[Federal Register Volume 80, Number 20 (Friday, January 30, 2015)]
[Rules and Regulations]
[Pages 5200-5244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01642]



[[Page 5199]]

Vol. 80

Friday,

No. 20

January 30, 2015

Part II





Department of Housing and Urban Development





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24 CFR Parts 91 and 93





Housing Trust Fund; Interim Rule

  Federal Register / Vol. 80 , No. 20 / Friday, January 30, 2015 / 
Rules and Regulations  

[[Page 5200]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91 and 93

[Docket No. FR-5246-I-03]
RIN 2506-AC30


Housing Trust Fund

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

ACTION: Interim rule.

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SUMMARY: The Housing and Economic Recovery Act of 2008 (HERA) 
establishes a Housing Trust Fund (HTF) to be administered by HUD. The 
purpose of the HTF is to provide grants to State governments to 
increase and preserve the supply of rental housing for extremely low- 
and very low-income families, including homeless families, and to 
increase homeownership for extremely low- and very low-income families. 
This rule establishes the regulations that will govern the HTF. HUD is 
issuing this rule as an interim rule. It is HUD's intention to open 
this interim rule for public comment to solicit comments once funding 
is available and the grantees gain experience administering the HTF 
program.

DATES: Effective: March 31, 2015.

FOR FURTHER INFORMATION CONTACT: Marcia Sigal, Director, Program Policy 
Division, 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 800-877-8389.

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

Purpose

    This interim rule establishes the regulations that will govern HTF 
and the formula that will determine how HTF funds are distributed among 
eligible grantees. The purpose of HTF is to provide grants to State 
governments to increase and preserve the supply of rental housing for 
extremely low- and very low-income families, including homeless 
families, and to increase homeownership for extremely low- and very 
low-income families. HERA (Pub. L. 1110-289, approved July 30, 2008) 
establishes HTF and provides for it to be administered by HUD.
    States and State-designated entities are eligible grantees for HTF. 
Annual formula grants will be made, of which at least 80 percent must 
be used for rental housing; up to 10 percent for homeownership; and up 
to 10 percent for the grantee's reasonable administrative and planning 
costs. HTF funds may be used for the production or preservation of 
affordable housing through the acquisition, new construction, 
reconstruction, and/or rehabilitation of nonluxury housing with 
suitable amenities.

Summary of Major Provisions

    This rule contains both the program regulations that establish how 
the HTF program will be administered and the allocation formula that 
establishes how grant funds will be distributed to States. The formula 
allocation, located in subpart B of the rule, codifies language found 
in the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 (FHEFSSA) (42 U.S.C. 4502 et seq.), as revised by HERA (see 
Division A of HERA), and provides for the distribution of funds to the 
50 States, the District of Columbia, Puerto Rico, and the Insular 
Areas. Allocation amounts are based on four need factors as well as a 
construction cost adjustment factor. The four need factors are found in 
24 CFR 93.51(a)-(d). These need factors include: a State's relative 
shortage of rental housing available to extremely low-income families; 
a State's relative shortage of rental housing available to very low-
income families; the relative number of extremely low-income renter 
households living in substandard, overcrowded or unaffordable units in 
a particular State; and the relative number of very low-income renter 
households living in substandard, overcrowded, or unaffordable units in 
a particular State. In addition, the State's local cost of construction 
is factored in as described in Sec.  93.51(e).
    The program regulations for HTF are found in subparts C through J 
of part 93 and closely mirror the regulations for the HOME Investment 
Partnerships program located in 24 CFR part 92. While HTF specifically 
targets affordable housing for very low and extremely low-income 
households, many of the program requirements applicable to the HOME 
program are similar to those for HTF. Further, each State is a 
participating jurisdiction in the HOME program, and all States or their 
designated housing entities will be HTF grantees. Consequently, many of 
the participation and submission requirements as well as many of the 
program requirements are modeled on provisions found in the regulations 
for HOME.
    Major provisions in the HTF program regulations include: siting and 
neighborhood standards; income determinations; eligible costs and 
activities; project requirements; tenant and homeowner qualification 
requirements; other Federal requirements; program administration 
regulations; and quality control provisions. Significant changes from 
the proposed rule include: removal of a proposed incentive for transit-
oriented development; inclusion of guidelines for a recapture provision 
of homeownership funds; permitting the use of HTF funds for public 
housing under certain Federal housing programs; and a requirement that 
all HTF funds be used for extremely low-income housing when HTF is less 
than $1 billion.

Costs and Benefits

    The three primary impacts of this rule include: transfers from the 
government-sponsored enterprises (GSEs) and/or Treasury to States for 
investment in low-income housing; distribution among the States based 
on the formula HUD establishes for the HTF program; and the effects of 
HUD's program administration requirements. Of these, the largest impact 
is the infusion of Federal dollars into the affordable housing market.
    Congress authorized HTF with the stated purpose of benefiting 
specific low-income populations by: (1) Increasing and preserving the 
supply of rental housing for extremely low-income families with incomes 
between 0 and 30 percent of area median income and very low-income 
families with incomes between 30 and 50 percent of area median income, 
including homeless families, and (2) increasing homeownership for very 
low and extremely low-income families. The formula in this rule is 
designed to distribute funds primarily to States with a shortage of 
rental housing affordable to very low and extremely low-income 
households. Specifically, this program provides funding to add a supply 
of affordable housing to markets where there is strong evidence of an 
inadequate supply.
    The primary benefits of the HTF program are expected to be similar 
to the Housing Choice Voucher program. An evaluation of the impact of 
receiving a housing voucher versus not receiving one has shown that the 
primary benefit of housing assistance programs is to reduce 
homelessness and housing cost burdens. Thus, the primary benefit of the 
HTF program will be the reduction of number of homeless families and

[[Page 5201]]

individuals, as well as the number of families paying a 
disproportionate share of their income for housing in relatively tight 
housing markets.
    HTF is a transfer to the low-income housing sector from the GSEs 
and/or Treasury. The size of the annual impact is equivalent to the 
size of the total HTF expenditures, which will vary depending on the 
amount of GSE business in a given year and any amounts that may be 
appropriated, transferred, or credited to the HTF under any other 
provision of law. (See 12 U.S.C. 4568.) There will be no allocation of 
grants under HTF if there is neither revenue from GSEs nor other funds 
as provided by HERA.
    The formula for distributing among the States is largely determined 
by the statutory formula in FHEFSSA, which includes the four need 
factors described above, plus a construction cost adjustment factor. In 
addition, FHEFSSA directs that each of the 50 States and the District 
of Columbia are to receive a minimum allocation of $3 million. HUD's 
policy discretion in choosing the weights for housing needs factors has 
the impact of redistributing allocations among States. Different States 
are characterized by different measures of housing needs as well as 
construction costs. At a national level, however, the discretion has 
almost no impact because all funds are spent on low-income housing 
regardless of the State. The transfers are only among States, re-
distributing the funds geographically.
    Finally, the regulations governing program administration are not 
expected to have significant economic impacts. Regulations for the HOME 
program, which, like HTF, also provide grants for construction of low-
income housing, served as the model for HTF regulations. Consequently, 
State grantees are already familiar with HTF's basic compliance 
requirements and procedures, and will not have to develop significant 
capacity to participate in the program. A more detailed cost-benefit 
analysis is provided in the regulatory impact analysis that accompanies 
this rule.

II. Background

    HERA was major housing legislation enacted to reform and improve 
the regulation of the GSEs--Fannie Mae and Freddie Mac, strengthen 
neighborhoods hardest hit by the foreclosure crisis, enhance mortgage 
protection and disclosures, and maintain the availability of affordable 
home loans. The reform of the GSEs is provided in the Federal Housing 
Finance Regulatory Reform Act of 2008, which is Division A, Title I of 
HERA. Section 1131 of Division A amended the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 
et seq.) (the Act) to add a new section 1337 entitled ``Affordable 
Housing Allocations'' and a new section 1338 entitled ``Housing Trust 
Fund.''
    Section 1337 of the Act provides for the HTF (and other programs) 
to be funded with an affordable housing set-aside by Fannie Mae and 
Freddie Mac. The total set-aside amount is equal to 4.2 basis points 
(.042 percent) of the GSEs' new mortgage purchases, a portion of which 
is directed to the HTF. Under section 1337 of the Act, the Director of 
the Federal Housing Finance Agency (FHFA), the independent federal 
agency with oversight of the GSEs, has the authority to suspend Fannie 
Mae's and Freddie Mac's affordable housing contributions if such 
contributions were to have an adverse impact on the financial stability 
of the GSEs, as described in section 1337(b). Shortly after being 
placed in conservatorship in 2008, the GSEs were instructed by the FHFA 
to suspend the contributions.
    On December 11, 2014, the Director of FHFA issued a letter to the 
GSEs that reinstated the GSE contributions under section 1337, in 
accordance with the following terms and conditions (which may be 
supplemented or modified by specific guidance or directive from FHFA). 
During each GSE fiscal year (which runs from January 1 to December 31), 
commencing with the GSE's fiscal year 2015 and in each fiscal year 
thereafter, each GSE will set aside an amount equal to 4.2 basis points 
of each dollar of unpaid principal balance of its total new business 
purchases during the fiscal year for allocation in accordance with 
section 1337(a) . Within 60 calendar days after the end of each fiscal 
year commencing with fiscal year 2015 and for each fiscal year 
thereafter, the GSEs will allocate to the HTF the amount set aside 
unless during the fiscal year the GSE has made a draw from the 
Department of the Treasury under the terms of the Senior Preferred 
Stock Purchase Agreement (SPSPA) or unless the allocation would cause 
the GSE to have to make a draw from the Treasury Department under the 
terms of the SPSPA. If the GSE has made a draw from the Department of 
the Treasury under the terms of the SPSPA during fiscal year 2015 or 
makes a draw during a subsequent fiscal year or if the allocation would 
cause the GSE to make a draw for that fiscal year, the GSE will make no 
allocation for the fiscal year for which the draw was made or for any 
fiscal year in which it is determined that the allocation would cause a 
draw, and the set aside will be reversed for that fiscal year.
    The letter from FHFA also noted that although the profit levels the 
GSEs experienced since 2012 are not expected to be sustainable, 
reasonable projections indicate that the GSEs will remain profitable 
for the foreseeable future. FHFA continues to monitor the financial 
condition of the GSEs and retains the authority to revise or reverse 
the decision at any time in accordance with the provisions of section 
1337(b). Accordingly, HUD is proceeding with this rule to implement the 
HTF.
    Congress authorized the HTF with the stated purpose of: (1) 
Increasing and preserving the supply of rental housing for extremely 
low-income (ELI) families with incomes between 0 and 30 percent of area 
median income and very low-income (VLI) families with incomes between 
30 and 50 percent of area median income, including homeless families, 
and (2) increasing homeownership for ELI and VLI families. HUD's 
periodic reports to Congress on worst-case needs for affordable rental 
housing document that shortages of affordable rental housing for ELI 
and VLI families have grown more severe. A household defined as 
experiencing worst-case housing needs means that the household has an 
income at or below 50 percent of the area median income, receives no 
housing assistance, and has a severe rent burden (paying more than half 
of its income for rent) and/or lives in severely inadequate conditions 
(e.g., incomplete plumbing). As of 2011, the combined number of ELI and 
VLI renters with worst-case housing needs was 8.48 million, or 44 
percent of all ELI and VLI renters (19.27 million). Because extremely 
low income households also constitute by far most (61.1 percent) very 
low-income renters, nearly three out of four (73.3 percent) households 
with worst case needs had extremely low incomes during 2011.\1\
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    \1\ See HUD's Worse Case Housing Needs 2011 Report to Congress 
at http://www.huduser.org/portal//Publications/pdf/HUD-506_WorstCase2011_reportv3.pdf. See page 7.
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    There is a documented shortage of low-cost rental units, as 
builders and housing providers are unable to construct, finance, and 
operate a sufficient supply of rental housing affordable to ELI and VLI 
households. In 2011, for every 100 ELI renters, on average, there were 
only 36 affordable units available, and for every 100 VLI renters 
nationwide, only 65 rental units

[[Page 5202]]

available.\2\ The HTF will provide funds to produce additional units 
affordable to ELI and VLI households with the greatest need, thus 
increasing the supply and reducing the most critical component of the 
existing shortage.
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    \2\ See HUD's Worse Case Housing Needs 2011 Report to Congress 
at page 9.
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Housing Trust Fund--Formula Allocation

    Section 1338 of the Act directs HUD to establish, through 
regulation, the formula for distribution of amounts made available for 
the HTF. The statute specifies that only certain factors are to be part 
of the formula, and assigns priority to certain factors. HUD's proposed 
formula for the allocation of HTF funds was published for public 
comment on December 4, 2009, at 74 FR 63938.

Housing Trust Fund--Administration of the Fund

    In addition to the statutory direction to establish by regulation a 
formula for the allocation of HTF funds, section 1338 of the Act 
directs HUD to establish and manage the HTF, the purpose of which is to 
provide grants to States for use to: (1) Increase and preserve the 
supply of rental housing for ELI and VLI families, including homeless 
families; and (2) increase homeownership for ELI and VLI families. 
Section 1338 of the Act also directs HUD to establish regulations to 
administer the HTF, and this rule presents the regulations that will 
govern the HTF, on an interim basis, as provided in the Summary of this 
rule.
    HUD's proposed rule for the administration of the HTF funds was 
published for public comment on October 29, 2010, at 75 FR 66978. HUD 
proposed to codify the HTF regulations in a new subpart N of 24 CFR 
part 92. Part 92 contains the regulations for HUD's HOME Investment 
Partnerships program (HOME program). The HOME program is the largest 
federal block grant program that produces affordable housing for very 
low-income households. The HOME program provides formula grants that 
communities use, often in partnership with local nonprofit groups, to 
fund a wide range of activities that build, buy, and/or rehabilitate 
affordable housing units for rent or homeownership. The HTF will 
operate in substantially the same manner, by providing formula grants 
to States used to develop affordable housing units for rent or 
homeownership. In addition, the grant activities in both programs 
require the same grantee administration and HUD oversight functions.

III. Overview of Key Changes Made in Interim Rule

    This interim rule largely adopts the provisions of the proposed 
rule, although HUD is making some changes based on public comments and 
other considerations. The following highlights key changes made to the 
proposed rule at this interim rule stage:
     The HTF regulations will be codified in a new part 93. 
While the HTF regulations have been synchronized with the HOME program 
regulations for the reasons set forth in the preamble to the proposed 
rule, HUD agrees with commenters that it would be clearer to place the 
HTF regulations into a new 24 CFR part. Therefore, the HTF formula 
allocation and program administration regulations are now found in 24 
CFR part 93.
     The HTF proposed rule was published prior to the 
publication of the HOME final rule. (The HOME final rule published on 
July 24, 2013, at 78 FR 44638.) In order to synchronize the applicable 
requirements of the HTF regulations with those of the HOME regulations, 
HUD has revised several provisions in the HTF proposed rule. The 
proposed provisions revised by this interim rule include definitions, 
eligible costs, eligible administrative and planning costs, property 
standards, inspections, income determinations, tenant protections and 
selections. For some of the proposed provisions revised, only minor 
word changes were made so that the language in the HTF regulations 
matches the HOME regulations, while in other sections the exact 
language of certain HOME regulations was incorporated in the HTF 
regulations.
     HUD removed the proposed regulatory sections on property 
standards (Sec. Sec.  92.741-92.745) that require HTF units to meet 
Energy Star and Water Sense certifications. Since issuance of the HTF 
proposed rule and the HOME program final rule, HUD proposed, in a 
notice published in the Federal Register on April 15, 2014, at 79 FR 
21259, to adopt revisions to the 2006 International Energy Conservation 
Code (IECC) and to the 2004 energy codes of the American Society of 
Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE), and 
apply these revised standards to the HUD programs covered by the Energy 
Independence and Security Act of 2007 (EISA). The covered HUD programs 
include the HOME program, and HUD also applies these standards to HTF 
to synchronize with the standards to be applied to the HOME program.
     At the proposed rule stage, HUD proposed to facilitate the 
use of HTF funds in transit-oriented development by proposing a 
different definition of commitment of HTF funds for transit-oriented 
development projects. HUD removes this definition in this interim rule 
and instead grantees will determine how best to use HTF funds in 
transit-oriented development projects within the requirements for 
commitment and allocation plans established in this rule.
     HUD adds a process by which minimum grant awards will be 
determined if the amount of funds in the HTF, in any given fiscal year, 
is insufficient to award each grantee a minimum grant of $3 million.
     The HTF regulations regarding operating cost assistance 
and operating cost reserves have been modified. In response to public 
comment to allow more flexibility for grantees to provide operating 
cost assistance, the limit on the amount of operating cost assistance 
and operating cost reserves that a grantee may award from its annual 
grant was increased from 20 percent to one third. In addition, the 
requirements for operating cost reserves will differ depending on the 
source of funds for the HTF. For non-appropriated funds (i.e., the 
allocations from Fannie Mae and Freddie Mac) that become available for 
the HTF formula distribution, grantees will be allowed to fund 
operating cost reserves at the amount required for a period of up to 30 
years (the term for the period of affordability for each HTF-assisted 
project). However, if appropriated funds become available for HTF, 
grantees will be allowed to fund operating cost reserve for a period of 
no more than five years, as provided in the proposed rule and retained 
in this interim rule. At the proposed rule stage, HUD did not propose 
to allow use of HTF funds for public housing. This interim rule allows 
the use of HTF funds (1) in connection with the Choice Neighborhoods 
(Choice), and low-income housing tax credit (LIHTC) programs for 
construction of new units that replace existing public housing 
properties; and (2) for the rehabilitation of existing public housing 
units in connection with the Rental Assistance Demonstration, Choice 
and LIHTC programs.

IV. Discussion of Public Comments and HUD Responses

    The public comment period for the proposed formula rule closed on 
February 2, 2010. HUD received 13 public comments on the proposed 
formula rule. Commenters included

[[Page 5203]]

local housing and community development agencies, housing groups, 
housing authorities, trade associations, and individuals. A majority 
(eight) of the commenters wrote in support of the rule or portions of 
it, including a national advocacy organization that fully endorses the 
proposed rule. HUD is not addressing these favorable comments because 
they do not raise issues which require a response. Other comments are 
discussed below. The public comments on the proposed formula rule can 
be found at: http://www.regulations.gov/#!docketDetail;D=HUD-2009-0149.
    The public comment period for the proposed program rule closed on 
December 28, 2010. HUD received 93 comment letters; commenters included 
State and local housing and community development agencies, housing 
groups, housing authorities, trade associations, and individuals. The 
comment letters included general comments about the proposed rule and 
statutory requirements for the HTF, as well as suggestions for changes 
to specific provisions in the proposed rule. The public comments on the 
proposed program rule can be found at: http://www.regulations.gov/#!docketDetail;D=HUD-2010-0101.
    Issues raised in public comments on the proposed formula and 
proposed program rule and HUD's responses to these comments follow.

Part 91--Consolidated Submissions for Community Planning and 
Development Programs (Consolidated Plan Revisions)

    The proposed program rule proposed to make conforming changes to 
the Consolidated Plan regulations at 24 CFR part 91 to require 
information related to the HTF to be included in State or local 
government strategic and annual action plans. As stated at Sec.  91.220 
and Sec.  91.320, HUD proposed to require that the action plan must 
include the HTF allocation plan.
    Comments: HUD received several comments which suggested additional 
required elements be added to the allocation plan, including: National 
standards for green, healthy, sustainable development will be met by 
HTF units; caps on operating assistance; transit-oriented development 
projects; an explanation of the State's decision to use subgrantees, 
criteria for selecting subgrantees, and a method for distributing funds 
among subgrantees. One commenter suggested that HUD require the 
allocation plans for HTF funds to specifically prioritize transit-
oriented development. One commenter suggested specific revisions to the 
language for the sake of further clarity, such as cross references 
between the definition of HTF funds at Sec.  92.702 in Sec.  
92.220(l)(4)(i) and Sec.  92.320(k)(5)(I). A commenter suggested that 
HUD require, at Sec.  92.725(c), that the subgrantee's HTF allocation 
plan be consistent with the State's HTF allocation plan.
    Similarly, a commenter suggested that HUD revise Sec.  
92.220(l)(4)(i) and Sec.  92.320(k)(5)(i) so that they have identical 
language and requirements. One commenter suggested that the housing 
market characteristics in the HTF formula be added to the general 
housing market characteristics required in the consolidated plan at 
Sec.  92.210(a) and Sec.  92.310(a). Another commenter recommended that 
the rule require HTF allocation plans to certify that the HTF funds 
will not be subject to State or local laws and policies that impose 
requirements for subsidized housing development that exceed the 
requirements for similar residential development not involving 
subsidies. Two commenters stated that the proposed rule should not 
restrict the types or locations of HTF units, but instead should retain 
maximum flexibility to meet local needs.
    HUD Response: HUD appreciates the concern expressed by commenters 
that HTF allocation plans at the State and local level mirror each 
other so that the HTF funds expended are targeted to the needs 
identified in the state plans. However, it is possible that a State or 
State-designated entity would provide HTF funds to different 
subgrantees for different types of projects and programs throughout the 
state to address various needs. In these situations, having identical 
State and local plans would not be practicable. To address these 
concerns, rather than modifying part 91 requirements related to HTF 
allocation plan, at this interim rule stage, HUD modified language at 
Sec.  93.404 (Sec.  92.774 of the proposed rule) to require that 
grantees include executed written agreements with subgrantees that 
specify allowable programs and requirements.
    An explanation of the State's decision to use subgrantees, criteria 
for selecting subgrantees, and method for distributing funds among 
subgrantees are required at Sec.  91.320(k)(5). The housing market 
characteristics used in the HTF formula are reflected in the analyses 
required in the consolidated plan. In response to comments about the 
locations where HTF funds will be used, HUD notes that the HTF statute 
does not preempt State or local law, and the regulation cannot prevent 
the use of HTF funds in places that impose requirements on subsidized 
projects that are not in violation of Federal laws.

General Comments on Promulgation of the HTF Regulations as Subpart N of 
Part 92 of the Proposed Rule

    HUD specifically solicited input from HTF grantees and interested 
parties on HUD's proposed coordination of the HOME program and HTF 
regulations, as well as additional or alternative ways to better 
coordinate and use HTF funds with funding from other Federal, State, 
local programs, or private sources typically used to produce mixed-
income affordable housing developments.
    Comments: Some commenters expressed concern that by including HTF 
regulations in Subpart N of the HOME program regulation, the HTF 
program will lack an identity as a separate program.
    HUD Response: HUD agrees with commenters that the regulations 
should be located in a new part 93, as this approach highlights HTF as 
a separate program, and this rule codifies the regulations in new part 
93. However, many of the requirements are the same for both the HOME 
and HTF programs (e.g., administrative requirements; monitoring, site 
and neighborhood standards; and affirmative marketing), therefore, in 
moving the HTF regulations as proposed in part 92 for the HTF to part 
93, HUD repeated the requirements in the HOME rule that also apply to 
the HTF.
    Several commenters also called for streamlining between HTF and 
other programs and asked that HUD avoid duplicative requirements. 
Because many HTF grantees also administer the HOME program, 
streamlining the regulations this way will help grantees avoid having 
to create entirely new or separate structures to administer HTF funds, 
and this may help grantees develop and deliver more affordable housing 
sooner to households and communities in need.
    In addressing public comments on specific provisions in the 
proposed rule, this preamble will refer to the regulatory sections as 
they were originally proposed in part 92. The following table matches 
the proposed rule sections with the new sections in this interim rule:

[[Page 5204]]



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           Proposed                   Final               Subject
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                           Subpart A--General
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92.701........................  93.1.............  Overview.
92.702........................  93.2.............  Definitions.
92.703........................  93.3.............  Waivers.
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              Subpart B--Allocation Formula; Reallocations
------------------------------------------------------------------------
92.710........................  93.50............  Formula Allocation.
92.711........................  93.51............  Formula Factors.
92.712........................  93.52............  Minimum State
                                                    Allocations.
92.713........................  93.53............  Federal Register
                                                    Notice of Formula
                                                    Allocations.
92.714........................  93.54............  Reallocations by
                                                    Formula.
------------------------------------------------------------------------
  Subpart C--Participation and Submission Requirements; Distribution of
                               Assistance
------------------------------------------------------------------------
92.720........................  93.100...........  Participation and
                                                    Submission
                                                    Requirements.
92.725........................  93.101...........  Distribution of
                                                    Assistance.
------------------------------------------------------------------------
                     Subpart D--Program Requirements
------------------------------------------------------------------------
92.726........................  93.150...........  Site and Neighborhood
                                                    Standards.
92.727........................  93.151...........  Distribution of
                                                    Assistance.
------------------------------------------------------------------------
              Subpart E--Eligible and Prohibited Activities
------------------------------------------------------------------------
92.730........................  93.200...........  Eligible Activities:
                                                    General.
92.731........................  93.201...........  Eligible Project
                                                    Costs.
92.732........................  93.202...........  Eligible
                                                    Administrative and
                                                    Planning Costs.
92.734........................  93.203...........  HTF Funds and Public
                                                    Housing.
92.735........................  93.205...........  Prohibited Activities
                                                    and Fees.
------------------------------------------------------------------------
                       Subpart F--Income Targeting
------------------------------------------------------------------------
92.736........................  93.250...........  Income Targeting:
                                                    Rental Units.
92.737........................  93.251...........  Income Targeting:
                                                    Homeownership.
------------------------------------------------------------------------
                     Subpart G--Project Requirements
------------------------------------------------------------------------
92.740........................  93.300...........  Maximum Per-Unit
                                                    Subsidy Amount,
                                                    Underwriting, and
                                                    Subsidy Layering.
92.741........................  93.301...........  Property Standards.
92.746........................  93.302...........  Qualification as
                                                    Affordable Housing:
                                                    Rental housing.
92.747........................  93.303...........  Tenant Protections
                                                    and Selection.
92.748........................  93.304...........  Qualification as
                                                    Affordable Housing:
                                                    Homeownership.
92.749........................  93.305...........  Qualification as
                                                    Affordable Housing:
                                                    Modest Housing
                                                    Requirements for
                                                    Homeownership.
92.750........................
------------------------------------------------------------------------
                  Subpart H--Other Federal Requirements
------------------------------------------------------------------------
92.760........................  93.350...........  Other Federal
                                                    Requirements and
                                                    Nondiscrimination;
                                                    Affirmative
                                                    Marketing.
92.761........................  93.351...........  Lead-Based Paint.
92.762........................  93.352...........  Displacement,
                                                    Relocation, and
                                                    Acquisition.
92.763........................  93.353...........  Conflict of Interest.
92.764........................  93.354...........  Funding
                                                    Accountability and
                                                    Transparency Act.
------------------------------------------------------------------------
                    Subpart I--Program Administration
------------------------------------------------------------------------
92.770........................  93.400...........  Housing Trust Fund
                                                    (HTF) Accounts.
92.771........................  93.401...........  HTF Grant Agreement.
92.772........................  93.402...........  Program Disbursement
                                                    and Information
                                                    System.
92.773........................  93.403...........  Program Income and
                                                    Repayments.
92.774........................  93.404...........  Grantee
                                                    Responsibilities;
                                                    Written Agreements;
                                                    Onsite Inspections;
                                                    Financial Oversight.
92.775........................  93.405...........  Applicability of
                                                    Uniform
                                                    Administrative
                                                    Requirements.
92.776........................  93.406...........  Audit.
92.777........................  .................  Closeout.
92.778........................  93.408...........  Recordkeeping.
92.779........................  .................  Performance reports.
------------------------------------------------------------------------
               Subpart J--Performance Review and Sanctions
------------------------------------------------------------------------
92.780........................  93.450...........  Accountability of
                                                    Recipients.
92.781........................  93.451...........  Performance Reviews.
92.782........................  93.452...........  Corrective and
                                                    Remedial Actions.

[[Page 5205]]

 
92.783........................  93.453...........  Notice and
                                                    Opportunity for
                                                    Hearing; Sanctions.
------------------------------------------------------------------------

Definitions Proposed Sec.  92.702; Final Sec.  93.2

    In Sec.  92.702(a), HUD proposed that several definitions in the 
HOME program regulations (24 CFR 92.2) be applicable to the HTF. In 
Sec.  92.702(b), HUD outlined key definitions applicable to the HTF, 
including: ``Commitment,'' several definitions related to energy 
efficiency, ``Grantee,'' ``Recipient,'' ``State,'' ``State-Designated 
Entity,'' and ``Subgrantee.'' HUD received several comments regarding 
the language proposed to define terms applicable to the HTF.
Commitment
    To facilitate transit-oriented development projects, the proposed 
definition of ``commitment'' permitted a unit of general local 
government to acquire the land for a transit-oriented development 
project in advance of having specific project plans. Specifically, HUD 
proposed that the unit of general local government must hold title to 
the land for the transit-oriented development project; the proposed 
rule allowed 36 months from the date of acquisition of the property for 
a transit-oriented development project to commit additional funds to a 
specific project on the property.
    Comments: HUD received several comments regarding this proposed 
definition of and deadline for ``commitment'' for transit-oriented 
development projects. Some commenters suggested the deadline to commit 
additional funds to transit-oriented development should be extended to 
42 months, while others suggested 48 months, and one commenter 
suggested 60 months. Another commenter suggested that the commitment 
deadline for transit-oriented development should be less than 36 
months.
    Some commenters stated that the proposed definition of 
``commitment'' for transit-oriented development should be revised to 
allow non-local government entities to commit the few funds necessary 
to comply with the rule and two commenters suggested that these non-
local government entities be allowed to hold title to the transit-
oriented development property. A few commenters stated that the rule's 
emphasis on transit-oriented development gives preference to urban 
areas, and asked that the rule provide a framework for balancing 
transit-oriented development goals with rural areas that have limited 
or no transit services. Commenters asked HUD to instruct States to give 
the same priority to developments meeting the greatest rural needs as 
is given to transit-oriented development in urban areas. Some 
commenters stated that the rule should not mandate that all projects be 
located in a sustainable community since some States do not have fully 
developed transit systems, and the rule should provide flexibility to 
meet the varying needs of States.
    Another commenter suggested that the rule should require a minimum 
percentage of HTF funds be expended for transit-oriented development 
and mixed-income housing development. A few commenters supported 
allowing HTF funds to be used in combination with other government 
programs to leverage sources for creating a transit-oriented 
development land acquisition or land bank program. A commenter proposed 
a more detailed definition for transit-oriented development that is 
intended to better target developments that promote transit ridership 
and reduce motor vehicle trips, remove the requirements for mixed-use 
and mixed-income development, require that developments within transit-
oriented development be along a walkable route, and clarify what 
constitutes a ``transit facility.'' A few commenters suggested various 
methods to incentivize development of housing for ELI families in 
transit-oriented development projects that are accessible to transit 
and employment centers.
    Several commenters expressed concern over potential abuses of the 
different commitment deadlines and asked HUD to include additional 
requirements in the final rule to ensure that grantees do not tie up 
funds, e.g., to prevent local governments from using HTF funds to 
serially purchase land and hold it as if ``land banking.'' Some 
commenters stated that the rule should require that if the original 
land purchased is not used for ELI households, then the recipient must 
place the planned ELI housing within the same transit-oriented 
development area. A few commenters stated that the rule should also 
require that the correct zoning be in place before property is 
purchased for transit-oriented development, and one commenter suggested 
that the final rule include specific parameters for when property 
acquisition for transit-oriented development would be permissible. 
Finally, one commenter requested that the definition of ``commitment'' 
include a mechanism to ensure project completion, such as deadlines, 
progress schedules, or a recapture mechanism.
    HUD Response: HUD appreciates the comments regarding how HUD may 
provide incentives to encourage the use of HTF funds to develop housing 
affordable to ELI households that is also accessible to transit and 
employment centers. However, HUD acknowledges and agrees with the 
concerns expressed by many commenters that a separate commitment 
deadline for HTF funds used in transit-oriented development may cause a 
decrease in the amount of HTF units produced.
    Transit-oriented development is not required in the HTF statute or 
regulations. As proposed, Sec.  92.725 stated that grantees are 
responsible for distributing HTF funds throughout the State according 
to the State's assessment of the priority housing needs within the 
State, as identified in the HTF allocation plan, which is part of the 
State's consolidated and annual action plan. These plans contain 
several analyses of priority housing needs. Based on these identified 
priority needs, grantees may choose to prioritize development of HTF-
assisted units near transit access and sustainable development.
    HUD agrees with commenters that the separate definition of 
commitment for transit-oriented development could lead to ``land 
banking.'' Land acquisition for banking purposes is not an eligible 
activity in the HTF statute, and HUD does not seek to encourage the use 
of HTF funds for ``land banking.'' Based on the comments received, HUD 
decided that use of HTF funds in transit-oriented development projects 
is best addressed at the State and local level, and that it is not 
necessary at this time to establish a separate definition or deadline 
related to the use of HTF funds for transit-oriented development 
projects. Each grantee may include incentives and priorities in its HTF 
allocation plan to further promote sustainable development that is 
appropriate to the local communities where housing developed with HTF 
funds will be located.
    This rule, at Sec.  93.2, eliminates the separate definition of 
commitment for transit-oriented development.

