agreement;
* * * * *
    (C) Any funds in the United States Treasury account that are not 
expended within 5 years after the last day of the month in which HUD 
notifies the participating jurisdiction of HUD's execution of the HOME 
Investment Partnership Agreement and any funds in the United States 
Treasury account that were committed to community housing development 
organization projects that are not expended within 5 years after the 
last day of the month in which HUD notifies the participating 
jurisdiction of HUD's execution of the HOME Investment Partnership 
Agreement; and
* * * * *
    31. In Sec.  92.502, paragraphs (a), (b)(2), and (e) are revised to 
read as follows:


Sec.  92.502  Program disbursement and information system.

    (a) General. The HOME Investment Trust Fund account established in 
the United States Treasury is managed through a computerized 
disbursement and information system established by HUD. The system 
disburses HOME funds that are allocated or reallocated, and collects 
and reports information on the use of HOME funds in the United States 
Treasury account. (For purposes of reporting in the Integrated 
Disbursement and Information System, a HOME project is an activity.) 
The participating jurisdiction must report all program income in HUD's 
computerized disbursement and information system.
    (b) * * *
    (2) If the project set-up information is not completed within 20 
days of the project set-up, the project may be cancelled by the system. 
In addition, a project that has been committed in the system for 12 
months without an initial disbursement of funds may be cancelled by the 
system.
* * * * *
    (e) Access by other participants. Access to the disbursement and 
information system by other entities participating in the HOME program 
(e.g., State recipients) will be governed by procedures established by 
HUD. Only participating jurisdictions and State recipients (if 
permitted by the State) may request disbursement.
    32. In Sec.  92.503, paragraph (b)(3) is revised to read as 
follows:


Sec.  92.503  Program income, repayments, and recaptured funds.

* * * * *
    (b) * * *
    (3) HUD will instruct the participating jurisdiction to either 
repay the funds to the HOME Investment Trust Fund Treasury account or 
the local account. Generally, if the HOME funds were disbursed from the 
participating jurisdiction's HOME Investment Trust Fund Treasury 
account, they must be repaid to the Treasury account. If the HOME funds 
were disbursed from the participating jurisdiction's HOME Investment 
Trust Fund local account, they must be repaid to the local account. If 
the jurisdiction is not a participating jurisdiction at the time the 
repayment is made, the funds must be remitted to HUD, and reallocated 
in accordance with Sec.  92.454.
* * * * *
    33. In Sec.  92.504:
    a. Paragraph (a) is revised;
    b. Paragraphs (c)(1) introductory text, (c)(1)(i), (ii), (vii), and 
(xi) are revised;
    c. Paragraph (c)(1)(xiii) is added;
    d. Paragraphs (c)(2) introductory text, (c)(2)(i), (iv), (v), and 
(x) are revised;
    e. Paragraph (c)(2)(xi) is added;
    f. Paragraphs (c)(3) introductory text, (c)(3)(i) through (iv), 
(c)(3)(v)(A), (vi), (vii), and (x) are revised;
    g. Paragraph (c)(3)(xi) is added;
    h. Paragraph (c)(4) introductory text is revised;
    i. Paragraph (c)(6) is added and
    j. Paragraph (d) is revised.
    The revisions and additions read as follows:


Sec.  92.504  Participating jurisdiction responsibilities; written 
agreements; on-site inspection.

    (a) Responsibilities. The participating jurisdiction is responsible 
for managing the day-to-day operations of its HOME program, ensuring 
that HOME funds are used in accordance with all program requirements 
and written agreements, and taking appropriate action when performance 
problems arise. The use of State recipients, subrecipients, or 
contractors does not relieve the participating jurisdiction of this 
responsibility. The performance and compliance of each contractor, 
State recipient, and subrecipient must be reviewed at least annually. 
The participating jurisdiction must have and follow written policies, 
procedures, and systems, including a system for assessing risk of 
activities and projects and a system for monitoring entities consistent 
with this section, to ensure that the requirements of this part are 
met.
* * * * *

[[Page 78379]]

