[Federal Register Volume 81, Number 205 (Monday, October 24, 2016)]
[Rules and Regulations]
[Pages 73030-73034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25147]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Subtitle A and Chapters II, IV, V, VIII, IX, and XX

[Docket No. FR-5976-N-01]


Housing Opportunity Through Modernization Act of 2016: Initial 
Guidance

AGENCY: Office of General Counsel, HUD.

ACTION: Initial implementation guidance.

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SUMMARY: On July 29, 2016, President Obama signed into law the Housing 
Opportunity Through Modernization Act of 2016 (HOTMA). This new statute 
provides updates and improvements to statutes that authorize and 
prescribe requirements for multiple HUD programs and the Department of 
Agriculture's single-family housing guaranteed loan program. The 
purpose of this document is to advise HUD program participants and 
interested members of the public of those statutory provisions that are 
effective immediately and those provisions that will require further 
action by HUD to become effective or to be used by HUD program 
participants.

DATES: Effective Date: This document is effective October 24, 2016.

FOR FURTHER INFORMATION CONTACT: If you have any questions, please 
contact the following people (none of the phone numbers are toll-free):
    Public Housing, Housing Choice Voucher (including project-based 
vouchers), and moderate rehabilitation programs: email 
[email protected].
    Multifamily Housing programs: Danielle Garcia, Branch Chief, 
Assistant Housing Oversight Division, Office of Housing, 202-402-2768.
    HOME Investment Partnerships program: Virginia Sardone, Director, 
Office of Affordable Housing Programs, Office of Community Planning and 
Development, 202-708-2684.
    Self-Help Homeownership Opportunity Program (SHOP) program: Jackie 
Williams, Director, Office of Rural Housing and Economic Development, 
Office of Community Planning and Development, (202) 708-2290.
    Housing Opportunities for Persons With AIDS (HOPWA) program: Rita 
Flegel, Director, Office of HIV/AIDS Housing, Office of Community 
Planning and Development, 202-402-5374.
    Homeless programs: Norm Suchar, Director, Office of Special Needs 
Assistance, Office of Community Planning and Development, 202-708-4300.
    The address for all offices is the Department of Housing and Urban 
Development, 451 7th Street SW., Washington, DC 20410. Persons with 
hearing or speech impairments may access these numbers through TTY by 
calling the Federal Relay Service, toll-free, at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    On July 29, 2016, President Obama signed HOTMA into law (Pub. L. 
114-201, 130 Stat. 782). HOTMA amends the United States Housing Act of 
1937 (1937 Act) and other housing laws to modify multiple HUD programs, 
along with the Department of Agriculture's Single Family Housing 
Guaranteed Loan Program. Significant amendments include setting a 
maximum income level for continued occupancy in public housing, 
expanding the availability of Family Unification Program vouchers for 
children aging out of foster care, changes to the housing quality 
standards for Section 8 Voucher units, multiple changes to the Project-
Based Voucher program, modifying requirements for mortgage insurance 
for condominiums under the Federal Housing Administration, creating a 
Special Assistant for Veterans Affairs in HUD, and changing the 
allocation formula for the Housing Opportunities for Persons With AIDS 
(HOPWA) program.

II. Implementation, Generally

    HOTMA makes several of its provisions effective upon enactment 
(July 29, 2016). Other statutory changes made by HOTMA become effective 
only after the issuance of a notice or regulations by HUD, or at the 
start of the calendar year following the publication of a notice or 
regulation. Some provisions require rulemaking to implement, while some 
are strictly changes in terminology or conforming changes.
    This document is intended to:
    (1) Advise the public of statutory provisions that are effective 
immediately and advise of actions that may or should be taken now to 
comply with the changes (Section III of the document).
    (2) Identify those provisions of HOTMA that are not effective until 
HUD subsequently issues a notice or regulation (Section IV of the 
document).
    This document does not provide a section-by-section analysis of 
HOTMA, nor does it provide guidance on all sections. However, the 
guidance in this document, read together with the statutory 
language,\1\ is intended to aid HUD program participants and the public 
generally in understanding (1) the prompt action HUD recommends be 
taken now or in the very near future, and (2) the reasons for any 
deferred action with respect to certain statutory provisions. HUD is 
committed to working closely with its program participants to see that 
the changes made by HOTMA are successfully implemented and that these 
programs are significantly improved to provide assistance to the 
families HUD serves.
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    \1\ The text of HOTMA, along with a summary prepared by the 
Congressional Research Service, can be found at https://www.congress.gov/bill/114th-congress/house-bill/3700.
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III. Provisions of HOTMA Effective Upon Enactment or Otherwise Already 
in Effect--No HUD Action Required To Implement