[[Page 5206]]

State-Designated Entity, Grantee, Recipient
    In the proposed rule, a State-designated entity was defined as a 
State housing finance agency, tribally designated housing entity, or 
any other qualified instrumentality of the State that is designated by 
the State to be the grantee.
    Comments: One commenter recommended that the definition of ``State-
designated entity'' be revised to include ``housing community 
development entity.'' A commenter stated that the definitions of 
``grantee'' and ``recipient'' should be consistent between HOME and 
HTF. Other commenters suggested that the rule be revised to explicitly 
state that public agencies, local governments, public housing 
authorities, non-profit entities, and for-profit entities are eligible 
recipients.
    HUD Response: The terms ``state-designated entity'' and 
``recipient'' are defined in the statute. This rule includes examples 
of the types of entities, such as public housing agencies, that may be 
eligible recipients providing that they meet the statutory 
qualifications for a recipient.
Extremely Low- and Very Low-Income Families
    The HTF statute contains definitions of extremely low and very low-
income families based on percent of median income, with adjustments for 
family size (30 percent of area median income (AMI) for extremely low 
and 50 percent of AMI for very low income).
    Comments: Some commenters stated that the proposed definitions of 
``very low-income families'' and ``extremely low-income families'' are 
inconsistent with the statute. A few commenters requested HUD provide a 
definition of ``rural area'' in the definition of ``very low-income 
families.'' Other commenters suggested that the HTF should adopt the 
definition of ``family'' as used in the HOME program. A commenter 
requested the term ``household'' replace ``family'' throughout the 
rule.
    HUD Response: While the terms ``family'' and ``household'' do not 
have the same meaning (a ``household'' can comprised more than one 
family), HUD acknowledges that the terms are sometimes used 
interchangeably in statute, regulation and guidance (i.e., HOME uses 
the part 5 definition of ``family'' at 24 CFR 5.403, and defines 
household as one or more persons residing in a unit).
    HUD agrees with commenters that the HTF statute does not allow for 
the same adjustments in income as in the HOME program and modified the 
regulatory language at Sec.  93.2 (from Sec.  92.702 of the proposed 
rule) to reflect only the adjustments allowed by the HTF statute.
    For the purposes of the definition of very low-income families, in 
this interim rule, HUD defines the term ``rural'' based on the term 
``metropolitan'' as defined by the Office of Management and Budget. All 
``non-metropolitan '' areas will be considered ``rural.''

Allocation Formula Proposed Sec.  93; Final Sec.  93, Subpart B

    Comments: A commenter states that the need factors should be 
weighted equally to ensure fair distribution of resources. Another 
commenter specifically supports the 50 percent weight assigned to 
factor 1 (shortage of units), and the 25 percent weight assigned to 
factor 3. A commenter states, in the absence of information about how 
much of an increase California would receive compared to the proposed 
allocation, and the substantial housing needs of California's low and 
very low-income population, that the factors should be weighted in 
accordance with alternative three, under which the first factor would 
be weighted at 60 percent and the other factors weighted at 13.3 
percent. Another commenter states that the extremely low-income focus 
of this program means that it should be a key resource for assisting 
the homeless, and the formula allocation should reflect that priority.
    HUD Response: Section 1338(c)(3)(C) of the Act requires the formula 
to give priority emphasis and consideration to the first factor in 
section 1338(c)(3)(B)(i), and therefore the factors cannot be weighed 
equally. The proposed rule reflected this priority consideration by 
weighting this factor higher than the other factors in the proposed 
allocation formula. The interim rule is adopting the proposal that the 
two factors addressing the needs of extremely low-income households, 
Factors 1 and 3, have a combined weight of 75 percent in keeping with 
the statutory targeting of funds.
    The Regulatory Impact Analysis (RIA) for the formula allocation HTF 
proposed rule was issued on December 4, 2009, and can be found on HUD's 
Web site (http://www.huduser.org/portal/publications/pubasst/riaforhtf.html). The RIA describes in detail the alternative weight 
structures that HUD analyzed in developing the HTF allocation formula, 
the resulting impacts of each alternative on the States, and the 
analysis that supports HUD's selection of the alternative in the 
proposed allocation formula. The proposed formula strikes a balance 
between the high levels of housing needs in California and other 
States, as well as the competing priorities discussed in the RIA.
    An extremely low-income household, by statutory definition, means a 
household whose income does not exceed 30 percent of the area median 
income, with adjustments for family size. Homeless individuals and 
families who qualify as extremely low-income will be eligible for HTF 
units. The combined weight of 75 percent for the two factors that 
address the needs of extremely low-income households, factors one and 
three, reflects the statutory targeting of funds to extremely low-
income households in the proposed formula. Furthermore, section 
1338(a)(1)(A) of the Act specifically states that the purpose of the 
HTF is ``to increase and preserve the supply of rental housing for 
extremely low- and very low-income families, including homeless 
families . . .''
Data Used in the Allocation Formula
    Comments: A commenter states that homeless households should be 
included in the aggregate number of extremely low-income renter 
households to determine the true need. Data are readily available from 
Continuum of Care (CoC) programs and the Homeless Management 
Information System (HMIS). Another commenter states that more detail is 
needed on the sources of data the proposed formula uses. A commenter 
states that HUD should state exactly which American Community Survey 
data it will use, whether such data will be updated and used every 
year, and at what point 2010 Census data will be used. The commenter 
also states that HUD should clarify which RSMeans Cost Survey data will 
be used, and recommends data specific to multifamily construction. This 
commenter states that HUD should advise what sampling method will be 
used. Whatever method is used, the commenter stated that HUD should 
recognize that most multifamily construction is in the higher-cost 
areas.
    HUD Response: The proposed allocation formula incorporated the 
required statutory factors in section 1338(c)(3)(B). Consistent with 
the Community Development Block Grant (CDBG) and HOME formulas, the 
data source used to determine the number of extremely low-income 
renters with housing problems for factor three will be the most 
currently available data

[[Page 5207]]

from the United States Census Bureau.\3\ For HTF allocations in Fiscal 
Year (FY) 2016, the most current data will be a special tabulation of 
the latest available three-year average data from the American 
Community Survey.\4\ Census standard tabulation data do not provide 
counts of households by the income breaks required by statute so HUD 
must request a special tabulation of American Community Survey data to 
calculate the HTF formula. HUD is using the three-year average data to 
avoid problems with year-to-year bias in the data caused by small 
samples in some of the smaller population states. These data do not 
include homeless individuals and families.
---------------------------------------------------------------------------

    \3\ See http://www.census.gov/housing/.
    \4\ See http://www.census.gov/acs/www/data_documentation/data_main/.
---------------------------------------------------------------------------

    HUD appreciates the commenter's view that homeless families should 
be included in the count of extremely low-income families. HUD has 
considered the idea of including CoC counts or (HMIS) counts of 
homeless people in the counts for extremely low-income. HUD has decided 
not to implement these suggestions for two reasons:
     Inconsistent and incomplete data. Neither CoC nor HMIS 
data are complete for all parts of the country and the method of data 
collection is somewhat different from place to place. That makes the 
data poorly suited for an allocation formula because they do not have 
full national coverage and different data collection methods may result 
in bias toward one place over another.
     Incentive bias. Even when the data have full coverage, HUD 
is unlikely to use CoC or HMIS data for any allocation formulas because 
the data are being reported by grantees. HUD is concerned that some 
grantees may adjust their method of reporting if they perceive they 
might get a different funding allocation based on that reporting.
    The RSMeans construction cost data used in the formula are the 
RSMeans Square Foot Costs. Specifically, HUD used city-level location 
factors for residential construction to prepare state-level estimates 
of the relative cost of residential construction. In developing these 
State estimates, HUD did not select a subset or sample of cities. 
Rather, every city with a published location factor was included, and 
location factors were weighted in proportion to city populations. Data 
are not available for rural areas or for multifamily residential 
construction specifically. However, because construction costs are 
generally higher in population centers, HUD believes that the 
methodology adequately accommodates the commenter's concern about 
multifamily construction in costly areas. High-cost areas are reflected 
in the use of urban data to prepare State estimates as well as by the 
use of population weighting to ensure that the most populated cities 
receive their due priority. HUD intends to use the most recent 
available cost data and population data in developing future estimates.
Minimum Allocations
    The interim rule contains a new provision to address minimum grant 
allocations. As noted earlier in this preamble, section 1338(c)(4)(C) 
of the Act directs that each of the 50 States and the District of 
Columbia is to receive a minimum grant of $3 million. This section of 
the statute further provides that if the formula amount determined in 
any fiscal year would result in an allocation of a minimum grant of 
less than $3 million to any of the 50 States or the District of 
Columbia, the allocation for any such State or the District of Columbia 
shall be allocated a minimum grant of $3 million, and the increase 
shall be deducted pro rata from the allocations made to all the other 
States.
    The Act did not envision a situation in which the HTF lacked 
sufficient funds to award each of the 50 States and the District of 
Columbia a minimum grant of $3 million. After the deposits are made to 
the HTF for a fiscal year, section 1338(c)(4)(B) of the Act requires 
HUD to make allocations to its grantees. To give meaning to both of 
these statutory sections, HUD interprets the statute to require the 
allocation of grants even if the grants are less than the $3 million 
minimum. If the amount for a fiscal year is insufficient to provide the 
minimum allocations, HUD will publish a notice in the Federal Register 
for comment, describing an alternative allocation method.

Participation and Submission Requirements; Distribution of Assistance 
Proposed Sec. Sec.  92.720-92.725; Final Sec. Sec.  93.100-101

Allocation Plan/Participation and Submission Requirements Sec.  92.720
    In Sec.  92.720, HUD proposed requiring each State to notify HUD of 
its intent to participate in the HTF program and to have a consolidated 
plan that contains its HTF allocation plan required by the Act. HUD 
proposed to implement the requirement for an HTF allocation plan by 
amending its regulations in 24 CFR 91.220 and 91.320 to include these 
requirements in the consolidated plans of grantees and, where 
applicable, subgrantees. Section 92.720 of the proposed rule directed 
States to include the HTF allocation plan in the consolidated plan and 
follow the citizen participation requirements found in the consolidated 
plan regulations in 24 CFR part 91.
    Comments: Several commenters expressed concern that the proposed 
requirements do not place enough emphasis on public participation and 
transparency.
    HUD Response: HUD recognizes the commenters' concerns but believes 
the requirements adopted in this rule provide for sufficient public 
input on the allocation of HTF funds without the need for additional or 
new citizen participation requirements. Section 92.720(b) of the 
proposed rule directed States to include the HTF allocation plan in the 
consolidated plan and follow the citizen participation requirements in 
the consolidated plan regulations in 24 CFR part 91. The HTF allocation 
plan must consider the merits of the application in meeting the 
priority housing needs of the State. The rule provides flexibility to 
allow each grantee to include incentives and priorities in its HTF 
allocation plan that are appropriate to the communities where housing 
developed with HTF funds will be located.
    The language is adopted in this rule as proposed.
Distribution of Assistance: HTF Grantees, Subgrantees, and Recipients 
Sec.  92.725
    HUD proposed that a formula grant be provided to each State for 
each year that funds are made available for the HTF. In Sec.  92.725, 
HUD described the proposed ways HTF funds will flow to the communities 
and recipients, as well as the participation and submission 
requirements for grantees receiving an HTF allocation.
    Comments: Some commenters suggested that HTF funds should be 
allocated directly to municipalities and local participating 
jurisdictions, as is done with other Community Planning and Development 
programs (e.g., HOME, CDBG, Emergency Solutions Grants) because States 
may be unsuited to determine local housing priorities and unable to 
effectively administer the HTF. In addition, they stated that passing 
the funding through the State delays the use of funds at the local 
level, and local governments are more in tune with local needs.
    Several commenters stated that HUD's rule should ensure adequate 
allocation to rural areas, and that allocations should be made based on 
the relative or proportional need of frontier, rural, and

[[Page 5208]]

urban areas. A few commenters suggested that the final rule should 
require funding to be allocated by formula to areas of greatest need, 
and adjusted for high-cost living areas and the lack of affordable 
housing.
    HUD Response: States and State-designated entities are the only 
permissible grantees in the HTF statute. HUD does not have the 
authority to designate local governments as grantees. An HTF grantee 
may choose to distribute HTF funds through one or more subgrantees. A 
subgrantee may be a State public agency or a unit of general local 
government. Section 91.320(k)(5) requires the action plan to reflect 
the State's decision to distribute HTF funds through grants to 
subgrantees, and Sec.  92.725(d) requires the grantee to ensure that 
its subgrantees comply with the HTF requirements and carry out the 
responsibilities of the grantee. The HTF allocation formula is 
statutorily prescribed and HUD does not have the authority to change 
the allocation method. However, as described in Sec.  92.725(b), each 
grantee is responsible for distributing HTF funds throughout the State 
according to the State's assessment of the priority housing needs 
within the State, as identified in the State's approved consolidated 
plan (which will include the HTF allocation plan). The HTF allocation 
plan must describe the distribution of the grant and priority housing 
needs, including rural housing needs.
    The language is adopted in this rule as proposed.

Program Requirements Proposed Sec. Sec.  92.726-92.727; Final 
Sec. Sec.  93.150

Site and Neighborhood Standards Sec.  92.726
    In Sec.  92.726, HUD proposed that the site and neighborhood 
standards contained in the HOME program regulations at Sec.  92.202 
apply to the HTF.
    Comments: A commenter suggested that HUD adopt all the site and 
neighborhood standard criteria applicable to existing housing being 
considered for project-based vouchers rather than limiting the criteria 
to new construction projects. The commenter reasoned that HTF, unlike 
HOME, will fund rehabilitation projects. Another commenter suggested 
that HUD's rule include a provision that requires site selection to 
occur in a manner that will not exclude people with disabilities. A 
commenter stated that the rule should allow HTF funds to be held when 
local opposition has delayed a project or when exclusionary zoning is 
being challenged.
    HUD Response: HUD is adopting the site and neighborhood standards 
from Sec.  92.202 of the proposed rule in new Sec.  93.150, with an 
updated cross-reference to the applicable standard for new construction 
projects at 24 CFR 983.57(e). As with the HOME program, HUD is not 
applying site and neighborhood standards to rehabilitation projects 
under HTF. However, if project-based vouchers are used in an HTF 
rehabilitation unit, the site and neighborhood standards for project-
based vouchers will apply. In addition, the requirements of 24 CFR part 
8 (which implement section 504 of the Rehabilitation Act of 1973) apply 
to the HTF, and specifically address the site selection with respect to 
accessibility for persons with disabilities.
Income Determinations Sec.  92.727
    In Sec.  92.727, HUD proposed a definition for ``annual income'' 
and described the process for determining the annual income of tenants 
and homebuyers for eligibility in HTF-assisted housing.
    Comments: A commenter requested the proposed language be revised to 
further clarify which set of income determination provisions are 
applicable to the HTF. Another commenter recommended that HUD's rule 
allow residents and applicants to contest income determinations. 
Another commenter expressed concern that the use of the Enterprise 
Income Verification can pose a problem for recently institutionalized 
persons, as it can cause significant delays.
    HUD Response: HUD appreciates the suggestions but the income 
determination provisions provided in this HTF rule are those that HUD 
uses in its HOME program rule, which HUD believes work well. Therefore 
HUD is not inclined to change these provisions. The income 
determinations will be made in accordance with the HTF program 
requirements, which mirror the HOME program requirements, and do not 
involve the use of the Enterprise Income Verification system.

Eligible and Prohibited Activities Proposed Sec. Sec.  92.730-92.735; 
Final Sec. Sec.  93.200-93.205

    In Sec. Sec.  92.730-92.735, HUD proposed requirements that govern 
eligible and prohibited activities, eligible project costs, and 
planning and administrative costs. Allowable and prohibited fees were 
also addressed in these sections.
Eligible Activities Sec.  92.730
    In Sec.  92.730, HUD set forth HTF-eligible activities. Section 
1338(c)(7)(A) of the Act provides that HTF funds may be used for 
assistance for the production, preservation, rehabilitation, and 
operating costs of rental housing. To achieve the goal of using HTF 
funds primarily for the production of new affordable units, HUD 
proposed to limit the amount of HTF funds that may be used for 
operating cost assistance to 20 percent of each annual grant.
    Section 1338(c)(7)(B) provides that the production, preservation, 
and rehabilitation of housing for homeownership, including forms of 
down payment assistance, closing cost assistance, and assistance for 
interest rate buy-downs, are eligible activities. HTF funds may be used 
only for units that will be the principal residence of eligible 
families who are first-time homebuyers.
    Section 1338(c)(10)(A) of the Act provides that not more than 10 
percent of the annual grant may be used for homeownership activities. 
If a grantee chooses to implement a homeownership program with HTF 
funds, HUD proposed requiring grantees to perform underwriting 
analysis.
Eligible Activities: General Sec.  92.730(a)
    Comments: HUD received several comments which suggested the rule 
expand the list of eligible activities. A commenter stated that HUD's 
rule should allow for HTF funds to be used in projects already 
underway. Another commenter suggested HUD add explicit language 
clarifying that HTF funding may be used in mixed-income developments. A 
few commenters suggested that HUD's rule permit HTF funds to be used 
for development costs associated with laundry facilities and community 
space located in buildings which are separate from residential space. A 
commenter requested additional clarification regarding the prohibition 
on charging laundry access fees does not impact the ability to impose 
reasonable charges for the use of a washer or dryer. Another commenter 
recommended that HUD's rule include language that provides a basis for 
charging impact fees, and clarifies ``reasonable and necessary costs.'' 
A commenter asked for a definition of ``non-luxury,'' and stated that 
this requirement, as it applies to construction costs, is impractical 
to apply. Another commenter suggested that HUD allow grantees to charge 
property owners monitoring costs for the entire period of affordability 
up front and include monitoring costs as an eligible use of HTF funds. 
A commenter recommended that refinancing costs be included as an 
eligible cost.

[[Page 5209]]

    Several commenters objected to allowing transitional housing as an 
eligible activity because it does not meet the intent of increasing 
access to rental properties available to ELI households and does not 
appear in the authorizing statute. Another commenter expressed concern 
that there may be conflicts between fair housing laws and transitional 
housing plans impacting people with disabilities.
    Another commenter stated that there should be a greater focus on 
homeownership in the final rule, and that downpayment assistance 
programs should constitute an eligible use of HTF funds. A few 
commenters opposed the first-time homebuyer restriction and recommend 
the final rule permit the rehabilitation of ELI owner-occupied homes as 
a more effective means of addressing homeownership for ELI households. 
Other commenters recommended HUD's rule stress the voluntary nature of 
using 10 percent of HTF funds for homeownership activities.
    HUD Response: This rule makes clear that projects underway when the 
HTF rule is implemented are not eligible to receive HTF funds. HUD does 
not agree that HTF funds should be permitted to pay costs for 
constructing community space or laundry facilities in buildings that 
are separate from the residential space. Although it is sometimes 
necessary to provide such space in separate buildings, HUD believes 
that States should leverage other funds to pay such costs so that HTF 
funds are used to create as many ELI and VLI units as possible. Nothing 
in this interim rule prohibits reasonable charges for washing machines.
    HUD does not believe that inclusion of a definition of non-luxury 
in the HTF rule is practical, as amenities considered luxury change 
over time. For example, air conditioning in certain HUD-assisted 
housing was considered a luxury item at one time. HTF grantees have 
experience with ensuring that only non-luxury items are included in 
housing because they also administer the HOME program, which has 
similar requirements.
    HUD has reconsidered making transitional housing an eligible type 
of housing in the HTF and agrees with commenters that this type of 
housing is contrary to the primary purpose of the HTF, which is to 
increase the supply of permanent affordable housing. Transitional 
housing is frequently developed to address the needs of homeless 
persons, to provide housing assistance and services that will enable 
them to obtain permanent affordable housing. The language in this 
section was revised to delete transitional housing as an eligible type 
of housing.
    Monitoring is an eligible administrative cost. This interim rule 
does not allow grantees to charge property owners monitoring costs for 
the entire period of affordability ``up front'' as suggested by 
commenters but does permit HTF grantees to charge property owners 
monitoring fees (see Sec.  93.205).
    Rehabilitation of housing for existing homeowners is not an 
eligible activity in the statute. The statute restricts the use of HTF 
funds for homeownership to first-time homebuyers and limits the amount 
of each annual HTF grant that may be used for homeownership to 10 
percent. Each State is allowed by the statute to determine how it will 
use HTF funds for homeownership assistance. Downpayment assistance is 
an eligible activity in the regulation.
    The proposed rule made refinancing of existing rental projects 
permissible as part of rehabilitation when the proportional cost of 
rehabilitation is greater than the amount of debt refinanced. HUD 
proposed these restrictions on refinancing in order to synchronize with 
the HOME program and to facilitate the preservation and rehabilitation 
of existing housing for ELI and VLI households. These proposed 
restrictions are therefore retained in this interim rule.
Eligible Project Costs Sec.  92.731
    In Sec.  92.731, HUD proposed eligible project costs to include 
development hard costs, refinancing costs in conjunction with 
rehabilitation, acquisition of standard projects, development-related 
soft costs, architectural and engineering fees, project audit costs, 
staff overhead related to the development of the units, settlement 
costs, impact fees, the cost to address and meet environmental and 
historic preservation property standards, operating costs, relocation 
costs, repayment of construction or other loans, and certain types of 
costs for construction undertaken before HTF funds were committed to 
the project.
Operating Cost Assistance and Operating Cost Assistance Reserves (Sec.  
92.731(e))
    To achieve the goal of using HTF funds primarily for the production 
of new affordable units, HUD proposed, in Sec.  92.730(a)(1), to limit 
the amount of HTF funds that may be used for operating cost assistance 
to 20 percent of each annual grant. The proposed rule stated that 
operating cost assistance can be provided for the entire period of 
affordability, but may be awarded only in two-year increments from each 
HTF grant. Operating cost assistance, as defined in Sec.  92.731(e), 
may include the cost of utilities, insurance, taxes, and scheduled 
payments to a replacement reserve. The eligible amount of HTF funds per 
unit for operating costs is determined based on the deficit remaining 
after the tenant monthly rent payment for the HTF-assisted unit is 
applied to the HTF-assisted unit's share of monthly operating costs. 
The written agreement between the grantee and the recipient must set 
forth the maximum amount of the operating assistance to be provided to 
the HTF-assisted rental project.
    The proposed rule also included operating cost reserves of up to 
five years worth of operating cost assistance as an eligible activity 
(Sec.  92.731(e)(2)). Grantees would be allowed to establish operating 
cost reserves for specific HTF-assisted projects if necessary to ensure 
the financial feasibility of a project.
    Comments: Several commenters disagreed with the proposed 20 percent 
cap on the amount of each annual grant that may be used for operating 
cost assistance and suggested that HUD eliminate any restriction on the 
amount of each annual grant that may be used for operating cost 
assistance. Others suggested increasing the cap. Still others 
recommended that any limits on operating cost assistance should be 
based on each State's housing needs and should be left to the 
discretion of the States. Commenters also recommended that HUD impose 
no restriction on using HTF funds for operating assistance in the 
absence of Section 8 voucher assistance. Some commenters stated that 
HTF funding for operating assistance should be limited to HTF-assisted 
units and units being developed with HTF funds, while others support 
allowing HTF operating assistance for units funded by other State and 
Federal programs.
    A commenter stated that it will be difficult to attract investors 
and ensure the long-term financial success of projects without giving 
States flexibility in determining how to apply HTF funds toward 
operating assistance. Another commenter stated that the program will 
encounter underwriting challenges regardless of operating assistance, 
but depending on the mix of units, there may be sufficient revenue 
generated to support the properties. Commenters expressed concern that 
the proposed cap will limit the number of units that can be developed 
with HTF funds, particularly units that serve ELI households.
    A commenter stated that the rule must clarify that States are 
permitted to limit

[[Page 5210]]

and target operating assistance. Commenters recommended that the final 
rule should permit the initial HTF grant to include sufficient funding 
for operating assistance or operating reserves to last for the entire 
term of affordability. A few commenters stated that the final rule 
should permit the creation of capital reserves aimed at increasing 
affordability for ELI households.
    In response to a request from HUD for input on whether tax 
abatements can significantly reduce operating costs, one commenter 
stated that while tax abatements can reduce operating cost, local 
governments will hesitate to provide tax abatements due to current 
economic pressures.
    A few commenters stated that the time limits for offering operating 
cost assistance and operating reserves should be eliminated at the 
final rule stage. Commenters stated that HTF-assisted units that 
require operating assistance during the first two years will almost 
certainly need operating assistance throughout the entire term of 
affordability, and that grantees should have the flexibility to provide 
more than two years of assistance when faced with underwriting or 
feasibility concerns. Another commenter stated that the HTF funding 
should be allowed to capitalize Section 8 transition reserves to 
encourage private lenders to underwrite HTF-assisted projects with 
Section 8 project-based assistance. A few commenters recommended that 
HUD provide guidance in the HTF program guidelines to State grantees on 
underwriting standards for reinvestment and building reserves to self-
finance rehabilitation during the period of affordability.
    Lastly, several comments were submitted regarding the use of 
Section 8 vouchers in conjunction with HTF funds. Some commenters 
recommended that Section 8 vouchers be awarded along with the HTF 
funding. Another commenter asks whether there is a unit-based or 
project-based prohibition on using HTF funds for operating costs when 
Section 8 project-based vouchers are also involved in the project.
    HUD Response: The HTF is primarily a production program meant to 
add units to the supply of affordable housing for ELI and VLI 
households. Analyses of the use of HTF funds for both development and 
operating cost assistance showed that the use of HTF funds for 
operating assistance could very quickly consume each State's annual 
grant. This would deter the use of HTF funds for production of 
additional units, as well as preservation and rehabilitation of units, 
targeted to ELI households--the primary purpose of the HTF. HUD also 
assumes that HTF funds will be combined with other sources to produce 
and preserve affordable units, mostly in mixed-income projects, and 
that the HTF will not be the sole source of funding for operating cost 
assistance. Therefore, establishment of a cap on the amount of HTF 
funding in each annual grant that may be used for operating cost 
assistance is appropriate.
    However, to provide more flexibility to grantees to develop and 
finance HTF-assisted projects, this interim rule establishes the cap at 
up to one-third of each annual grant. This interim rule also makes 
clear that the cap applies to both amounts used for operating cost 
assistance as well as the operating cost reserves. Within this cap, 
each fiscal year the grantee will have discretion in how it awards 
operating cost assistance to projects. The grantee may apply the one-
third limit to all projects or adjust it accordingly, as long as no 
more than one-third of each annual grant is used for operating cost 
assistance and for operating cost reserves.
    HUD also revised the proposed rule at this interim rule stage to 
address comments about the way in which operating cost assistance may 
be provided to a project. This interim rule establishes that a grantee 
may provide operating cost assistance to a project during the entire 
period of the affordability for the project. The written agreement 
between the grantee and the owner that commits funds from an HTF grant 
received in a single fiscal year may provide operating cost assistance 
over a period for multiple years as long as the grantee to meet its 
five-year expenditure deadline in Sec.  93.400(d). Allowing such 
commitment provides the grantee with flexibility to manage its grant 
funds when providing operating cost assistance to a project; however, 
HUD will recapture funds not expended by the five-year deadline. 
Because operating cost assistance is an eligible activity and may be 
provided to a project by more than one grant, the prohibition in the 
rule on providing additional HTF funds to a project during the period 
of affordability (Sec.  93.205(a)) does not apply to renewal of funds 
committed to operating cost assistance. The grantee may renew operating 
cost assistance for HTF-assisted units during the affordability period 
by executing written agreements after future fiscal year HTF grants are 
awarded.
    If Section 8 project-based vouchers or other project-based rental 
assistance is made available to HTF projects for HTF-assisted units, 
HUD prohibits the use of HTF funds available for operating cost 
assistance for those same units, but such limitation will not hinder 
HTF implementation. Section 93.200(c) of the interim rule (Sec.  
92.730(c) of the proposed rule) requires that only the actual cost of 
development and operation of HTF units can be charged to the HTF 
program, and describes the methods for allocating costs and determining 
HTF units in multi-unit projects. In this interim rule, HUD does not 
impose a limit on the use of Section 8 project-based vouchers in a 
project for which HTF is also providing operating cost assistance, as 
long as the Section 8 project-based voucher is not provided to the same 
unit receiving HTF operating cost assistance. HUD cannot guarantee that 
funds for project-based Section 8 or other project-based assistance 
will be appropriated for HTF-assisted projects; therefore, awards of 
HTF funding to projects should be made based on existing resources and 
underwriting.
    HUD understands the need for both capital (replacement) and 
operating reserves in housing projects. When grantees provide HTF 
funding for a project, the need for annual or monthly contributions to 
these reserves are determined through the underwriting process. Funding 
for capital or operating reserves ``up front'' for the present value of 
the entire amount needed over the required period of affordability (30 
years) is not possible if the HTF funds are appropriated, as Federal 
funds cannot be drawn in that manner, years in advance of need. 
However, funding for the HTF may come from non-appropriated sources, 
i.e., the proceeds from GSEs as described in section 1337 of the Act. 
Therefore, in the interim rule HUD establishes separate requirements 
for operating cost reserves funded by appropriated and non-appropriated 
funds.
    If the operating cost assistance reserve is funded with 
appropriated HTF funds, the allowable amount of the reserve may not 
exceed the amount necessary to provide operating cost assistance to the 
HTF-assisted units in an HTF-assisted project for a period of up to 
five years. Because operating cost assistance reserves are an eligible 
activity and may be provided by more than one grant, the prohibition on 
providing additional HTF funds to a project during the period of 
affordability (Sec.  93.205(a)) does not apply to renewal of operating 
cost assistance reserves. The grantee may renew operating cost 
assistance reserves for HTF-assisted units during the affordability 
period by executing written agreements after future fiscal year HTF 
grants are awarded. The grantee must demonstrate the necessity of the 
reserve amount based on an analysis of