    (c) * * *
    (1) State recipient. The provisions in the written agreement 
between the State and a State recipient will depend on the program 
functions that the State specifies the State recipient will carry out 
in accordance with Sec.  92.201(b). In accordance with Sec.  92.201, 
the written agreement must either require the State recipient to comply 
with the requirements established by the State or require the State 
recipient to establish its own requirements to comply with this part, 
including requirements for income determinations and underwriting 
subsidy layering guidelines, rehabilitation standards, refinancing 
guidelines, homebuyer program policies, and affordability.
    (i) Use of the HOME funds. The agreement must describe the amount 
and use of the HOME funds to administer one or more programs to produce 
affordable housing, provide downpayment assistance, or provide tenant-
based rental assistance, including the type and number of housing 
projects to be funded (e.g. the number of single-family homeowner loans 
to be made or number of homebuyers to receive downpayment assistance), 
tasks to be performed, a schedule for completing the tasks (including a 
schedule for committing funds to projects), a budget for each program, 
and any requirement for matching contributions. These items must be in 
sufficient detail to provide a sound basis for the State to effectively 
monitor performance under the agreement.
    (ii) Affordability. The agreement must require housing assisted 
with HOME funds to meet the affordability requirements of Sec.  92.252 
or Sec.  92.254, as applicable, and must require repayment of the funds 
if the housing does not meet the affordability requirements for the 
specified time period. The agreement must state if repayment of HOME 
funds or recaptured HOME funds must be remitted to the State or 
retained by the State recipient for additional eligible activities.
* * * * *
    (vii) Affirmative marketing. The agreement must specify the State 
recipient's affirmative marketing responsibilities in accordance with 
Sec.  92.351.
* * * * *
    (xi) Written agreement. Before the State recipient provides funds 
to for-profit owners or developers, nonprofit owners or developers, 
subrecipients, homeowners, homebuyers, tenants (or landlords) receiving 
tenant-based rental assistance, or contractors who are providing 
services to the State recipient, the State recipient must have a 
written agreement with such entities that meets the requirements of 
this section.
* * * * *
    (xiii) Fees. The agreement must prohibit the State recipient and 
subrecipients from charging servicing, origination, processing, 
inspection, or other fees for the costs of administering a HOME 
program.
    (2) Subrecipient. A subrecipient is a public agency or nonprofit 
organization selected by the participating jurisdiction to administer 
all or some of the participating jurisdiction's HOME programs to 
produce affordable housing, provide downpayment assistance, or provide 
tenant-based rental assistance. The agreement must set forth and 
require the subrecipient to follow the participating jurisdiction's 
requirements, including requirements for income determinations, 
underwriting and subsidy layering guidelines, rehabilitation standards, 
refinancing guidelines, homebuyer program policies, and affordability 
requirements. The agreement between the participating jurisdiction and 
the subrecipient must include:
    (i) Use of the HOME funds. The agreement must describe the amount 
and use of the HOME funds for one or more programs, including the type 