    This section outlines provisions of HOTMA that are effective upon 
enactment of HOTMA (July 29, 2016) and can be implemented immediately.

[[Page 73031]]

HUD notes that in many cases the statutory provisions listed in this 
section may require conforming rulemaking at a later date to update 
HUD's regulations to reflect these statutory changes. HUD may also 
issue other types of guidance to further explain these provisions. 
Below is the list of HOTMA sections that are effective immediately.

Section 102(d). Reasonable Accommodation Payment Standards

    Section 102(d) of HOTMA amends section 8(o) of the 1937 Act to 
allow PHAs to establish a payment standard of up to 120 percent of the 
FMR as a reasonable accommodation for a person with a disability, 
without HUD approval.
    Implementation action: The final rule on ``Streamlining 
Administrative Regulations for Public Housing, Housing Choice Voucher, 
Multifamily Housing, and Community Planning and Development Programs,'' 
published on March 8, 2016, at 81 FR 12354, previously provided PHAs 
with the flexibility establish a payment standard up to 120 percent of 
the FMR as a reasonable accommodation for a person with a disability, 
effective April 7, 2016. As a result, no further action is needed to 
implement this section.
    It is noted the PHA may also establish an exception payment 
standard of more than 120 percent of the published FMR if required as a 
reasonable accommodation in accordance with 24 CFR part 8 for a family 
that includes a person with a disability, but in such cases must 
request approval from HUD.

Section 107. Establishment of Fair Market Rent

    This section changes how HUD publishes Fair Market Rents (FMRs), 
and the procedure to allow PHAs and other interested parties to comment 
on the FMRs and request HUD to reevaluate the FMRs in a jurisdiction 
before those rents become effective. Section 107 also amends section 
8(o)(1)(B) of the 1937 Act to provide that in the Housing Choice 
Voucher (HCV) Program no PHA is required, as a result of a reduction in 
the FMR, to reduce the payment standard applied to a family continuing 
to reside in a unit under a HAP contract at the time the FMR was 
reduced. Currently, if a reduction in the FMR causes the PHA's payment 
standard to exceed the basic range (110 percent of the FMR), the PHA is 
required to reduce the payment standard so that the payment standard 
would be within the basic range of the new FMR. The program regulations 
at 24 CFR 982.505(c)(3) further provide that for families under a 
housing assistance payment (HAP) contract at the time of the decrease 
in the payment standard, the new decreased payment standard would be 
applied to the family's subsidy calculation at the family's second 
regular re-examination following the decrease in the payment standard 
amount. As a result of the change in the law, the PHA may choose to 
continue to use the higher payment standard for the family's subsidy 
calculation for as long as the family continues to receive voucher 
assistance in that unit. If a PHA chooses to continue to use the higher 
payment standard for the subsidy calculation for the family, then the 
PHA must adopt policies in its administrative plan that further explain 
this provision.
    Implementation action: This provision was effective upon enactment 
of HOTMA. HUD's FMRs for Fiscal Year 2017, published in the Federal 
Register on August 26, 2016, reflect the new procedures for calculation 
of FMRs. Effective July 29, 2016, PHAs may choose, but are no longer 
required, to reduce the payment standard for a family who remains under 
HAP contract at the family's second annual reexamination. HUD will 
issue additional guidance on this change in the future. PHAs with 
questions in the interim may contact the local HUD Field Office.

