[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Rules and Regulations]
[Pages 9600-9676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01617]



[[Page 9599]]

Vol. 88

Tuesday,

No. 30

February 14, 2023

Part II





Department of Housing and Urban Development





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24 CFR Parts 5, 92, 93, et al.





Housing Opportunity Through Modernization Act of 2016: Implementation 
of Sections 102, 103, and 104; Final Rule

  Federal Register / Vol. 88 , No. 30 / Tuesday, February 14, 2023 / 
Rules and Regulations  

[[Page 9600]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 92, 93, 570, 574, 882, 891, 960, 964, 966, 982

[Docket No FR-6057-F-03]
RIN 2577-AD03


Housing Opportunity Through Modernization Act of 2016: 
Implementation of Sections 102, 103, and 104

AGENCY: Office of the Deputy Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule revises HUD regulations to implement parts of 
the Housing Opportunity Through Modernization Act of 2016 (HOTMA). In 
addition to amending regulations for HUD's public housing and Section 8 
programs, this final rule revises the program regulations for several 
other HUD programs. HUD did this in the interest of aligning its 
requirements across its programs or because the underlying program 
statute required HUD to make the revisions. These include the 
regulations for HUD's Community Development Block Grants, HOME 
Investment Partnerships, Housing Trust Fund, Housing Opportunities for 
Persons With AIDS, Supportive Housing for the Elderly (Section 202), 
and Supportive Housing for Persons with Disabilities (Section 811) 
programs. Since HUD and other Federal agencies may use the regulations 
revised as part of this rulemaking in the calculation of income for 
other programs or activities, the public should be aware that the 
effects of this rulemaking are not limited to the programs listed in 
this rule and preamble.

DATES: This final rule is effective January 1, 2024, except for the 
amendments to Sec. Sec.  5.520(d), 5.628(a), 960.102(b), 960.206(b), 
960.253, 960.257(a) and (d), 960.261, 960.507, 960.509, 960.600, 
960.601(b), 964.125(a), 966.4(a) and (l), which are effective March 16, 
2023.

FOR FURTHER INFORMATION CONTACT: 
    Public Housing, Housing Choice Voucher (including project-based 
vouchers), and rehabilitation programs: Michael Dennis, Senior Program 
Advisor, Office of Public Housing and Voucher Programs, at 202-402-4059 
(this is not a toll-free number), or email [email protected].
    Multifamily Housing programs: Jennifer Lavorel, Director, Program 
Administration Office, Office of Asset Management and Portfolio 
Oversight, at 202-402-2515 (this is not a toll-free number), or email 
[email protected].
    Community Development Block Grant program: Jessie Kome, Director, 
Office of Block Grant Assistance, Office of Community Planning and 
Development, at 202-402-5539 (this is not a toll-free number), or email 
[email protected].
    HOME Investment Partnerships and Housing Trust Fund programs: 
Virginia Sardone, Director, Office of Affordable Housing Programs, 
Office of Community Planning and Development, at 202-708-2684 (this is 
not a toll-free number), or email [email protected].
    Housing Opportunities for Persons With AIDS program: Rita Harcrow, 
Director, Office of HIV/AIDS Housing, Office of Community Planning and 
Development, at 202-402-5374 (this is not a toll-free number), or email 
[email protected].
    HUD welcomes and is prepared to receive calls from individuals who 
are deaf or hard of hearing, as well as individuals with speech and 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
    The mailing address for each office contact is Department of 
Housing and Urban Development, 451 7th Street SW, Washington, DC 20410.

SUPPLEMENTARY INFORMATION: 

I. Background

History of the Rule

    On July 29, 2016, HOTMA was signed into law (Pub. L. 114-201, 130 
Stat. 782). HOTMA makes numerous changes to statutes governing HUD 
programs, including sections 3, 8, and 16 of the United States Housing 
Act of 1937 (42 U.S.C. 1437 et seq.) (1937 Act). HUD published a rule 
in the Federal Register on October 24, 2016 (81 FR 73030), announcing 
which statutory changes made by HOTMA could be implemented immediately 
and which statutory changes required further action by HUD.
    On November 29, 2016 (81 FR 85996), HUD published a Federal 
Register notice seeking public input on how HUD should determine the 
income limit for public housing residents pursuant to Section 103 of 
HOTMA, and this was followed by a July 26, 2018 (83 FR 35490) notice 
that made some provisions of Section 103 of HOTMA effective.
    On January 18, 2017, HUD published a proposed rule (82 FR 5458) 
that made multiple HOTMA provisions for the Housing Choice Voucher 
(HCV) program, unrelated to sections 102, 103, and 104, effective and 
solicited public comment on HUD's implementation methods. The 
conforming regulatory changes for the HCV program provisions 
implemented by the January 18, 2017, rulemaking are not part of this 
final rule and are being addressed through a separate rulemaking.\1\
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    \1\ HUD published a proposed rule to implement HOTMA's 
provisions on the voucher programs and additional streamlining 
procedures on October 8, 2020 (85 FR 63664).
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    Many of the statutory provisions in HOTMA are intended to 
streamline administrative processes and reduce burdens on PHAs and 
owners of housing assisted by Section 8 programs. Sections 102, 103, 
and 104 of HOTMA require that HUD make changes to its regulations and 
take other actions--some of which will also reduce burdens on PHAs and 
private owners once implemented.
    On September 17, 2019 (84 FR 48820), HUD published a proposed rule 
to update its regulations according to HOTMA's statutory mandate and to 
implement the provisions of Sections 102, 103, and 104 of HOTMA that 
require rulemaking. Additional details about the proposed rule may be 
found at 84 FR 48820 (September 17, 2019). That proposed rule has 
additional information on the proposed regulatory changes and how they 
relate to HOTMA. In addition, on December 4, 2020 (85 FR 78295), HUD 
re-opened public comment on specific provisions dealing with families 
whose income rises above the new cap for residing in public housing. 
This final rule follows the publication of the September 17, 2019, 
proposed rule and considers the public comments received, including 
public comments received in response to HUD's December 4, 2020, notice 
re-opening public comments.