[[Page 5211]]

potential deficits remaining after the expected rent payments for the 
HTF-assisted unit are applied to the HTF-assisted unit's expected share 
of operating costs.
    If the operating cost assistance reserve is funded with non-
appropriated HTF funds, the amount necessary to fund the reserve must 
be calculated using the same methodology; however, the reserve may be 
funded for the amount estimated to be necessary for the entire period 
of affordability up front, or if this amount would exceed the cap (one-
third of each annual grant), could be funded in phases from future 
grants determined to be suitable and necessary to secure advantageous 
financing. HUD will provide guidance and training to states about 
underwriting standards for investment of HTF funds and establishing 
replacement reserves to provide necessary rehabilitation during the 
period of affordability in their HTF program guidelines.
Administration and Planning Costs Sec.  92.732
    As noted earlier in this preamble, the administrative costs 
allowable by statute in the HTF program cannot exceed 10 percent of the 
annual grant. In Sec.  92.732, HUD proposed eligible administrative and 
planning costs similar to the HOME program at Sec.  92.207.
    Comments: HUD received very few comments regarding the entity 
eligible for the 10 percent allocation to administrative and planning 
costs. One commenter suggested that HUD's rule clarify that only the 
agency responsible for the award, compliance, monitoring, and reporting 
of HTF funds is eligible and another commented that these funds should 
only be charged by the subgrantee, not the grantee. Other commenters 
offered recommendations about what should and should not be considered 
an eligible administrative and planning cost. A commenter stated that 
monitoring funds should be included, another stated project delivery 
costs (i.e., inspections, work write-ups) should not be eligible to 
charge as administrative costs, and another requested clarification 
that the administrative costs in Sec.  92.732(b)(2) are not the same as 
prohibited travel costs at section 1338(c)(10)(D)(i)(V) of the Act. 
Another commenter suggested that HUD's rule require the allocation to 
administrative and planning costs be proportional to the amount of HTF 
units in the project. Another commenter expressed concern that the 10 
percent cap on administrative costs is not enough to cover all the 
monitoring requirements. A commenter requested that HUD make clear 
whether the amounts available for rental housing and homeownership 
activities are calculated based on the funds available after 10 percent 
of the annual formula grant is deducted for administrative costs.
    HUD Response: This interim rule permits grantees to charge 
monitoring fees to cover the costs of required monitoring. The HTF 
grantee (State or State-designated entity) may use up to 10 percent of 
its annual grant for administrative costs. A grantee may provide 
funding for administrative costs to subgrantees. Program-related travel 
that is eligible under Sec.  92.732(b)(2) remains an eligible cost in 
this rule, as this is not the same type of travel prohibited in section 
1338(c)(10)(D)(i)(V) of the Act. Only non-program-related travel is 
prohibited as an eligible cost in the HTF statute. The Act permits up 
to 10 percent of the annual HTF grant to be used for homeownership 
activities, and up to 10 percent of the grant for administrative costs. 
Therefore, up to 10 percent of each annual grant may be spent on 
administrative costs, up to 10 percent may be spent on eligible 
homeownership activities, and the remainder on eligible rental housing.
HTF and Public Housing and Rental Assistance Demonstration Sec.  92.734
    HUD proposed prohibiting the use of HTF funds for public housing, 
including public housing that is developed under the HOPE VI program.
    Comments: Several commenters requested that HUD's rule explicitly 
include public housing authorities as eligible recipients of HTF 
funding. Some commenters requested that the development, preservation, 
and rehabilitation of public housing be allowed as an eligible 
activity, as the exclusion of public housing was not clearly mentioned 
in HERA or the Act; public housing tenants meet the HTF eligibility 
requirements and public housing funding sources are inadequate to meet 
the demands.
    HUD Response: Public housing agencies (PHAs) are already eligible 
entities to be HTF recipients. They are eligible to apply for HTF 
funding if they have the required capacity defined in the HTF statute 
and at Sec.  93.2. PHAs, if qualified as recipients, can compete for 
HTF funding to develop HTF-assisted projects. HUD has considered the 
comments that the HTF should be permitted to be used for public housing 
projects and agrees that there is a role for the HTF in public housing. 
HUD has decided to allow the use of HTF funds (1) in connection with 
the Choice and LIHTC programs for construction of new units that 
replace existing public housing properties; and (2) for the 
rehabilitation of existing public housing units in connection with the 
Rental Assistance Demonstration (RAD), Choice, and LIHTC programs.
    When the HTF program proposed rule was published on October 29, 
2010, RAD was not yet established. RAD was established by HUD's 2012 
Appropriations Act (Pub. L. 112-55, 125 Stat. 552, approved November 
18, 20111, at 125 Stat. 673). Consequently, there were no public 
comments submitted on the HTF program proposed rule about the possible 
interplay between HTF and RAD. However, with RAD now an active 
demonstration program, questions have been raised to HUD about whether 
HTF may used for RAD units, and HUD takes the opportunity to address 
those questions in this preamble. HTF funds can be used in connection 
with RAD for the rehabilitation of public housing properties in which 
assistance will be converted and used. HTF funds can also be used for 
rehabilitation of ``RAD units'' (that is public housing properties in 
which assistance has been converted) after conversion takes place. Such 
uses are not contrary to HUD's position that use of HTF funds for 
public housing is limited to use with other programs to rehabilitate or 
replace public housing properties, and not for the expansion of the 
public housing inventory, which can be achieved through other funding 
sources.
Prohibited Activities Sec.  92.735
    HUD proposed prohibited activities in Sec.  92.735. To synchronize 
with the HOME program, prohibited activities and fees at Sec.  92.735 
mirror the HOME program regulation at Sec.  92.214. In addition, Sec.  
92.735 also includes activities expressly prohibited in the HTF 
statute. Section 1338(c)(10)(D) of the Act provides that HTF funds may 
not be used for: Political activities; advocacy; lobbying, whether 
directly or through other parties; counseling services; travel 
expenses; and preparing or providing advice on tax returns. This 
statutory section further provides that, subject to the exception in 
section 1338(c)(10)(D)(iii) of the Act, HTF funds may not be used for 
administrative, outreach, or other costs of the grantee, or any other 
recipient of such grant amounts. The statutory exception to this 
prohibition is that a grantee may use up to 10 percent of the HTF grant 
for the administrative costs of carrying out its HTF-funded program, 
including homeownership counseling.
    Comments: A commenter stated that several provisions, including 
provisions

[[Page 5212]]

on renewing operating assistance and grants for transit-oriented 
development projects, seem to conflict with the prohibition on using 
additional HTF assistance for previously assisted projects, and 
requested clarification. Several commenters requested that HUD 
eliminate the prohibition on using HTF funds in developments previously 
assisted with HTF. Alternatively, these commenters recommended that the 
final rule should limit the prohibition to 15 years after initial 
receipt of HTF funds, and allow for exceptions to the prohibition 
during the period of affordability. Other commenters stated that the 
rule should allow projects previously receiving HTF funds to obtain 
subsequent capital funds, operational expenses, and maintenance costs 
under the condition that the period of affordability would be reset, 
extended, or expanded to additional units upon receipt of additional 
HTF assistance. Another commenter stated that the final rule should 
include a provision that HUD has the ability to waive the prohibition 
in exchange for an extension of the affordability period.
    HUD Response: Per the requirements of 24 CFR 93.300, HUD expects 
that HTF projects will be properly constructed or rehabilitation with 
HTF funds and underwritten to ensure that capital needs can be 
addressed at the appropriate time in the life cycle of the property. 
Therefore, HUD will not change the regulation to allow the addition of 
HTF funds after 15 years, as commenters suggested. To address concerns 
about projects that may need additional operating cost assistance 
during the 30-year period of affordability, HUD revised Sec.  
93.205(a).

Income Targeting Proposed Sec. Sec.  92.736-92.737; Interim Sec. Sec.  
93.250-93.251

    Sections 92.736 and 92.737 of the proposed rule set forth the 
proposed income targeting requirements, as required by section 
1338(c)(7) of the Act, for HTF-assisted rental units and homeownership 
units, respectively.
    The Act requires that not less than 75 percent shall be used for 
the benefit only of ELI families or families with incomes at or below 
the poverty line (whichever is greater). Not more than 25 percent may 
be used for the benefit only of VLI families. Under the rulemaking 
authority of section 1338(g) of the Act, the Secretary has the 
discretion to direct grantees, in any given year, to use more than 75 
percent of the HTF funds for the benefit only of ELI families or 
families with incomes at or below the poverty line, whichever is 
greater. HUD proposed that for the first year in which HTF funds are 
made available, of the amount made available for rental and 
homeownership housing, grantees are required to expend 100 percent of 
HTF funds to provide rental and homeownership housing for ELI 
households. The proposed rule provided that the HUD would publish 
subsequent income targeting requirements when HUD's allocation amounts 
to states are published.
    Comments: HUD received many comments opposing the proposed 
targeting of 100 percent of the HTF funds to ELI households in the 
first year that funding is provided under the program. The commenters 
stated that the income targeting should not change between the first 
year and subsequent years of funding, as it will make the HTF more 
difficult to administer. Commenters also stated that this approach to 
targeting is not reflective of the statute.
    Several commenters expressed support for targeting some VLI 
households in the first year of funding, with one commenter expressing 
concern that there may not be adequate local support to target ELI 
households exclusively. Other commenters requested that HUD continue to 
target 100 percent of ELI households until the shortage of ELI housing 
is resolved. Several commenters expressed concern that the proposed 
income targets will limit the use of HTF funds in rural and non-urban 
areas. Another commenter recommended that the proposed language be 
revised to explicitly state that any portion of HTF funding not be 
targeted to ELI households and should be used for VLI households only.
    HUD also received many comments advising of challenges resulting 
from use of HTF funds for homeownership activities targeted at ELI 
households, with many of these commenters suggesting that HTF funding 
for homeownership would be better served targeting VLI households or 
other income groups.
    HUD Response: HUD is aware that changes over time to income 
targeting may require grantees to adjust their approaches to using HTF 
funds to produce affordable housing, but believes this necessary in 
order to target limited resources to ELI households. There is a well-
documented and overwhelming need to increase the supply of housing 
targeted to ELI households within each grantee's jurisdiction.
    However, in consideration of the comments received, at this interim 
rule stage, HUD adjusted the targeting based on the amount of resources 
being made available through the HTF. With limited resources available 
for production of affordable housing targeted to ELI households, HUD 
has determined that targeting 100 percent of HTF to ELI households is 
appropriate if the amount available in a fiscal year for HTF is less 
than $1 billion. If the amount exceeds $1 billion, grantees may spend 
up to 25 percent for the benefit of VLI households. In either scenario, 
any funds not used for ELI households must be used to serve VLI 
households.
    HUD acknowledges the commenters' concerns regarding the difficulty 
of providing homeownership assistance to ELI households. The statute 
and regulation are clear--there is no minimum percentage of HTF funds 
to be spent on homeownership, only a maximum percentage (10 percent). 
If HTF-eligible homeownership activities are not appropriate for ELI 
households in their jurisdictions, grantees are not required to use HTF 
funds for homeownership projects. HUD believes grantees are in the best 
position to determine whether a homeownership program for ELI or VLI 
households is appropriate within their jurisdictions. Public input on 
the use of HTF funds for rental housing or homeownership must be sought 
through public participation on a grantee's proposed HTF allocation 
plan.

Project Requirements Proposed Sec. Sec.  92.740-92.750; Interim 
Sec. Sec.  93.300-93.306

    In Sec. Sec.  92.740 through 92.750, HUD proposed requirements 
applicable to HTF-assisted housing projects. HUD proposed maximum per-
unit development subsidy, underwriting, and subsidy layering 
requirements at Sec.  92.740. To align with the HOME rule, the HTF 
proposed rule at Sec.  92.740 mirrored the HOME Prohibited Activities 
and Fees provisions in Sec.  92.250, with the exception of the maximum 
per-unit development subsidy amount section. The maximum per-unit 
development subsidy amount section is now Sec.  93.300.
Maximum Per-Unit Subsidy, Underwriting and Subsidy Layering Sec.  
92.740
    At Sec.  92.740(a), HUD proposed requiring the grantee to establish 
maximum limitations on the amount of HTF funds the grantee may invest 
on a per-unit basis. In Sec.  92.740(b), HUD proposed requiring the 
grantee to perform subsidy layering analysis before committing HTF 
funds to a project. Included in this proposed provision was the 
requirement that the grantee must determine that costs are reasonable, 
examine the sources and uses of funds, and ensure that the amounts 
available and their use are necessary to provide

[[Page 5213]]

quality affordable rental or homeownership housing for ELI households 
for the affordability period (30 years). The proposed rule also stated 
that recipients of HTF-assisted projects may not receive undue returns 
on their investments.
    Comments: Of the commenters that submitted comments on this 
provision, the majority addressed the proposed requirement that the 
grantee must establish a maximum per-unit development subsidy limit. A 
few commenters opposed that the subsidy limit be established as a total 
dollar amount and suggested the requirement be revised to allow States 
to set the maximum subsidy limit as a percentage of the project cost on 
a per-project basis. Another commenter wrote that States should have 
the flexibility to establish their maximum per-unit subsidy at 100 
percent of the development costs for HTF-assisted units. A commenter 
suggested that the maximum per-unit subsidy requirement at Sec.  92.710 
be eliminated. Finally, a commenter stated that the per-unit subsidy 
limit and subsidy layering should only take into account capital 
development costs.
    With respect to a subsidy layering review, a commenter suggested 
that HUD's rule should allow a subsidy layering review, conducted as a 
requirement of another program to satisfy the subsidy layering review 
for an HTF project. Another commenter suggested that the language in 
the proposed rule be clarified so that it is not interpreted to mean 
that certification of underwriting and subsidy layering requires HUD-
specified processes, standards, and forms because it would be 
burdensome. Another commenter suggested that HUD establish minimum 
underwriting standards for homeownership.
    HUD Response: This interim rule adopts this provision as 
essentially proposed, although HUD revised the language to more closely 
mirror the language on subsidy layering from the HOME final rule. HUD 
does not agree that maximum subsidy limits should be established based 
on a percentage of total project cost. Some project costs are not 
eligible HTF costs, and one of the purposes of this requirement is to 
ensure the determination of the cost of HTF-assisted housing units 
includes a cost reasonableness test. With respect to a subsidy layering 
review, HUD does not prescribe specific subsidy layering forms or 
processes. The grantee may use the subsidy layering reviews conducted 
by other project funders, but a subsidy layering review conducted by 
another agency or funder does not ``satisfy'' the proposed requirement 
in Sec.  92.740(b) (in this rule at Sec.  93.300(b) unless the review 
is completed in accordance with the HTF grantee's standards.
    Grantees must establish the minimum underwriting standards for 
their HTF-funded homeownership programs, as required by Sec.  93.304.
    To address comments on maximum subsidy limits, HUD chose not to 
establish national maximum subsidy limits that would be published by 
HUD. The amount of subsidy needed to produce affordable rental units 
targeted to ELI or VLI households will vary depending upon the project 
proforma. It is possible that in some projects, the entire development 
cost of an HTF unit must be paid for with HTF funds in order to achieve 
affordability. For example, it would be desirable to pay the entire 
development cost of HTF units so that they carry no debt service 
because rents are likely to be insufficient to pay for the debt service 
of the units. However, to address accountability, HUD added language to 
require grantees to adopt maximum subsidy limits that are appropriate 
for non-luxury housing units, based on reasonable and actual costs of 
developing such housing in the area.
Property Standards Sec. Sec.  92.741 Through 92.745, Interim Sec.  
93.301
    At the proposed rule stage, HUD proposed property standards 
applicable to HTF-assisted properties at Sec. Sec.  92.741 through 
92.745. Section 92.741 contains the property standards for new 
construction, Sec.  92.742 establishes the standards for housing 
undergoing rehabilitation, Sec.  92.743 contains the property standards 
for existing housing that is acquired with HTF funds, Sec.  92.744 
establishes property standards for manufactured housing, and Sec.  
92.745 establishes ongoing property standards for rental housing during 
the period of affordability. HUD requested comments from interested 
parties on how additional minimum property standards may be imposed to 
increase the efficiency and reduce the operating costs of HTF assisted 
units.
    Comments: Several commenters stated that HUD's rule should provide 
more flexibility in adopting property and energy efficiency standards 
and that the proposed property standards are too specific. A commenter 
stated that HUD's rule should specify who will conduct the 
environmental reviews for HTF projects. Several commenters stated that 
the units must meet habitability standard requirements, but not 
necessarily the use of Housing Quality Standards (HQS). Another 
commenter stated that HUD's rule should require properties to be free 
of all health and safety standards and specify the life-threatening 
conditions that must be addressed.
    A commenter stated that HUD's rule should provide standards that 
will be applied on a building-by-building basis. A few commenters 
stated that the proposed efficiency requirements will drive up the 
costs of developing ELI units. A commenter stated that for major life 
systems HUD should clarify improvements necessary to meet the standard. 
Another commenter stated that the term for the useful life is 
burdensome and too expensive.
    A commenter requested that buildings seeking historic tax credits 
or that are located in historic districts be provided with an exception 
from property requirements. Another commenter stated that the property 
standards will make it difficult for developers to use HTF funding to 
buy existing properties for rehabilitation.
    A commenter stated that HUD's rule should include a ``discreet'' 
funding allocation to create affordable and accessible housing for 
people with developmental disabilities. Several commenters stated that 
HUD's rule should require ``visitability'' and ``universal design.'' 
Other commenters stated that HUD's rule should address accessibility by 
requiring 100 percent of units in new construction and substantial 
rehabilitation projects be both visitable by wheelchair users and 
adaptable, and that 30 percent of the units are fully accessible.
    HUD Response: To ensure compatibility with the HOME rule and in an 
effort to ease implementation of HTF by maintaining consistency with 
the requirements of the HOME rule to the extent feasible, this interim 
rule adopts the language used in the HOME final rule property standards 
section at Sec.  92.251, with the exception of the environmental review 
requirements.
    For the HTF program, HUD proposed at minimum that all HTF-assisted 
units that are newly constructed or undergoing gut rehabilitation must 
be certified that they meet the guidelines for ENERGY STAR-Qualified 
New Homes (for residential buildings up to three stories) or exceed, by 
20 percent, the energy efficiency requirements of the American Society 
of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 
Standard 90.1-2007, Appendix G: Performance Rating Method (for 
residential buildings over three stories), as defined in Sec.  92.741. 
A Home Energy Rater (HER) must inspect the units to certify that the 
units meet the ENERGY STAR guidelines. HUD does not adopt these 
proposed requirements in this interim rule. HUD

[[Page 5214]]

plans to establish new and consistent energy and water efficiency 
requirements for both the HTF program and HOME program through separate 
rulemaking. For new construction, the interim rule adopts the energy 
efficiency standards established under section 109 of the Cranston-
Gonzalez National Affordable Housing Act, so that the standards are the 
same for HTF and HOME.
    HTF grantees are responsible for ensuring compliance with these 
environmental review requirements. HUD knows of no justification to 
provide a blanket exemption of HTF-assisted projects seeking historic 
tax credits or located in historic districts from property 
requirements. While HUD would encourage grantees to include 
``visitability'' standards in the development of HTF-assisted and other 
affordable housing, these visitability standards are not required by 
any Federal statute and are not included in this rule.
HTF Property Standards Environmental Requirements
    Comments: Several commenters stated that the rule creates a new 
definition for ``wetlands.'' These commenters stated that HUD's rule 
should incorporate the U.S. Army Corps of Engineers and the 
Environmental Protection Agency definition in regulations pursuant to 
the Clean Water Act. A commenter stated that the regulations for 
environmental remediation, testing for toxins, and other property 
standards are too detailed. A commenter suggested that the HTF rule 
should include language permitting States to request that reports are 
prepared in accordance with the most current ASTM standard. Another 
commenter stated that for HTF projects developed within a quarter mile 
of a site with an unclosed environmental case status, the final rule 
should require a written justification for determination that the 
proposed site does not pose a health and safety risk for the HTF 
project. A commenter recommended that the HTF rule require a State to 
maintain files with written justification for the State's determination 
that a proposed site does not pose a health and safety risk for an HTF 
project located within a quarter mile of a site with a reported 
Federal, State, or local environmental case status that is open. 
Another commenter stated that HUD's rule needs to specify who will 
conduct the environmental review for HTF projects. Several commenters 
stated the proposed rule was overly detailed and the final rule should 
replace these requirements with standards from the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). Another 
commenter stated that HUD's rule should clarify that a single 
environmental review may satisfy the requirements for both the HTF and 
project-based voucher programs, when both sources of assistance are 
used. Another commenter requested an exception in the property 
requirements for buildings seeking historic tax credits or located in 
historic districts.
    HUD Response: This rule adopts the definition of ``wetland'' as 
defined in HUD regulation at 24 CFR 55.2(b)(11) and which is used for 
all HUD programs. The guidance within the regulation for environmental 
remediation, testing for toxins, and other standards must remain 
detailed because the purpose of the regulations is to assist grantees 
to comply with the requirements of the regulations.
    HUD agrees that its HTF rule should not include references to the 
ASTM year and rather include language that reports should be prepared 
in accordance with the most current ASTM standard. HUD already requires 
HTF projects to avoid sites located within .25 miles of a Superfund or 
Comprehensive Environmental Response, Compensation, and Liability 
Information System (CERCLIS) site or other contaminated site reported 
to Federal, State, or local authorities without a statement in writing 
from the U.S. Environmental Protection Agency or the appropriate state 
agency that there is no hazard that could affect the health and safety 
of the occupants or conflict with the intended use of the property.
    HUD disagrees with the comment that the HTF rule should clarify 
that a single environmental review may satisfy requirements for both 
HTF and project-based voucher (PBV) programs. The grantee that is 
responsible for these environmental requirements may in some cases be 
the same as the ``responsible entity'' that conducts an environmental 
review under 24 CFR part 58 for a PBV project, and much of the 
environmental information needed to comply with both requirements may 
be the same. However, the HTF environmental requirements, to be 
codified at Sec.  93.301(f), are not identical to the environmental 
review requirements under part 58 for PBV projects. For example, the 
HTF environmental requirements do not include certain interagency 
consultation and public notice requirements that are required for PBV 
projects under some of the environmental laws and authorities cited in 
part 58.
Qualification as Affordable Housing: Rental Housing Sec.  92.746, 
Interim Sec.  93.302
    In Sec.  92.746(a), HUD proposed that all HTF-assisted rental 
housing be occupied only by ELI families. Section 92.746(b) proposed to 
establish the maximum rent (including utilities) for HTF-assisted units 
at 30 percent of the annual income of a family whose income equals 30 
percent of the area median income, or 30 percent of the poverty line, 
whichever is greater. Section 92.746(c) provided that grantees must 
establish maximum monthly allowances for utilities and services 
(excluding telephone, television, and Internet service), and must 
approve rents proposed by the owner for HTF units. Section 92.746(d) 
proposed to establish an affordability period of not less than 30 years 
for rental housing assisted with HTF funds. Section 92.746(e) proposed 
to require that HTF project owners verify the initial and continued 
eligibility of tenants living in HTF-assisted rental units and 
establishes the methods by which HTF project owners must verify tenant 
income.
    Comments: Several commenters requested that HUD adopt income-based 
limits that cap the amount of rent paid by tenants at 30 percent of 
household income. Several other commenters suggested creating operating 
subsidy reserves to fund income-based rents, and requiring a percentage 
of units set aside for people with disabilities or people who receive 
their income from supplemental social security (SSI) income. Some 
commenters expressed concern about individuals whose sole source of 
income is SSI, because many of these people have incomes well below 30 
percent of AMI and without operating subsidy for HTF-assisted units 
tenants will be forced to pay a substantial proportion of their income 
toward rent (or lose the opportunity to benefit from HTF-assisted 
housing).
    Several commenters asked for clarification whether there will only 
be one rent limit for the HTF program or whether there will be 
different rent limits for ELI and VLI households. Several stated that 
there should be a means for limiting a tenant's rent burden depending 
on the type of rental subsidy. Another commenter stated that subsidy 
amounts should also be adjusted downward for units not carrying any 
debt to avoid over-subsidizing units. Another commenter asked whether 
HUD could provide rent and income limit levels in 5 percent increments.

[[Page 5215]]

    A commenter stated that grantees should be permitted to set utility 
allowances for new projects that best reflect the costs to tenants. 
Another stated that HUD's rule should provide additional protections to 
tenants regarding the utility allowance, including notice, opportunity 
to seek review, and allowance for utilities be provided in the lease.
    Many commenters stated that HUD should increase the minimum period 
of affordability proposed in the rule to 40, 45, or 55 years, and that 
HUD's rule should incentivize projects which agree to longer periods of 
affordability. Another commenter stated that the rule should increase 
the minimum period of affordability for non-low income housing tax 
credit (LIHTC) projects, but only if HUD develops a means for 
recapitalizing projects and applying the affordability restrictions to 
the land, not the building. Several commenters stated that the 
determination of the period of affordability should be left to the 
discretion of the State, or should match the period of affordability 
used by other funding sources.
    HUD Response: Unlike public housing, the HTF has no separate annual 
appropriation source of funding for operating costs. In any given year, 
if no funding for the HTF is provided, it is possible that no operating 
cost assistance would be available for HTF-assisted units. Therefore, 
while operating costs may be paid with HTF funds, the assistance cannot 
be based on a formula that assumes income-based rents and an annual 
appropriation to pay for operating costs. For this reason, it is 
necessary to establish fixed rents for the HTF for underwriting 
purposes and required subsidy layering analyses. Section 8 project-
based vouchers may be made available to HTF-assisted units, and these 
vouchers alleviate cost burdens for ELI tenants, including individuals 
whose source of income is from Supplemental Social Security Income.
    This interim rule includes rent limits for both extremely low-
income and very low-income households. For extremely low-income 
households, rents are set at 30 percent for a households at 30 percent 
of the area median income. For very low-income households, rents are 
set at 30 percent for households at 50 percent of the area median 
income. HUD will provide the actual rent limits for each State.
    If utility data are available on a project-by-project basis or 
utilities are individually metered, it would be permissible to 
establish utility allowances more reflective of the actual cost for the 
HTF-assisted unit.
    HTF grantees are allowed to impose longer periods of affordability, 
beyond the period in the regulation. HUD anticipates that States may 
adopt criteria whereby projects will be incentivized to adopt longer 
periods of affordability.
Tenant Protections and SelectionSec.  92.747, Interim Sec.  93.303
    In Sec.  92.747, HUD proposed tenant protection, lease, and 
selection requirements, and incorporated the requirements of section 
1338(c)(8) of the Act.
    Comments: A commenter recommended greater safeguards be required 
for tenant selection, including prohibition of local residency or 
employment preferences, the use of lottery-based selection, and strong 
affirmative marketing and outreach requirements. A few commenters 
suggested HUD's rule be revised to include additional tenant and 
homeowner protections, including the right to organize, associate, 
advocate for stronger protections without fear of retaliation. Other 
commenters requested that HUD's rule to clarify tenant rights regarding 
the applicant screening process, the prohibition on eviction without 
good cause, the lease provision protections, and how tenants can 
participate and protect their tenant rights. A few commenters pointed 
out the importance of retaining economic diversity in projects 
containing HTF-assisted units, and suggested that HUD's rule 
incorporate some mixed-income standards and limits on the number of 
families using vouchers. Another commenter suggested that Sec.  
92.747(c) be removed to permit residents to pursue a ``housing first'' 
model for ending homelessness. Some commenters requested that the 
protections offered to people receiving any type of tenant-based 
assistance from being denied access to HTF-assisted units be enhanced.
    A commenter provided several comments about resident access to 
judicial review. The commenter stated that the rule should include 
greater access to judicial review for tenants and applicants, and that 
the regulations should require residential leases to include any 
conditions of tenancy found in HTF allocation plans and to explicitly 
state that a resident or tenant organization may seek judicial 
enforcement of plan violations which result in injury. The commenter 
recommended that grant agreements with subgrantees and recipients 
should incorporate a resident complaint review, grievance system, and 
right to judicial enforcement. Another commenter stated that if HUD has 
the right to initiate an administrative hearing or impose sanctions, 
then residents and applicants should have the right to join as a party 
to the proceeding. The commenter stated that the right to pursue an 
independent action for redress of injury in court should be included in 
the rule and incorporated into residential leases.
    Another commenter stated that a reference to the Violence Against 
Women Act (42 U.S.C. 13701 et seq.) should be added to Sec.  92.747(c).
    HUD Response: The Violence Against Women Act of 2013 (VAWA 2013), 
enacted March 7, 2013, did not specify HTF as a covered program. The 
possible applicability of VAWA to HUD programs not listed in VAWA 2013 
will be addressed in HUD's upcoming proposed rule on VAWA 2013.
    Section 93.303 of the rule prohibits lease terms which require 
tenants residing in HTF-assisted units to waive their rights with 
respect to their tenancy. The statute does not create any right to 
judicial review; however, State and local law may provide rights to 
judicial review of HTF grantees or landlords of HTF-assisted 
properties. HUD's proposed language is compliant with applicable civil 
rights laws and regulations, including section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794) and implementing regulations 
at 24 CFR part 8, and therefore is not changed at this interim rule 
stage. Additionally, the proposed rule language did not present 
problems for the particular permanent supportive housing model favored 
by several commenters, which was their primary concern, and therefore 
this language is not changed at the interim rule stage. In fact, 
adopting the suggested language would limit flexibility to use other 
models of permanent supportive housing.
Qualification as Affordable Housing: Homeownership Sec.  92.748, Final 
Sec.  93.304
    In Sec.  92.748(a), the proposed rule required that homeownership 
activities funded by the HTF must be for first-time homebuyers. Section 
92.748(b) proposed to require that only single family housing, as 
defined in Sec.  92.2, is eligible for HTF-assisted homeownership 
activities. Section 92.748(c) would require that all HTF-assisted 
homeownership activities apply to modest housing, in accordance with 
Sec.  92.749. Section 92.748(d) proposed to establish the requirements 
for HTF requirements for first-time homebuyers and income requirements. 
Section 92.748(e) proposed to establish the period of affordability for 
HTF-assisted homeownership activities. Section 92.748(f) proposed to 
establish the

[[Page 5216]]

resale requirements for homeownership units assisted by the HTF.
    Comments: Some commenters suggested that HUD's rule should include 
a recapture provision for homeownership funds, as permitted under the 
HOME program, and they expressed concern that limiting homeownership 
properties to resale, without the option of recapture, will be too 
burdensome for grantees and subgrantees. Other commenters stated that 
HUD's rule should include more language to encourage the use of land 
trusts.
    HUD Response: HUD agrees with commenters that the recapture 
provisions should be added to the HTF rule. Accordingly, this rule, at 
Sec.  93.304, adopts the structure of the HOME program requirements for 
recapture, with adjustments to the subsidy amounts to reflect the 
greater need for subsidy for very low-income homebuyers. The periods of 
affordability also differ from the HOME program to tiers that reflect 
the maximum period of affordability (30 years) for the HTF program. The 
use of land trusts in conjunction with the HTF is permitted. However, 
HUD does not agree that the HTF rule needs modification to encourage 
the use of land trusts; guidance and technical assistance may be 
provided in the future on this topic.