and number of housing projects to be funded (e.g., the number of 
single-family homeowners loans to be made or the number of homebuyers 
to receive downpayment assistance), tasks to be performed, a schedule 
for completing the tasks (including a schedule for committing funds to 
projects), a budget, any requirement for matching contributions and the 
period of the agreement. These items must be in sufficient detail to 
provide a sound basis for the participating jurisdiction to effectively 
monitor performance under the agreement.
* * * * *
    (iv) Other program requirements. The agreement must require the 
subrecipient to carry out each activity in compliance with all Federal 
laws and regulations described in subpart H of this part, except that 
the subrecipient does not assume the participating jurisdiction's 
responsibilities for environmental review under Sec.  92.352 and the 
intergovernmental review process in Sec.  92.357 does not apply. The 
agreement must set forth the requirements the subrecipient must follow 
to enable the participating jurisdiction to carry environmental review 
responsibilities before HOME funds are committed to a project.
    (v) Affirmative marketing. The agreement must specify the 
subrecipient's affirmative marketing responsibilities in accordance 
with Sec.  92.351.
* * * * *
    (x) Written agreement. Before the subrecipient provides HOME funds 
to for-profit owners or developers, nonprofit owners or developers or 
sponsors, subrecipients, homeowners, homebuyers, tenants (or landlords) 
receiving tenant-based rental assistance, or contractors, the 
subrecipient must have a written agreement that meets the requirements 
of this section. The agreement must state if repayment of HOME funds or 
recaptured HOME funds must be remitted to the participating 
jurisdiction or retained by the subrecipient for additional eligible 
activities.
    (xi) Fees. The agreement must prohibit the subrecipient from 
charging servicing, origination, or other fees for the costs of 
administering the HOME program.
    (3) For-profit or nonprofit housing owner, sponsor, or developer 
(other than single-family owner-occupant). The participating 
jurisdiction may preliminarily award HOME funds for a proposed project, 
contingent on conditions such as obtaining other financing for the 
project. This preliminary award is not a commitment to a project. The 
written agreement committing the HOME funds to the project must meet 
the requirements of ``commit to a specific local project'' in the 
definition of ``commitment'' in Sec.  92.2 and contain the following:
    (i) Use of the HOME funds. The agreement between the participating 
jurisdiction and a for-profit or nonprofit housing owner, sponsor, or 
developer must describe the address of the project, the use of the HOME 
funds and other funds for the project, including the tasks to be 
performed for the project, a schedule for completing the tasks and the 
project, and a complete budget. These items must be in sufficient 
detail to provide a sound basis for the participating jurisdiction to 
effectively monitor performance under the agreement to achieve project 
completion and compliance with the HOME requirements.
    (ii) Affordability. The agreement must require housing assisted 
with HOME funds to meet the affordability requirements of Sec.  92.252 
or Sec.  92.254, as applicable, and must require repayment of the funds 
if the housing does not meet the affordability requirements for the 
specified time period. The affordability requirements in Sec.  92.252