Summary of Affected Programs

    Because a variety of programs use these definitions, HUD offers the 
following chart showing which programs (other than the public housing 
and Section 8 programs) are affected by various changes to the income 
regulatory provisions in 24 CFR part 5:

[[Page 9601]]



----------------------------------------------------------------------------------------------------------------
                                                                              Housing Trust
                                  HOPWA (Part 574)      HOME (Part 92)        Fund (Part 93)        202/811
----------------------------------------------------------------------------------------------------------------
Net Family Assets Definition     Yes, except the    Yes, unless the         Yes, unless the    Yes.
 (Sec.   5.603).                  value of a home    participating           HTF grantee
                                  of a participant   jurisdiction chooses    chooses to
                                  receiving short-   to calculate income     calculate income
                                  term mortgage or   using the IRS income    using the IRS
                                  utility            definition. The value   income
                                  assistance under   of a homeowner's        definition.
                                  Sec.               principal residence     Income or asset
                                  574.300(b)(6) or   is excluded under       enhancements
                                  other              owner-occupied          derived from the
                                  homeownership      rehabilitation          HTF-assisted
                                  assistance         programs. Income or     project shall
                                  eligible under     asset enhancements      not be
                                  HOPWA is           derived from the HOME-  considered in
                                  excluded (Sec.     assisted project        calculating
                                  574.310(f)).       shall not be            assets or annual
                                                     considered in           income (Sec.
                                                     calculating assets or   93.151(b)(1)(i)
                                                     annual income (Sec.     and (e)(1)).
                                                     92.203(c)(1) and
                                                     (e)(1)).
Annual Income Definition (Sec.   Yes (Sec.          Yes, unless the         Yes, unless        Yes (as modified
  5.609(a)).                      574.310(d)(1)      participating           grantee uses IRS   in Sec.
                                  and (2) and Sec.   jurisdiction uses IRS   income             891.105).
                                    574.310(e)(1)    income definition       definition under
                                  and (2)).          under Sec.              Sec.
                                                     92.203(c)(2) (Sec.      93.151(b)(1)(ii)
                                                     92.203(c)(1)).          (Sec.
                                                                             93.151(b)(1)(i)).
Annual Income Exclusions (Sec.   Yes (Sec.          Yes, unless the         Yes, unless        Yes (as modified
  5.609(b)).                      574.310(d)(1)      participating           grantee uses IRS   in Sec.
                                  and (2) and Sec.   jurisdiction uses IRS   income             891.105).
                                    574.310(e)(1)    income definition       definition under
                                  and (2)).          under Sec.              Sec.
                                                     92.203(c)(2) (Sec.      93.151(b)(1)(ii)
                                                     92.203(c)(1)).          (Sec.
                                                                             93.151(b)(1)(i)).
Annual Income Calculation &      Yes (Sec.          No, unless unit is      No, unless unit    Yes (as modified
 Reexaminations (Sec.             574.310(d)(1)      subject to Sec.         is subject to      in Sec.
 5.609(c)).                       and (2) and Sec.   92.203(a)(1) or the     Sec.               891.105).
                                    574.310(e)(1)    participating           93.151(a)(1)-(3)
                                  and (2)).          jurisdiction accepts    (93.151(a) &
                                                     income determination    (f)).
                                                     under Sec.
                                                     92.203(a)(2) (Sec.
                                                     92.203(a) & (f)).
Adjusted Income Mandatory        Yes (Sec.          Yes (Sec.   92.203(a)   No, unless unit    Yes (as modified
 Deductions (Sec.   5.611(a)).    574.310(d)(1)).    & (f)).                 is subject to      by the
                                                                             Sec.               definition of
                                                                             93.151(a)(1)-(3)   annual income in
                                                                             (Sec.              Sec.   891.105).
                                                                             93.151(a) and
                                                                             (f)).
Adjusted Income Additional       No (Sec.           No, unless unit is      No, unless unit    No.
 Deductions (Sec.   5.611(b)).    574.310(e)(1)(iv   subject to Sec.         is subject to
                                  )).                92.203(a)(1) or the     Sec.
                                                     participating           93.151(a)(1)-(3)
                                                     jurisdiction accepts    (Sec.
                                                     income determination    93.151(a) and
                                                     under Sec.              (f)).
                                                     92.203(a)(2) (Sec.
                                                     92.203(a) and (f)).
Adjusted Income Financial        Yes, if the        Yes, if the             No, unless unit    Yes.
 Hardship Exemptions (Sec.        grantee elects     participating           is subject to
 5.611(c)).                       to grant           jurisdiction elects     Sec.
                                  financial          to do so under Sec.     93.151(a)(1)-(3)
                                  hardship           92.203(f)(1)(i), if     (Sec.
                                  exemptions (Sec.   unit is subject to      93.151(a) and
                                                     Sec.   92.203(a)(1),    (f)).
                                  574.310(e)(1)(v)   or if income
                                  ).                 determination is
                                                     accepted under Sec.
                                                     92.203(a)(2), (Sec.
                                                     92.203(a) and (f)).
Asset restriction (Sec.          Yes, but only for  No....................  No...............  No.
 5.618).                          housing
                                  activities
                                  subject to the
                                  resident rent
                                  payment
                                  requirements in
                                  Sec.
                                  574.310(d) (Sec.
                                    574.310(f)).
----------------------------------------------------------------------------------------------------------------

II. Changes at the Final Rule Stage

A. Definitions

New and Revised Definitions
    HUD edits the definition of ``earned income'' in Sec.  5.100. In 
this final rule, HUD expands the proposed definition of ``earned 
income'' to explain that ``transfer payments'' (which are not included 
in earned income) mean payments made or income received in which no 
goods or services are being paid for, such as welfare, social security, 
and governmental subsidies for certain benefits.
    The proposed rule definition of ``earned income'' in Sec.  5.100 
largely mirrored the definition of ``earned income'' currently in Sec.  
984.103; however, unlike the definition of ``earned income'' in Sec.  
984.103, the proposed rule did not specify that ``funds deposited in or 
accrued interest on the FSS program escrow account established by a PHA 
on behalf of a participating family'' is excluded from ``earned 
income.'' In the context of both the proposed rule and in this final 
rule, HUD determined it would be inappropriate to define Family Self-
Sufficiency (FSS) escrow deposits as either earned or unearned income 
because FSS participants do not actually receive FSS escrow funds until 
the PHA disburses the funds to the family in accordance with FSS 
requirements. Income earned on amounts placed in a family's FSS account 
are excluded from family income pursuant to a new exclusion at 24 CFR 
5.609(b)(27). Additionally, the value of FSS accounts is excluded by 24 
CFR 5.603 from the calculation of net family assets.
    HUD has also added the corresponding definition of ``unearned 
income'' in Sec.  5.100. The definition of unearned income specifies 
that the term is broad, encompassing any annual income, as calculated 
under Sec.  5.609, that is not earned income. The definition of ``Real 
property'' in Sec.  5.100 is also slightly modified from the proposed 
rule to have the same meaning as real property as provided under the 
State law in which the property is located.\2\
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    \2\ Where the term ``State'' is used throughout the Part 5 
regulations, it includes Territories and Possessions of the United 
States. This is consistent with the definition of ``State'' in 
section 3(b)(7) of the U.S. Housing Act of 1937 which ``includes the 
several States, the District of Columbia, the Commonwealth of Puerto 
Rico, the territories and possessions of the United States, and the 
Trust Territory of the Pacific Islands.''