Other Federal Requirements Proposed Sec.  92.760-92.764; Final Sec.  
93.350-93.355

    Proposed Sec. Sec.  92.760 through 92.764 set forth other Federal 
requirements that are applicable to the use of HTF funds, including 
nondiscrimination, affirmative marketing, lead-based paint, relocation, 
and funding accountability and transparency requirements. However, the 
proposed regulations inadvertently omitted a provision in section 
1337(f) of the Act that prohibits the use of HTF funds in conjunction 
with property taken by eminent domain unless eminent domain is employed 
only for a public use. The HTF regulation at Sec.  93.355 includes this 
statutory prohibition.

Program Administration Proposed Sec.  92.770-92.779; Final Sec.  
93.400-93.409

    Proposed Sec. Sec.  92.770 through 92.779 set forth the conditions 
and requirements by which States are to administer their HTF funds, 
including HTF accounts, allocation and reallocation of HTF funds, 
program disbursement and the establishment of an information system, 
written agreement, onsite inspections, financial and project reporting, 
record retention, and audit requirements.
    Comments: Several commenters suggested that HUD eliminate 
duplicative monitoring, review, and inspection requirements. A few 
commenters stated that if a subgrantee receives HOME funding, the 
subgrantee should be directly responsible for compliance and alleviate 
grantees of the burden of annual performance reviews. A commenter 
recommended revising the HTF audit requirements to mirror HOME and that 
additional audit requirements should be removed. A few commenters 
suggested that equivalent onsite property inspections for other public 
funding programs and construction oversight by third parties should be 
allowed to satisfy the HTF requirements to avoid duplicative 
inspections. A commenter stated that the rule should permit HOME 
inspection standards rather than Uniform Physical Conditions Standards 
(UPCS) standards. Another commenter stated that the initial inspection 
during the period of affordability should be required to occur within 
24 months instead of 12 months, as proposed, to align with LIHTC 
requirements. A commenter stated that the requirement to follow up with 
an inspection within 12 months of observing a deficiency during an 
onsite inspection is burdensome and suggested that evidence of the 
correction, with the right to re-inspect, should be sufficient.
    Some commenters offered recommendations for other administrative 
issues. A commenter suggested that the project completion date for HTF 
units should be the date the project is placed in service. Another 
commenter stated that HUD's rule should clarify that the recordkeeping 
requirements in Sec.  92.778 would allow a grantee to delegate record 
maintenance to the project owner or manager who would make the records 
accessible to the grantee.
    Several commenters stated that the rule should increase 
opportunities for forgiveness under the repayment and recapture 
provisions. Commenters suggested that the rule permit a prorated 
reduction of the repayment obligation based on the extent that the 
affordability period was satisfied. A commenter suggested that this 
prorated reduction in the repayment obligation also apply to HTF-
assisted housing lost through a foreclosure action, natural events or 
disasters, or similar events that are not the result of malfeasance on 
the part of the grantee or subgrantee. A few commenters suggested that 
complete forgiveness should be permitted when there have been best 
faith efforts to avoid foreclosure. A commenter stated that the 
repayment provisions are too onerous and repayments for failed ELI 
housing projects should be limited to instances when the grantee 
directly provides funds for an ineligible activity.
    Some commenters offered suggestions about the foreclosure 
provisions. A commenter suggested that if HUD is the foreclosing 
entity, the affordability restrictions should not terminate and funds 
should not be required to be repaid. Another commenter suggested that 
the rule should authorize HUD and the grantee to modify the 
affordability restrictions in limited circumstances (e.g., loss of 
rental assistance through no fault of the owner), if doing so is 
necessary to avoid a foreclosure and complete loss of affordable units. 
Another commenter suggested that HUD should require grantees to use 
purchase options, right of first refusal, or other preemptive rights to 
purchase as tools to protect HTF-assisted housing from foreclosure or 
deed in lieu of foreclosure. Another commenter suggested that 
additional data collection requirements be required. The commenter 
attached a list of 22 project-level data points that should be listed 
in Sec.  92.778(a)(2)(i).
    HUD Response: The HTF statute includes mandatory monitoring, 
reporting, and audit requirements. HUD does not have the authority to 
change these requirements.
    Except where that statute differs, or where policy determinations 
about the HTF have been made by HUD that preclude alignment, HUD 
adopted the majority of the requirements of the HOME program for the 
HTF rule, but the HTF audit requirements cannot be modified to mirror 
HOME requirements, as suggested by a commenter, because the HTF statute 
imposes different requirements for the audit of HTF-assisted projects 
than what is required by the HOME program.
    HUD does not agree that grantees are relieved of responsibility for 
compliance if a subgrantee receives the HTF funds. The statute makes 
clear that the State or State-designated entity is the grantee of the 
HTF funds and that compliance with all requirements, including 
compliance monitoring of subgrantees, is the responsibility of the 
grantee. Moreover, HUD has no relationship with a subgrantee and has no 
basis to take action against a subgrantee.
    This interim rule requires that Uniform Physical Condition 
Standards (UPCS) be incorporated into the property standards, as is the 
case with the property standards for the HOME program. This will 
facilitate alignment of HTF-assisted projects with projects assisted by 
the LIHTC program and HOME. Training and guidance will be

[[Page 5217]]

provided to address some of the concerns about implementing UPCS.
    HUD has chosen not to synchronize when project completion occurs 
for an HTF-assisted projects with when an LIHTC project is placed in 
service. The HTF rule requires beneficiary reporting that is different 
than that required for LIHTCs. The project completion date must ensure 
timely occupancy. Accordingly, HUD adopts the language as proposed.
    One commenter suggested that the rule should authorize HUD and the 
grantee to modify the affordability restrictions in limited 
circumstances (e.g., loss of rental assistance through no fault of the 
owner). To ensure compatibility with the HOME rule and in an effort to 
ease HTF implementation, this interim rule contains language that is 
consistent with the repayment language in the HOME regulations. For 
natural events or other disasters, insurance proceeds should be used to 
replace the lost housing. In the case of foreclosure, repayment would 
not be required if the affordability restrictions are preserved and the 
project continues to meet HTF requirements. Grantees have the option, 
rather than a requirement, of using preemptive rights to ensure 
flexibility for each grantee to ensure HTF projects remain affordable. 
The repayment and foreclosure provisions are required and the language 
is adopted in this interim rule as proposed.

Performance Review and Sanctions Review Proposed Sec.  92.780-92.783; 
Final Sec.  93.450-93.453

    HUD proposed that grantees report on their progress and performance 
in meeting the requirements of the HTF in HUD's Integrated Disbursement 
and Information System (IDIS) and the consolidated plan. The statutory 
requirements for corrective and remedial actions at section 
1338(e)(1)(B) of the Act are reflected in Sec.  92.782. The statutory 
requirements at section 1338(e)(2)(B) of the Act for notification of 
determination and opportunity for hearing and sanctions are reflected 
in Sec.  92.783.
    Comments: One commenter recommended that performance report on 
grantees be posted regularly on public Web sites.
    HUD Response: In this interim rule, HUD moved the requirement for a 
HTF performance report to the Consolidated Plan regulations at 24 CFR 
part 91. The HTF performance report is included in the performance 
reports for the consolidated plans in 24 CFR 91.520, thereby subjecting 
the report to the citizen participation plan of the grantee and 
subgrantee. In addition, the HTF grant is subject to the requirements 
of the Federal Funding Accountability and Transparency Act of 2006 
(Pub. L. 109-282, approved September 26, 2006), as amended by section 
6202 of Public Law 110-252, approved June 30, 2008 (Transparency Act) 
(See Sec.  93.354 of the HTF regulations.) \5\
---------------------------------------------------------------------------

    \5\ The Transparency Act requires disclosure to the public of 
all entities or organizations receiving Federal funds, beginning in 
fiscal year 2007. The disclosure of such funds can be found at the 
USAspending.gov Web site, which is managed by the Office of 
Management and Budget.
---------------------------------------------------------------------------

Other Comments

Align the HTF With Other Programs
    Comments: Some commenters suggested that the HTF be coordinated 
with and mirror the LIHTC rules to the greatest extent possible to 
provide maximum flexibility. They suggested that LIHTC is more likely 
to be used in combination with HTF funds for development than HOME. 
Other commenters suggested that the HTF requirements should be aligned 
with other program requirements (e.g., such as those required under 
HUD's Section 811 Supportive Housing for Persons with Disabilities 
program, HUD's Housing Choice voucher program, U.S. Department of 
Health and Human Services program, Supplemental Security Income, and 
U.S. Department of Veterans Affairs) and HUD should identify any 
potential conflicts between the program requirements. A few commenters 
recommended that HUD's HTF rule should waive requirements of Section 8 
project-based vouchers that complicate using them in HTF projects. A 
few commenters suggested that HUD eliminate duplicative reviews and 
requirements that create conflict when the HTF is combined with other 
sources of funding in development projects.
    HUD Response: HUD expects that HTF funds will be combined with 
other sources of private funding and financing typically used for the 
development of affordable housing, such as LIHTCs. The affordability 
period for HTF-assisted units is consistent with the 30-year 
affordability period (compliance period plus extended use period) for 
LIHTC projects. Grantees may also establish longer affordability 
periods in their HTF allocation plans. The VLI income targeting and 
frequency of onsite inspections during the period of affordability 
regulations in the HTF also align with LIHTC. Some HTF requirements, 
such as ELI income targeting and rents, are statutory and HUD does not 
have the discretion to change these statutory requirements to align 
with other programs. Also, the HTF rule cannot waive the requirements 
of other Federal programs. In order to allow maximum flexibility when 
combining and coordinating the HTF with other Federal funding sources, 
HUD streamlined the HTF requirements and aligned them with other 
Federal programs (e.g., HOME, LIHTC, Federal Housing Administration 
(FHA), Public Housing, and other HUD programs) to the greatest extent 
possible, given statutory constraints and policy decisions by HUD.
Manufactured Housing
    In the proposed rule, HUD stated that HTF funds may be used to 
purchase and/or rehabilitate a manufactured housing unit, or purchase 
the land upon which a manufactured housing unit is located. HUD stated 
that the manufactured housing unit must, at the time of project 
completion, be connected to permanent utility hookups and be located on 
land that is owned by the manufactured housing unit owner or land for 
which the manufactured housing owner has a lease for a period at least 
equal to the applicable period of affordability. The proposed rule also 
required that construction of all manufactured housing must meet the 
Manufactured Home Construction and Safety Standards codified at 24 CFR 
part 3280. HUD noted that these standards pre-empt State and local 
codes covering the same aspects of performance for such housing.
    Comments: A commenter stated that language should be added to the 
rule to clarify that manufactured housing can be purchased with HTF 
funds for both rental and homeownership purposes. One commenter stated 
that eligible relocation costs should include one-for-one replacement 
when manufactured homes are demolished or converted for another use. A 
commenter recommended that the language in the proposed rule should be 
changed to clarify that HTF funds may be used to purchase the land 
under manufactured homes to preserve the affordability of these homes, 
and another stated that the requirement that the land under assisted 
manufactured housing be owned or leased will be difficult to meet. 
Another commenter states that the proposed rule conflicts with other 
HUD policies, including the Model Manufactured Home Installation 
Standards and Manufactured Housing Installation Rules and Regulations, 
24 CFR parts 3285 through 3286. A commenter stated that HUD's rule 
should eliminate the ``permanent foundation requirement'' to avoid 
confusion, and to align with 24 CFR parts 3285 through 3286. Another

[[Page 5218]]

commenter stated that HUD's rule should create an exception to the 
requirement that homeownership funds be targeted to income-eligible, 
first-time homebuyers because manufactured homes are a means for older, 
low-income homeowners to transition from their current home to a more 
affordable alternative, and they are often not first-time homebuyers. 
Another commenter stated that HUD's rule should include mobile home 
park infrastructure improvements as eligible costs and give more 
consideration to deteriorating park infrastructure.
    HUD Response: The HTF statute requires that homebuyer assistance be 
provided to first-time homebuyers only--this would apply to 
manufactured housing that is purchased by eligible families with HTF 
assistance.
    This interim rule does not prohibit the expenditure of HTF funds on 
manufactured housing that is rental housing. A State may award HTF 
funds for the development of a manufactured housing park for rental 
units. The Act does not contain any requirement for the one-for-one 
replacement of housing units if HTF funds are used in the demolition or 
conversion of any unit.
    If HTF funds are used to purchase land to develop a manufactured 
home, or relocate a manufactured home, the manufactured housing must be 
secured with a foundation system meeting 24 CFR part 3280.
    The use of HTF funds for infrastructure to rehabilitate the parks 
in which manufactured homes are situated is only eligible if all units 
are rental housing with income eligible tenants. Infrastructure that is 
not on the site of the HTF project is not eligible for HTF financing.
    Consistent with the HOME rule, the definition of ``permanent 
foundation'' in the HTF rule means a foundation system of supports that 
is capable of transferring all design loads to the ground that meets 
the requirements of 24 CFR 3282.12. This definition is also consistent 
with the FHA mortgage insurance requirements for all manufactured homes 
that must be constructed in conformance with the Federal Manufactured 
Home and Safety Standards, as evidenced by an affixed certification 
label in accordance with 24 CFR 3280.11.

III. Opportunity for Further Comment

    As noted in the Summary portion at the beginning of this preamble, 
HUD is issuing this rule as an interim rule. It is HUD's intention that 
following funding of the HTF as provided in HERA, and allocations of 
funds to States as provided in this rule, HUD will open this interim 
rule for public comment to solicit comment on how these regulations 
work once funding is available and the grantees gain experience 
administering the HTF program.

IV. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled, ``Regulatory Planning and Review''). 
This rule was determined to be economically significant as provided in 
section 3(f)(1) of the Order. The reasons for the determination are as 
follows:
    As discussed above in this preamble, HERA charged HUD to establish, 
the formula for the distribution of HTF grants to states through 
regulation, and to follow that rule with one that implements the 
programmatic requirements for the HTF. Consistent with that statutory 
direction, on December 4, 2009 (74 FR 63938), HUD published a proposed 
rule submitting for public comment the proposed formula for allocating 
HTF funds. As the first rule to be issued in the rulemaking process for 
the HTF, the formula allocation constituted, on behalf of the entire 
HTF rulemaking, an economically significant regulatory action under 
Executive Order 12866. The preamble to the December 2009 rule 
summarized the economic impacts of the HTF program, as proposed to be 
implemented through the formula issued for public comment on December 
4, 2009. (For a discussion of the economic impact, please see 74 FR 
63940-63941.)
    On October 29, 2010, HUD published the proposed program rule for 
the HTF (see 75 FR 66978). This interim rule incorporates the December 
4, 2009, allocation formula rule and October 29, 2010, program rule. 
HUD's full economic analysis for the proposed allocation rule is 
available for inspection on HUD's Web site at http://www.huduser.org/portal/publications/pubasst/riaforhtf.html.
    The docket file is available for public inspection between the 
hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office 
of General Counsel, 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). Persons with 
hearing or speech impairments may access the above telephone number via 
TTY by calling the toll-free Federal Information Relay Service at 800-
877-8339.

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.
    Under the HTF program, HUD makes grants to the relatively large 
entities of States or their designated housing entities for the 
purposes of preserving and increasing the supply of rental housing and 
increasing homeownership for eligible families. Therefore, the primary 
focus on the rule is on these large entities. The States and State-
designated housing entities may, in turn, make funding available to 
recipients, which may include smaller entities (such as nonprofit or 
for-profit organizations), but the funding made available to recipients 
is provided under application procedures and requirements established 
by the States or State-designated housing entities, not HUD; however, 
the grantees must ensure their recipients' adherence to the statutory 
requirements and regulatory requirements promulgated by HUD.
    Additionally, the regulatory text largely reflects statutory 
requirements of the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (12 U.S.C. 4501 et seq.). Where HUD has exercised 
the discretion to elaborate on the statutory requirements, HUD has 
strived to closely model these procedures on existing development 
programs, which are familiar to entities likely to be participants 
under the new HTF program. For example, as noted earlier in this 
preamble, the HTF program adopts several definitions used under the 
HOME program. The organization of the HTF regulations is modeled after 
those for the HOME program, and HUD has elected to adopt many existing 
HOME program requirements. Given that HTF funding is statutorily 
provided for the benefit of the States and is to be allocated to the 
States, HUD has determined that the rule will not have a significant 
economic impact on a substantial number of small entities.

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made, at the proposed rule stage, in accordance with 
HUD regulations at 24 CFR part 50, which

[[Page 5219]]

implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4332(2)(C)). That Finding remains applicable to this 
rule and can be found at www.regulations.gov under docket number FR-
5246-F-03.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on State and local governments and 
is not required by statute, or preempts State law, unless the relevant 
requirements of section 6 of the Executive Order are met. This rule 
does not have federalism implications, and does not impose substantial 
direct compliance costs on State and local governments or preempt State 
law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 1531-1538) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. This rule does not impose 
any Federal mandate on any State, local, or tribal government or the 
private sector within the meaning of UMRA.

Congressional Review Act

    This rule constitutes a ``major rule'' as defined in the 
Congressional Review Act (5 U.S.C. Chapter 8). The Congressional Review 
Act provides for major rules to have a 60-day delayed effective date.

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), and assigned an 
OMB control number. 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:

List of Subjects

24 CFR Part 91

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

24 CFR Part 93

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

    For the reasons stated in the preamble, HUD amends 24 CFR chapter I 
as follows:

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

0
1. The authority citation part 91 continues to read as follows:

    Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388, 
12701-12711, 12741-12756, 12901-12912, and 12 U.S.C. 1301 et seq.


0
2. In Sec.  91.2, remove the word ``and'' at the end of paragraph 
(a)(3), remove the period at the end of paragraph (a)(4) and add ``; 
and'' in its place, and add paragraph (a)(5) to read as follows:


Sec.  91.2  Applicability.

    (a) * * *
    (5) The Housing Trust Fund (HTF) program (see 24 CFR part 93).
* * * * *

0
3. In Sec.  91.10, revise the first sentence of paragraph (a) to read 
as follows:


Sec.  91.10  Consolidated Program Year.

    (a) Each of the following programs shall be administered by a 
jurisdiction on a single consolidated program year, established by the 
jurisdiction: CDBG, ESG, HOME, HOPWA, and HTF. * * *
* * * * *

0
4. In Sec.  91.215, revise paragraph (b)(2) to read as follows:


Sec.  91.215  Strategic Plan.

* * * * *
    (b) * * *
    (2) The affordable housing section shall include specific 
objectives that describe proposed accomplishments the jurisdiction 
hopes to achieve and must specify the number of extremely low-income, 
low-income, and moderate-income families to whom the jurisdiction will 
provide affordable housing as defined in 24 CFR 92.252 for rental 
housing, 24 CFR 92.254 for homeownership, and 24 CFR 93.302 and 24 CFR 
93.304 (if the jurisdiction receives HTF funds from the State) over a 
specific time period.
* * * * *

0
5. In Sec.  91.220, add paragraph (l)(5) to read as follows:


Sec.  91.220  Action Plan.

* * * * *
    (l) * * *
    (5) Housing Trust Fund. (i) If the jurisdiction receives HTF funds 
from the State under 24 CFR 93.105, the action plan must include the 
HTF allocation plan (consistent with the State's HTF requirements) that 
describes the distribution of the HTF funds, and establishes the 
application requirements and the criteria for selection of applications 
submitted by eligible recipients that meet the jurisdiction's priority 
housing needs. The plan must include the following:
    (A) The plan must identify priority factors for funding that shall 
include the following: geographic distribution which is a description 
of the geographic areas of the State (including areas of low-income and 
minority concentration) in which it will direct assistance during the 
ensuing program year; the applicant's ability to obligate HTF funds and 
undertake eligible activities in a timely manner; in the case of rental 
housing projects, the extent to which rents for units in the project 
are affordable to extremely low-income families; in the case of rental 
housing projects, the duration of the units' affordability period; the 
merits of the application in meeting the priority housing needs of the 
jurisdiction (such as housing that is accessible to transit or 
employment centers, housing that includes green building and 
sustainable development features, and housing that serves special needs 
populations); the location of existing affordable housing, and the 
extent to which the application makes use of non-federal funding 
sources.
    (B) The plan must include the requirement that the application 
contain a description of the eligible activities to be conducted with 
the HTF funds (as provided in 24 CFR 93.200) and contain a 
certification by each eligible recipient that housing units assisted 
with the HTF will comply with HTF requirements. The plan must also 
describe eligibility requirements for recipients (as defined in 24 CFR 
93.2).
    (C) The plan must provide for performance goals, consistent with 
the jurisdiction's goals established under 24 CFR 91.215(b)(2).
    (D) The plan must provide the jurisdiction's rehabilitation 
standards, as required by 24 CFR 93.301(b).
    (E) If the jurisdiction intends to use HTF funds for first-time 
homebuyers, it must set forth the guidelines for resale or recapture, 
and obtain HUD's specific,

[[Page 5220]]

written approval, as required in Sec.  93.304(f). 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 resale or recapture 
guidelines.
    (F) If the jurisdiction intends to use HTF funds for homebuyer 
assistance and does not use the HTF affordable homeownership limits 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.  93.305.
    (G) The jurisdiction may limit the beneficiaries or give 
preferences to a particular segment of the extremely low- or very low-
income population only if described in the action plan.
    (1) Any limitation or preference must not violate nondiscrimination 
requirements in 24 CFR 93.350, and the jurisdiction must not limit or 
give preferences to students.
    (2) The jurisdiction may permit rental housing owners to limit 
tenants or give a preference in accordance with 24 CFR 93.303 only if 
such limitation or preference is described in the action plan.
    (H) The plan must describe the conditions under which the 
jurisdiction will refinance existing rental housing project debt.
    (ii) [Reserved].
0
6. In Sec.  91.315, revise paragraph (b)(2) to read as follows:


Sec.  91.315  Strategic Plan.

* * * * *
    (b) * * *
    (2) The affordable housing section shall include specific 
objectives that describe proposed accomplishments the State hopes to 
achieve and must specify the number of extremely low-income, low-
income, and moderate-income families to which the State will provide 
affordable housing, as defined in 24 CFR 92.252 for rental housing, 24 
CFR 92.254 for homeownership, and 24 CFR 93.302 for rental housing and 
24 CFR 93.304 for homeownership over a specific time period.
* * * * *
0
7. In Sec.  91.320, revise paragraph (k)(5) to read as follows:


Sec.  91.320  Action Plan.

* * * * *
    (k) * * *
    (5) Housing Trust Fund. The action plan must include the HTF 
allocation plan that describes the distribution of the HTF funds, and 
establishes the application requirements and the criteria for selection 
of applications submitted by eligible recipients that meet the State's 
priority housing needs. The plan must also establish the State's 
maximum per-unit development subsidy limit for housing assisted with 
HTF funds. If the HTF funds will be used for first-time homebuyers, it 
must state the guidelines for resale and recapture as required in 24 
CFR 93.304. The plan must reflect the State's decision to distribute 
HTF funds through grants to subgrantees and/or to select applications 
submitted by eligible recipients. If the State is selecting 
applications submitted by eligible recipients, the plan must include 
the following:
    (i) The plan must provide priority for funding based on geographic 
diversity (as defined by the State in the consolidated plan); the 
applicant's ability to obligate HTF funds and undertake eligible 
activities in a timely manner; in the case of rental housing projects, 
the extent to which the project has Federal, State, or local project-
based rental assistance so that rents are affordable to extremely low-
income families; in the case of rental housing projects, the duration 
of the units' affordability period; the merits of the application in 
meeting the priority housing needs of the State (such as housing that 
is accessible to transit or employment centers, housing that includes 
green building and sustainable development features, or housing that 
serves special needs populations); and the extent to which the 
application makes use of non-federal funding sources.
    (ii) The plan must include the requirement that the application 
contain a description of the eligible activities to be conducted with 
the HTF funds (as provided in 24 CFR 93.200) and contain a 
certification by each eligible recipient that housing units assisted 
with the HTF will comply with HTF requirements. The plan must also 
describe eligibility requirements for recipients (as defined in 24 CFR 
93.2).
    (iii) The plan must provide for performance goals and benchmarks 
against which the State will measure its progress, consistent with the 
State's goals established under 24 CFR 91.315(b)(2).
    (iv) The plan must include the State's rehabilitation standards, as 
required by 24 CFR 93.301(b)(1).
    (v) If the State intends to use HTF funds for first-time 
homebuyers, it must set forth the guidelines for resale or recapture, 
and obtain HUD's specific, written approval, as required in Sec.  
93.304(f). 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 resale 
or recapture guidelines.
    (vi) If the State intends to use HTF funds for homebuyer assistance 
and does not use the HTF affordable homeownership limits 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.  
93.305.
    (vii) The State may limit the beneficiaries or give preferences to 
a particular segment of the extremely low- or very low-income 
population only if described in the action plan.
    (A) Any limitation or preference must not violate nondiscrimination 
requirements in 24 CFR 93.350, and the State must not limit or give 
preferences to students.
    (B) The State may permit rental housing owners to limit tenants or 
give a preference in accordance with 24 CFR 93.303(d)(3) only if such 
limitation or preference is described in the action plan.
    (viii) The plan must describe the conditions under which the State 
will refinance existing debt.
0
8. In Sec.  91.520, redesignate paragraphs (h) and (i) as paragraphs 
(i) and (j), respectively and add a new paragraph (h) to read as 
follows:


Sec.  91.520  Performance reports.

* * * * *
    (h) HTF. For jurisdictions receiving HTF funds, the report must 
describe the HTF program's accomplishments, and the extent to which the 
jurisdiction complied with its approved HTF allocation plan and the 
requirements of 24 CFR part 93.
* * * * *

0
9. Add part 93 to read as follows:

PART 93--HOUSING TRUST FUND

Subpart A--General
93.1 Overview.
93.2 Definitions.
93.3 Waivers.
Subpart B--Allocation Formula; Reallocations
93.50 Formula allocation.
93.51 Formula factors.
93.52 Minimum allocations.
93.53 Federal Register notice of formula allocations.
93.54 Reallocations by formula.
Subpart C--Participation and Submission Requirements; Distribution of 
Assistance
93.100 Participation and submission requirements.
93.101 Distribution of assistance.
Subpart D--Program Requirements
93.150 Site and neighborhood standards.

[[Page 5221]]

93.151 Income determinations.
Subpart E--Eligible and Prohibited Activities
93.200 Eligible activities: General.
93.201 Eligible project costs.
93.202 Eligible administrative and planning costs.
93.203 HTF funds and public housing.
93.204 Prohibited activities and fees.
Subpart F--Income Targeting
93.250 Income targeting.
Subpart G--Project Requirements
93.300 Maximum per-unit subsidy amount, underwriting, and subsidy 
layering.
93.301 Property standards.
93.302 Qualification as affordable housing: rental housing.
93.303 Tenant protections and selection.
93.304 Qualification as affordable housing: homeownership.
93.305 Qualification as affordable housing: modest housing 
requirements for homeownership; resale or recapture requirements.
Subpart H--Other Federal Requirements
93.350 Other Federal requirements and nondiscrimination; affirmative 
marketing.
93.351 Lead-based paint.
93.352 Displacement, relocation, and acquisition.
93.353 Conflict of interest.
93.354 Funding Accountability and Transparency Act.
92.355 Eminent domain.
Subpart I--Program Administration
93.400 Housing Trust Fund (HTF) accounts.
93.401 HTF grant agreement.
93.402 Program disbursement and information system.
93.403 Program income and repayments.
93.404 Grantee responsibilities; written agreements; onsite 
inspections; financial oversight.
93.405 Applicability of uniform administrative requirements, cost 
principles, and audits.
93.406 Audits.
93.407 Recordkeeping.
93.408 Performance reports.
Subpart J--Performance Reviews and Sanctions
93.450 Accountability of recipients.
93.451 Performance reviews.
93.452 Corrective and remedial actions.
93.453 Notice and opportunity for hearing; sanctions.

    Authority:  42 U.S.C. 3535(d), 12 U.S.C. 4568.

 Subpart A--General


Sec.  93.1  Overview.

    (a) This part implements the Housing Trust Fund (HTF) program 
established under section 1338 of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4501 
et seq.) (the Act). In general, under the HTF program, HUD allocates 
funds by formula to eligible States to increase and preserve the supply 
of decent, safe, sanitary, and affordable housing, with primary 
attention to rental housing for extremely low-income and very low-
income households, including homeless families.
    (b) Section 1337 of the Act requires a percentage of the unpaid 
principal balance of total new business for the Federal Home Loan 
Mortgage Corporation (Freddie Mac) and the Federal National Mortgage 
Association (Fannie Mae) (collectively, the government-sponsored 
enterprises or GSEs) to be setaside and allocated as a dedicated source 
of annual funding for the HTF, unless allocations are suspended by the 
Director of the Federal Housing Finance Agency, the agency that 
regulates the GSEs. These funds will be deposited into an HTF account 
established in the Treasury of the United States by the Secretary of 
the Treasury to carry out the HTF program. The Act also provides that 
the HTF may be funded with amounts appropriated, transferred, or 
credited to the HTF under other provisions of law.


Sec.  93.2  Definitions.