[[Page 78380]]

must be imposed by deed restrictions, covenants running with the land, 
use restrictions, or other mechanisms approved by HUD under which the 
participating jurisdiction may require specific performance.
    (A) If the owner or developer is undertaking rental projects, the 
agreement must establish the initial rents and the procedures for rent 
increases the number of HOME units, the size of the HOME units, and the 
designation of the HOME units as fixed or floating, and the requirement 
to provide the address (e.g., street address and apartment number) of 
each HOME unit no later than the time of project completion.
    (B) If the owner or developer is undertaking a homeownership 
project for sale to homebuyers in accordance with Sec.  92.254(a), the 
agreement must set forth the resale or recapture requirements that must 
be imposed on the housing, the sales price or the basis upon which the 
sales price will be determined, and the disposition of the sales 
proceeds. Recaptured funds must be returned to the participating 
jurisdiction.
    (iii) Project requirements. The agreement must require compliance 
with project requirements in subpart F of this part, as applicable in 
accordance with the type of project assisted. The agreement may permit 
the owner to limit eligibility or give a preference to a particular 
segment of the population in accordance with Sec.  92.253(d).
    (iv) Property standards. The agreement must require the housing to 
meet the property standards in Sec.  92.251, upon project completion. 
The agreement must also require owners of rental housing assisted with 
HOME funds to maintain the housing compliance with Sec.  92.251 for the 
duration of the affordability period.
    (v) * * *
    (A) The agreement must specify the owner or developer's affirmative 
marketing responsibilities as enumerated by the participating 
jurisdiction in accordance with Sec.  92.351.
* * * * *
    (vi) Records and reports. The agreement must specify the particular 
records that must be maintained and the information or reports that 
must be submitted in order to assist the participating jurisdiction in 
meeting its recordkeeping and reporting requirements. The owner of 
rental housing must annually provide the participating jurisdiction 
with information on rents and occupancy of HOME-assisted units to 
demonstrate compliance with Sec.  92.252. If the rental housing project 
has floating HOME units, the owner must provide the participating 
jurisdiction with information regarding unit substitution and filling 
vacancies so that the project remains in compliance with HOME rental 
occupancy requirements. The agreement must specify the reporting 
requirements (including copies of financial statements) to enable the 
participating jurisdiction to determine the financial condition (and 
continued financial viability) of the rental project.
    (vii) Enforcement of the agreement. The agreement must provide for 
a means of enforcement of the affordable housing requirements by the 
participating jurisdiction and the intended beneficiaries. This means 
of enforcement may include liens on real property, deed restrictions, 
or covenants running with the land. The affordability requirements in 
Sec.  92.252 must be imposed by deed restrictions, covenants running 
with the land, use restrictions, or other mechanisms approved by HUD 
under which the participating jurisdiction may require specific 
performance. In addition, the agreement must specify remedies for 
breach of the provisions of the agreement.
* * * * *
    (x) Community housing development organization provisions. If the 
nonprofit owner or developer is a community housing development 
organization and is using set-aside funds under Sec.  92.300, the 
agreement must include the appropriate provisions under Sec. Sec.  
92.300, 92.301, and 92.303. If the community development organization 
is receiving HOME funds as a developer of homeownership housing, the 
agreement must specify if the organization may retain proceeds from the 
sale of the housing and whether the proceeds are to be used for HOME-
eligible or other housing activities to benefit low-income families. 
Recaptured funds are subject to the requirements of Sec.  92.503. If 
the community housing development organization is receiving assistance 
for operating expenses, see paragraph (c)(6) of this section.
    (xi) Fees. The agreement must prohibit project owners from charging 
origination fees, parking fees, laundry room access fees, and other 
fees; however, rental project owners may charge reasonable application 
fees to prospective tenants.
    (4) Contractor. The participating jurisdiction selects a contractor 
through applicable procurement procedures and requirements. The 
contractor provides goods or services in accordance with a written 
agreement (the contract). For contractors who are administering all or 
some of the participating jurisdiction's HOME programs or specific 
services for one or more programs, the contract must include at a 
minimum the following provisions:
* * * * *
    (6) Community housing development organization receiving assistance 
for operating expenses. The agreement must describe the use of HOME 
funds for operating expenses; e.g., salaries, wages, and other employee 
compensation and benefits; employee education, training, and travel; 
rent; utilities; communication costs; taxes; insurance; equipment; and 
materials and supplies. If the community housing development 
organization is not also receiving funds for a housing project to be 
developed, sponsored, or owned by the community housing development 
organization, the agreement must provide that the community housing 
development organization is expected to receive funds for a project 
within 24 months of the date of receiving the funds for operating 
expenses, and must specify the terms and conditions upon which this 
expectation is based and the consequences of failure to receive funding 
for a project.
    (d) On-site inspections and financial oversight. (1) Inspections. 
The participating jurisdiction must inspect each project at project 
completion and during the period of affordability to determine that the 
project meets the property standards of Sec.  92.251.
    (i) Completion inspections. At completion of the project, the 
participating jurisdiction must perform an on-site inspection of HOME-
assisted housing to determine that all contracted work has been 
completed and that the project complies with the property standards of 
Sec.  92.251.
    (ii) Ongoing periodic inspections of HOME-assisted rental housing. 
During the period of affordability, the participating jurisdiction must 
perform on-site inspections of HOME-assisted rental housing to 
determine compliance with the property standards of Sec.  92.251 and to 
verify the information submitted by the owners in accordance with the 
requirements of Sec.  92.252. The inspections must be in accordance 
with the inspection procedures that the participating jurisdiction 
establishes to meet the inspection requirements of Sec.  92.251.
    (A) The on-site inspections must occur 12 months after project 
completion and at least once every 3 years thereafter during the period 
of affordability.
    (B) If there are observed deficiencies for any of the inspectable 
items in the

[[Page 78381]]