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[[Page 9602]]

    HUD is revising the definition ``medical expenses'' in Sec.  5.603 
to be ``health and medical care expenses'' consistent with the language 
used in HOTMA. HUD is also revising the definition to reflect the 
Internal Revenue Service (IRS) definition of the term and provide 
additional clarity without using the term to define itself. In 
addition, this final rule then adds ``long-term care premiums'' as an 
example of what is included in the definition of health and medical 
care expenses. The prior regulation in Sec.  5.603(b) specifically 
included ``medical insurance premiums'' as an example of health and 
medical care expenses, and the proposed rule did not propose to alter 
this existing example of what counts as health and medical care 
expenses. In this final rule, HUD is adding a reference to long-term 
care in the regulatory language to conform with existing practices and 
policies and to add clarity. For example, the HUD Handbook Occupancy 
Requirements of Subsidized Multifamily Housing Programs (4350.3) 
(``Multifamily Occupancy Handbook'') states that ``long-term care 
premiums (not prorated)'' are examples of deductible health and medical 
care expenses (see exhibit 5-3 of that Handbook).\3\
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    \3\ U.S. Department of Housing and Urban Development, HUD 
Handbook 4350.3: Occupancy Requirements of Subsidized Multifamily 
Housing Programs (Nov. 2013), https://www.hud.gov/sites/documents/43503HSGH.PDF.
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    HUD also amends the definition of ``net family assets'' in Sec.  
5.603 in response to questions and requests for clarification submitted 
in public comments. Initially, HUD clarifies that net family assets do 
not include the value of all non-necessary items of personal property 
with a total combined value of $50,000 or less, as adjusted annually by 
an inflationary factor. HUD will issue guidance for PHAs, owners, and 
grantees to determine whether an item is a ``necessary item of personal 
property'' or whether the value of the item should be included in 
calculating the value of all non-necessary items of personal property 
for the $50,000 threshold. In addition, HUD is specifying that because 
negative equity in real property does not preclude a family from 
selling the property, negative equity alone does not justify excluding 
such a property from net family assets. The definition of ``net family 
assets'' also excludes Federal tax refunds or refundable tax credits 
for a period of 12 months after receipt by the family. HUD adds this 
language to align with 26 U.S.C. 6409, which states that any Federal 
tax refund (or advance payment with respect to a refundable credit) 
made to any individual ``shall not be taken into account as resources 
for a period of 12 months from receipt, for purposes of determining the 
eligibility of such individual'' for benefits or assistance under any 
Federal program or State or local program financed with Federal funds. 
HUD also clarifies the definition of ``net family assets'' to provide 
that in cases where a trust fund has been established and the trust is 
not revocable by, or under the control of, any member of the family or 
household, the trust fund is not a family asset and the value of the 
trust is not included in the calculation of net family assets, so long 
as the fund continues to be held in a trust that is not revocable by, 
or under the control of, any member of the family or household. 
Finally, as explained later in this preamble, HUD excludes from the 
calculation of ``net family assets'' the value of any ``baby bond'' 
account created, authorized, or funded by Federal, State, or local 
government.
    As a result of adding a new income exclusion for ``nonrecurring 
income'' (see below), HUD is including definitions for ``day laborer,'' 
``independent contractor,'' and ``seasonal worker'' in Sec.  5.603, all 
of which are referenced in the new income exclusion. HUD expects that 
adding these new definitions will help PHAs and owners better determine 
what income must be included when determining the family's rent for the 
upcoming year by narrowing the definition of nonrecurring income.
Foster Children and Adults
    In Sec.  5.603, HUD is amending the definition of ``foster adults'' 
from what was proposed. HUD also adds a definition of ``foster child'' 
and is revising the definition of ``dependent.'' These definitions 
provide additional details on the characteristics of foster adults and 
foster children for purposes of determining members of a household. 
However, while foster adults and foster children are members of the 
household (and therefore will be considered when determining 
appropriate unit size and utility allowance), they are not considered 
members of the family for purposes of determining either annual and 
adjusted income or net family assets, nor are the assets of foster 
adults or foster children taken into consideration for purposes of the 
asset limitations in HUD programs covered by these definitions.
    These revised definitions will result in a change in the treatment 
of foster children and foster adults residing in units assisted under 
Multifamily Housing programs because the Office of Multifamily Housing 
Programs has treated foster children and foster adults as family 
members. In finalizing this rule, HUD determined that, because the 
definition of ``family'' applies to all 1937 Act programs, it was 
necessary to clarify for HUD programs covered by this rule that a 
foster child or adult is a member of the household but not a member of 
the assisted family (similar to a live-in aide). HUD also determined 
that there are practical considerations that weigh in favor of this 
clarification across all programs. For example, Sec.  5.403 states that 
``a child who is temporarily away from the home because of placement in 
foster care is considered a member of the family.'' If an assisted 
family temporarily housed this foster child and counted the child as a 
member of their family, then the child would be considered a family 
member of two assisted families at the same time.
    HUD will update its existing Multifamily Housing guidance on foster 
families, including chapter 3 of the Multifamily Occupancy Handbook, to 
conform with this final rule. Upon the effective date of this final 
rule, these regulations supersede conflicting Multifamily Housing 
guidance.
Fostering Stable Housing Opportunities
    This final rule updates the definition of ``family'' in Sec.  
5.403. The definition in this final rule incorporates revisions made to 
the 1937 Act by the Fostering Stable Housing Opportunities provisions 
of the Consolidated Appropriations Act, 2021,\4\ which expands the 
definition of Single Persons. Due to the modification of the 1937 Act 
prior to this final rule, HUD is making a conforming change to Sec.  
5.403 to align with the new statutory language.
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    \4\ Public Law 116-260, div. Q, tit. I, Section 103 (Dec. 27, 
2020).
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    Specifically, youth who are between the ages of 18 and 24, who have 
either left foster care or will leave foster care within 90 days, and 
who are homeless or at risk of becoming homeless at age 16 or older, 
will be considered ``single persons'' for the purposes of Section 8 and 
public housing under the 1937 Act. Currently, HUD's regulations at 
Sec.  5.403 do not include this separate category of eligible youth 
within the definition of ``family.'' This final rule updates this 
definition. Because HUD has no discretion regarding this modification, 
HUD believes this is an appropriate conforming change to incorporate 
into the final rule.

[[Page 9603]]