    1937 Act means the United States Housing Act of 1937 (42 U.S.C. 
1437 et seq.).
    Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4501 et seq).
    Annual income. See Sec.  93.151.
    Commitment means:
    (1) The grantee has executed a legally binding written agreement 
(that includes the date of the signature of each person signing the 
agreement) with an eligible recipient for a project that meets the 
definition of ``commit to a specific local project'' of paragraph (2) 
of this definition.
    (2) ``Commit to a specific local project'' means:
    (i) If the project consists of rehabilitation or new construction 
(with or without acquisition), the grantee and recipient have executed 
a written legally binding agreement under which HTF assistance will be 
provided to the recipient for an identifiable project for which 
construction can reasonably be expected to start within 12 months of 
the agreement date. The written agreement for rehabilitation or new 
construction of rental housing may also provide operating cost 
assistance and/or operating cost assistance reserves.
    (ii) If the project consists of acquisition of standard housing and 
the grantee is providing HTF funds to a recipient to acquire rental 
housing, or to a first-time homebuyer family to acquire single family 
housing for homeownership, the grantee and recipient or the family have 
executed a written agreement under which HTF assistance will be 
provided for the purchase of the rental housing or single family 
housing and the property title will be transferred to the recipient or 
family within 6 months of the agreement date. The written agreement for 
acquisition of rental housing may also provide operating cost 
assistance and/or operating cost assistance reserves.
    (iii) If the project is for renewal of operating cost assistance or 
operating cost assistance reserves, the grantee and the recipient must 
have executed a legally binding written agreement under which HTF funds 
will be provided to the recipient for operating cost assistance or 
operating cost assistance reserves for the identified HTF project.
    Consolidated plan means the plan submitted and approved in 
accordance with 24 CFR part 91.
    Displaced homemaker means an individual who:
    (1) Is an adult;
    (2) Has not worked full-time full-year in the labor force for a 
number of years, but has, during such years, worked primarily without 
remuneration to care for the home and family; and
    (3) Is unemployed or underemployed and is experiencing difficulty 
in obtaining or upgrading employment.
    Extremely low-income families means low-income families whose 
annual incomes do not exceed 30 percent of the median family income of 
a geographic area, as determined by HUD with adjustments for smaller 
and larger families.
    Family has the same meaning given that term in 24 CFR 5.403.
    First-time homebuyer means an individual and his or her spouse who 
have not owned a home during the 3-year period prior to purchase of a 
home with assistance under this part. The term first-time homebuyer 
also includes an individual who is a displaced homemaker or single 
parent, as those terms are defined in this section.
    Grantee means the State or the State-designated entity that 
receives the HTF funds from HUD.
    HTF allocation plan means the annual submission to HUD required by 
the Act that describes how the grantee will distribute its HTF funds, 
including how it will use the funds to address its priority housing 
needs, what activities may be undertaken with those funds, and how 
recipients and projects will be

[[Page 5222]]

selected to receive those funds. See 24 CFR 91.220(l)(4) and 
91.320(k)(5).
    HTF funds means funds made available under this part through 
formula allocations and reallocations, plus program income.
    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 Indian trust or restricted Indian lands 
or a Community Land Trust, the ground lease must be 50 years or more.
    (iii) For manufactured housing, the ground lease must be for a 
period at least equal to the applicable period of affordability in 
Sec.  93.304(e).
    (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.  93.304; mortgages, deeds of trust, or 
other liens or instruments securing debt on the property as approved by 
the grantee; or any other restrictions or encumbrances that do not 
impair the good and marketable nature of title to the ownership 
interest.
    (4) The grantee 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.
    Household means one or more persons occupying a housing unit.
    Housing includes manufactured housing and manufactured housing 
lots, permanent housing for disabled homeless persons, single-room 
occupancy housing, and group homes. 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).
    HUD means the Department of Housing and Urban Development.
    Income-eligible means a family, homeowner, or household (as 
appropriate given the context of the specific regulatory provision) 
that is very low-income, extremely low-income, or both, depending on 
the income-targeting requirements set forth in Sec.  93.250.
    Insular areas means Guam, the Commonwealth of the Northern Mariana 
Islands, the United States Virgin Islands, and American Samoa.
    Neighborhood means a geographic location designated in 
comprehensive plans, ordinances, or other local documents as a 
neighborhood, village, or similar geographical designation that is 
within the boundary but does not encompass the entire area of a unit of 
general local government; except that if the unit of general local 
government has a population under 25,000, the neighborhood may, but 
need not, encompass the entire area of a unit of general local 
government.
    Poverty line is defined in section 673 of the Omnibus Budget 
Reconciliation Act of 1981 (42 U.S.C. 9902).
    Program income means gross income received by the grantee that is 
directly generated from the use of HTF funds. When program income is 
generated by housing that is only partially assisted with HTF funds, 
the income shall be prorated to reflect the percentage of HTF funds 
used. Program income includes, but is not limited to, the following:
    (1) Proceeds from the disposition by sale or long-term lease of 
real property acquired, rehabilitated, or constructed with HTF funds;
    (2) Gross income from the use or rental of real property owned by 
the grantee that was acquired, rehabilitated, or constructed with HTF 
funds, minus costs that were incidental to generation of the income; 
therefore, program income does not include gross income from the use, 
rental, or sale of real property received by the recipient, unless the 
funds are paid by the recipient to the grantee);
    (3) Payments of principal and interest on loans made using HTF 
funds;
    (4) Proceeds from the sale of loans made with HTF funds;
    (5) Proceeds from the sale of obligations secured by loans made 
with HTF funds;
    (6) Interest earned on program income pending its disposition; and
    (7) Any other interest or return on the investment of HTF funds, as 
permitted under Sec.  93.200(b).
    Project means a site or sites together with any building (including 
a manufactured housing unit) or buildings located on the site(s) that 
are under common ownership, management, and financing and are to be 
assisted with HTF funds as a single undertaking under this part. The 
project includes all the activities associated with the site and 
building.
    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.  93.301 of this part), the final drawdown has been 
disbursed for the project, and the project completion information has 
been entered in the disbursement and information system established by 
HUD, except that with respect to rental housing project completion, for 
the purposes of Sec.  93.402(d) of this part, project completion occurs 
upon completion of construction before occupancy.
    Recipient means an organization, agency, or other entity (including 
a public housing agency, or a for-profit entity or a nonprofit entity) 
that receives HTF assistance from a grantee as an owner or developer to 
carry out an HTF-assisted project. A recipient must:
    (1) Make acceptable assurances to the grantee that it will comply 
with the requirements of the HTF program during the entire period that 
begins upon selection of the recipient to receive HTF funds, and ending 
upon the conclusion of all HTF-funded activities;
    (2) Demonstrate the ability and financial capacity to undertake, 
comply, and manage the eligible activity;
    (3) Demonstrate its familiarity with the requirements of other 
Federal, State, or local housing programs that may be used in 
conjunction with HTF funds to ensure compliance with all applicable 
requirements and regulations of such programs; and
    (4) Have demonstrated experience and capacity to conduct an 
eligible HTF activity as evidenced by its ability to:
    (i) Own, construct, or rehabilitate, and manage and operate an 
affordable multifamily rental housing development; or
    (ii) Design, construct, or rehabilitate, and market affordable 
housing for homeownership.
    (iii) Provide forms of assistance, such as down payments, closing 
costs, or interest rate buydowns for purchasers.
    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 HTF funds 
are committed within 12 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

[[Page 5223]]

replacing an existing substandard unit of manufactured housing with a 
new or standard unit of manufactured housing. Reconstruction is new 
construction for purposes of this part.
    Shortage of standard rental units both affordable and available to 
extremely low-income renter households means
    (1) For any State or other geographical area the gap between:
    (i) The number of units with complete plumbing and kitchen 
facilities with a rent that does not exceed 30 percent of 30 percent of 
the adjusted area median income (AMI) as determined by HUD that either 
are occupied by extremely low-income renter households or are vacant 
for rent; and
    (ii) The number of extremely low-income renter households.
    (2) If the number of units described in paragraph (1)(i) of this 
definition exceeds the number of extremely low-income households 
described in paragraph (1)(ii) of this definition, there is no 
shortage.
    Single family housing means a one-to four-family residence, 
condominium unit, cooperative unit, combination of manufactured housing 
and lot, or manufactured housing lot.
    Single parent means an individual who:
    (1) Is unmarried or legally separated from a spouse; and
    (2) Has one or more minor children of whom the individual has 
custody or joint custody, or is pregnant.
    State means any State of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the 
Northern Mariana Islands, Guam, the Virgin Islands, and American Samoa.
    State-designated entity means a State housing finance agency, 
tribally designated housing entity, or any other qualified 
instrumentality of the State that is designated by the State to be the 
grantee.
    Subgrantee means a unit of general local government or State agency 
selected by the grantee to administer all or a portion of its HTF 
program. A local government subgrantee must have an approved 
consolidated plan submitted in accordance with 24 CFR part 91. The 
selection of a subgrantee by a grantee is not subject to the 
procurement procedures and requirements.
    Tribally designated housing entity has the meaning given the term 
in section 4 of the Native American Housing Assistance and Self-
Determination Act of 1997 (25 U.S.C. 4103).
    Unit of general local government means a city, town, township, 
county, parish, village, or other general purpose political subdivision 
of a State; and any agency or instrumentality thereof that is 
established pursuant to legislation and designated by the chief 
executive to act on behalf of the jurisdiction with regard to 
provisions of this part. When a county is an urban county, the urban 
county is the unit of general local government for purposes of the HTF 
program.
    Urban county has the meaning given the term in 24 CFR 570.3.
    Very low-income renter households means a household whose income is 
in excess of 30 percent but not greater than 50 percent of the area 
median income, with adjustments for smaller and larger families, as 
determined by HUD.
    Very low-income families means low-income families whose annual 
incomes are in excess of 30 percent but not greater than 50 percent of 
the median family income of a geographic area, as determined by HUD 
with adjustments for smaller and larger families. ``Very low-income 
family'' also includes any family that resides in a nonmetropolitan 
area that does not exceed the poverty line applicable to the family 
size involved.


Sec.  93.3  Waivers.

    HUD may, upon a determination of good cause and subject to 
statutory limitations, waive any provision of this part and delegate 
this authority in accordance with section 106 of the Department of 
Housing and Urban Development Reform Act of 1989 (42 U.S.C. 3535(q)).

Subpart B--Allocation Formula; Reallocations


Sec.  93.50  Formula allocation.

    (a) Allocations to States. HUD will provide to the States 
allocations of funds in amounts determined by the formula described in 
this part.
    (b) Amount available for allocation. The amount of funds available 
for allocation by the formula is the balance remaining after providing 
for other purposes authorized by Congress, in accordance with the Act 
and appropriations.
    (c) Allocations for the insular areas. The allocation amount for 
each insular area is determined by multiplying the funds available 
times the ratio of renter households in each insular area to the total 
number of renter households in the 50 States, the District of Columbia, 
the Commonwealth of Puerto Rico, and the insular areas.
    (d) Allocations for the 50 States, the Commonwealth of Puerto Rico, 
and the District of Columbia--(1) Amounts available for allocations. 
The amount of funds that is available for allocation by the formula to 
the 50 States, the Commonwealth of Puerto Rico, and the District of 
Columbia is determined using the most current data available from the 
U.S. Census Bureau that is available for the same year for all these 
geographic areas. The amount is equal to the balance of funds remaining 
after determining formula allocations for the insular areas under Sec.  
93.50(c). For purposes of paragraphs (d)(1) and (2) of this section, 
the term ``State'' means any of the 50 United States, the Commonwealth 
of Puerto Rico, and the District of Columbia.
    (2) Allocations. (i) Allocations to the States are determined using 
the four needs factors described in Sec.  93.51(a) through (d), 
multiplying each factor by the amount available under Sec.  93.51(d)(1) 
by its priority weight, and summing the four factors for each State.
    (ii) The factor described in Sec.  93.51(a) is weighted 0.5. The 
factors described in Sec.  93.51(b) and (d) are weighted at 0.125 and 
the factor described in Sec.  93.51(c) of this section is weighted at 
0.25.
    (iii) The sum of the four needs factors for each State is then 
multiplied by the construction cost factor described in Sec.  93.51(e) 
of this section and by the total amount of funds available for State 
allocations.


Sec.  93.51  Formula factors.

    (a) Need factor one. The ratio of the shortage of standard rental 
units both affordable and available to extremely low-income renter 
households in the State to the aggregate shortage of standard rental 
units both affordable and available to extremely low-income renter 
households in all the States.
    (b) Need factor two. The ratio of the shortage of standard rental 
units both affordable and available to very low-income renter 
households in the State to the aggregate shortage of standard rental 
units both affordable and available to very low-income renter 
households in all the States.
    (c) Need factor three. The ratio of:
    (1) Extremely low-income renter households in the State living with 
either incomplete kitchen or plumbing facilities, more than one person 
per room, or paying more than 50 percent of income for housing costs, 
to
    (2) The aggregate number of extremely low-income renter households 
living with either incomplete kitchen or plumbing facilities, more than 
one person per room, or paying more than 50 percent of income for 
housing costs in all the States.
    (d) Need factor four. The ratio of very low-income renter 
households in the State paying more than 50 percent of income on rent 
relative to the aggregate

[[Page 5224]]

number of very low-income renter households paying more than 50 percent 
of income on rent in all the States.
    (e) Construction cost factor. The resulting sum calculated from the 
factors described in paragraphs (a) through (d) of this section shall 
be multiplied by the relative cost of construction in the state. For 
purposes of calculating this factor, the term ``cost of construction'':
    (1) Means the cost of construction or building rehabilitation in 
the State relative to the national cost of construction or building 
rehabilitation; and
    (2) Is calculated so that values higher than 1.0 indicate that the 
State's construction costs are higher than the national average, a 
value of 1.0 indicates that the State's construction costs are exactly 
the same as the national average, and values lower than 1.0 indicate 
that the State's cost of construction are lower than the national 
average.


Sec.  93.52  Minimum allocations.

    (a) In accordance with the HTF statute, HUD is required to provide 
each of the States and the District of Columbia with a minimum grant of 
$3 million. If the formula amount determined for a fiscal year is less 
than $3 million to any of the 50 States or the District of Columbia, 
then the allocation to that State or the District of Columbia is 
increased to $3 million, and allocations to States and the District of 
Columbia above $3 million and to the Commonwealth of Puerto Rico and 
the insular areas are adjusted by an equal amount on a pro rata basis.
    (b) If in any fiscal year, funding in the HTF is insufficient to 
provide each of the 50 States and the District of Columbia with a 
minimum grant of $3 million, HUD will, through notice published in the 
Federal Register for public comment, describe an alternative method for 
allocating grant funds to the 50 States and the District of Columbia.


Sec.  93.53  Federal Register notice of formula allocations.

    Not later than 60 calendar days after the date that HUD determines 
the formula amounts under this subpart, HUD will publish a notice in 
the Federal Register announcing the availability of the allocations to 
States.


Sec.  93.54  Reallocations by formula.

    (a) HUD will reallocate under this section:
    (1) Any HTF funds available for reallocation because HUD reduced or 
recaptured funds from an HTF grantee under Sec.  93.400(d) for failure 
to commit or expend the funds within the time specified, or under Sec.  
93.453 for failure to comply substantially with any provision of this 
part;
    (2) Any HTF funds reduced for failure by the grantee to obtain 
funds required to be reimbursed or returned under Sec.  93.450; and
    (3) Any HTF funds remitted to HUD under Sec.  93.403(b)(4) when a 
grantee ceases to be an HTF grantee for any reason.
    (b) Any reallocation of funds must be made only among all 
participating States, except those States from which the funds were 
recaptured or reduced.
    (c) Any amounts that become available for reallocation shall be 
added to amounts for formula allocation in the succeeding fiscal year.

Subpart C--Participation and Submission Requirements; Distribution 
of Assistance


Sec.  93.100  Participation and submission requirements.

    (a) Notification of intent to participate. Not later than 30 
calendar days after HUD's publication of the formula allocation amounts 
as provided in Sec.  93.53, the State must notify HUD in writing of its 
intention to become an HTF grantee for the first year of HTF funding.
    (b) Submission requirement. To receive its HTF grant, the grantee 
must submit a consolidated plan in accordance with 24 CFR part 91.


Sec.  93.101  Distribution of assistance.

    (a) A State may choose to be the HTF grantee to receive and 
administer its grant or it may choose a qualified State-designated 
entity to be the HTF grantee.
    (b) Each grantee is responsible for distributing HTF funds 
throughout the State according to the State's assessment of the 
priority housing needs within the State, as identified in the State's 
approved consolidated plan.
    (c) An HTF grantee may choose to directly fund projects by eligible 
recipients in accordance with the State's HTF allocation plan or to 
fund projects by eligible recipients through one or more subgrantees. 
An HTF subgrantee that is a unit of general local government must have 
a consolidated plan under 24 CFR part 91, and must include an HTF 
allocation plan in its consolidated plan (see 24 CFR 91.220(l)(4)), and 
must select projects by eligible recipients in accordance with its HTF 
allocation plan. Because a State has only one consolidated plan, and 
HTF allocation plan for an HTF subgrantee that is a State agency must 
be included in the State's HTF allocation plan. The grantee or 
subgrantee must determine that the applicant is an eligible recipient 
that meets the definition of ``recipient'' in Sec.  93.2 before 
awarding HTF assistance.
    (d) If the HTF grantee subgrants HTF funds to subgrantees, the 
grantee must ensure that its subgrantees comply with the requirements 
of this part and carry out the responsibilities of the grantee. The 
grantee must annually review the performance of subgrantees in 
accordance with 24 CFR 93.404(a).

Subpart D--Program Requirements


Sec.  93.150  Site and neighborhood standards.

    (a) General. A grantee must administer its HTF program in a manner 
that provides housing that is suitable from the standpoint of 
facilitating and furthering full compliance with the applicable 
provisions of title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d-2000d-4), the Fair Housing Act (42 U.S.C. 3601 et seq., E.O. 
11063, 3 CFR, 1959-1963 Comp., p. 652) and HUD regulations issued 
pursuant thereto; and promotes greater choice of housing opportunities.
    (b) New rental housing. In carrying out the site and neighborhood 
requirements with respect to new construction of rental housing, a 
grantee is responsible for making the determination that proposed sites 
for new construction meet the requirements in 24 CFR 983.57(e)(2).


Sec.  93.151  Income determinations.

    (a) General. The HTF program has income-targeting requirements. 
Therefore, the grantee must determine that each family occupying an 
HTF-assisted unit is income-eligible by determining the family's annual 
income.
    (b) Definition of ``annual income.'' (1) When determining whether a 
family is income-eligible, the grantee must use one of the following 
two definitions of ``annual income'':
    (i) ``Annual income'' as defined at 24 CFR 5.609; or
    (ii) ``Adjusted gross income'' as defined for purposes of reporting 
under the Internal Revenue Service (IRS) Form 1040 series for 
individual federal annual income tax purposes.
    (2) The grantee may use only one definition for each HTF-assisted 
program (e.g., down payment assistance program) that it administers and 
for each rental housing project.
    (c) Determining annual income--(1) Tenants in HTF-assisted housing. 
For families who are tenants in HTF-assisted housing, the grantee must 
initially determine annual income using the method in paragraph (d)(1) 
of this

[[Page 5225]]

section. For subsequent income determinations during the period of 
affordability, the grantee may use any one of the methods described in 
paragraph (d) of this section, in accordance with Sec.  93.302(e).
    (2) HTF-assisted homebuyers. For families who are HTF-assisted 
homebuyers, the grantee must determine annual income using the method 
described in paragraph (d)(1) of this section.
    (d) Methods of determining annual income. (1) Examine at least 2 
months of source documents evidencing annual income (e.g., wage 
statement, interest statement, unemployment compensation statement) for 
the family.
    (2) Obtain from the family a written statement of the amount of the 
family's annual income and family size, along with a certification that 
the information is complete and accurate. The certification must state 
that the family will provide source documents upon request.
    (3) Obtain a written statement from the administrator of a 
government program under which the family receives benefits and which 
examines each year the annual income of the family. The statement must 
indicate the tenant's family size and state the amount of the family's 
annual income; or alternatively, the statement must indicate the 
current dollar limit for very low- or low-income families for the 
family size of the tenant and state that the tenant's annual income 
does not exceed this limit.

Subpart E--Eligible and Prohibited Activities


Sec.  93.200  Eligible activities: General.

    (a)(1) HTF funds may be used for the production, preservation, and 
rehabilitation of affordable rental housing and affordable housing for 
first-time homebuyers 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; for 
operating costs of HTF-assisted rental housing; and for reasonable 
administrative and planning costs. Not more than one third of each 
annual grant may be used for operating cost assistance and operating 
cost assistance reserves. Operating cost assistance and operating cost 
assistance reserves may be provided only to rental housing acquired, 
rehabilitated, reconstructed, or newly constructed with HTF funds. Not 
more than 10 percent of the annual grant shall be used for housing for 
homeownership. HTF-assisted housing must be permanent housing. The 
specific eligible costs for these activities are found in Sec. Sec.  
93.201 and 93.202. The activities and costs are eligible only if the 
housing meets the property standards in Sec.  93.301, as applicable, 
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 the definition 
of ``commitment'' in Sec.  93.2.
    (3) HTF funds may be used to purchase and/or rehabilitate a 
manufactured housing unit, and purchase the land upon which a 
manufactured housing unit is located. The manufactured housing unit 
must, at the time of project completion, be connected to permanent 
utility hook-ups and be located on land that is owned by the 
manufactured housing unit owner or land for which the manufactured 
housing owner has a lease for a period at least equal to the applicable 
period of affordability.
    (b) Forms of assistance to projects. A grantee may provide HTF 
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 consistent with the 
purposes of this part. Each grantee has the right to establish the 
terms of assistance, subject to the requirements of this part.
    (c) Multi-unit projects. (1) HTF funds may be used to assist in the 
development of one or more housing units in a multi-unit project. Only 
the actual HTF eligible development costs of the assisted units may be 
charged to the HTF program. If the assisted and non-assisted 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 HTF-assisted units can be determined by prorating the total HTF-
eligible development costs of the project so that the proportion of the 
total development costs charged to the HTF program does not exceed the 
proportion of the HTF-assisted units in the project.
    (2) After project completion, the number of units designated as 
HTF-assisted may be reduced only in accordance with Sec.  93.203, 
except that in a project consisting of all HTF-assisted units, one unit 
may be converted to an onsite manager's unit if the grantee determines 
the conversion is reasonable and that, based on one fewer HTF-assisted 
unit, the costs charged to the HTF program do not exceed the actual 
costs of the HTF-assisted units and do not exceed the subsidy limit 
established pursuant to Sec.  93.300(a).
    (d) Terminated projects. An HTF-assisted project that is terminated 
before completion, either voluntarily or otherwise, constitutes an 
ineligible activity and the grantee must repay any HTF funds invested 
in the project to its HTF account from which the funds were drawn 
(i.e., local or Treasury account), in accordance with Sec.  93.403(b). 
A project that does not meet the requirements for affordable housing 
must be terminated and the grantee must repay the HTF funds to the 
grantee's HTF account.


Sec.  93.201  Eligible project costs.

    HTF funds may be used to pay the following eligible costs:
    (a) Development hard costs. The actual cost of constructing or 
rehabilitating housing. These costs include the following:
    (1) For new construction projects, costs to meet the new 
construction standards of the grantee in Sec.  93.301;
    (2) For rehabilitation, costs to meet the property standards for 
rehabilitation projects in Sec.  93.301(b);
    (3) For both new construction and rehabilitation projects, costs:
    (i) To demolish existing structures;
    (ii) To make utility connections including off-site connections 
from the property line to the adjacent street; and
    (iii) To make improvements to the project site that are in keeping 
with improvements of surrounding, standard projects. Site improvements 
may include onsite roads and sewer and water lines necessary to the 
development of the project. The project site is the property, owned by 
the project owner, upon which the project is located.
    (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.
    (5) Costs to make utility connections or to make improvements to 
the project site, in accordance with the provisions of paragraphs 
(a)(3)(ii) and (iii) of this section are also eligible in connection

[[Page 5226]]

with the acquisition of standard housing.
    (b) Refinancing costs. (1) The cost to refinance existing debt 
secured by rental housing units that are being rehabilitated with HTF 
funds, but only if the refinancing is necessary to reduce the overall 
housing costs and to make the housing more affordable and proportional 
to the number of HTF-assisted units in the rental project. The 
proportional rehabilitation cost must be greater than the proportional 
amount of debt that is refinanced.
    (2) The grantee must establish refinancing guidelines and state 
them in its consolidated plan described in 24 CFR part 91. The 
guidelines shall describe the conditions under which the grantee will 
refinance existing debt. At minimum, the guidelines must demonstrate 
that rehabilitation is the primary eligible activity and ensure that 
this requirement is met by establishing a minimum level of 
rehabilitation per unit or a required ratio between rehabilitation and 
refinancing.
    (c) Acquisition costs. Costs of acquiring improved or unimproved 
real property, including acquisition by homebuyers.
    (d) Related soft costs. Other reasonable and necessary costs 
incurred by the owner or grantee and associated with the financing, or 
development (or both) of new construction, rehabilitation or 
acquisition of housing assisted with HTF funds. These costs include, 
but are not limited to:
    (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 24 months 
before the date that HTF funds are committed to the project and the 
grantee expressly permits HTF funds to be used to pay the costs in the 
written agreement committing the funds.
    (2) Costs to process and settle the financing for a project, such 
as private lender origination fees, credit reports, fees for title 
evidence, fees for recordation and filing of legal documents, building 
permits, attorneys' fees, private appraisal fees and fees for an 
independent cost estimate, and builders' or developers' fees.
    (3) Costs of a project audit, including certification of costs 
performed by a certified public accountant, that the grantee may 
require with respect to the development of the project.
    (4) Costs to provide information services such as affirmative 
marketing and fair housing information to prospective homeowners and 
tenants as required by Sec.  93.350.
    (5) For new construction or rehabilitation, the cost of funding an 
initial operating deficit reserve, which is a reserve to meet any 
shortfall in project income during the period of project rent-up (not 
to exceed 18 months) and which may only be used to pay project 
operating expenses, scheduled payments to a replacement reserve, and 
debt service. Any HTF funds placed in an operating deficit reserve that 
remain unexpended after the period of project rent-up may be retained 
for project reserves if permitted by the grantee.
    (6) Staff and overhead costs of the grantee directly related to 
carrying out the project, such as work specifications preparation, loan 
processing, and inspections. For multi-unit projects, such costs must 
be allocated among HTF-assisted units in a reasonable manner and 
documented. Although these costs may be charged as project costs, these 
costs cannot be charged to or paid by the assisted families.
    (7) For both new construction and rehabilitation, costs for the 
payment of impact fees that are charged for all projects within a 
jurisdiction.
    (e) Operating cost assistance and operating cost assistance 
reserves. For HTF-assisted units for which project-based assistance is 
not available, when necessary and subject to the limitations in Sec.  
93.200(a), HTF funds may be used to pay for operating cost assistance 
and operating cost assistance reserves, as follows:
    (1) Operating costs are costs for insurance, utilities, real 
property taxes, and maintenance and scheduled payments to a reserve for 
replacement of major systems (provided that the payments must be based 
on the useful life of each major system and expected replacement cost) 
of an HTF-assisted unit. The eligible amount of HTF funds per unit for 
operating cost assistance is determined based on the deficit remaining 
after the monthly rent payment for the HTF-assisted unit is applied to 
the HTF-assisted unit's share of monthly operating costs. The maximum 
amount of the operating cost assistance to be provided to an HTF-
assisted rental project must be based on the underwriting of the 
project and must be specified in a written agreement between the 
grantee and the recipient. The written agreement may commit, from a 
fiscal year HTF grant, funds for operating cost assistance for a 
multiyear period provided that the grantee is able meet its expenditure 
deadline in Sec.  93.400(d). The grantee may renew operating cost 
assistance with future fiscal year HTF grants during the affordability 
period and the amount must be based on the need for the operating cost 
assistance at the time the assistance is renewed.
    (2) An operating cost assistance reserve may be funded by the 
grantee for HTF-assisted units in a project where the grantee 
determines in its underwriting of the project the reserve is necessary 
to ensure the project's financial feasibility. If the operating cost 
assistance reserve is funded with appropriated HTF funds, the allowable 
amount of the reserve shall not exceed the amount determined by the 
grantee to be necessary to provide operating cost assistance for HTF-
assisted units, for a period not to exceed 5 years, based on an 
analysis of potential deficits remaining after the expected rent 
payments for the HTF-assisted unit are applied to the HTF-assisted 
unit's expected share of operating costs. The grantee may renew 
operating cost assistance reserves with future fiscal year HTF grants 
during the affordability period and the amount must be based on the 
need for the operating cost assistance reserve at the time the 
assistance for the reserve is renewed. If the operating cost assistance 
reserve is funded with non-appropriated HTF funds, the reserve may be 
funded for the period of affordability.
    (f) Relocation costs. The cost of relocation payments and other 
relocation assistance to persons displaced by the project are eligible 
costs.
    (1) Relocation payments include replacement housing payments, 
payments for moving expenses, and payments for reasonable out-of-pocket 
costs incurred in the temporary relocation of persons.
    (2) Other relocation assistance means staff and overhead costs 
directly related to providing advisory and other relocation services to 
persons displaced 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.
    (g) Costs relating to payment of loans. If the HTF funds are not 
used to directly pay a cost specified in this section, but are used to 
pay off a construction loan, bridge financing loan, or guaranteed loan, 
the payment of principal and interest for such loan is an eligible cost 
only if:
    (1) The loan was used for eligible costs specified in this section, 
and
    (2) The HTF assistance is part of the original financing for the 
project and the project meets the requirements of this part.
    (h) Construction undertaken before the HTF funds are committed to 
the

[[Page 5227]]

project. HTF funds cannot be used for development hard costs, as 
provided in paragraph (a) of this section, or for acquisition, 
undertaken before the HTF funds are committed to the project. However, 
the written agreement committing the HTF funds to the project may 
authorize HTF funds to be used for architectural and engineering costs 
and other related professional services, as provided in paragraph 
(d)(1) of this section.


Sec.  93.202  Eligible administrative and planning costs.

    (a) General. A HTF grantee may expend, for payment of reasonable 
administrative and planning costs of the HTF, an amount of HTF funds 
that is not more than 10 percent of the sum of each fiscal year HTF 
grant and of program income deposited into its local account or 
received and reported by its subgrantees during the program year. A HTF 
grantee may expend the funds directly or may authorize its subgrantees, 
if any, to expend all or a portion of such funds, provided total 
expenditures for planning and administrative costs do not exceed the 
maximum allowable amount. Reasonable administrative and planning costs 
are those costs described in paragraphs (b) through (h) of this 
section:
    (b) General management, oversight and coordination. Reasonable 
costs of overall program management, coordination, monitoring, and 
evaluation. Such costs include, but are not limited to, necessary 
expenditures for the following:
    (1) Salaries, wages, and related costs of the grantee's staff. In 
charging costs to this category the grantee may either include the 
entire salary, wages, and related costs allocable to the program of 
each person whose primary responsibilities with regard to the program 
involves program administration assignments, or the prorated share of 
the salary, wages, and related costs of each person whose job includes 
any program administration assignments. The grantee may use only one of 
these methods. Program administration includes the following types of 
assignments:
    (i) Developing systems and schedules for ensuring compliance with 
program requirements;
    (ii) Developing interagency agreements and agreements with entities 
receiving HTF funds;
    (iii) Monitoring HTF-assisted housing for progress and compliance 
with program requirements;
    (iv) Preparing reports and other documents related to the program 
for submission to HUD;
    (v) Coordinating the resolution of audit and monitoring findings;
    (vi) Evaluating program results against stated objectives; and
    (vii) Managing or supervising persons whose primary 
responsibilities with regard to the program include such assignments as 
those described in paragraphs (a)(1)(i) through (vi) of this section;
    (2) Travel costs incurred for official business in carrying out the 
program;
    (3) Administrative services performed under third party contracts 
or agreements, including such services as general legal services, 
accounting services, and audit services;
    (4) Other costs for goods and services required for administration 
of the program, including such goods and services as rental or purchase 
of equipment, insurance, utilities, office supplies, and rental and 
maintenance (but not purchase) of office space; and
    (c) Staff and overhead. Staff and overhead costs of the grantee 
directly related to carrying out the project, such as work 
specifications preparation, loan processing, inspections, lead-based 
paint evaluations (visual assessments, inspections, and risk 
assessments), 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 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 (except 
homeownership counseling) may be charged as administrative costs or as 
project costs under Sec.  93.201(d)(6) and (f)(2), at the discretion of 
the grantee; however, these costs (except homeownership counseling) 
cannot be charged to or paid by the low-income families.
    (d) Public information. The provision of information and other 
resources to residents and citizen organizations participating in the 
planning, implementation, or assessment of projects being assisted with 
HTF funds.
    (e) Fair housing. Activities to affirmatively further fair housing 
in accordance with the grantee's certification under 24 CFR part 91.
    (f) Indirect costs. Indirect costs may be charged to the HTF 
program in accordance with 2 CFR part 200, subpart E.
    (g) Preparation of the consolidated plan. Preparation of the 
consolidated plan required under 24 CFR part 91. Preparation includes 
the costs of public hearings, consultations, and publication.
    (h) Other Federal requirements. Costs of complying with the Federal 
requirements in subpart H of this part.