property standards established by the participating jurisdiction, in 
accordance with the inspection requirements of Sec.  92.251, a follow-
up on-site inspection to verify that deficiencies are corrected must 
occur within 12 months, or within a reasonable time frames established 
by the participating jurisdiction depending on the severity of the 
deficiency. Health and safety deficiencies must be corrected 
immediately, in accordance with Sec.  92.251. The participating 
jurisdiction must adopt a more frequent inspection schedule for 
properties that have been found to have health and safety deficiencies.
    (C) The property owner must annually certify to the participating 
jurisdiction that each building and all HOME-assisted units in the 
project is suitable for occupancy, taking into account State and local 
health, safety, and other applicable codes, ordinances, and 
requirements, and the ongoing property standards established by the 
participating jurisdiction to meet the requirements of Sec.  92.251.
    (D) Inspections must be based on a statistically valid sample of 
units. The participating jurisdiction must select the sample. For 
projects with one to four HOME-assisted units, the inspectable items 
(site, building exterior, building systems, and common areas) for each 
building with HOME-assisted units and 100 percent of the HOME-assisted 
units must be inspected. For projects with more than four HOME-assisted 
units, the inspectable items (site, building exterior, building 
systems, and common areas) for each building with HOME-assisted units 
and at least 20 percent of the HOME-assisted units in each building, 
but not less than four HOME-assisted units in each project and one 
HOME-assisted unit in each building, must be inspected.
    (iii) Annual inspections: Tenant-based rental assistance (TBRA). 
All housing occupied by tenants receiving HOME tenant-based rental 
assistance must meet the standards in Sec.  982.401 of this title. The 
participating jurisdiction must perform annual on-site inspections of 
rental housing occupied by tenants receiving HOME-assisted TBRA to 
determine compliance with these standards.
    (2) Financial oversight. During the period of affordability, the 
participating jurisdiction must examine regularly (at least annually) 
the financial condition of HOME-assisted rental housing to determine 
the continued financial viability of the housing and must take actions 
to correct problems, to the extent feasible.
    34. Revise Sec.  92.505 to read as follows:


Sec.  92.505  Applicability of uniform administrative requirements.

    (a) Governmental entities. The requirements of 2 CFR part 225 (OMB 
Circular No. A-87) and the following requirements of 24 CFR part 85 
apply to the participating jurisdictions, State recipients, and 
governmental subrecipients receiving HOME funds: Sec. Sec.  85.6, 
85.12, 85.20, 85.22, 85.26, 85.32 through 85.34, 85.36, 85.44, 85.51, 
and 85.52.
    (b) Nonprofit organizations. The requirements of 2 CFR part 230 
(OMB Circular No. A-122) and the following requirements of 24 CFR part 
84 apply to subrecipients receiving HOME funds that are nonprofit 
organizations that are not governmental subrecipients: Sec. Sec.  84.2, 
84.5, 84.13 through 84.16, 84.21, 84.22, 84.26 through 84.28, 84.30, 
84.31, 84.34 through 84.37, 84.40 through 84.48, 84.51, 84.60 through 
84.62, 84.72, and 84.73.
    34. In Sec.  92.508:
    a. Paragraphs (a)(2)(ii), (iii), and (viii) are revised;
    b. Paragraphs (a)(3)(i), (ii), (iii), (iv), (vi), and (xiii) are 
revised;
    c. Paragraph (a)(3)(xiv) is added; and
    d. Paragraphs (a)(4)(i) and (iii) and (a)(6)(i) are revised.
    The revisions and addition read as follows:


Sec.  92.508  Recordkeeping.