Definitions Related to Over-Income Families in Public Housing (Sec.  
960.102)
    HOTMA amended the 1937 Act with new and expanded provisions related 
to families who are residing in public housing units while being over 
the newly created over-income (OI) limit for that program. HUD is 
including in this final rule additional definitions related to such 
families to facilitate the use of consistent terminology throughout 
provisions in the regulations:
    Alternative non-public housing rent. This is the monthly amount 
PHAs must charge non-public housing over-income (NPHOI) families, 
allowed by PHA policy to remain in a public housing unit and who have 
completed the 24 consecutive month grace period. The alternative rent 
is defined as the higher of Fair Market Rent (FMR) or subsidy.
    Covered person. Because the new Sec.  960.509 borrows heavily from 
the existing lease provisions in Sec.  966.4, which use the term 
``covered person,'' HUD is inserting the definition of ``covered 
person'' into Sec.  960.102 to indicate that lease provisions cover the 
tenant, members of the tenant's household, guests, or others under the 
tenant's control.
    Non-public housing over-income family. This is the defined term for 
a family that is above the OI limit but is remaining in their unit, 
paying the alternative non-public housing rent. These families will no 
longer be public housing program (PHP) participants.
    Over-income family. This was an existing term that previously 
referred to a family that is not a low-income family. The term has been 
revised in the final rule to now mean a family whose income exceeds the 
OI limit.
    Over-income limit. This term was discussed and defined in the 
notice published by HUD on July 26, 2018 (83 FR 35490) and its 
September 17, 2019, proposed rule, but was not proposed to be codified 
as a defined term in the proposed rule. Upon reconsideration, HUD is 
codifying this definition in Sec.  960.102. This limit is set by 
multiplying the very low-income level for the applicable area by a 
factor of 2.4.
Technical Amendments
    This final rule also updates an outdated citation in the definition 
of ``Income'' in Sec.  570.3. The definition of income in that section 
incorporates three separate definitions of ``income'' and allows 
Community Development Block Grant program grantees and Section 108 Loan 
Guarantee program borrowers to choose which definition to use to 
determine whether a family or household is low- or moderate-income. One 
option available to grantees is the definition of annual income ``as 
defined under the Section 8 Housing Assistance Payments program at 24 
CFR 813.106[.]'' However, the Section 8 Housing Assistance Payments 
program was incorporated into part 5 in 1996, and the definition of 
``Annual Income'' was moved from Sec.  813.106 to Sec.  5.609. 
Therefore, this citation is out of date. HUD has allowed grantees to 
use the definition at Sec.  5.609 despite the outdated citation because 
it is the clear definition applicable ``under the Section 8 Housing 
Assistance Payments program.'' This final rule updates the citation 
from Sec.  813.106 to Sec.  5.609. Because grantees are already 
authorized to use the definition under Sec.  5.609, this change is 
technical in nature and will not affect grantees in a substantive 
manner. Therefore, HUD believes this is an appropriate technical 
correction to incorporate into the final rule.
    HUD also adds cross-references to certain newly added and revised 
definitions described in part 5 to parts 92 (HOME Program), 93 (HTF 
Program), and 891 (Section 202 and Section 811 Programs) for 
consistency across HUD programs.

B. Income

Applicability of Subpart F
    Subpart F of part 5 addresses the common definitions and provisions 
addressing income for multiple HUD programs. In this final rule, HUD is 
further revising Sec.  5.601 to remove references to the Rent 
Supplement program (Rent Supp) and Rental Assistance Program (RAP), 
because all contracts assisted under those programs have either expired 
or, pursuant to the authority provided under HUD's Rental Assistance 
Demonstration program, been converted to Section 8 contracts.
Definition of Income
    HUD is revising the definition of annual income in Sec.  5.609(a) 
for clarity. In paragraph (a)(1), HUD relies on the definition of 
excluded income under Sec.  5.609(b) to provide the scope of what is 
included in income. In addition, HUD is modifying paragraph (a)(2) to 
specify that when net family assets are valued over $50,000 (as 
adjusted by inflation) and actual returns cannot be calculated, imputed 
returns are included in income. All actual returns that can be 
calculated continue to be included in income.
Exclusions From Income
    This final rule makes changes from what was proposed to the 
exclusions from income in Sec.  5.609(b). Changes to the exclusions 
related to foster children and adults, financial aid, and distributions 
from trusts are discussed elsewhere within this preamble. The remaining 
changes are discussed here.
    In Sec.  5.609(b)(1), HUD is including the corollary to the 
specification in the definition of income that imputed returns for net 
family assets valued over $50,000 are included as income. In Sec.  
5.609(b)(1), imputed returns for net family assets valued at or below 
$50,000 are explicitly excluded from income. PHAs, owners, and grantees 
are therefore not required to calculate and may not include imputed 
returns as family income when a family's net family assets are valued 
at or below $50,000 (as such amount is annually adjusted by an 
inflationary factor). Actual returns from net family assets continue to 
be included in income.
    In this final rule, HUD revises Sec.  5.609(b)(2) to exclude from 
income various types of trust distributions. For an irrevocable trust 
or a revocable trust outside the control of the family or household 
excluded from the definition of net family assets under Sec.  5.603(b), 
the final rule excludes from income distributions of the principal or 
corpus of the trust, and distributions of income from the trust when 
the distributions are used to pay the costs of health and medical care 
expenses for a minor. For a revocable trust or a trust that is under 
the control of the family or household, any distributions from the 
trust are excluded from income, except that any actual income earned by 
the trust, regardless of whether it is distributed, shall be considered 
income to the family at the time it is received. Please see the 
discussion elsewhere in this preamble (section III. On public comments 
and HUD's responses, Section ``E. Trust Distributions'' under the 
header ``Income Exclusions'') for a detailed discussion of 
distributions of income or principal from trusts. HUD is also modifying 
Sec.  5.609(b)(3) to remove references to income from foster children 
and adults and to incorporate the new defined term ``earned income.'' 
This has the effect of continuing to specifically exclude earned income 
of all children under the age of 18 within assisted households. This 
income is currently excluded under 24 CFR 5.609(c)(1) of HUD's income 
regulations and will remain excluded under this final rule.
    Section 5.609(b)(4) excludes from income payments received for the 
care of foster children or adults, and the proposed rule proposed 
language expanding the exclusion to State kinship or guardianship care 
payments. In this final rule, HUD is clarifying that the exclusion 
should also apply to

[[Page 9604]]

Tribal kinship or guardianship care payments.
    Section 5.609(b)(5) excludes from income insurance payments and 
settlements for personal or property loss. In this final rule, HUD is 
clarifying that these payments and settlements include, but are not 
limited to, ``payments through health insurance, motor vehicle 
insurance, and workers' compensation.'' HUD believes that explicitly 
including these examples will help address questions about what is 
covered by this exclusion.
    In this final rule, HUD excludes ``income earned by, government 
contributions to, and distributions from `baby bond' accounts created, 
authorized, or funded by Federal, State, or local government'' from 
income in Sec.  5.609(b)(10). HUD also revised 24 CFR 5.603 to exclude 
the ``value of any `baby bond' account created, authorized, or funded 
by Federal, State, or local government'' from the calculation of net 
family assets. HUD makes these revisions in recognition of the fact 
that ``baby bonds'' (money held in trust by the government for children 
until they are adults) are being authorized in various States and 
localities in an effort to combat the wealth gap and address systemic 
poverty. In this final rule, HUD makes other revisions to the proposed 
Sec.  5.609(b)(10). Specifically, Sec.  5.609(b)(10) now excludes 
``income and distributions from'' rather than the ambiguous ``amounts 
from'' any Coverdell education savings account under Section 530 of the 
Internal Revenue Code of 1986 or any qualified tuition program under 
Section 529 of such Code.
    The proposed rule at Sec.  5.609(b)(10) excluded from annual income 
any amounts from ABLE accounts under section 529A of the Internal 
Revenue Code of 1986. With this exclusion, HUD intended to codify a 
mandatory income exclusion in the Achieving Better Life Experience 
(ABLE) Act (Pub. L. 113-295). However, HUD has since determined that 
the income exclusion in the proposed rule did not comply with the 
statutorily mandated income exclusion and was also inconsistent with 
Notice PIH 2019-09/H-2019-06 (issued April 26, 2019), Treatment of ABLE 
accounts in HUD-Assisted Programs.5 Upon further review of 
the statutorily mandated income exclusion in the ABLE Act, HUD decided 
that income exclusions related to ABLE accounts are too nuanced to 
capture in a succinct, general income exclusion. Therefore, in this 
final rule, HUD declines to provide an enumerated income exclusion 
related to ABLE accounts. Instead, the mandatory income exclusion 
related to ABLE accounts is provided pursuant to Sec.  5.609(b)(22), 
which covers amounts that HUD is required by Federal statute to exclude 
from income and further provides that HUD will publish a notice in the 
Federal Register to identify the benefits that qualify for this 
exclusion. PHAs, owners, and grantees may refer to Notice PIH 2019-09/
H-2019-06 for details about when ABLE account income is excluded. 
Though HUD is not including an enumerated income exclusion related to 
ABLE accounts, HUD is retaining language excluding the value of ABLE 
accounts from the definition of ``net family assets'' in Sec.  5.603.
---------------------------------------------------------------------------