Sec.  93.203  HTF funds and public housing.

    (a) HTF funds may be used for new construction or rehabilitation of 
public housing units only in accordance with the following:
    (1) HTF funds may be used for new construction of public housing as 
part of the Choice Neighborhoods (Choice) program under a HUD 
appropriation act or for new public housing units that have been 
allocated and will receive low-income housing tax credits under section 
42 of the Internal Revenue Code of 1986 (26 U.S.C. 42).
    (2) HTF funds may be used for the rehabilitation of existing public 
housing units in which the public housing assistance will be converted 
and used at the properties under the Rental Assistance Demonstration 
(RAD) program under HUD's 2012 Appropriations Act (Pub. L. 112-55, 125 
Stat. 552, approved November 18, 2011) or subsequent statutes. HTF 
funds may also be used for the rehabilitation of existing public 
housing under the Choice program, and of existing public housing units 
that have been allocated and will receive low-income housing tax 
credits under section 42 of the Internal Revenue Code of 1986 (26 
U.S.C. 42).
    (b) The public housing units constructed using funds under this 
part must replace units that were removed from a public housing 
agency's public housing inventory as part of a Choice program grant, or 
as part of a mixed-financed development under section 35 of the 1937 
Act. The number of replacement units cannot be more than the number of 
units removed from the public housing agency's inventory. The public 
housing units constructed or rehabilitated using funds under this part 
must receive Public Housing Operating Fund assistance (and may receive 
Public Housing Capital Fund assistance) under section 9 of the 1937 
Act. These units cannot receive operating costs assistance or operating 
cost assistance reserves under this part.
    (c) Except as provided in paragraph (b) of this section, HTF-
assisted housing may not receive Operating Fund or Capital Fund 
assistance under section 9 of the 1937 Act during the HTF period of 
affordability.

[[Page 5228]]

    (d) Consistent with Sec.  93.200(c), HTF funds may be used for 
affordable housing in a project that also contains public housing 
units, provided that the HTF funds are not used for the public housing 
units and HTF funds are used only for eligible costs, in accordance 
with this part.


Sec.  93.204  Prohibited activities and fees.

    (a) HTF funds may not be used to:
    (1) Provide assistance (other than assistance to a homebuyer to 
acquire housing previously assisted with HTF funds or renewal of 
operating cost assistance or renewal of operating cost assistance 
reserve) to a project previously assisted with HTF funds during the 
period of affordability established by the grantee in the written 
agreement under Sec.  93.404 (c)(2)(iv). However, additional HTF funds 
may be committed to a project up to one year after project completion, 
but the amount of HTF funds in the project may not exceed the maximum 
per-unit development subsidy amount established pursuant to Sec.  
93.300.
    (2) Pay for the acquisition of property owned by the grantee, 
except for property acquired by the grantee with HTF funds or property 
acquired in anticipation of carrying out an HTF project.
    (3) Pay delinquent taxes, fees, or charges on properties to be 
assisted with HTF funds.
    (4) Pay for political activities, advocacy, lobbying (whether 
directly or through other parties), counseling services (except for 
housing counseling), travel expenses (other than those eligible under 
Sec.  93.202(b)), or preparing or providing advice on tax returns. The 
prohibited use of funds for political activities includes influencing 
the selection, nomination, election, or appointment of one or more 
candidates to any Federal, State, or local office as codified in 
section 501 of the Internal Revenue Code of 1986 (26 U.S.C. 501).
    (5) Pay for administrative, outreach, or other costs to manage and 
operate the grantee of HTF funds, except those administrative costs 
necessary to carry out the HTF program in Sec.  93.202, including 
housing counseling.
    (6) Pay for any cost that is not eligible under Sec.  93.201 and 
Sec.  93.202.
    (b)(1) The grantee may not charge (and must prohibit subgrantees 
and recipients from charging) servicing, origination, or other fees for 
the costs of administering the HTF program. However, the grantee may 
charge owners of rental projects reasonable annual fees for monitoring 
compliance during the period of affordability. The fees must be based 
upon the average actual cost of performing the monitoring of HTF-
assisted rental projects. The basis for determining the amount of the 
fee must be documented and the fee must be included in the costs of the 
project as part of the project underwriting.
    (2) The grantee may also charge nominal application fees (although 
these fees are not an eligible HTF cost) to eligible recipients, 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 an extremely low-income family to be able to participate 
in the grantee's program.
    (3) All fees are applicable credits under 2 CFR part 200, subpart 
E.
    (4) In addition, the grantee 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 
charge:
    (i) Reasonable application fees to prospective tenants;
    (ii) Parking fees to tenants only if such fees are customary for 
rental housing projects in the neighborhood; and
    (iii) Fees for services such as bus transportation or meals, as 
long as the services are voluntary and fees are charged for services 
provided.

Subpart F--Income Targeting


Sec.  93.250  Income targeting.

    (a) In any fiscal year in which the total amount available for 
allocation of HTF funds is less than $1 billion, the grantee must use 
100 percent of its HTF grant for the benefit of extremely low-income 
families or families with incomes at or below the poverty line 
(whichever is greater). In any fiscal year in which the total amount 
available for allocation of HTF funds is greater than $1 billion, the 
grantee must use at least 75 percent of its grant for the benefit of 
extremely low-income families or families with incomes at or below the 
poverty line.
    (b) Any grant funds not used in accordance with paragraph (a) of 
this section must be used for the benefit of very-low income families.

Subpart G--Project Requirements


Sec.  93.300  Maximum per-unit development subsidy amount, 
underwriting, and subsidy layering.

    (a) Maximum per-unit development subsidy amount. The grantee must 
establish maximum limitations on the total amount of HTF funds that the 
grantee may invest per-unit for development of non-luxury housing, with 
adjustments for the number of bedrooms and the geographic location of 
the project. These limits must be reasonable and based on actual costs 
of developing non-luxury housing in the area. The grantee must include 
these limits in its consolidated plan and update these limits annually.
    (b) Underwriting and subsidy layering. Before committing funds to a 
project, the grantee must evaluate the project in accordance with 
guidelines that it has adopted for determining a reasonable level of 
profit or return on recipient's investment in a project and must not 
invest any more HTF 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.  93.302 or Sec.  
93.304) and that will not provide a profit or return on the recipient's 
investment that exceeds the grantee's established standards for the 
size, type, and complexity of the project. The guidelines adopted by 
the grantees must require the grantee to undertake:
    (1) An examination of the sources and uses of funds for the project 
(including any operating cost assistance, operating cost assistance 
reserve, or project-based rental assistance that will be provided to 
the project) and a determination that the costs are reasonable; and
    (2) An assessment, at minimum, of the current market demand in the 
neighborhood in which the project will be located, the experience of 
the recipient, the financial capacity of the recipient, and firm 
written financial commitments for the project.
    (3) For HTF-funded downpayment assistance, a market analysis is not 
required.


Sec.  93.301  Property standards.

    (a) New construction projects. (1) State and local codes, 
ordinances, and zoning requirements. Housing that is newly constructed 
with HTF funds must meet all applicable State and local codes, 
ordinances, and zoning requirements. HTF-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 (v) of this 
section:

[[Page 5229]]

    (i) Accessibility. The housing must meet the accessibility 
requirements of 24 CFR part 8, which implements section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), and Titles II and III of 
the Americans with Disabilities Act (42 U.S.C. 12131-12189) implemented 
at 28 CFR parts 35 and 36, as applicable. ``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).
    (ii) Energy efficiency. The housing must meet the energy efficiency 
standards established pursuant to section 109 of the Cranston-Gonzalez 
National Affordable Housing Act (42 U.S.C. 12709).
    (iii) 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.
    (iv) Written cost estimates, construction contracts, and 
construction documents. The grantee must ensure the construction 
contract(s) and construction documents describe the work to be 
undertaken in adequate detail so that inspections can be conducted. The 
grantee must review and approve written cost estimates for construction 
and determine that costs are reasonable.
    (v) Construction progress inspections. The grantee must conduct 
progress and final inspections of construction to ensure that work is 
done in accordance with the applicable codes, the construction 
contract, and construction documents.
    (b) Rehabilitation projects. All rehabilitation that is performed 
using HTF funds must meet the requirements of this paragraph (b).
    (1) Rehabilitation standards. The grantee must establish 
rehabilitation standards for all HTF-assisted housing rehabilitation 
activities that set forth the requirements that the housing must meet 
upon project completion. The grantee's description of its standards 
must be in sufficient detail to determine the required rehabilitation 
work including methods and materials. The standards may refer to 
applicable codes or they may establish requirements that exceed the 
minimum requirements of the codes. The rehabilitation standards must 
address each of the following:
    (i) Health and safety. The grantee's standards must identify life-
threatening deficiencies that must be addressed immediately if the 
housing is occupied.
    (ii) Major systems. Major systems are: structural support; roofing; 
cladding and weatherproofing (e.g., windows, doors, siding, gutters); 
plumbing; electrical; and heating, ventilation, and air conditioning. 
For rental housing, the grantee's standards must require the grantee to 
estimate (based on age and condition) the remaining useful life of 
these systems, upon project completion of each major system. For 
multifamily housing projects of 26 units or more, the grantee's 
standards must require the grantee to determine the useful life of 
major systems through a capital needs assessment of the project. For 
rental housing, if the remaining useful life of one or more major 
system is less than the applicable period of affordability, the 
grantee's standards must require the grantee to ensure that a 
replacement reserve is established and monthly payments are made to the 
reserve that are adequate to repair or replace the systems as needed. 
For homeownership housing, the grantee's standards must require, upon 
project completion, each of the major systems to have a remaining 
useful life for a minimum of 5 years or for such longer period 
specified by grantee, or the major systems must be rehabilitated or 
replaced as part of the rehabilitation work.
    (iii) Lead-based paint. The grantee's standards must require the 
housing to meet the lead-based paint requirements at 24 CFR part 35.
    (iv) Accessibility. The grantee's standards must require the 
housing to meet the accessibility requirements in 24 CFR part 8, which 
implements section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 
794), and Titles II and III of the Americans with Disabilities Act (42 
U.S.C. 12131-12189) implemented at 28 CFR parts 35 and 36, as 
applicable. ``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.
    (v) [Reserved].
    (vi) Disaster mitigation. Where relevant, the grantee's standards 
must require the housing to be improved to mitigate the impact of 
potential disasters (e.g., earthquake, hurricanes, flooding, and 
wildfires) in accordance with State and local codes, ordinances, and 
requirements, or such other requirements as HUD may establish.
    (vii) State and local codes, ordinances, and zoning requirements. 
The grantee's standards must require the housing to meet all applicable 
State and local codes, ordinances, and requirements or, in the absence 
of a State or local building code, the International Existing Building 
Code of the International Code Council.
    (viii) Uniform Physical Condition Standards. The standards of the 
grantee must be such that, upon completion, the HTF-assisted project 
and units will be decent, safe, sanitary, and in good repair as 
described in 24 CFR 5.703. HUD will establish the minimum deficiencies 
that must be corrected under the grantee's rehabilitation standards 
based on inspectable items and inspected areas from HUD-prescribed 
physical inspection procedures (Uniform Physical Conditions Standards) 
pursuant to 24 CFR 5.705.
    (ix) Capital Needs Assessments. For multifamily rental housing 
projects of 26 or more total units, the grantee 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.
    (2) Construction documents and cost estimates. The grantee must 
ensure that the work to be undertaken will meet the grantee's 
rehabilitation standards. The construction documents (i.e., written 
scope of work to be performed) must be in sufficient detail to 
establish the basis for a uniform inspection of the housing to 
determine compliance with the grantee's standards. The grantee must 
review and approve a written cost estimate for rehabilitation after 
determining that costs are reasonable.
    (3) Frequency of inspections. The grantee must conduct an initial 
property inspection to identify the deficiencies that must be 
addressed. The grantee must conduct progress and final inspections to 
determine that work was done in accordance with work write-ups.
    (c) Acquisition of standard housing. (1) Existing housing that is 
acquired with HTF assistance for rental housing, and that was newly 
constructed or rehabilitated less than 12 months before the date of 
commitment of HTF funds, must meet the property standards of paragraph 
(a) or paragraph (b) of this section, as applicable, for new 
construction and rehabilitation projects. The grantee 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 90 calendar days before the date of commitment of HTF 
assistance.

[[Page 5230]]

    (2) All other existing housing that is acquired with HTF assistance 
for rental housing must meet the rehabilitation property standards 
requirements of paragraph (b) of this section. The grantee must 
document this compliance based upon an inspection that is conducted no 
earlier than 90 calendar days before the date of commitment of HTF 
assistance. If the property does not meet these standards, HTF funds 
cannot be used to acquire the property unless it is rehabilitated to 
meet the standards of paragraph (b) of this section.
    (3) Existing housing that is acquired for homeownership (e.g., 
downpayment assistance) must be decent, safe, sanitary, and in good 
repair. The grantee must establish standards to determine that the 
housing is decent, safe, sanitary, and in good repair. At minimum, the 
standards must provide that the housing meets all applicable State and 
local standards and code requirements and the housing does not contain 
the specific deficiencies proscribed by HUD based on the applicable 
inspectable items and inspected areas in HUD-prescribed physical 
inspection procedures (Uniform Physical Condition Standards) issued 
pursuant to 24 CFR 5.705. The grantee must inspect the housing and 
document this compliance based upon an inspection that is conducted no 
earlier than 90 calendar days before the date of commitment of HTF 
assistance. If the housing does not meet these standards, the housing 
must be rehabilitated to meet the standards of this paragraph (c)(3) or 
it cannot be assisted with HTF funds.
    (d) Manufactured housing. Construction of all manufactured housing 
(including manufactured housing that replaces an existing substandard 
unit under the definition of ``reconstruction'') must meet the 
Manufactured Home Construction and Safety Standards codified at 24 CFR 
part 3280. These standards preempt State and local codes which are not 
identical to the Federal standards for the new construction of 
manufactured housing. The grantees providing HTF funds to assist 
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. All new manufactured 
housing and all manufactured housing that replaces an existing 
substandard unit under the definition of ``reconstruction'' must be on 
a permanent foundation that meets the requirements for foundation 
systems as set forth in 24 CFR 203.43f(c)(i). All new manufactured 
housing (and all manufactured housing that replaces an existing 
substandard unit under the definition of ``reconstruction'') must, at 
the time of project completion, be connected to permanent utility hook-
ups and be located on land that is owned by the manufactured housing 
unit owner or land for which the manufactured housing owner has a lease 
for a period at least equal to the applicable period of affordability. 
In HTF-funded rehabilitation of existing manufactured housing the 
foundation and anchoring must meet all applicable State and local 
codes, ordinances, and requirements or in the absence of local or State 
codes, the Model Manufactured Home Installation Standards at 24 CFR 
part 3285. Manufactured housing that is rehabilitated using HTF funds 
must meet the property standards requirements in paragraph (b) of this 
section, as applicable. The grantee must document this compliance in 
accordance with inspection procedures that the grantee has established 
pursuant to Sec.  92.301, as applicable.
    (e) Ongoing property condition standards: Rental housing--(1) 
Ongoing property standards. The grantee 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 grantee's description of its property standards 
must be in sufficient detail to establish the basis for a uniform 
inspection of HTF rental projects. The grantee's ongoing property 
standards must address each of the following:
    (i) At a minimum, the grantee's ongoing property standards must 
include all inspectable items and inspectable areas specified by HUD 
based on the HUD physical inspection procedures (Uniform Physical 
Condition Standards (UPCS)) prescribed by HUD pursuant to 24 CFR 5.705.
    (ii) Health and safety. The grantee's standards must require the 
housing to 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.
    (iii) Lead-based paint. The grantee's standards must require the 
housing to meet the lead-based paint requirements in 24 CFR part 35.
    (2) Inspections. The grantee must undertake ongoing property 
inspections, in accordance with Sec.  93.404.
    (3) Corrective and remedial actions. The grantee must have 
procedures for ensuring that timely corrective and remedial actions are 
taken by the project owner to address identified deficiencies.
    (4) Inspection procedures. The grantee must establish written 
inspection procedures. The procedures must include detailed inspection 
checklists, description of how and by whom inspections will be carried 
out, and procedures for training and certifying qualified inspectors. 
The procedures must also describe how frequently the property will be 
inspected, consistent with section Sec.  93.404(d).
    (f) Environmental provisions--(1) New construction projects 
environmental requirements--(i) Historic preservation--(A) Standards. 
The project activities (including demolition) must not be performed on 
properties that are either listed in or determined eligible for listing 
in the National Register of Historic Places, unless the project 
activities meet the Secretary of the Interior's Standards for 
Rehabilitation, either as certified through the Federal and/or State 
historic rehabilitation tax credit programs or as verified by someone 
that meets the relevant Secretary of the Interior's Professional 
Qualification Standards;
    (B) Archaeological resources. If archaeological resources or human 
remains are discovered on the project site during construction, the 
grantee must consult with affected tribes and/or descendant communities 
and comply with the Native American Graves Protection and Repatriation 
Act (25 U.S.C. 3001-3013), State law and/or local ordinance (e.g., 
State unmarked burial law).
    (ii) Farmland. Project activities must not result in the conversion 
of unique, prime, or statewide or locally significant agricultural 
properties to urban uses.
    (iii) Airport zones. Projects are not permitted within the runway 
protection zones of civilian airports, or the clear zones or accident 
potential zones of military airfields.
    (iv) Coastal Barrier Resource System. No projects may be assisted 
in Coastal Barrier Resource System (CBRS) units. CBRS units are mapped 
and available from the U.S. Fish and Wildlife Service.
    (v) Coastal zone management. Development must be consistent with 
the appropriate State coastal zone management plan. Plans are available 
from the local coastal zone management agency.
    (vi) Floodplains. Except as modified below, definitions for terms 
used below can be found at 24 CFR part 55.
    (A) Construction and other activities in the 100-year floodplain 
are to be avoided when practicable. If there are no practicable 
alternatives to new

[[Page 5231]]

construction or substantial improvement in the 100-year floodplain, the 
structure must be elevated at least the base flood elevation (BFE) or 
floodproofed to one foot above the BFE. Elevated and floodproofed 
buildings must adhere to National Flood Insurance Program standards. 
The primary sources of floodplain data are Federal Emergency Management 
Agency (FEMA) Flood Insurance Rate Maps (FIRMs). When FEMA provides 
interim flood hazard data, such as Advisory Base Flood Elevations 
(ABFE) or preliminary maps or studies, the latest of these sources 
shall be used.
    (B) No HTF assistance may be approved with respect to:
    (1) Any action, other than a functionally dependent use, located in 
a floodway;
    (2) Any new construction critical action located in a coastal high 
hazard area, 100- or 500-year floodplain; or
    (3) Any non-critical new construction action in a coastal high 
hazard area, unless the action is reconstruction following destruction 
caused by a disaster and is designed for location in a coastal high 
hazard area consistent with the FEMA National Flood Insurance Program 
requirements for V-Zones.
    (vii) Wetlands. (A) No draining, dredging, channelizing, filling, 
diking, impounding, or related grading activities are to be performed 
in wetlands. No activities, structures, or facilities funded under this 
program are to adversely impact a wetland.
    (B) A wetland means those areas that are inundated by surface or 
ground water with a frequency sufficient to support, and under normal 
circumstances, does or would support a prevalence of vegetative or 
aquatic life that requires saturated or seasonally saturated soil 
conditions for growth and reproduction. Wetlands generally include 
swamps, marshes, bogs, and similar areas such as sloughs, potholes, wet 
meadows, river overflows, mud flats, and natural ponds. This definition 
includes those wetland areas separated from their natural supply of 
water as a result of activities, such as the construction of structural 
flood protection methods or solid-fill road beds, or mineral extraction 
and navigation improvements. This definition is independent of the 
definition of jurisdictional wetland used by the U. S. Army Corps of 
Engineers under section 404 of the Clean Water Act (33 U.S.C. 1251 et 
seq.).
    (viii) Explosives and hazards. Projects must be in compliance with 
the standards for acceptable separation distance, as set forth at 24 
CFR part 51, subpart C.
    (ix) Contamination. All properties assisted with HTF funds must be 
free of hazardous materials, contamination, toxic chemicals and gases, 
and radioactive substances, where a hazard could affect the health and 
safety of occupants or conflict with the intended use of the property.
    (A) All proposed multifamily (more than four housing units) HTF 
projects require a Phase I Environmental Site Assessment (ESA-ASTM). If 
the Phase I ESA identifies recognized environmental concerns (RECs), a 
Phase II (ESA-ASTM) will be required. ASTM reports shall be prepared in 
accordance with the most current ASTM standard. Single family housing 
does not require a Phase I ESA.
    (B) HTF projects must avoid sites located within 0.25 miles of a 
Superfund or CERCLIS (Comprehensive Environmental Response, 
Compensation, and Liability Information System) site or other 
contaminated site reported to Federal, State, or local authorities 
without a statement in writing from the U.S. Environmental Protection 
Agency (EPA) or the appropriate State agency that there is no hazard 
that could affect the health and safety of the occupants or conflict 
with the intended use of the property.
    (x) Noise. (A) Internal noise levels: All activities will be 
developed to ensure an interior noise level of no more than 45 decibels 
(dB).
    (B) External noise levels:
    (1) Project sites exposed to less than or equal to 65 dB of 
environmental noise are acceptable.
    (2) Sites between 65 dB and less than 75 dB are acceptable with 
mitigation (e.g., noise walls, careful site planning) that result in an 
interior standard of 45 dB.
    (3) Locations with environmental noise levels of 75 dB or greater 
may not have noise sensitive outdoor uses (e.g., picnic areas, tot 
lots, balconies, or patios) and require sound attenuation in the 
building shell to achieve the 45 dB interior standard.
    (xi) Endangered species. The grantee must avoid all actions which 
could jeopardize the continued existence of any endangered or 
threatened species, as designated by the U.S. Fish and Wildlife Service 
or National Marine Fisheries Service, or would result in the 
destruction or adversely modify the designated critical habitat of such 
species.
    (xii) Wild and scenic rivers. The grantee must avoid activities 
that are inconsistent with conservation easements, land-use 
protections, and restrictions adjacent to wild and scenic rivers, as 
designated/listed by the Departments of Agriculture or Interior. Maps 
for the National Wild and Scenic Rivers System are available at the 
governing departments.
    (xiii) Safe drinking water. Projects with a potable water system 
must use only lead-free pipes, solder, and flux.
    (xiv) Sole-source aquifers. Project activities should avoid sites 
and activities that have the potential to contaminate sole source 
aquifer areas (SSAs). EPA defines a sole or principal source aquifer as 
an aquifer that supplies at least 50 percent of the drinking water 
consumed in the area overlying the aquifer. If the project overlies an 
SSA, EPA must review the project. EPA review is designed to reduce the 
risk of ground water contamination that could pose a health hazard to 
those who use it.
    (2) Rehabilitation projects environmental requirements--(i) 
Historic preservation. (A) The project activities (including 
demolition) must not be performed on properties that are either listed 
in or determined eligible for listing in the National Register of 
Historic Places, unless the project activities meet the Secretary of 
the Interior's Standards for Rehabilitation, either as certified 
through the Federal and/or State historic rehabilitation tax credit 
programs or as verified by someone that meets the relevant Secretary of 
the Interior's Professional Qualification Standards;
    (B) Archaeological resources. If archaeological resources or human 
remains are discovered on the project site during construction or 
rehabilitation, the grantee must consult with affected tribes and/or 
descendant communities and comply with the Native American Graves 
Protection and Repatriation Act (25 U.S.C. 3001-3013), State law, and/
or local ordinance (e.g., State unmarked burial law).
    (ii) Farmland. Project activities must not result in the conversion 
of unique, prime, or locally significant agricultural properties to 
urban uses.
    (iii) Airport zones. Projects are not permitted within the runway 
protection zones of civilian airports, or the clear zones or accident 
potential zones of military airfields.
    (iv) Coastal Barrier Resource System. No projects may be assisted 
in Coastal Barrier Resource System (CBRS) units. CBRS units are mapped 
and available from the U.S. Fish and Wildlife Service.
    (v) Coastal zone management. Development must be consistent with 
the appropriate State coastal zone management plan. Plans are available

[[Page 5232]]

from the local coastal zone management agency.
    (vi) Floodplains. Except as modified below, definitions for terms 
used below can be found at 24 CFR part 55.
    (A) Construction and other activities in the 100-year floodplain 
are to be avoided when practicable. If there are no practicable 
alternatives to new construction or substantial improvement in the 100-
year floodplain, the structure must be elevated at least to the base 
flood elevation (BFE) or floodproofed to one foot above the BFE. 
Elevated and floodproofed buildings must adhere to National Flood 
Insurance Program standards. The primary sources of floodplain data are 
Federal Emergency Management Agency (FEMA) Flood Insurance Rate Maps 
(FIRMS). When FEMA provides interim flood hazard data, such as Advisory 
Base Flood Elevations (ABFE) or preliminary maps or studies, the latest 
of these sources shall be used.
    (B) No HTF assistance may be approved with respect to:
    (1) Any action, other than functionally dependent uses, located in 
a floodway;
    (2) Any critical action located in a coastal high hazard area, 100- 
or 500-year floodplain; or
    (3) Any non-critical action located in a coastal high hazard area, 
unless the action is designed for location in a coastal high hazard 
area consistent with the FEMA National Flood Insurance Program 
requirements for V-Zones. ``Any non-critical action in a coastal high 
hazard area, unless the action is reconstruction following destruction 
caused by a disaster and is designed for location in a coastal high 
hazard area consistent with the FEMA National Flood Insurance Program 
requirements for V-Zones.''
    (vii) Wetlands. No rehabilitation of existing properties that 
expands the footprint into a wetland is allowed. A wetland means those 
areas that are inundated by surface or ground water with a frequency 
sufficient to support, and under normal circumstances, does or would 
support a prevalence of vegetative or aquatic life that requires 
saturated or seasonally saturated soil conditions for growth and 
reproduction. Wetlands generally include swamps, marshes, bogs, and 
similar areas such as sloughs, potholes, wet meadows, river overflows, 
mud flats, and natural ponds. This definition includes those wetland 
areas separated from their natural supply of water as a result of 
activities such as the construction of structural flood protection 
methods or solid-fill road beds and activities such as mineral 
extraction and navigation improvements. This definition is independent 
of the definition of jurisdictional wetland used by the U.S. Army Corps 
of Engineers under section 404 of the Clean Water Act (33 U.S.C. 1251 
et seq.).
    (viii) Explosives and hazards. If the rehabilitation of the 
building increases the number of dwelling units, then the project must 
be in compliance with the standards for acceptable separation distance 
as set forth at 24 CFR part 51, subpart C.
    (ix) Contamination. All properties assisted with HTF funds must be 
free of hazardous materials, contamination, toxic chemicals and gases, 
and radioactive substances, where a hazard could affect the health and 
safety of occupants or conflict with the intended use of the property:
    (A) All proposed multifamily (more than four housing units) HTF 
project activities require a Phase I Environmental Site Assessment 
(ESA--ASTM). If the Phase I ESA identifies recognized environmental 
concerns (RECs), a Phase II (ESA-ASTM) will be required. ASTM reports 
shall be prepared in accordance with the most current ASTM standard. 
Single family housing does not require a Phase I ESA.
    (B) HTF projects must avoid sites located within 0.25 miles of a 
Superfund or CERCLIS (Comprehensive Environmental Response, 
Compensation, and Liability Information System) site or other 
contaminated site reported to Federal, State, or local authorities 
without a statement in writing from EPA or the appropriate State agency 
that there is no hazard that could affect the health and safety of the 
occupants or conflict with the intended utilization of the property.
    (x) Noise--(A) Internal noise levels. All activities will be 
developed to ensure an interior noise level of no more than45 decibels 
(dB).
    (B) [Reserved].
    (xi) Endangered species. (A) The grantee must avoid all actions 
that could jeopardize the continued existence of any species designated 
by the U.S. Fish and Wildlife Service or National Marine Fisheries 
Service as endangered or threatened.
    (B) The grantee must avoid all actions that adversely modify the 
critical habitat of such species.
    (xii) Wild and scenic rivers. The grantee must avoid activities 
that are inconsistent with conservation easements, land-use 
protections, and restrictions adjacent to wild and scenic rivers, as 
designated/listed by the Departments of Agriculture and Interior. Maps 
for the National Wild and Scenic Rivers System are available at the 
governing departments.
    (xiii) Safe drinking water. Projects with a potable water system 
must use only lead-free pipes, solder, and flux.
    (xiv) Sole-source aquifers. Project activities should avoid sites 
and activities that have the potential to contaminate sole source 
aquifer areas (SSAs). The EPA defines a sole or principal source 
aquifer as an aquifer that supplies at least 50 percent of the drinking 
water consumed in the area overlying the aquifer. If the project 
overlies an SSA, the EPA must review the project. The EPA review is 
designed to reduce the risk of ground water contamination, which could 
pose a health hazard to those who use it.
    (3) Acquisition projects environmental requirements. (i)(A) 
Existing housing that is acquired with HTF funds, and has been newly 
constructed or rehabilitated less than 12 months before the commitment 
of HTF funds must meet the property standards at paragraph (f)(1) of 
this section.
    (B) All other existing housing that is acquired with HTF assistance 
must meet the property standards requirements of paragraph (f)(2) of 
this section.
    (ii) If under paragraph (f)(3)(i)(A) or paragraph (B) of this 
section, the property does not meet these standards, with the exception 
of the noise standards in paragraph (f)(2) of this section, HTF funds 
cannot be used to acquire the property.
    (4) Manufactured housing environmental requirements. Manufactured 
housing is subject to the environmental standards in paragraph (f)(1) 
of this section for new construction or paragraph (f)(2) of this 
section for rehabilitation, as applicable. If an existing property does 
not meet these standards, HTF funds cannot be used to acquire the 
property unless it is rehabilitated to meet the standards in paragraph 
(f)(2), as applicable, with the exception of noise standards in 
paragraph (f)(2)(x).


Sec.  93.302  Qualification as affordable housing: rental housing.