    (a) * * *
    (2) * * *
    (ii) The forms of HOME assistance used in the program, including 
any forms of investment described in the Consolidated Plan under 24 CFR 
part 91 that are not identified in Sec.  92.205(b), and which are 
specifically approved by HUD.
    (iii) The underwriting and subsidy layering guidelines adopted in 
accordance with Sec.  92.250 that support the participating 
jurisdiction's Consolidated Plan certification.
* * * * *
    (viii) If HOME funds are used for acquisition of housing for 
homeownership, the resale or recapture guidelines established in 
accordance with Sec.  92.254(a)(5), as set forth in the Consolidated 
Plan.
* * * * *
    (3) * * *
    (i) A full description of each project assisted with HOME funds, 
including the location (address of each unit), form of HOME assistance, 
and the units or tenants assisted with HOME funds.
    (ii) The source and application of funds for each project, 
including supporting documentation in accordance with 24 CFR 85.20; and 
records to document the eligibility and permissibility of the project 
costs, including the documentation of the actual HOME-eligible 
development costs of each HOME-assisted unit (through allocation of 
costs, if permissible under Sec.  92.205(d)) where HOME funds are used 
to assist less than all of the units in a multi-unit project.
    (iii) Records demonstrating that each rental housing or 
homeownership project meets the minimum per-unit subsidy amount of 
Sec.  92.205(c), the maximum per-unit subsidy amount of Sec.  
92.250(a), and the subsidy layering and underwriting evaluation adopted 
in accordance with Sec.  92.250(b).
    (iv) Records (e.g., inspection reports) demonstrating that each 
project meets the property standards of Sec.  92.251 at project 
completion. In addition, during the period of affordability, records 
for rental projects demonstrating compliance with the property 
standards and financial reviews and actions pursuant to Sec.  
92.504(d).
* * * * *
    (vi) Records demonstrating that each tenant-based rental assistance 
project meets the written tenant selection policies and criteria of 
Sec.  92.209(c), including any targeting requirements, the rent 
reasonableness requirements of Sec.  92.209(f), the maximum subsidy 
provisions of Sec.  92.209(h), HQS inspection reports, and calculation 
of the HOME subsidy.
* * * * *
    (xiii) Records demonstrating that a site and neighborhood standards 
review was conducted for each project which includes new construction 
of rental housing assisted under this part to determine that the site 
meets the requirements of 24 CFR 983.57(e)(2) and (e)(3), in accordance 
with Sec.  92.202.
    (xiv) Records (written agreements) demonstrating compliance with 
the written agreements requirements in Sec.  92.504.
    (4) * * *
    (i) Written agreements committing HOME funds to CHDO projects in 
accordance with Sec.  92.300(a).
* * * * *
    (iii) The name and qualifications of each CHDO and amount of HOME 
CHDO set-aside funds committed.
* * * * *
    (6) Program administration records. (i) Written policies, 
procedures, and systems, including a system for assessing risk of 
activities and projects and a system for monitoring entities consistent 
with this section, to ensure that the requirements of this part are 
met.
* * * * *

[[Page 78382]]

    36. In Sec.  92.551, paragraph (c)(1)(vii) is redesignated 
paragraph (c)(1)(viii) and revised, new paragraphs (c)(1)(vii) and 
(c)(1)(ix) are added, and paragraph (c)(2) is revised to read as 
follows:


Sec.  92.551  Corrective and remedial actions.

* * * * *
    (c) * * *
    (1) * * *
    (vii) Establishing procedures to ensure compliance with HOME 
requirements;
    (viii) Making matching contributions as draws are made from the 
participating jurisdiction's HOME Investment Trust Fund United States 
Treasury Account and establishing a remedial plan to make up the 
matching contributions deficit; and
    (ix) If the participating jurisdiction is a metropolitan city, 
forming a consortium with the urban county if the urban county is 
willing to carry out the HOME program in the metropolitan city.
    (2) HUD may also change the method of payment from an advance to 
reimbursement basis and may require supporting documentation to be 
submitted for HUD review for each payment request before payment is 
made; determine the participating jurisdiction to be high risk and 
impose special conditions or restrictions on the next year's allocation 
in accordance with 24 CFR 85.12; and take other remedies that may be 
legally available.
    37. In Sec.  92.552, paragraph (b) is revised to read as follows:


Sec.  92.552  Notice and opportunity for hearing; sanctions.

* * * * *
    (b) Proceedings. When HUD proposes to take action pursuant to this 
section, the respondent in the proceedings will be the participating 
jurisdiction or, at HUD's option, the State recipient. Proceedings will 
be conducted in accordance with 24 CFR part 26.
    38. 38. In Sec.  92.614:
    a. Paragraphs (a)(3) through (6) are redesignated as paragraphs 
(a)(5) through (7), respectively;
    b. New paragraph (a)(3) is added;
    c. Paragraph (b)(1) is removed; and
    d. Paragraphs (b)(2) and (3) are redesignated paragraphs (b)(1) and 
(2), respectively.
    The addition reads as follows:


Sec.  92.614  Other Federal requirements.

    (a) * * *
    (3) Affirmative marketing. The affirmative marketing requirements 
contained in Sec.  92.351(a).
* * * * *

    Dated: November 30, 2011.
Shaun Donovan,
Secretary.
[FR Doc. 2011-31778 Filed 12-15-11; 8:45 am]
BILLING CODE 4210-67-P