    \5\ Available at: https://www.hud.gov/sites/dfiles/PIH/documents/PIH-2019-09.pdf.
---------------------------------------------------------------------------

    In Sec.  5.609(b)(12)(iv), incremental earnings and benefits from 
various specific employment training programs are excluded from income. 
In the proposed rule, HUD inadvertently omitted Federal and Tribal 
employment training programs from the list of income exclusions and 
included only State and local employment training programs. Therefore, 
in this final rule, HUD is adding language to also exclude payments 
from training programs funded by HUD or qualifying Federal, State, 
Tribal, or local employment training programs (including training 
programs not affiliated with a local government) and payments from 
training of a family member as resident management staff from the 
family's income.
    In this final rule, HUD is revising the wording of the income 
exclusions of earned income of dependent full-time students (Sec.  
5.609(b)(14)) and of adoption assistance payments (Sec.  5.609(b)(15)) 
to provide greater clarity as to the amount excluded. In both cases, 
the amount excluded from income was intended to be the amount in excess 
of the dependent deduction in Sec.  5.611 (understanding that under 
HOTMA the dependent deduction will be adjusted annually for inflation). 
Under the proposed rule, rather than simply identifying the amount of 
the dependent full-time student's earned income that was specifically 
excluded from income, HUD identified the amount of the dependent full-
time student's earned income that ``shall be considered income'' (which 
was the amount equal to the dependent deduction). HUD is revising both 
Sec.  5.609(b)(14) and Sec.  5.609(b)(15) to explicitly state that the 
income exclusion is the earned income in excess of the amount of the 
deduction for a dependent in Sec.  5.611. Since the dependent deduction 
under Sec.  5.611 provides for this annual adjustment, HUD believes 
that the intended purpose of the regulation will be better understood 
as a result of the revisions in the final rule.
    Section 5.609(b)(19) excludes payments to keep family members with 
disabilities living at home. In the proposed rule, HUD proposed to 
exclude only payments from State Medicaid-managed care systems to keep 
a family member who has any disability (not just a developmental 
disability) living at home. The intent behind these changes was both to 
expand the existing exclusion to include those with a disability other 
than a developmental disability and to clarify the types of payments 
that are excluded from income. Many States provide benefits to 
individuals with a variety of disabilities, which allow such 
individuals to remain at home rather than reside in institutional 
settings such as hospitals, nursing homes, or other institutional or 
segregated settings, and there was no reason to limit the exclusion to 
persons with a certain type of disability.
    The proposed rule also removed the qualifying language regarding 
such payments to ``offset the cost of services and equipment 
provided.'' HUD is aware that payments under these programs are not 
limited to reimbursement of specific services and equipment in order to 
keep a family member with a disability living at home.
    In response to public comments that State Medicaid agencies provide 
in-home supports through a range of delivery structures, such as fee-
for-services, not just managed care, HUD is expanding the language in 
the final rule to exclude all payments from State Medicaid agencies for 
in-home supports. Federal Medicaid rules allow States to cover a wide 
range of institutional and home and community-based long-term services 
and supports (LTSS), but the type of services, populations covered, and 
delivery models differ substantially across States based on their 
individual Medicaid program structure.
    Additionally, in response to public comments pointing out that 
there are similar payments from States that are not connected to 
Medicaid, HUD is expanding the language in the final rule to also 
exclude payments from or authorized by State agencies for States that 
use a source of funding other than Medicaid to provide for in-home 
support.
    HUD is also adding payments made or authorized by a Federal agency 
for this purpose so as not to inadvertently make such payments 
ineligible for this exclusion. HUD will issue guidance to

[[Page 9605]]