    (a) Eligible tenants. The HTF-assisted units in a rental housing 
project must be occupied by households who are eligible families in 
accordance with the income targeting requirements in Sec.  93.250.
    (b) Rent limitations--(1)(i) Extremely low-income tenants. The HTF 
rent plus utilities of an extremely low-income tenant shall not exceed 
the greater of 30 percent of the federal poverty line or 30 percent of 
the income of a family whose annual income equals 30 percent of the 
median income for the area, as

[[Page 5233]]

determined by HUD, with adjustments for the number of bedrooms in the 
unit. HUD will publish the HTF rent limits on an annual basis.
    (ii) Very-low income tenants. The HTF rent plus utilities of a very 
low-income tenant shall not exceed 30 percent of the income of a family 
whose annual income equals 50 percent of the median income for the 
area, as determined by HUD, with adjustments for the number of bedrooms 
in the unit. HUD will publish the HTF rent limits on an annual basis.
    (2) If the unit receives Federal or State project-based rental 
subsidy, and the tenant pays as a contribution toward rent not more 
than 30 percent of the tenant's adjusted income, the maximum rent is 
the rent allowable under the Federal or State project-based rental 
subsidy program.
    (c) Initial rent schedule and utility allowance. (1) The grantee 
must establish maximum monthly allowances for utilities and services 
(excluding telephone, television, and Internet service).
    (2) The grantee must annually review and approve rents proposed by 
the owner for HTF units. For all units for which the tenant is paying 
utilities, the grantee must ensure that the rents do not exceed the 
maximum rent minus the monthly allowances for utilities.
    (d) Periods of affordability. (1) HTF-assisted units must meet the 
affordability requirements for not less than 30 years, beginning after 
project completion. The grantee may impose longer periods.
    (2) The affordability requirements apply without regard to the term 
of any loan or mortgage, repayment of the HTF investment, or the 
transfer of ownership. They must be imposed by a deed restriction, 
covenant running with the land, an agreement restricting the use of the 
property, or other mechanisms approved by HUD under which the grantee 
and beneficiaries have the right to require specific performance, 
except that the affordability restrictions may terminate upon 
foreclosure or transfer in lieu of foreclosure. The affordability 
requirements must be recorded in accordance with State recordation 
laws.
    (3) The grantee may use purchase options, rights of first refusal, 
or other preemptive rights to purchase the housing before foreclosure 
or deed in lieu of foreclosure to preserve affordability.
    (4) 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.
    (5) The termination of the restrictions on the project does not 
terminate the grantee's repayment obligation under Sec.  93.403.
    (e) Tenant income. (1) The income of each tenant must be determined 
initially in accordance with Sec.  93.151. In addition, in each year 
during the period of affordability, the project owner must re-examine 
each tenant's annual income in accordance with one of the options in 
Sec.  93.151(c) selected by the grantee.
    (2) An owner who re-examines a tenant's annual income through a 
statement and certification in accordance with Sec.  93.151(a)(1)(iii) 
must examine the source documentation of the income of each tenant 
every 6th year of the affordability period, except that, for units that 
receive project-based assistance, the owner must re-examine the 
tenant's annual income in accordance with the project-based assistance 
rules. Otherwise, an owner who accepts the tenant's statement and 
certification in accordance with Sec.  93.151(a)(1)(iii) is not 
required to examine the income of tenants, unless there is evidence 
that the tenant's written statement failed to completely and accurately 
state information about the family's size or income.
    (f) Over-income tenants. HTF-assisted units continue to qualify as 
affordable housing despite a temporary noncompliance caused by 
increases in the incomes of existing tenants if actions satisfactory to 
HUD are being taken to ensure that all vacancies are filled in 
accordance with this section until the noncompliance is corrected.
    (g) Fixed and floating HTF units. In a project containing HTF-
assisted and other units, the grantee may designate fixed or floating 
HTF units. This designation must be made at the time of project 
commitment in the written agreement between the grantee and the 
recipient, and the HTF units must be identified not later than the time 
of project completion. Fixed units must remain the same throughout the 
period of affordability. Floating units must be 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 must be comparable in terms of size, features, and number of 
bedrooms to the originally designated HTF-assisted unit.
    (h) Tenant selection. The tenants must be selected in accordance 
with Sec.  93.303.
    (i) Onsite inspections and financial oversight. See Sec.  93.404(d) 
for the grantee's ongoing responsibilities for onsite inspections and 
financial oversight.


Sec.  93.303  Tenant protections and selection.

    (a) Lease. There must be a written lease between the tenant and the 
owner of rental housing assisted with HTF 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) Prohibited lease terms. The lease may not contain any of the 
following provisions:
    (1) Agreement to be sued. Agreement by the tenant to be sued, to 
admit guilt, or to a judgment in favor of the owner in a lawsuit 
brought in connection with the lease;
    (2) Treatment of property. Agreement by the tenant that the owner 
may take, hold, or sell personal property of household members without 
notice to the tenant and a court decision on the rights of the parties. 
This prohibition, however, does not apply to an agreement by the tenant 
concerning disposition of personal property remaining in the housing 
unit after the tenant has moved out of the unit. The owner may dispose 
of this personal property in accordance with State law;
    (3) Excusing owner from responsibility. Agreement by the tenant not 
to hold the owner or the owner's agents legally responsible for any 
action or failure to act, whether intentional or negligent;
    (4) Waiver of notice. Agreement of the tenant that the owner may 
institute a lawsuit without notice to the tenant;
    (5) Waiver of legal proceedings. Agreement by the tenant that the 
owner may evict the tenant or household members without instituting a 
civil court proceeding in which the tenant has the opportunity to 
present a defense, or before a court decision on the rights of the 
parties;
    (6) Waiver of a jury trial. Agreement by the tenant to waive any 
right to a trial by jury;
    (7) Waiver of right to appeal court decision. Agreement by the 
tenant to waive the tenant's right to appeal, or to otherwise challenge 
in court, a court decision in connection with the lease;
    (8) Tenant chargeable with cost of legal actions regardless of 
outcome. Agreement by the tenant to pay attorney's fees or other legal 
costs even if the tenant wins in a court proceeding by the owner 
against the tenant. The tenant, however, may be obligated to pay costs 
if the tenant loses; and

[[Page 5234]]

    (9) Mandatory supportive services. Agreement by the tenant 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 HTF funds, except for serious or repeated violation of the terms 
and conditions of the lease; for violation of applicable Federal, 
State, or local law; 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 and providing a specific period 
for vacating that is consistent with State or local law.
    (d) Tenant selection. An owner of rental housing assisted with HTF 
funds must comply with the affirmative marketing requirements 
established by the grantee pursuant to Sec.  93.350. The owner must 
adopt and follow written tenant selection policies and criteria that:
    (1) Limit the housing to income-eligible 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 
grantee (and only if the limitation or preference is described in the 
grantee's consolidated plan).
    (i) Any limitation or preference must not violate nondiscrimination 
requirements in Sec.  93.350. 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), and the limit or preference 
is tailored to serve that segment of the population.
    (ii) If a project does not receive funding from a Federal program 
that limits eligibility to a particular segment of the population, the 
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 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 (24 CFR part 92) because of the status of the 
prospective tenant as a holder of such 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.


Sec.  93.304  Qualification as affordable housing: Homeownership.

    (a) Homeownership activities. Housing that is for purchase by a 
first-time homebuyer must meet the affordability requirements of this 
section.
    (b) Single family housing. The housing must be single-family 
housing, as defined at Sec.  93.2.
    (c) Modest housing. The housing must be modest housing, in 
accordance with Sec.  93.305.
    (d) First-time homebuyer and income requirements. The housing must 
be acquired by a first-time homebuyer whose family qualifies as an 
income-eligible family in accordance with Sec.  93.251 and the housing 
must be the principal residence of the family throughout the period 
described in paragraph (e) of this section. In determining the income 
eligibility of the family, the grantee must include the income of all 
persons living in the housing. Before purchasing the housing, the 
family must have completed a program of independent financial education 
and homeownership counseling from an eligible organization that has 
been certified in accordance with section 106(e) of the Housing and 
Urban Development Act of 1968 (12 U.S.C. 1701x (e)).
    (e) Period of affordability. The HTF-assisted housing must meet the 
affordability requirements for not less than 30 years.
    (f) Resale or recapture requirements. The grantee must establish 
the resale or recapture requirements that comply with the standards of 
Sec.  93.305 and set forth the requirements in its consolidated plan. 
HUD must determine that they are appropriate and must specifically 
approve them in writing.
    (g) Special considerations for single family properties with more 
than one unit. (1) If the HTF funds are used only to assist an income-
eligible homebuyer in acquiring one unit in a single family property 
containing more than one unit and the assisted unit will be the 
principal residence of the homebuyer, the affordability requirements of 
this section apply only to the assisted unit.
    (2) If HTF funds are also used to assist the income-eligible 
homebuyer in acquiring one or more of the rental units in the single 
family property, the affordability requirements of Sec.  93.302 apply 
to assisted rental units, except that the grantee must impose resale 
restrictions on all assisted units (owner-occupied and rental units) in 
the single-family housing. The affordability requirements on all 
assisted units continue for the period of affordability. If HTF funds 
are used to assist only the rental units in such a property, then the 
requirements of Sec.  93.302 would apply and the owner-occupied unit 
would not be subject to the income targeting or affordability 
provisions of this section.
    (h) Lease-purchase. (1) HTF funds may be used to assist homebuyers 
through lease-purchase programs for existing housing and for housing to 
be constructed. The housing must be purchased by an eligible homebuyer 
within 36 months of signing the lease-purchase agreement. The homebuyer 
must qualify as an income-eligible family at the time the lease-
purchase agreement is signed.
    (2) If HTF funds are used to acquire housing that will be resold to 
a homebuyer through a lease-purchase program, the HTF affordability 
requirements for rental housing in Sec.  93.302 shall apply if the 
housing is not transferred to an eligible homebuyer within 42 months 
after project completion.
    (i) Contract to purchase. If HTF funds are used to assist a 
homebuyer who has entered into a contract to purchase housing to be 
constructed, the homebuyer must qualify as an income-eligible family at 
the time the contract is signed.
    (j) If there is no ratified sales contract with an eligible 
homebuyer for the housing within 9 months of the date of completion of 
construction or rehabilitation, the housing must be

[[Page 5235]]

rented to an eligible tenant in accordance with Sec.  93.301.
    (k) Preserving affordability. (1) To preserve the affordability of 
housing that was previously assisted with HTF funds and subject to the 
requirements of this section, a grantee may use additional HTF funds to 
acquire the housing through a purchase option, right of first refusal, 
or other preemptive right before foreclosure, or to acquire the housing 
at the foreclosure sale, undertake any necessary rehabilitation, and 
provide assistance to another first-time homebuyer. The housing must be 
sold to a new eligible homebuyer in accordance with the requirements of 
this section. Additional HTF funds may not be used if the mortgage in 
default was funded with HTF funds.
    (2) The total amount of original and additional HTF assistance may 
not exceed the maximum per-unit development subsidy amount established 
pursuant to Sec.  93.300. As an alternative to charging the cost to the 
HTF program under Sec.  93.201, the grantee may charge the cost to the 
HTF program under Sec.  93.302 as a reasonable administrative cost of 
its HTF program, so that the additional HTF funds for the housing are 
not subject to the maximum per-unit subsidy amount.
    (l) Agreements with lending institutions. (1) The grantee may 
provide homeownership assistance through written agreements with for-
profit or nonprofit lending institutions that are providing the first 
mortgage loan to a family. The grantee must independently verify that 
the family is income-eligible and meets the definition of ``first-time 
homebuyer,'' and must inspect the housing for compliance with the 
applicable property standards.
    (2) No fees may be charged to the family for the HTF homeownership 
assistance (e.g., origination fees or points, processing fees, 
inspection fees). The grantee 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 of the HTF 
homeownership assistance can be charged to the HTF program as a project 
cost. If the grantee requires lenders to pay a fee to participate in 
the HTF program, the fee is program income to the HTF program.
    (m) Written policies. The grantee must have and follow written 
policies for:
    (1) Underwriting standards for homeownership assistance that 
examine the family's housing debt, overall debt, income, and ability to 
maintain the housing;
    (2) Anti-predatory lending; and
    (3) Refinancing loans to which HTF loans are subordinated to ensure 
that the terms of the new loan are reasonable.


Sec.  93.305  Qualification as affordable housing: modest housing 
requirements for homeownership; resale or recapture requirements.

    (a) Housing that is for acquisition by a family pursuant to Sec.  
93.304 must be modest housing.
    (1) The housing must be modest housing as follows: The housing has 
a purchase price for the type of single family housing that does not 
exceed 95 percent of the median purchase price for the area for newly 
constructed or standard housing. The grantee must use the HTF 
affordable homeownership limits provided by HUD for newly constructed 
housing and for existing housing. HUD will provide limits for 
affordable newly constructed housing based on 95 percent of the median 
purchase price for the area using Federal Housing Administration (FHA) 
single family mortgage program data for newly constructed housing, with 
a minimum limit based on 95 percent of the U.S. median purchase price 
for new construction for nonmetropolitan areas. HUD will provide limits 
for affordable existing housing based on 95 percent of the median 
purchase price for the area using FHA single family mortgage program 
data for existing housing data and other appropriate data that are 
available nation-wide for sales of existing housing, with a minimum 
limit based on 95 percent of the state-wide nonmetropolitan area median 
purchase price using these data. For States with no non-metropolitan 
areas, the minimum purchase price is defined as the lesser of the State 
non-metro or the United States non-metro median.
    (2) In lieu of the limits provided by HUD, the grantee may 
determine 95 percent of the median area purchase price for single 
family housing in the jurisdiction annually, as follows: The grantee 
must set forth the price for different types of single family housing 
for the jurisdiction. The grantee may determine separate limits for 
existing housing and newly constructed housing. For housing located 
outside of metropolitan areas, a grantee 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:
    (i) 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.
    (ii) 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 period. The 
data must be listed in ascending order of sales price.
    (iii) The address of the listed properties must include the 
location within the grantee. Lot, square, and subdivision data may be 
substituted for the street address.
    (iv) The housing sales data must reflect all, or nearly all, of the 
one- family house sales in the entire area.
    (v) 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 95 
percent of the median area purchase price.
    (b) Resale or recapture requirements. The grantee must establish 
the resale or recapture requirements that comply with the standards of 
this section and set forth the requirements in its consolidated plan. 
The HTF-assisted housing must meet the affordability requirements for 
not less than 30 years if resale restrictions are used. If recapture 
restrictions are used, the affordability periods are based on the 
amount of HTF funds per unit as follows:

------------------------------------------------------------------------
                                                       Minimum period of
    Homeownership  assistance HTF amount per-unit       affordability in
                                                             years
------------------------------------------------------------------------
Under $30,000........................................                 10
$30,000-$50,000......................................                 20
Over $50,000.........................................                 30
------------------------------------------------------------------------

    (1) 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 very 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 HTF-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 income-eligible homebuyers. The grantee must 
specifically define ``fair

[[Page 5236]]

return on investment'' and ``affordability to a reasonable range of 
very low-income homebuyers,'' and specifically address how it will make 
the housing affordable to an income eligible homebuyer in the event 
that the resale price necessary to provide fair return is not 
affordable to the subsequent buyer. Deed restrictions, covenants 
running with the land, or other mechanisms approved by HUD must be used 
as the mechanism to impose the resale requirements. The affordability 
restrictions may terminate upon occurrence of any of the following 
termination events: foreclosure, transfer in lieu of foreclosure, or 
assignment of an FHA insured mortgage to HUD. The grantee may use 
purchase options, rights of first refusal or other preemptive rights to 
purchase the housing before foreclosure to preserve affordability. The 
affordability restrictions shall be revived according to the original 
terms if, during the original affordability period, the owner of record 
before the termination event, obtains an ownership interest in the 
housing.
    (2) Recapture. (i) Recapture provisions must ensure that the 
grantee recoups all or a portion of the HTF 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 grantee may structure its recapture provisions based 
on its program design and market conditions. Recapture provisions may 
permit the subsequent homebuyer to assume the HTF assistance (subject 
to the HTF requirements for the remainder of the period of 
affordability) if the subsequent homebuyer is income-eligible, and no 
additional HTF assistance is provided.
    (ii) The following options for recapture requirements are 
acceptable to HUD. The grantee may adopt, modify, or develop its own 
recapture requirements for HUD approval. In establishing its recapture 
requirements, the grantee is subject to the limitation that, when the 
recapture requirement is triggered by a sale (voluntary or involuntary) 
of the housing unit, the amount recaptured cannot exceed the net 
proceeds, if any. The net proceeds are the sales price minus superior 
loan repayment (other than HTF funds) and any closing costs.
    (A) Recapture entire amount. The grantee may recapture the entire 
amount of the HTF assistance from the homeowner.
    (B) Reduction during affordability period. The grantee may reduce 
the HTF assistance amount to be recaptured on a prorata basis for the 
time the homeowner has owned and occupied the housing measured against 
the required affordability period.
    (C) Shared net proceeds. If the net proceeds are not sufficient to 
recapture the full HTF assistance (or a reduced amount as provided for 
in this section) plus enable the homeowner to recover the amount of the 
homeowner's downpayment and any capital improvement investment made by 
the owner since purchase, the grantee may share the net proceeds. The 
net proceeds are the sales price minus loan repayment (other than HTF 
funds) and closing costs. The net proceeds may be divided 
proportionally as set forth in the following mathematical formulas:
[GRAPHIC] [TIFF OMITTED] TR30JA15.010

    (D) Owner investment returned first. The grantee may permit the 
homebuyer to recover the homebuyer's entire investment (downpayment and 
capital improvements made by the owner since purchase) before 
recapturing the HTF assistance.
    (E) Amount subject to recapture. The HTF assistance that is subject 
to recapture is based on the amount of HTF assistance that enabled the 
homebuyer to buy the dwelling unit. This includes any HTF assistance 
that reduced the purchase price from fair market value to an affordable 
price, but excludes the amount between the cost of producing the unit 
and the market value of the property (i.e., the development subsidy). 
The recaptured funds must be used to carry out HTF-eligible activities 
in accordance with the requirements of this part. If the HTF assistance 
is only used for the development subsidy and therefore not subject to 
recapture, the resale option must be used.

Subpart H--Other Federal Requirements


Sec.  93.350  Other federal requirements and nondiscrimination; 
affirmative marketing.

    (a) General. The Federal requirements set forth in 24 CFR part 5, 
subpart A, are applicable to participants in the HTF program. The 
requirements of this subpart include: nondiscrimination and equal 
opportunity; disclosure requirements; debarred, suspended, or 
ineligible contractors; and drug-free workplace.
    (b) Affirmative marketing. (1) Each grantee must adopt and follow 
affirmative marketing procedures and requirements for rental projects 
containing five or more HTF-assisted housing units and for 
homeownership 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. If a grantee's written agreement with the project owner 
permits the rental housing project to limit tenant eligibility or to 
have a tenant preference in accordance with Sec.  93.303(d)(3), the 
grantee must have affirmative marketing procedures and requirements 
that apply in the context of the limited/preferred tenant eligibility 
for the project.
    (2) The affirmative marketing requirements and procedures adopted 
must include:
    (i) Methods for informing the public, owners, and potential tenants 
about Federal fair housing laws and the grantee's affirmative marketing 
policy (e.g., the use of the Equal Housing Opportunity logotype or 
slogan in press releases and solicitations for owners, and written 
communication to fair housing and other groups);
    (ii) Requirements and practices the grantee and owner must adhere 
to in order to carry out the grantee's affirmative marketing procedures 
and requirements (e.g., use of commercial media, use of community 
contacts, use of the Equal Housing Opportunity

[[Page 5237]]

logotype or slogan, and display of fair housing poster);
    (iii) Procedures to be used by the grantee and owners to inform and 
solicit applications from persons in the housing market area who are 
not likely to apply for the rental housing or homeownership assistance 
program 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 
grantee and owners to affirmatively market rental housing units and 
homeownership assistance program and records to assess the results of 
these actions; and
    (v) A description of how the grantee will annually assess the 
success of affirmative marketing actions and what corrective actions 
will be taken where affirmative marketing requirements are not met.
    (3) A grantee that subgrants HTF funds to subgrantees must require 
each subgrantee to either follow the grantee's procedures and 
requirements or adopt its own affirmative marketing procedures and 
requirements that meet this section.


Sec.  93.351  Lead-based paint.

    Housing assisted with HTF funds is subject to the regulations at 24 
CFR part 35, subparts A, B, J, K, and R.


Sec.  93.352  Displacement, relocation, and acquisition.

    (a) Minimizing displacement. Consistent with the other goals and 
objectives of this part, the grantee must ensure that it has taken all 
reasonable steps to minimize the displacement of persons (families, 
individuals, businesses, nonprofit organizations, and farms) as a 
result of a project assisted with HTF funds. To the extent feasible, 
displaced residential tenants must be provided a reasonable opportunity 
to lease and occupy a suitable, decent, safe, sanitary, and affordable 
dwelling unit in the building/complex upon completion of the project.
    (b) Temporary relocation. The following policies cover residential 
tenants who will not be required to move permanently but who must 
relocate temporarily for the project. Such tenants must be provided:
    (1) Reimbursement for all reasonable out-of-pocket expenses 
incurred in connection with the temporary relocation, including the 
cost of moving to and from the temporarily occupied housing and any 
increase in monthly rent/utility costs.
    (2) Appropriate advisory services, including reasonable advance 
written notice of:
    (i) The date and approximate duration of the temporary relocation;
    (ii) The location of the suitable, decent, safe, and sanitary 
dwelling to be made available for the temporary period;
    (iii) The terms and conditions under which the tenant may lease and 
occupy a suitable, decent, safe, and sanitary dwelling in the building/
complex upon completion of the project; and
    (iv) The provisions of paragraph (b)(1) of this section.
    (c) Relocation assistance for displaced persons--(1) General. A 
displaced person (defined in paragraph (c)(2) of this section) must be 
provided relocation assistance at the levels described in, and in 
accordance with the requirements of the Uniform Relocation Assistance 
and Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C. 
4201-4655) and 49 CFR part 24. A ``displaced person'' must be advised 
of his or her rights under the Fair Housing Act and, if the comparable 
replacement dwelling used to establish the amount of the replacement 
housing payment to be provided to a minority person is located in an 
area of minority concentration, the minority person also must be given, 
if possible, referrals to comparable and suitable, decent, safe, and 
sanitary replacement dwellings not located in such areas.
    (2) Displaced person. (i) For purposes of this paragraph (c), the 
term ``displaced person'' means a person (family individual, business, 
nonprofit organization, or farm, including any corporation, partnership 
or association) that moves from real property or moves personal 
property from real property, permanently, as a direct result of 
acquisition, rehabilitation, or demolition for a project assisted with 
HTF funds. This includes any permanent, involuntary move for an 
assisted project, including any permanent move from the real property 
that is made:
    (A) After notice by the owner to move permanently from the 
property, if the move occurs on or after:
    (1) The date of the submission of an application to the grantee or 
HUD, if the applicant has site control and the application is later 
approved; or
    (2) The date the grantee approves the applicable site, if the 
applicant does not have site control at the time of the application; or
    (B) Before the date described in paragraph (c)(2)(i)(A) of this 
section, if the grantee or HUD determines that the displacement 
resulted directly from acquisition, rehabilitation, or demolition for 
the project; or
    (C) By a tenant-occupant of a dwelling unit, if any one of the 
following three situations occurs:
    (1) The tenant moves after execution of the agreement covering the 
acquisition, rehabilitation, or demolition and the move occurs before 
the tenant is provided written notice offering the tenant the 
opportunity to lease and occupy a suitable, decent, safe, and sanitary 
dwelling in the same building/complex upon completion of the project 
under reasonable terms and conditions. Such reasonable terms and 
conditions must include a term of at least one year at a monthly rent 
and estimated average monthly utility costs that do not exceed the 
greater of:
    (i) The tenant's monthly rent before such agreement and estimated 
average monthly utility costs; or
    (ii) The total tenant payment, as determined under 24 CFR 5.628, if 
the tenant is low-income, or 30 percent of gross household income, if 
the tenant is not low-income;
    (2) The tenant is required to relocate temporarily, does not return 
to the building/complex, and either:
    (i) The tenant is not offered payment for all reasonable out-of-
pocket expenses incurred in connection with the temporary relocation; 
or
    (ii) Other conditions of the temporary relocation are not 
reasonable; or
    (3) The tenant is required to move to another dwelling unit in the 
same building/complex but is not offered reimbursement for all 
reasonable out-of-pocket expenses incurred in connection with the move, 
or other conditions of the move are not reasonable.
    (ii) Notwithstanding paragraph (c)(2)(i) of this section, a person 
does not qualify as a ``displaced person'' if:
    (A) The person has been evicted for cause based upon a serious or 
repeated violation of the terms and conditions of the lease or 
occupancy agreement, violation of applicable Federal, State or local 
law, or other good cause, and the grantee determines that the eviction 
was not undertaken for the purpose of evading the obligation to provide 
relocation assistance. The effective date of any termination or refusal 
to renew must be preceded by at least 30 calendar days advance written 
notice to the tenant specifying the grounds for the action.
    (B) The person moved into the property after the submission of the 
application, but before signing a lease and commencing occupancy, was 
provided written notice of the project, its possible impact on the 
person (e.g., the person may be displaced,

[[Page 5238]]

temporarily relocated, incur a rent increase), and the fact that the 
person would not qualify as a ``displaced person'' (or for any 
assistance under this section) as a result of the project;
    (C) The person is ineligible under 49 CFR 24.2(g)(2); or
    (D) HUD determines that the person was not displaced as a direct 
result of acquisition, rehabilitation, or demolition for the project.
    (iii) The grantee may, at any time, ask HUD to determine whether a 
displacement is or would be covered by this rule.
    (3) Initiation of negotiations. For purposes of determining the 
formula for computing replacement housing assistance to be provided 
under this paragraph (c) to a tenant displaced from a dwelling as a 
direct result of private-owner rehabilitation, demolition, or 
acquisition of the real property, the term ``initiation of 
negotiations'' means the execution of the agreement covering the 
acquisition, rehabilitation, or demolition.
    (d) Optional relocation assistance. The grantee may provide 
relocation payments and other relocation assistance to families, 
individuals, businesses, nonprofit organizations, and farms displaced 
by a project assisted with HTF funds where the displacement is not 
subject to paragraph (c) of this section. The grantee may also provide 
relocation assistance to persons covered under paragraph (c) of this 
section beyond that required. For any such assistance that is not 
required by State or local law, the grantee must adopt a written policy 
available to the public that describes the optional relocation 
assistance that it has elected to furnish and provides for equal 
relocation assistance within each class of displaced persons.
    (e) Real property acquisition requirements. The acquisition of real 
property for a project is subject to the URA and the requirements of 49 
CFR part 24, subpart B.
    (f) Appeals. A person who disagrees with the grantee's 
determination concerning whether the person qualifies as a displaced 
person, or the amount of relocation assistance for which the person may 
be eligible, may file a written appeal of that determination with the 
grantee.


Sec.  93.353  Conflict of interest.

    (a) Applicability of 2 CFR 200.318. In the procurement of property 
and services by grantees and subgrantees, the conflict of interest 
provisions in 2 CFR 200.318 apply. In all cases not governed by 2 CFR 
200.318, the provisions of this section apply.
    (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 HTF funds or 
who are in a position to participate in a decision-making process or 
gain inside information with regard to these activities may obtain a 
financial interest or financial benefit from a HTF-assisted activity, 
or have a financial interest in any contract, subcontract, or agreement 
with respect to the HTF-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. Immediate family ties include (whether by blood, marriage, 
or adoption) the spouse, parent (including a stepparent), child 
(including a stepchild), brother, sister (including a stepbrother or 
stepsister), grandparent, grandchild, and in-laws of a covered person.
    (c) Persons covered. The conflict of interest provisions of 
paragraph (b) of this section apply to any person who is an employee, 
agent, consultant, officer, or elected official or appointed official 
of the grantee or subgrantee.
    (d) Exceptions: Threshold requirements. Upon the written request of 
the grantee, HUD may grant an exception to the provisions of paragraph 
(b) of this section on a case-by-case basis when it determines that the 
exception will serve to further the purposes of the HTF and the 
effective and efficient administration of the grantee's program or 
project. An exception may be considered only after the grantee has 
provided the following:
    (1) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict and a 
description of how the public disclosure was made; and
    (2) An opinion of the grantee's attorney that the interest for 
which the exception is sought would not violate State or local law.
    (e) Factors to be considered for exceptions. In determining whether 
to grant a requested exception after the grantee has satisfactorily met 
the requirements of paragraph (d) of this section, HUD will consider 
the cumulative effect of the following factors, where applicable:
    (1) Whether the exception would provide a significant cost benefit 
or an essential degree of expertise to the program or project which 
would otherwise not be available;
    (2) Whether the person affected is a member of a group or class of 
income eligible persons intended to be the beneficiaries of the 
assisted activity, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (3) Whether the affected person has withdrawn from his or her 
functions or responsibilities, or the decisionmaking process with 
respect to the specific assisted activity in question;
    (4) Whether the interest or benefit was present before the affected 
person was in a position as described in paragraph (c) of this section;
    (5) Whether undue hardship will result either to the grantee or the 
person affected when weighed against the public interest served by 
avoiding the prohibited conflict; and
    (6) Any other relevant considerations.
    (f) Recipient--(1) General. No recipient assisted with HTF funds 
(or officer, employee, agent, elected or appointed official, or 
consultant of recipient or immediate family member or immediate family 
member of an officer, employee, agent, elected or appointed official, 
or consultant of a recipient) whether private, for-profit or nonprofit, 
may occupy a HTF-assisted affordable housing unit in a project during 
the required period of affordability specified in Sec.  93.302(e) or 
Sec.  93.304. This provision does not apply to an employee or agent of 
the recipient who occupies a housing unit as the project manager or 
maintenance worker.
    (2) Exceptions. Upon written request of a recipient, the grantee 
(or subgrantee, if authorized by the grantee) may grant an exception to 
the provisions of paragraph (f)(1) of this section on a case-by-case 
basis when it determines that the exception will serve to further the 
purposes of the HTF program and the effective and efficient 
administration of the recipient's HTF-assisted project. In determining 
whether to grant a requested exception, the grantee shall consider the 
following factors:
    (i) Whether the person receiving the benefit is a member of a group 
or class of low-income persons intended to be the beneficiaries of the 
assisted housing, and the exception will permit such person to receive 
generally the same interests or benefits as are being made available or 
provided to the group or class;
    (ii) Whether the person has withdrawn from his or her functions or 
responsibilities, or the decisionmaking process with respect to the 
specific assisted housing in question;
    (iii) Whether the tenant protection requirements of Sec.  93.303 
are being observed;

[[Page 5239]]

    (iv) Whether the affirmative marketing requirements of Sec.  93.350 
are being observed and followed; and
    (v) Any other factor relevant to the grantee's determination, 
including the timing of the requested exception.


Sec.  93.354  Funding Accountability and Transparency Act.

    The HTF grant to the grantee and all assistance provided to 
subgrantees and recipients shall be considered a Federal award for 
purposes of the Federal Funding Accountability and Transparency Act of 
2006 (31 U.S.C. 6101 note).


Sec.  92.355  Eminent domain.

    No HTF funds may be used in conjunction with property taken by 
eminent domain, unless eminent domain is employed only for a public 
use, except that, public use shall not be construed to include economic 
development that primarily benefits any private entity.

Subpart I--Program Administration


Sec.  93.400  Housing Trust Fund (HTF) accounts.

    (a) General. HUD will establish an HTF United States Treasury 
account (HTF Treasury account) for each grantee. Each grantee may use 
either a separate HTF local account or a subsidiary account within its 
general fund (or other appropriate fund) as the HTF local account.
    (b) HTF Treasury account. The HTF Treasury account includes the 
annual grant and funds reallocated to the State by formula.
    (c) HTF local account. (1) The HTF local account includes deposits 
of HTF funds disbursed from the HTF Treasury account, any program 
income, and any repayments as required by Sec.  93.403.
    (2) The HTF local account must be interest-bearing.
    (d) Reductions. HUD will reduce or recapture funds in the HTF 
account by the amount of:
    (1) Any fiscal year grant funds in the HTF Treasury account that 
are not committed within 24 months after the date of HUD's execution of 
the HTF grant agreement;
    (2) Any fiscal year grant funds in the HTF local account that are 
not expended within 5 years after the date of HUD's execution of the 
HTF grant agreement;
    (3) Any amounts pursuant to Sec.  93.453; and
    (4) Amounts that the grantee fails to obtain and that were required 
to be reimbursed or returned under Sec.  93.450.