Section 110. Family Unification Program for Children Aging Out of 
Foster Care

    This section of HOTMA makes changes to the Family Unification 
Program (FUP) for children aging out of foster care. The law revises 
the length of the term that a FUP-eligible youth may receive FUP 
assistance from 18 months to 36 months. Please note that this change 
applies to youth currently receiving FUP assistance as well as any new 
participants. In addition, the law revises the eligibility requirements 
for FUP-eligible youth. Previously, FUP-eligible youth must be at least 
18 years old and not more than 21 and have left foster care at age 16 
or older. Under the new law, FUP-eligible youth must: Be at least 18 
years old and not more than 24; have left foster care at age 16 or 
older or will leave foster care within 90 days, in accordance with a 
transition plan described in section 475(5)(H) of the Social Security 
Act; and be homeless or at risk of being homeless. PHAs should refer to 
the definition of ``at risk of homelessness'' at 24 CFR 576.2. HOTMA 
also requires HUD to issue guidance, after consultation with other 
appropriate Federal agencies, on how to improve coordination between 
PHAs and public child welfare agencies to carry out the FUP program.
    Implementation action: The changes to the FUP program were 
effective upon enactment of HOTMA. PIH issued a letter on August 29, 
2016, to FUP PHA Executive Directors to ensure that such PHAs are aware 
that this provision was effective upon enactment. In addition, HUD 
plans to issue the guidance on improving coordination between PHAs and 
public child welfare agencies by the statutory deadline of January 25, 
2017.

Section 113. Preference for United States Citizens or Nationals

    This section only applies to Guam and establishes a preference or 
priority in receiving financial assistance (e.g., admission to public 
housing, the HCV program, etc.) for any citizen or national of the 
United States over aliens covered by section 141 of the Compacts of 
Free Association between the United States and the Marshall Islands, 
the Federated States of Micronesia, and Palau.
    Implementation action: This provision was effective upon enactment 
of HOTMA. No regulatory action is needed for this section of HOTMA to 
be implemented.

Section 114. Exception to Public Housing Agency Resident Board Member 
Requirement

    This section provides for an exception for certain jurisdictions 
(Housing Authority of the County of Los Angeles or any PHA in the 
States of Alaska, Iowa, and Mississippi) from the resident board member 
requirements under section 2(b) of the 1937 Act.
    Implementation action: This provision was effective upon enactment 
of HOTMA, and the exception has been in effect for a number of years 
through the appropriations acts. As a result, no further action is 
needed to implement this section. This statutory provision does not 
alter the regulatory provision at 24 CFR 964.405(b).

Section 402. Inclusion of Public Housing Agencies and Local Development 
Authorities in Emergency Solutions Grants

    Section 402 of HOTMA amended section 414(c) of the McKinney-Vento 
Homeless Assistance Act (42 U.S.C. 11373(c)) to authorize local 
governments that receive Emergency Solutions Grants (ESG) funds to 
subaward all or a portion of those funds to public housing agencies, as 
defined under section 3(b)(6) of the 1937 Act (42 U.S.C. 1437a(b)(6)), 
and local redevelopment authorities, as defined under State law. 
Implementation action: This provision was effective upon

[[Page 73032]]

enactment of HOTMA. No regulatory action is needed to authorize local 
governments to subaward ESG funds to public housing agencies and local 
redevelopment authorities. However, HUD intends to issue guidance 
explaining the conditions and requirements that apply to subawarding 
ESG funds to PHAs and local redevelopment authorities.

Section 501. Inclusion of Disaster Housing Assistance Program in 
Certain Fraud and Abuse Prevention Measures

    This section provides that the Disaster Housing Assistance Program 
shall be considered a program of HUD under section 904 of the Stewart 
B. McKinney Homeless Assistance Amendments Act of 1988 for the purpose 
of income verifications.
    Implementation action: This provision was effective upon enactment 
of HOTMA, and it has previously been in effect through HUD 
appropriations acts for a number of years, and therefore no additional 
action is needed for implementation.