PHAs and owners on any payments made by Federal agencies that would be 
covered by this exclusion. HUD is clarifying in the final rule that 
payments may be made directly by the State Medicaid agency (including 
through a managed care entity) or other State or Federal agency, or 
made by another entity authorized by the State Medicaid agency, State 
agency, or Federal agency to make such payments on its behalf.
    Public commenters also described how in many cases the government 
agency directly pays the person providing the services. For instance, 
an adult providing personal care services for a parent or other family 
member with a disability could receive direct payments from the State 
agency for performing those services. HUD is adding language in the 
final rule that amounts paid directly to a member of the assisted 
family by the State Medicaid agency (including through a managed care 
entity) or other State or Federal agency (or other entities authorized 
by the agencies to make such payments) to enable a family member who 
has a disability who wishes to remain living in the assisted unit, 
under the applicable terms and conditions for the family member to be 
eligible for such payments, are excluded from the family's income. This 
income exclusion applies only to payments to the family member for 
caregiving services for another member of the family residing in the 
assisted unit. For example, payments to the family member for 
caregiving services for someone who is not a member of the assisted 
family (such as for a relative that resides elsewhere) are not excluded 
from income. Furthermore, if the agency was making payments for 
caregiving services to the family member for not only another member of 
the assisted family but also for a person outside of the assisted 
family, only the payments attributable to the caregiving services for 
the caregiver's assisted family member would be excluded from income.
    HUD is revising Sec.  5.609(b)(20), which excludes loan proceeds 
from income. The revisions specify that the exclusion also covers 
amounts disbursed to or on behalf of a borrower, or loan proceeds 
received by a third party instead of the family. Examples of loan 
proceeds excluded by this new definition can include payments from 
student loans, car loans, or amounts received from a Home Equity 
Conversion Mortgage (if the assisted family is in a program that allows 
for assistance to homeowners e.g., HOME).
    In Sec.  5.609(b)(21), HUD is modifying the exclusion of payments 
received by Tribal members resulting from mismanagement of assets held 
in trust by the United States. In addition to using the term ``Tribal 
member'' instead of ``Indian persons,'' Sec.  5.609(b)(21) now covers 
payments excluded from income under Federal law other than the Internal 
Revenue Code. These payments were always required to be excluded under 
HUD income exclusion requirements because they are excluded from income 
for eligibility and determining the amount of assistance under Federal 
law, but they are now explicitly referenced in Sec.  5.609(b)(21).
    HUD also simplified Sec.  5.609(b)(22), which addresses income 
exclusions required by other Federal statutes. Rather than distributing 
notices updating the list to PHAs, the final rule commits HUD to 
publishing the notice in the Federal Register.
    Section 5.609(b)(23) excludes ``gap'' payments made pursuant to 49 
CFR part 24. These are a form of relocation assistance payments made to 
displaced persons under the Uniform Relocation and Real Property 
Acquisition Policies Act of 1970, as amended (42 U.S.C. 4601 et seq.) 
(URA). The ``gap'' payment pays for the difference in costs associated 
with moving from one form of housing assistance to another and/or from 
one dwelling unit to another as a result of permanent displacement for 
a Federal program or project, as defined under the URA. The final rule 
revises the exclusion for clarity without making substantive changes.
    In the proposed rule, HUD proposed removing the exclusion of 
``temporary, nonrecurring or sporadic income.'' This was the result of 
much confusion over what exactly the exclusion covered. However, after 
reviewing public comments and additional consideration, HUD has 
realized the utility of including a broad exemption for income that a 
family may have received previously but does not anticipate for the 
coming year. This is particularly needed because under HOTMA, PHAs and 
owners are to use the family's income from the previous year in making 
an income determination for the upcoming year, with adjustments as the 
PHA or owner determines necessary to reflect current income. Therefore, 
HUD is restoring, in Sec.  5.609(b)(24) of this final rule, a general 
exclusion of ``nonrecurring income.'' To address some of the issues 
that have arisen under the previous broad exemption, HUD is defining 
nonrecurring income as income that will not be repeated in the coming 
year, based on information that the family provides. The exclusion also 
specifically states that income earned as an independent contractor, 
day laborer, or seasonal worker does not count as ``nonrecurring'' 
income.
    Additionally, to address other forms of sporadic income that would 
have been excluded under the previous blanket exclusion, HUD is 
including additional information on what ``nonrecurring income'' 
consists of and offering specific examples: payments from the U.S. 
Census Bureau for work on the decennial Census or the American 
Community Survey that is less than 180 days and does not result in a 
permanent position; direct Federal or State payments intended for 
economic stimulus or recovery; amounts received directly by the family 
as a result of State or Federal refundable tax credits or refunds at 
the time they are received; gifts for holidays, birthdays, or 
significant life events or milestones; non-monetary, in-kind donations 
from food banks or similar organizations; and lump-sum additions to 
assets such as lottery or other contest winnings.
    Under 26 U.S.C. 6409, Federal tax refunds are excluded from the 
calculation of income for Federal programs. HUD is therefore adding 
Federal refundable tax credits and Federal tax refunds at the time they 
are received to the exclusions from annual income at Sec.  
5.609(b)(24)(iv), as they are a form of nonrecurring income that is 
specifically excluded from family income by statute. Until this 
rulemaking, refunds of State taxes have not been specifically 
identified as excluded from a family's annual income in HUD's 
regulations. HUD is clarifying that this is a form of nonrecurring 
income that must be excluded from a family's annual income. HUD is now 
excluding amounts directly received by the family as a result of State 
refundable tax credits or State tax refunds at the time that they are 
received in Sec.  5.609(b)(24)(iii).
    HUD notes that the reason why the passages at Sec.  
5.609(b)(24)(iii) and (iv) read as refundable tax credits or tax 
refunds ``at the time they are received'' is because a family's annual 
income may have already included the amounts the family received in the 
year that the taxes were paid. In those instances, the refund of taxes 
paid does not represent any new or additional money paid to the family. 
Moreover, there are some forms of refundable tax credits that may be 
provided to a family in advance of filing taxes. In order to avoid any 
confusion and to ensure that PHAs and owners are not counting the same 
income more than once, HUD has added the modifier ``at the time they 
are received'' for the exclusion of both Federal and State refundable 
tax credits and refunds.

[[Page 9606]]

    HUD has used the current exclusion in Sec.  5.609(c)(3) to exclude 
from income lump-sum additions to assets that the family may have 
received as a result of a resolution of a civil rights matter. This may 
include amounts received as a result of litigation or other actions, 
such as conciliation agreements, voluntary compliance agreements, 
consent orders, other forms of settlement agreements, or administrative 
or judicial orders under the Fair Housing Act, Title VI of the Civil 
Rights Act, section 504 of the Rehabilitation Act (Section 504), the 
Americans with Disabilities Act, or any other civil rights or fair 
housing statute or requirement. HUD does not intend to change the 
practice of excluding this income, but because there has been 
confusion, HUD is adding a new income exclusion in Sec.  5.609(b)(25) 
that broadly excludes from income any amounts the family may receive 
from civil rights settlements or judgments regardless of how the 
settlement or judgment is structured. This reflects the fact that 
sometimes settlements or judgments of this nature are not lump-sum 
payments but instead may have a payment schedule.
    HUD is also adding at Sec.  5.609(b)(25) language stating that back 
pay received by the family pursuant to a civil rights settlement or 
judgment is excluded from income. HUD believes it would be unfair to 
treat back pay received by a family pursuant to a civil rights 
settlement or judgment differently than other amounts received under 
such settlements or judgments. The treatment of back pay is different 
from the future payments the family receives as a result of the raise 
or promotion under the terms of the civil rights settlement or 
judgment, which would be included in income.
    While these civil rights settlement or judgment amounts are 
excluded from income, the settlement or judgment amounts will generally 
be counted toward the family's net family assets (e.g., if the funds 
are deposited into the family's savings account or a revocable trust 
under the control of the family).
    Income generated on the settlement or judgment amount after it has 
become a net family asset is not excluded from income. For example, if 
the family received a settlement or back pay and deposited the money in 
an interest-bearing savings account, the interest from that account 
would be income at the time the interest is received. As an example, 
consider a family with no net family assets that receives a civil 
rights settlement in the amount of $20,000. Upon receiving the 
settlement, the family's assets increased to $20,000, but the $20,000 
settlement is not included in the family's income. At the family's next 
income examination, any actual income earned from the $20,000 (e.g., 
interest or investment income) will be included in the family's income. 
For instance, if at the family's next annual income examination after 
the family received the $20,000 civil rights settlement, the actual 
income earned from investing the $20,000 is $500, then $500 will be 
included in the family's income.
    Furthermore, if a civil rights settlement or judgment increases the 
family's net family assets such that they exceed $50,000 (as annually 
adjusted by an inflationary factor), then income will be imputed on the 
net family assets pursuant to 24 CFR 5.609(a)(2) in this final rule. If 
the imputed income, which HUD considers unearned income, increases the 
family's annual adjusted income by ten percent or more, then an interim 
reexamination of income will be required unless the addition to the 
family's net family assets occurs within the last 3 months of the 
family's income certification period and the PHA or owner chooses not 
to conduct the examination.
    Finally, a large addition to net family assets may impact the 
family's eligibility for public housing or Section 8 assistance if the 
net family assets exceed $100,000 (as annually adjusted by an 
inflationary factor) per 24 CFR 5.618.
    In this final rule, HUD adds new income exclusions at Sec.  
5.609(b)(26) and (b)(27). Section 5.609(b)(26) excludes income received 
from any account under a retirement plan recognized as such by the IRS, 
including individual retirement arrangements (IRAs), employer 
retirement plans, and retirement plans for self-employed individuals. 
However, any distribution of periodic payments from these retirement 
accounts shall be income at the time they are received by the family. 
This revision aligns with, and clarifies, HUD's current policy 
regarding the treatment of income earned and distributions from 
retirement accounts. For example, current Sec.  5.609(b)(4) states that 
income includes the full amount of periodic amounts received by 
retirement funds and pensions. A new income exclusion at Sec.  
5.609(b)(27) excludes income earned on amounts placed in a family's FSS 
account. This exclusion is consistent with how HUD currently treats 
income earned on FSS accounts. The exclusion does not address 
distributions from a family's FSS account, because such distributions 
(either as a final or interim distribution under the terms of the 
Contract of Participation) will be excluded from income under Sec.  
5.609(b)(24)(vii) as a lump-sum addition to net family assets.
    With these revisions and additions, HUD intends to exclude from 
income sources of funds that cannot be relied upon to pay for a 
family's housing needs, while providing additional clarity to PHAs and 
owners about what funds must still be considered income, given the 
broad definition contained in HOTMA.
    In Sec.  5.609(b)(28), HUD is codifying the current requirements 
for considering self-employment income and income from the operation of 
a business, which are currently codified in Sec.  5.609(b)(2). Under 
Sec.  5.609(b)(28), gross income that a family member receives through 
self-employment or operation of a business is excluded from a family 
member's income, as gross income is not reflective of the costs of 
operating a business of being self-employed. Instead, HUD is requiring 
that the net income from the operation of a business be considered 
income in Sec.  5.609(b)(28)(i). As provided by currently codified 
Sec.  5.609(b)(2), HUD does not consider expenditures for business 
expansion of amortization of capital indebtedness to be deductible when 
determining the new income from a business. An allowance for 
depreciation of assets used in a business or profession may be 
deducted, based on a straight-line depreciation, as provide in IRS 
regulations, as is the case under the current rule. Under Sec.  
5.609(b)(28)(ii), HUD shall consider the withdrawal of cash or assets 
from the operation of a business to be income except to the extent that 
such withdrawal is to reimburse the family member for cash or assets 
that the family has invested in the operation of the business. This 
treatment is no different than the current treatment under the 
regulations and represents a continuation of existing policy.
Student Financial Assistance
    HOTMA mandates the exclusion of certain earned income for full-time 
dependent students and grant-in-aid, or scholarship amounts for such 
students. Although not required by the HOTMA statute, the proposed rule 
proposed the previous exclusion of financial aid, which also codified 
the treatment of financial assistance under longstanding appropriations 
act provisions for Section 8 families (including persons over the age 
of 23 with dependent children). However, the proposed rule was still 
not entirely clear regarding what constitutes financial assistance. 
Furthermore, the proposed rule did not codify a Federally mandated 
income exclusion in section 479B of the Higher Education Act of 1965 
(20 U.S.C.