Sec.  93.401  HTF grant agreement.

    Allocated and reallocated funds will be made available pursuant to 
an HTF grant agreement.


Sec.  93.402  Program disbursement and information system.

    (a) General. The HTF Treasury account is managed through a 
computerized disbursement and information system established by HUD. 
The system disburses HTF funds that are allocated or reallocated, and 
collects and reports information on the use of funds in the HTF 
Treasury account. The grantee must report on the receipt and use of all 
program income in HUD's computerized disbursement and information 
system. The grantee must develop and maintain a system to ensure that 
each recipient and subgrantee uses HTF funds in accordance with the 
requirements of this part and that any requirements or conditions under 
which the HTF funds were provided.
    (b) Project set-up. (1) After the grantee executes the HTF grant 
agreement, submits the applicable banking and security documents, and 
commits funds to a specific local project, the grantee shall identify 
(set up) specific activities (i.e., projects) in the disbursement and 
information system. Investments that require the set-up of projects in 
the system are the acquisition, new construction, or rehabilitation of 
housing, operating cost assistance, and operating cost assistance 
reserves. The grantee is required to enter complete project set-up 
information at the time of project set-up.
    (2) If the project set-up information is not completed within 20 
calendar days of the date of the initial project set-up, the project 
may be canceled 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 canceled by the system.
    (c) Disbursement of HTF Funds. (1) After complete project set-up 
information is entered into the disbursement and information system, 
HTF funds for the project may be drawn down from the HTF Treasury 
account by the grantee by electronic funds transfer. Any drawdown of 
funds in the HTF Treasury account is conditioned upon the provision of 
satisfactory information by the grantee about the project and 
compliance with other procedures, as specified by HUD.
    (2) Funds drawn from the HTF Treasury account are subject to the 
Intergovernmental Cooperation Act (31 U.S.C. 6501 et seq.) and 
regulations at 31 CFR part 205.
    (3) Funds in the HTF local account must be disbursed before 
requests are made for funds in the HTF Treasury account.
    (d) Project completion. (1) Complete project completion information 
must be entered into the disbursement and information system, or 
otherwise provided, within 120 calendar days of the date of the final 
project drawdown. If satisfactory project completion information is not 
provided, HUD may suspend further project set-ups or take other 
corrective actions.
    (2) Additional HTF funds for development-related costs may be 
committed to a project up to one year after project completion, but the 
amount of HTF funds in the project may not exceed the maximum per-unit 
development subsidy amount established pursuant to Sec.  93.300.
    (e) Access by other participants. Access to the disbursement and 
information system by other entities participating in the HTF program 
will be governed by procedures established by HUD.


Sec.  93.403  Program income and repayments.

    (a) Program income. Program income must be treated as HTF funds and 
must be used in accordance with the requirements of this part. Program 
income must be deposited in the grantee's HTF local account unless the 
grantee permits a subgrantee to retain the program income for 
additional HTF projects pursuant to the written agreement required by 
Sec.  93.404(b). The grantee must report the program income received as 
well as the use of the program income in the disbursement and 
information system that HUD designates for the HTF.
    (b) Repayments. (1) Any HTF funds invested in housing that does not 
meet the affordability requirements for the period specified in Sec.  
93.302 or Sec.  93.304, as applicable, must be repaid by the grantee in 
accordance with paragraph (b)(3) of this section.
    (2) Any HTF funds invested in a project that is terminated before 
completion, either voluntarily or otherwise, must be repaid by the 
grantee, in accordance with paragraph (b)(3) of this section.
    (3) HUD will instruct the grantee to either repay the funds to the 
HTF Treasury account or the local account. Generally, if the HTF funds 
were disbursed from the grantee's HTF Treasury account, they must be 
repaid to the HTF Treasury account. If the HTF funds were disbursed 
from the grantee's HTF local account, they must be repaid to the local 
account.

[[Page 5240]]

    (4) If the grantee is no longer a grantee in the HTF program when 
the repayment is made, the funds must be remitted to HUD and 
reallocated in accordance with Sec.  93.54 of this part.


Sec.  93.404  Grantee responsibilities; written agreements; onsite 
inspections; financial oversight.

    (a) Responsibilities. The grantee is responsible for managing the 
day-to-day operations of its HTF program, ensuring that HTF funds are 
used in accordance with all program requirements and written 
agreements, and taking appropriate action when performance problems 
arise. The use of subgrantees or contractors does not relieve the 
grantee of this responsibility. The performance and compliance of each 
contractor and subgrantee must be reviewed at least annually. The 
grantee 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.
    (b) Executing a written agreement. Before disbursing any HTF funds 
to any entity, the grantee must enter into a written agreement with 
that entity. The written agreement must ensure compliance with the 
requirements of this part.
    (c) Provisions in written agreements. The contents of the agreement 
may vary depending upon the role the entity is asked to assume or the 
type of project undertaken. This section details basic requirements by 
role and the minimum provisions that must be included in a written 
agreement.
    (1) Subgrantee. The agreement must require the subgrantee to comply 
with the requirements applicable to the grantee under this part. The 
agreement between the grantee and the subgrantee must include:
    (i) Use of the HTF funds. An HTF subgrantee that is a unit of 
general local government must have a consolidated plan under 24 CFR 
part 91, and the written agreement must require that an HTF allocation 
plan to be part of the subgrantee's consolidated plan (see 24 CFR 
91.220(l)(5)). The HTF allocation plan of an HTF subgrantee that is a 
State agency is included in the grantee's HTF allocation plan. The 
grantee may impose restrictions on the use of funds by the subgrantee, 
e.g., limit to rental projects. The written agreement must require that 
the selection of projects by eligible recipients will be in accordance 
with the HTF allocation plan. The agreement must describe the tasks to 
be performed, a schedule for completing the tasks (including a schedule 
for committing funds to projects), a budget, and the period of the 
agreement. These items must be in sufficient detail to provide a sound 
basis for the grantee to effectively monitor performance under the 
agreement.
    (ii) Deadlines. The agreement must state the time requirements for 
the commitment and expenditure of HTF funds and specify that remaining 
funds will be reduced or recaptured by the grantee so that the grantee 
can meet its commitment and expenditure deadlines in Sec.  93.400.
    (iii) Audit. The agreement must state that an audit of the 
subgrantee must be conducted at least annually, in accordance with 
Sec.  93.406.
    (iv) Program income. The agreement must state if program income is 
to be remitted to the grantee or to be retained by the subgrantee for 
additional HTF eligible activities.
    (v) Uniform administrative requirements. The agreement must require 
the subgrantee to comply with the requirements of 2 CFR part 200, as 
described in Sec.  93.405. The agreement must include the information 
in 2 CFR 200.331.
    (vi) Other program requirements. The agreement must require the 
subgrantee to carry out each project in compliance with all Federal 
laws and regulations described in Sec. Sec.  93.350-93.354 of this 
part.
    (vii) Affirmative marketing. The agreement must specify the 
subgrantee's affirmative marketing responsibilities, in accordance with 
Sec.  93.350.
    (viii) Requests for disbursement of funds. The agreement must 
specify that the subgrantee may not request disbursement of funds under 
the agreement until the funds are needed for payment of eligible costs. 
The amount of each request must be limited to the amount needed. 
Program income must be disbursed before the subgrantee requests grant 
funds from the grantee.
    (ix) Reversion of assets. The agreement must specify that upon 
closeout of the subgrant agreement, the subgrantee must transfer to the 
grantee any HTF funds on hand and any accounts receivable attributable 
to the use of HTF funds.
    (x) 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 grantee in meeting its 
recordkeeping and reporting requirements.
    (xi) Enforcement of the agreement. The agreement must specify 
remedies for breach of the provisions of the agreement. The agreement 
must specify that, in accordance with 2 CFR 200.338, suspension or 
termination may occur if the subgrantee materially fails to comply with 
any term of the agreement. The grantee may permit the agreement to be 
terminated in whole or in part, in accordance with 2 CFR 200.339.
    (xii) Written agreement. The agreement must require that before the 
subgrantee provides HTF funds to eligible recipients, first-time 
homebuyers, or contractors, the subgrantee must have a written 
agreement that meets the requirements of this section.
    (xiii) Duration of the agreement. The agreement must specify the 
period of performance of the agreement.
    (xiv) Fees. The agreement must prohibit the subgrantee from 
charging servicing, origination, or other fees for the costs of 
administering the HTF program, except that:
    (A) The subgrantee may charge owners of rental projects reasonable 
annual fees for compliance monitoring during the period of 
affordability. The fees must be based upon the average actual cost of 
performing the monitoring of HTF-assisted rental projects. The basis 
for determining the amount of the fee amount must be documented and the 
fee must be included in the costs of the project as part of the project 
underwriting;
    (B) The subgrantee may charge nominal application fees (although 
these fees are not an eligible HTF cost) 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 an 
income-eligible family's, or other potential recipient's participation 
in the HTF program; and
    (C) The subgrantee may charge homebuyers a fee for housing 
counseling.
    (2) Eligible recipient. The agreement between the grantee and the 
eligible recipient selected for funding must include:
    (i) Use of the HTF funds. The agreement must describe the use of 
the HTF funds for the project, including the tasks to be performed, a 
schedule for completing the tasks and project (including the 
expenditure deadline), and a project budget. These items must be in 
sufficient detail to provide a sound basis for the grantee to 
effectively monitor performance under the agreement. If the grantee is 
providing operating cost assistance, the written agreement must include 
the provisions required by Sec.  93.201.
    (ii) Deadlines. The agreement must state the time requirements for 
the commitment and expenditure of HTF

[[Page 5241]]

funds and specify that remaining funds will be reduced or recaptured.
    (iii) Audit. The agreement must specify that the recipient will 
submit to the grantee a cost certification performed by a certified 
public accountant for each project assisted with HTF funds. The 
agreement must specify that the recipient will submit to the grantee an 
annual audit performed on each project assisted with HTF funds, 
beginning the first year following the cost certification and with the 
final annual audit occurring the last year of the affordability period.
    (iv) Affordability. The agreement must specify the affordability 
period, require housing assisted with HTF funds to meet the 
affordability requirements of Sec.  93.302 or Sec.  93.304, as 
applicable, and must require repayment of the funds if the housing does 
not meet the affordability requirements for the specified time period. 
If the recipient is undertaking a rental project, the agreement must 
establish the initial rents and the procedures for rent increases, the 
number of HTF units, the size of the HTF units, the designation of the 
HTF units as fixed or floating, and the requirement to provide the 
address (e.g., street address and apartment number) of each HTF unit no 
later than the time of project completion. If the recipient is 
undertaking homeownership projects for sale to first-time homebuyers, 
in accordance with Sec.  93.304, the agreement must establish 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.
    (v) Project requirements. The agreement must require the housing to 
meet the property standards in Sec.  93.301 of this part, as 
applicable, and in accordance with the type of project assisted upon 
project completion. The agreement must also require owners of rental 
housing assisted with HTF funds to maintain the housing in compliance 
with Sec.  93.301 of this part for the duration of the affordability 
period, and to comply with the requirements of Sec.  93.303. The 
agreement may permit the recipient to limit eligibility or give a 
preference to a particular segment of the population, only if the 
grantee has described any such limited eligibility or preference in its 
consolidated plan; provided, however, that any limitation or preference 
cannot violate nondiscrimination requirements in Sec.  93.350.
    (vi) Other program requirements. The agreement must require the 
eligible recipient to carry out each project in compliance with all 
Federal laws and regulations described in Sec. Sec.  93.350 through 
93.355 of this part.
    (vii) Affirmative marketing. The agreement must specify the 
recipient's affirmative marketing responsibilities, as enumerated by 
the grantee in accordance with Sec.  93.350.
    (viii) Requests for disbursement of funds. The agreement must 
specify that the recipient may not request disbursement of funds under 
the agreement until the funds are needed for payment of eligible costs. 
The amount of each request must be limited to the amount needed.
    (ix) Records and reports. The agreement must specify the particular 
records that must be maintained and the information or reports that 
must be submitted to assist the grantee in meeting its recordkeeping 
and reporting requirements. The owner of rental housing must annually 
provide the grantee with information on rents and occupancy of HTF-
assisted units to demonstrate compliance with Sec.  93.302. If the 
rental housing project has floating HTF units, the owner must provide 
the grantee with information regarding unit substitution and filling 
vacancies so that the project remains in compliance with HTF rental 
occupancy requirements. The agreement must specify the reporting 
requirements (including copies of financial statements) to enable the 
grantee to determine the financial condition (and continued financial 
viability) of the rental project.
    (x) Enforcement of the agreement. The agreement must provide for a 
means of enforcement of the affordable housing requirements by the 
grantee and the intended beneficiaries. This means of enforcement and 
the affordability requirements in Sec.  93.302 must be imposed by deed 
restrictions, covenants running with the land, use restrictions, or 
other mechanisms approved by HUD under which the grantee and 
beneficiaries may require specific performance. In addition, the 
agreement must specify remedies for breach of the provisions of the 
agreement.
    (xi) Duration of the agreement. The agreement must specify the 
duration of the agreement. If the housing assisted under this agreement 
is rental housing, the agreement must be in effect through the 
affordability period required by the grantee under Sec.  93.302. If the 
housing assisted under this agreement is homeownership housing, the 
agreement must be in effect at least until completion of the project 
and ownership by the first-time homebuyer.
    (xii) 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.
    (3) First-time homebuyer. When a grantee provides assistance to a 
homebuyer, the written agreement must include as a minimum:
    (i) Use of the HTF funds. The agreement must conform to the 
requirements in Sec.  93.304, including the limitations on the value of 
the property, principal residence requirement, lease-purchase terms, if 
applicable, and the resale or recapture provisions. The agreement must 
specify the amount of HTF funds, the form of assistance (e.g., grant, 
amortizing loan, deferred payment loan), the use of the funds (e.g., 
downpayment, closing costs), and the time by which the housing must be 
acquired.
    (ii) Resale or recapture restrictions. The agreement must specify 
the resale or recapture restrictions established under Sec.  93.304 for 
the specified time period.
    (iii) Enforcement of the agreement. The agreement must provide for 
a means of enforcement of the affordable housing requirements by the 
grantee. The means of enforcement and the affordability requirements in 
Sec.  93.304 for resale restrictions must be imposed by deed 
restrictions, covenants running with the land, use restrictions, or 
other mechanisms approved by HUD under which the grantee may require 
specific performance. In addition, the agreement must specify remedies 
for breach of the provisions of the agreement.
    (d) Onsite inspections--(1) Project completion. The grantee must 
perform an onsite inspection of each HTF-assisted project at project 
completion to determine that the housing meets the property standards 
of Sec.  93.301. The inspections must be in accordance with the 
inspection procedures that the grantee establishes to meet the 
inspection requirements of Sec.  93.301.
    (2) Period of affordability. (i) During the period of 
affordability, the grantee must perform onsite inspections of HTF-
assisted rental housing buildings to determine compliance with the 
ongoing property standards of Sec.  93.301 and to verify the 
information submitted by the owners in accordance with the requirements 
of Sec.  93.302. The inspections must be in accordance with the 
inspection procedures that the grantee establishes to meet the 
inspection requirements of Sec.  93.301.
    (ii) The onsite inspections must occur 12 months after project 
completion and at least once every 3 years thereafter during the period 
of affordability.
    (iii) If there are observed deficiencies for any of the inspectable 
items

[[Page 5242]]

established by the grantee, in accordance with the inspection 
requirements of Sec.  93.301, a follow-up onsite inspection must occur 
within 12 months, or within a reasonable time frame established by the 
grantee depending on the severity of the deficiency, to verify that all 
observed deficiencies have been corrected. The grantee may establish a 
list of non-hazardous deficiencies for which correction can be verified 
by third party documentation rather than reinspection. The grantee must 
adopt a more frequent inspection schedule for properties that have been 
found to have health and safety violations. Life-threatening health and 
safety deficiencies must be corrected immediately, in accordance with 
Sec.  93.301.
    (iv) The property owner must annually certify to the grantee that 
each building 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 grantee to meet the requirements of Sec.  93.301.
    (v) Inspections must be based on a statistically valid sample of 
units appropriate for the size of the HTF-assisted project, as set 
forth by HUD through notice. The grantee must select the sample. For 
projects with one to four HTF-assisted units, the inspectable items 
(site, building exterior, building systems, and common areas) for each 
building with HTF-assisted units and 100 percent of the HTF-assisted 
dwelling units must be inspected.
    (e) Financial oversight. During the period of affordability, the 
grantee must examine regularly (at least annually) the financial 
condition of HTF-assisted rental projects with 10 or more HTF-assisted 
units to determine the continued financial viability of the housing and 
must take actions to correct problems.


Sec.  93.405  Applicability of uniform administrative requirements, 
cost principles, and audits.

    The requirements of 2 CFR part 200 apply to the grantees and 
subgrantees receiving HTF funds, except for the following provisions: 
Sec. Sec.  200.307, 200.311, 300.328(b), 200.329, and 200.333. If there 
is a conflict between the definitions in 2 CFR part 200 and 24 CFR part 
93, the definitions in part 93 govern.


Sec.  93.406  Audits.

    (a) Audits of the grantee and subgrantees must be conducted in 
accordance with 2 CFR part 200, subpart F. The use of HTF grant funds 
by the grantee must be audited not less than annually to ensure 
compliance with this part. Any financial statement submitted by the 
grantee to HUD must be reviewed by an independent certified public 
accountant, in accordance with Statements on Standards for Accounting 
and Review Services, which is issued by the American Institute of 
Certified Public Accountants.
    (b) The written agreement providing HTF assistance to the recipient 
must specify that the recipient will submit to the grantee a cost 
certification performed by a certified public accountant for each 
project assisted with HTF funds. The agreement must specify that the 
recipient will submit to the grantee an annual audit performed on each 
project assisted with HTF funds, beginning the first year following the 
cost certification and with the final annual audit occurring the last 
year of the affordability period.


Sec.  93.407  Recordkeeping.

    (a) General. Each grantee must establish and maintain sufficient 
records to enable HUD to determine whether the grantee has met the 
requirements of this part. At a minimum, the following records are 
needed:
    (1) Program records. (i) The forms of HTF assistance used in the 
program.
    (ii) The subsidy layering guidelines adopted in accordance with 
Sec.  93.300.
    (iii) If HTF funds are used for housing for first-time homebuyers, 
the procedures used for establishing 95 percent of the median purchase 
price for the area in accordance with Sec.  93.305, as set forth in the 
consolidated plan.
    (iv) If HTF funds are used for acquisition of housing for 
homeownership, the resale guidelines established in accordance with 
Sec.  93.304, as set forth in the consolidated plan.
    (v) Records documenting compliance with the 24-month commitment 
deadline of Sec.  93.400(d)(l).
    (vi) Records documenting compliance with the 10 percent limitation 
on administrative and planning costs in accordance with Sec.  93.202.
    (2) Project records. (i) A full description of each project 
assisted with HTF funds, including the location (address of each unit), 
form of HTF assistance, and the units assisted with HTF funds.
    (ii) The source and application of funds for each project, 
including supporting documentation, in accordance with 2 CFR 200.333 
through 200.337, and records to document the eligibility and 
allowability of the project costs, including the documentation of the 
actual HTF-eligible development costs of each HTF-assisted unit 
(through allocation of costs, if permissible under Sec.  93.200(c)) 
where HTF 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 maximum per-unit subsidy amount 
established pursuant to Sec.  93.300(a), and the subsidy layering and 
underwriting evaluation in accordance with Sec.  93.300.
    (iv) Records (e.g., inspection reports) demonstrating that each 
project meets the property standards of Sec.  93.301 of this part 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.  
93.404(a).
    (v) Records demonstrating that each family is income-eligible.
    (vi) Records demonstrating that each rental housing project meets 
the affordability and income targeting requirements of Sec.  93.302 for 
the required period. Records must be kept for each family assisted.
    (vii) Records demonstrating that each lease for an assisted rental 
housing unit complies with the tenant and participant protections of 
Sec.  93.303. Records must be kept for each family assisted.
    (viii) Records demonstrating that the purchase price for each 
housing unit for a first-time homebuyer does not exceed 95 percent of 
the median purchase price for the area, in accordance with Sec.  
93.305.
    (ix) Records demonstrating that each housing unit for a first-time 
homebuyer meets the affordability requirements of Sec.  93.304 for the 
required period.
    (x) Records demonstrating that a site and neighborhood standards 
review was conducted for each project that included new construction of 
rental housing assisted under this part, to determine that the site 
meets the requirements of Sec.  93.150.
    (xi) Records (written agreements) demonstrating compliance with the 
written agreements requirements in Sec.  93.404.
    (3) Financial records. (i) Records identifying the source and 
application of funds for each fiscal year, including the annual grant 
and any reallocation (identified by federal fiscal year).
    (ii) Records concerning the HTF Treasury account and local account 
required to be established and maintained by Sec.  93.400, including 
deposits, disbursements, balances, supporting documentation, and any 
other information required by the

[[Page 5243]]

program disbursement and information system established by HUD.
    (iii) Records identifying the source and application of program 
income and repayments.
    (iv) Records demonstrating adequate budget control, in accordance 
with 2 CFR part 200, including evidence of periodic account 
reconciliations.
    (4) 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.
    (ii) Records demonstrating compliance with the applicable uniform 
administrative requirements required by Sec.  93.405.
    (iii) Records documenting required inspections, monitoring reviews 
and audits, and the resolution of any findings or concerns.
    (5) Records concerning other Federal requirements. (i) Equal 
opportunity and fair housing records, as required under 24 CFR part 
121.
    (A) Data on the extent to which each racial and ethnic group and 
single-headed households (by gender of household head) have applied 
for, participated in, or benefited from, any program or activity funded 
in whole or in part with HTF funds.
    (B) Documentation of actions undertaken to meet the requirements of 
24 CFR part 135, which implements section 3 of the Housing and Urban 
Development Act of 1968, as amended (12 U.S.C. 1701u).
    (ii) Records demonstrating compliance with the affirmative 
marketing procedures and requirements of Sec.  93.350.
    (iii) Records demonstrating compliance with the lead-based paint 
requirements of 24 part 35, subparts A, B, J, K, M, and R.
    (iv) Records demonstrating compliance with requirements of Sec.  
93.352 regarding displacement, relocation, and real property 
acquisition.
    (v) Records supporting exceptions to the conflict-of-interest 
prohibition pursuant to Sec.  93.353.
    (vi) Debarment and suspension certifications required by 24 
CFR5.105(c) and 2 CFR part 2424.
    (vii) Records demonstrating compliance with Sec.  93.354.
    (viii) Records demonstrating compliance with 2 CFR 200.321 
regarding the grantee's activities related to minority business 
enterprise (MBE) and women's business enterprise (WBE).
    (b) Period of record retention. All records pertaining to each 
fiscal year of HTF funds must be retained in a secure location for the 
most recent 5-year period, except as provided below.
    (1) For rental housing projects, records may be retained for 5 
years after the project completion date, except that records of 
individual tenant income verifications, project rents, and project 
inspections must be retained for the most recent 5-year period, until 5 
years after the affordability period terminates.
    (2) For homeownership housing projects, records may be retained for 
5 years after the project completion date, except for documents 
imposing resale or recapture restrictions that must be retained for 5 
years after the affordability period terminates.
    (3) Written agreements must be retained for 5 years after the 
agreement terminates.
    (4) Records covering displacements and acquisitions must be 
retained for 5 years after the date by which all persons displaced from 
the property and all persons whose property is acquired for the project 
have received the final payment to which they are entitled, in 
accordance with Sec.  93.352.
    (5) If any litigation, claim, negotiation, audit, monitoring, 
inspection, or other action has been started before the expiration of 
the required record retention period, records must be retained until 
completion of the action and resolution of all issues that arise from 
it, or until the end of the required period, whichever is later.
    (c) Access to records. (1) The grantee must provide citizens, 
public agencies, and other interested parties with reasonable access to 
records, consistent with applicable State and local laws regarding 
privacy and obligations of confidentiality.
    (2) HUD and the Comptroller General of the United States, and any 
of their representatives, have the right of access to any pertinent 
books, documents, papers, or other records of the grantee, subgrantees, 
and recipients, to make audits, examinations, excerpts, and 
transcripts.


Sec.  93.408  Performance reports.

    Each grantee must develop and maintain a system to track the use of 
its HTF funds, and submit annual performance and management reports on 
its HTF program in accordance with 24 CFR 91.520. HUD will make the 
performance and management reports publicly available.

Subpart J--Performance Reviews and Sanctions


Sec.  93.450  Accountability of recipients.

    The grantee shall review each recipient to determine compliance 
with the requirements of this part and the terms of the written 
agreement in accordance with the grantee's policies, procedures, and 
systems established pursuant to Sec.  93.404(a).
    (a) Misuse of funds--(1) Reimbursement requirement. If a recipient 
of HTF assistance is determined to have used HTF funds in a manner that 
is materially in violation of the requirements of this part or any 
requirements or conditions under which the funds were provided, the 
grantee must require that, within 12 months after the determination of 
such misuse, the recipient reimburse the grantee for such misused 
amounts and return to the grantee any such amounts that remain unused 
or uncommitted for use. The reimbursement is in addition to any other 
remedies that may be available under law.
    (2) Determination. The grantee or HUD may make the determination, 
provided that:
    (i) The grantee provides notification and opportunity for 
discretionary review to HUD; and
    (ii) HUD does not subsequently reverse the determination.
    (b) Reduction for failure to obtain return of misused funds. (1) 
If, in any year, a grantee fails to obtain reimbursement or return of 
the full amount required to be reimbursed or returned to the grantee 
during the year, the amount of the grant for the grantee for the 
succeeding year will be reduced by the amount by which the amounts 
required to be reimbursed or returned exceed the amount actually 
reimbursed or returned.
    (2) In any case in which a failure to obtain reimbursement or 
return occurs during a year immediately preceding a year in which HTF 
grants will not be made, the grantee shall pay to HUD, for reallocation 
among the other grantees, an amount equal to the amount of the 
reduction for the entity that would otherwise apply.


Sec.  93.451  Performance reviews.

    (a) General. HUD will review the performance of each grantee in 
carrying out its responsibilities under this part whenever determined 
necessary by HUD, but at least annually. In conducting performance 
reviews, HUD will rely primarily on information obtained from the 
grantee's records and reports, findings from onsite monitoring, audit 
reports, and

[[Page 5244]]

information generated from the disbursement and information system 
established by HUD. Where applicable, HUD may also consider relevant 
information pertaining to a grantee's performance gained from other 
sources, including citizen comments, complaint determinations, and 
litigation. Reviews to determine compliance with specific requirements 
of this part will be conducted as necessary, with or without prior 
notice to the grantee. Onsite comprehensive performance reviews under 
the standards in paragraph (b) of this section will be conducted after 
prior notice to the grantee.
    (b) Standards for comprehensive performance review. A grantee's 
performance will be comprehensively reviewed periodically, as 
prescribed by HUD, to determine whether the grantee has committed and 
expended the HTF funds as required by Sec.  93.400; has met the 
requirements of this part, particularly eligible activities, income 
targeting, affordability, and property standards; has awarded the funds 
in accordance with its HTF allocation plan and requirements of this 
part; has reviewed its subgrantees and recipients to determine whether 
they have satisfied the requirements of this part and the terms of 
their written agreements; and has met its performance measures in its 
consolidated plan.


Sec.  93.452  Corrective and remedial actions.

    (a) General. HUD will use the procedures in this section in 
conducting the performance review as provided in Sec.  93.451 and in 
taking corrective and remedial actions.
    (b) Performance review. (1) If HUD determines preliminarily that 
the grantee has not met a requirement of this part, the grantee will be 
given notice of this determination and an opportunity to demonstrate, 
within the time prescribed by HUD (not to exceed 30 calendar days) and 
on the basis of substantial facts and data, that it has done so.
    (2) If the grantee fails to demonstrate to HUD's satisfaction that 
it has met the requirement, HUD will take corrective or remedial action 
in accordance with this section or Sec.  93.453.
    (c) Corrective and remedial actions. Corrective or remedial actions 
for a performance deficiency (failure to meet a provision of this part) 
will be designed to prevent a continuation of the deficiency; mitigate, 
to the extent possible, its adverse effects or consequences; and 
prevent its recurrence.
    (1) HUD may instruct the grantee to submit and comply with 
proposals for action to correct, mitigate, and prevent a performance 
deficiency, including:
    (i) Preparing and following a schedule of actions for carrying out 
the affected activities, consisting of schedules, timetables, and 
milestones necessary to implement the affected activities;
    (ii) Establishing and following a management plan that assigns 
responsibilities for carrying out the remedial actions;
    (iii) Canceling or revising activities likely to be affected by the 
performance deficiency, before expending HTF funds for the activities;
    (iv) Reprogramming HTF funds that have not yet been expended from 
affected activities to other eligible activities;
    (v) Reimbursing its HTF account in any amount not used in 
accordance with the requirements of this part;
    (vi) Suspending disbursement of HTF funds for affected activities; 
and
    (vii) Establishing procedures to ensure compliance with HTF 
requirements;
    (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 grantee to be high risk and impose special 
conditions or restrictions on the allocation in accordance with 2 CFR 
200.207 or 200.338; and take other remedies that may be legally 
available.


Sec.  93.453  Notice and opportunity for hearing; sanctions.

    (a) If HUD finds after reasonable notice and opportunity for 
hearing that a grantee has substantially failed to comply with any 
provision of this part, and until HUD is satisfied that there is no 
longer any such failure to comply:
    (1) HUD shall reduce the funds in the grantee's HTF account by the 
amount of any expenditures that were not in accordance with the 
requirements of this part or require the grantee to repay to HUD any 
amount of the HTF grant that was not used in accordance with the 
requirements of this part; and
    (2) HUD may do one or more of the following:
    (i) Prevent withdrawals from the grantee's HTF account for 
activities affected by the failure to comply;
    (ii) Restrict the grantee's activities under this part to 
activities or recipients not affected by the failure to comply;
    (iii) Remove the State from participation in allocations or 
reallocations of funds made available under Sec. Sec.  93.50 through 
93.54 of this part; or
    (iv) Terminate any HTF assistance to the grantee. HUD may, on due 
notice, suspend payments at any time after the issuance of a notice of 
opportunity for hearing pursuant to paragraph (a) of this section, 
pending such hearing and a final decision, to the extent that HUD 
determines such action to be necessary to preclude the further 
expenditure of funds for activities affected by the failure to comply.
    (b) Proceedings. When HUD proposes to take action pursuant to this 
section, the respondent in the proceedings will be the grantee. 
Proceedings will be conducted in accordance with 24 CFR part 26.

    Dated: January 23, 2015.
Juli[aacute]n Castro,
Secretary.
[FR Doc. 2015-01642 Filed 1-29-15; 8:45 am]
BILLING CODE 4210-67-P