Section 502. Energy Efficiency Requirements Under Self-Help 
Homeownership Opportunity Program

    This provision prohibits HUD from requiring units developed under 
the Self-Help Homeownership Opportunity Program (SHOP) to meet energy 
efficiency standards other than those in section 109 of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 12709).
    Implementation action: This provision was effective upon enactment 
of HOTMA. The changes will be reflected in the future SHOP Notice of 
Funding Availability, and HUD will provide current grantees with 
additional information on how this provision affects their prior year 
funding.

Section 701. Formula and Terms for Allocations To Prevent Homelessness 
for Individuals Living With HIV or AIDS

    This provision makes several changes to the Housing Opportunities 
for Persons with AIDS (HOPWA) program. These changes include: 
Alterations to the allocation formula; continued eligibility of Fiscal 
Year 2016 grantees; authorization to award funds to alternative 
grantees as requested by the original grantee in accordance with 
specified criteria; and amended definitions.
    Implementation action: These changes apply to the formula for 
Fiscal Year 2017 funds. HUD's Office of Community Planning and 
Development (CPD) is preparing more detailed guidance to explain how 
these changes will affect Fiscal Year 2017 funding. This section 
requires HUD to issue regulations in order to exercise discretion 
regarding reallocations of funds distributed by formula, and HUD is 
developing those regulations.

IV. Provisions That Require Rulemaking or Guidance by HUD

    There are several provisions in HOTMA that amend HUD statutes but, 
under their own terms, are not effective until HUD issues a notice or 
regulation. Other provisions make changes to HUD statutes that, while 
effective upon enactment of HOTMA, require HUD rulemaking or the 
issuance of detailed guidance for implementation. This section 
addresses both types of HOTMA provisions requiring further HUD action. 
For these provisions, PHAs, multifamily owners, or grantees may not use 
the provisions of HOTMA until HUD issues a rule or notice.

Section 101(a)(1). Initial Inspections in Section 8 Voucher Units

    Section 101(a)(1) amends section 8(o) of the 1937 Act to authorize 
assistance payments for up to 30 days if an initial inspection reveals 
non-life-threatening defects and to authorize occupancy of units before 
an inspection by the PHA if the property has met the requirements of an 
alternative inspection in the previous 24 months.
    Implementation action: HUD has the ability to implement these 
changes by notice or by regulation, and the statutory amendments are 
not effective until the notice or regulation is issued. HUD is 
considering the appropriate method for implementation.

Sections 101(a)(2) and (3). Enforcement of Housing Quality Standards 
for Section 8 Voucher Units

    Section 101(a)(3) amends section 8(o) of the 1937 Act to require 
timeframes for correcting deficiencies discovered by inspections. The 
statute requires life-threatening deficiencies to be corrected within 
24 hours and sets the time for correcting other deficiencies at 30 days 
unless the PHA determines otherwise. The section also provides families 
with 90 days to relocate to a new unit if an owner fails to correct the 
defaults and allows PHAs to use up to two months of any assistance 
amounts withheld or abated for costs directly associated with 
relocation of these families. Section 101(a)(2) is a technical 
amendment to make room for the new subparagraph (G) added by section 
101(a)(3).
    Implementation action: For section 101(a)(3), HUD is in the process 
of developing regulations, and section 101(a)(2) requires only a 
conforming rule by HUD. The statutory amendments made by sections 
101(a)(2) and (3) will only go into effect when the regulations are 
issued to implement the new subparagraph added by section 101(a)(3).