[[Page 9607]]

1087uu) (HEA). This exclusion is currently included in the list of 
Federally mandated exclusions from income, which HUD published on May 
20, 2014 (79 FR 28938). HUD has determined this exclusion should be 
codified in the final rule because of the extent of its impact in 
calculating family incomes. Finally, considering the required exclusion 
in section 479B of the HEA, HUD concludes it cannot, as part of this 
rulemaking, codify the Section 8 student financial assistance 
limitations provided annually in HUD appropriations (see Section 210(b) 
of Division L of Public Law 117-103 for the provision in the 2022 
Consolidated Appropriations Act), although these limitations will 
continue to apply to funds from any year in which the limitations are 
enacted in an appropriations act.\6\
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    \6\ The HEA is an authorizing statute whereas appropriations 
acts are temporary in nature, applying only to the funds from the 
year that the appropriations are in effect. HUD acknowledges that 
HUD's current rule at 24 CFR 5.609(b)(9) codifies the Section 8 
student financial assistance appropriations language, 
notwithstanding section 479B of the HEA, but notes that this 
rulemaking was authorized by the FY 2006 Appropriations Act (Pub. L. 
109-115); section 327 of that Act directed HUD to issue a final rule 
to ``to carry out'' the Section 8 appropriations student 
restrictions. Since 2006, HOTMA passed without the language from the 
student restrictions in the annual appropriations text, and a newer 
version of the HEA passed. Moreover, recent appropriations acts do 
not include a requirement that would enable HUD to codify a 
requirement in this final rule contradicting this latest version of 
the HEA, an authorizing statute. Notwithstanding the foregoing 
interpretation about the treatment of student assistance under 
section 479B of the HEA as excluded income, HUD's current Section 8 
eligibility rule at 24 CFR 5.612, also codified pursuant to the FY 
2006 Appropriation Act rulemaking authority, is not part of this 
rulemaking and is therefore still in effect.
---------------------------------------------------------------------------