Sections 102(a), (c), and (e). Income Reviews

    Section 102(a) of HOTMA amends section 3(a) of the 1937 Act to 
revise the frequency of family income reviews and the calculation of 
income. Specifically, this section requires that reviews of family 
income must be conducted upon admission and annually thereafter, 
depending on certain decreases or increases in annual adjusted income. 
This section also requires HUD, in consultation with other appropriate 
Federal agencies, to develop electronic procedures enabling PHAs to 
access income determinations for other Federal means-tested programs.
    Section 102(c) of HOTMA amends section 3(b) of the 1937 Act to 
change the definitions for the public housing and Section 8 programs of 
income and adjusted income for each member of the household who is 18 
years or older and unearned income for each dependent who is less than 
18. The changes in definitions require rulemaking to implement, and the 
statutory amendments are not effective until the rulemaking is 
complete.
    Section 102(e) changes the definition of ``income'' to ``annual 
adjusted income'' for the Enhanced Voucher Program.
    Implementation action: HUD has the ability to implement these 
changes by notice or by regulation, and the statutory amendments are 
not effective until the beginning of the calendar year after the notice 
or regulation is issued. HUD is considering the appropriate method for 
implementation.

Section 102(f). Income Review for Project-Based Housing

    This section amends strikes the last sentence of paragraph (3) of 
section 8(c) of the 1937 Act (42 U.S.C. 1437f(c)(3). This eliminates 
the requirement that reviews of family income shall be made no less 
frequently than annually.
    Implementation action: HUD has the ability to implement these 
changes by notice or by regulation, and the statutory amendments are 
not effective until the beginning of the calendar year after the notice 
or regulation is issued. HUD is considering the appropriate method for 
implementation.

[[Page 73033]]

Section 103. Limitation on Public Housing Tenancy for Over-Income 
Families

    The statute sets the maximum amount of annual adjusted income for 
continued occupancy in public housing at 120 percent area median income 
(AMI), which the Secretary may adjust based on certain statutory 
factors. The statute also requires that a family is only subject to 
this limitation if their annual adjusted income meets or exceeds the 
maximum amount for two consecutive years. In addition, for a family 
meeting this threshold for two consecutive years, the PHA has the 
option to terminate the family's tenancy or to allow them to remain in 
the unit at a higher rent amount.
    Implementation action: The statutory language recognizes that it is 
necessary in some areas to deviate from the income cap of 120 percent 
AMI. In order to allow HUD to exercise its discretion in a fair and 
effective manner, HUD will issue additional information in the future. 
In addition, the new section 16(a)(5)(A)(i)(II) of the 1937 Act 
requires regulations to determine the amount of subsidy allocated to a 
specific unit in order to determine family rent in the event a family 
chooses to remain in the unit.

Section 104. Limitation on Eligibility for Assistance Based on Assets

    Section 104 sets limits on the assets that families residing in 
assisted housing may have. Section 104 also directs HUD, beginning 
October 1, 2017, to direct PHAs to require all applicants and 
recipients under the 1937 Act to authorize the PHA to obtain financial 
information needed in connection with a determination with respect to 
eligibility.
    Implementation action: This requirement must be put in place by 
rulemaking.

Section 105. Units Owned by Public Housing Agencies

    This section provides that the term `owned by a public housing 
agency' means, with respect to a dwelling unit, that the dwelling unit 
is in a project that is owned by a PHA, by an entity wholly controlled 
by a PHA, or by a limited liability company or limited partnership in 
which a PHA (or an entity wholly controlled by a PHA) holds a 
controlling interest in the managing member or general partner. This 
section also provides that a dwelling unit is not deemed to be owned by 
a PHA where the PHA holds a fee interest as ground lessor in the 
property on which the unit is situated, holds a security interest under 
a mortgage or deed of trust on the unit, or holds a non-controlling 
interest in an entity which owns the unit or in the managing member or 
general partner of an entity which owns the unit.
    Implementation action: PHAs should continue their current practices 
until HUD can issue additional information on how affected PHAs can 
comply with any new requirements.

Section 106. PHA Project-Based Assistance

    This section makes several statutory changes to the Project-Based 
Voucher (PBV) Program in section 8(o)(13) of the 1937 Act. The 
amendments include (1) changing the portfolio limitation on PBV 
vouchers from a funding to a unit calculation and allowing for 
additional project-basing of vouchers for homeless families, families 
with veterans, supportive housing for persons with disabilities or 
elderly persons, or in areas where vouchers are difficult to use; (2) 
changing the cap on the number of PBV units in a project to be the 
greater of 25 units in a project or 25 percent of the units in a 
project; (3) allowing PHAs to provide for an initial PBV contract of up 
to 20 years; (4) providing owners and PHAs the ability to adjust rents 
based on an operating cost adjustment factor; (5) permitting owners to 
use site-based waiting lists; (6) allowing PHAs to attach assistance to 
structures in which the PHA has an ownership interest or control 
without following a competitive process; and (7) allowing PHAs to use 
project-based HUD-VASH and FUP vouchers under the same policies and 
procedures applicable to general purpose vouchers.
    Implementation action: HUD has the ability to implement these 
changes by notice or regulation, and the statutory amendments are not 
effective until the notice or regulation is issued. Some sections 
require regulations to add onto baselines set by the statute. HUD is 
considering the appropriate method for implementation.

Section 109. Public Housing Capital and Operating Funds

    Section 109 revises section 9 of the 1937 Act regarding (1) PHAs 
establishing a Capital Fund Replacement Reserve, for which HUD may 
allow a PHA to transfer more than 20 percent of its operating fund to 
establish the reserve; (2) a 20 percent operating funds cap for capital 
improvements; and (3) PHA accounting and reporting on replacement 
reserves funds.
    Implementation action: These statutory changes are effective upon 
the enactment of HOTMA. However, in order for PHAs to implement the 
changes, additional guidance or rulemaking is required.

Section 112. Use of Vouchers for Manufactured Housing

    Section 112(b) of HOTMA extends the definition of ``rent'' for 
vouchers to include monthly payments for purchasing a manufactured 
home, tenant-paid utilities, and monthly rent for real property.
    Implementation action: These statutory changes are only effective 
upon issuance by HUD of an implementing notice. The statutory 
amendments are not effective until HUD issues that implementation 
notice.

Section 301. Modification of FHA Requirements for Mortgage Insurance 
for Condominiums

    Section 301 mandates several changes to FHA's mortgage insurance 
for condominiums, including changes to requirements on project 
recertification, exceptions to the percentage of floor space that may 
be used for nonresidential or commercial purposes, private transfer fee 
covenants, and the minimum required percentage of units that must be 
owner occupied.
    Implementation action: Some of these changes must be done by 
regulations, while the revision to the owner occupancy percentage may 
be done by rulemaking or an administrative document. HUD issued a 
proposed rule to implement provisions on all these subjects other than 
transfer fees, and including general parameters on owner occupancy, on 
September 28, 2016, at 81 FR 66565. In the near future, HUD will be 
issuing a Mortgagee Letter to establish the specific owner occupancy 
percentage. For other provisions of section 301, HUD is considering the 
appropriate implementation action.

Section 401. Definition of Geographic Area for Continuum of Care 
Program

    Section 401 requires HUD to issue a notice by October 27, 2016 
defining ``geographic area'' for the Continuum of Care (CoC) program.
    Implementation action: HUD is currently developing the notice.

Section 701. HOPWA Allocations

    Section 701 of HOTMA adds four paragraphs to section 854(c) of the 
AIDS Housing Opportunity Act (42 U.S.C. 12903(c)). The new paragraph 
(1)(C) allows the Secretary to change the allocation formula set in 
paragraph (1)(A) to account for differences in housing costs and 
poverty rates. The new paragraph (4) allows the Secretary to set 
criteria by which the Secretary

[[Page 73034]]

determines a grantee is unable to properly administer its allocation.
    Implementation action: Both of these provisions require HUD to 
issue regulations to exercise the Secretary's discretion, and HUD is 
developing those regulations.

    Dated: October 12, 2016.
Ariel Pereira,
Associate General Counsel for Legislation and Regulations.
[FR Doc. 2016-25147 Filed 10-21-16; 8:45 am]
 BILLING CODE 4210-67-P