    Therefore, in this final rule, in Sec.  5.609(b)(9), HUD codifies 
the Federally mandated income exclusion in section 479B of the HEA. HUD 
also expands on the proposed regulatory language, calling upon 
interpretations of the previous regulatory text, IRS definitions, and 
relevant statutory language. Section 5.609(b)(9) includes two income 
exclusions related to assistance provided to students. First, Sec.  
5.609(b)(9)(i) excludes any assistance that section 479B of the HEA 
requires to be excluded from a family's income. Second, Sec.  
5.609(b)(9)(ii) excludes student financial assistance, not otherwise 
excluded by Sec.  5.609(b)(9)(i), for tuition, books, and supplies, 
room and board, and other fees required and charged to a student by an 
institution of higher education.
    Section 5.609(b)(9)(i) addresses the mandatory income exclusion in 
section 479B of the HEA, which states ``[n]otwithstanding any other 
provision of law, student financial assistance received under this 
title, or under Bureau of Indian Affairs student assistance programs, 
shall not be taken into account in determining the need or eligibility 
of any person for benefits or assistance, or the amount of such 
benefits or assistance, under any Federal, State, or local program 
financed in whole or in part with Federal funds.'' Under Section 701 of 
Division FF of Public Law 116-260, entitled ``FAFSA Simplification 
Act,'' Section 479B of the HEA has been modified slightly to exclude 
student financial assistance under the Bureau of Indian Education 
(instead of the Bureau of Indian Affairs) and to expand the forms of 
excluded income to include income earned in employment and training 
programs under Section 134 of the Workforce Innovation and Opportunity 
Act (WIOA) (29 U.S.C. 3174 et seq.). As per Section 101 of Division R 
of Public Law 117-103, this revised provision shall become effective on 
July 1, 2024. Until July 1, 2024, PHAs, owners, and grantees shall 
exclude from income amounts received for the forms of assistance listed 
in the current version of Section 479B of the HEA. Beginning July 1, 
2024, PHAs, owners, and grantees shall exclude from income amounts 
received for the forms of assistance listed in the revised version of 
Section 479B of the HEA. Current examples of student financial 
assistance received under Title IV of HEA include but are not limited 
to: Federal Pell Grants, Teach Grants, Federal Work-Study Programs, 
Federal Perkins Loans, among many others. Current examples of student 
financial assistance under the Bureau of Indian Education include the 
Higher Education Tribal Grant and the Tribally Controlled Colleges or 
Universities Grant Program. Current employment training programs under 
Section 134 of the WIOA that are to be excluded from income when the 
revised statute comes into effect are workforce investment activities 
for adults and workers dislocated as a result of permanent closure or 
mass layoff at a plant, facility, or enterprise, or a natural or other 
disaster that results in mass job dislocation, in order to assist such 
adults or workers in obtaining reemployment as soon as possible.
    Section 479B of the HEA requires that all assistance under Title IV 
of the HEA (as well as Bureau of Indian Affairs student financial 
assistance), even assistance provided to students in excess of tuition 
and required fees or charges, be excluded from HUD income calculations. 
However, for more than a decade, enacted on a year-by-year basis, HUD 
appropriations have included a provision that has created an exception 
to section 479B for Section 8 income calculations. For example, the 
FY2022 Appropriations Act (Pub. L. 117-103) states that, ``[f]or 
purposes of determining the eligibility of a person to receive 
assistance under Section 8 of the United States Housing Act of 1937 (42 
U.S.C. 1437f), any financial assistance (in excess of amounts received 
for tuition and any other required fees and charges) that an individual 
receives under the Higher Education Act of 1965 (20 U.S.C. 1001 et 
seq.), from private sources, or from an institution of higher education 
(as defined under Section 102 of the Higher Education Act of 1965 (20 
U.S.C. 1002)), shall be considered income to that individual, except 
for a person over the age of 23 with dependent children.'' Thus, for 
any year that this language appears in HUD appropriations, it requires 
that certain assistance, including assistance under Title IV of the 
HEA, in excess of tuition and other required fees and charges, be 
included in income calculations for Section 8 students who are age 23 
and under or without dependent children. In a notice titled Eligibility 
of Students for Assisted Housing Under Section 8 of the U.S. Housing 
Act of 1937; Supplementary Guidance, HUD interpreted this limitation as 
applying when the student is the head of household or spouse, but not 
when the student resides with parents in a Section 8 unit. (April 10, 
2006, 71 FR 18146).
    Although the proposed rule sought to codify this appropriations 
requirement, HUD has since determined that it does not have the 
authority to publish a rule that contradicts section 479B of the HEA 
without explicit statutory authority.
    For any funds from a year where HUD's appropriations acts include 
Section 8 student financial assistance limitations similar to those in 
FY2022, those limitations will still apply with respect to Section 8 
participants, even if the appropriations contradict section 479B of the 
HEA. As discussed directly below, any student financial assistance that 
is not excluded pursuant to Sec.  5.609(b)(9)(i) is subject to Sec.  
5.609(b)(9)(ii). Thus, a PHA or owner must perform the calculation for 
a Section 8 student head of household or spouse who is either 23 and 
under or without dependent children in 5.609(b)(ii) including the 
student assistance that would have been excluded in 5.609(b)(i) but is 
not because the Section 8 funds come from a year where the HUD 
appropriations act provisions included the Section 8

[[Page 9608]]

student financial assistance limitations. HUD plans to issue guidance 
about how to treat student financial assistance in income calculations.
    Section 5.609(b)(9)(ii) of the final rule recognizes that student 
financial assistance can take a variety of forms and come from a 
variety of sources to both full and part-time students. For example, 
HUD considered that not all assistance provided to students is 
assistance provided under Title IV of the HEA or through the Bureau of 
Indian Affairs. The final rule provides that student financial 
assistance, for purposes of Sec.  5.609(b)(9)(ii), means a grant or 
scholarship received from the Federal government, a State, Tribal, or 
local government, a private foundation registered as a nonprofit under 
26 U.S.C. 501(c)(3), a business entity (such as a corporation, general 
partnership, limited liability company, limited partnership, joint 
venture, business trust, public benefit corporation, or nonprofit 
entity), or an institution of higher education. A grant would include a 
qualified tuition remission, reduction, waiver, or reimbursement (i.e., 
amounts received as reimbursement for the student's paid costs of 
tuition, books, and fees, etc.) by the educational institution, such as 
for an employee of the institution of higher education or an eligible 
family member of that employee. A grant would also include assistance 
provided by an employer as part of an employee educational assistance 
program or tuition reimbursement program. The final rule also states 
that student financial assistance, for purposes of Sec.  
5.609(b)(9)(ii), does not include any assistance that is excluded from 
income pursuant to Sec.  5.609(b)(9)(i). Thus, assistance provided to 
students under Title IV of the HEA or under Bureau of Indian Affairs 
student assistance programs is not subject to Sec.  5.609(b)(9)(ii).
    The language included in the final rule is also intended to clarify 
that student financial assistance excluded from income under Sec.  
5.609(b)(9)(ii) must be for educational expenses and does not include 
payments obtained through work study, money from friends or family, or 
funds that exceed the actual education expenses to the student. Amounts 
received under work study may still be excluded under Sec.  
5.609(b)(9)(i) (if provided pursuant to Title IV of the HEA) or Sec.  
5.609(b)(14) (to the extent that the work study is being performed by a 
dependent full-time student). Loan proceeds for educational expenses, 
though considered student financial assistance if provided under a loan 
program in Title IV of the HEA, are not considered student financial 
assistance for purposes of Sec.  5.609(b)(9)(ii) and are already 
excluded from income under Sec.  5.609(b)(20). In addition, HUD is 
adding language in Sec.  5.609(b)(9)(ii)(D) that states if student 
financial assistance is paid to the student, the responsible entity (as 
defined in Sec. Sec.  5.100 and 5.603) must verify that the assistance 
meets the requirements in the paragraph.
    HUD sought in this final rule to craft regulatory text that 
provides for the consistent treatment of students receiving student 
financial assistance, as defined in Sec.  5.609(b)(9)(ii). HUD's goal 
in this regard was primarily to provide for the equitable treatment of 
such students. The current regulation, consistent with Section 8 
appropriations limitations, provides that financial assistance in 
excess of amounts received for tuition and any other required fees and 
charges (hereafter ``excess'' amounts) was excluded from income to an 
individual unless the individual was a Section 8 participant who was 
either age 23 or under or without dependents.
    In the final rule, such ``excess'' amounts are not considered 
student financial assistance to be excluded from income under Sec.  
5.609(b)(9)(ii). Though the change will have the effect of eliminating 
an income exclusion for certain families (i.e., all non-Section 8 
families, and Section 8 families with a head of household or spouse 
that is student who is over 23 with dependent children), HUD believes 
that this change is justified in terms of fairness. For example, 
consider two public housing residents who are both part-time students 
over the age of 18 and receive student financial assistance that is not 
excluded pursuant to Sec.  5.609(b)(9)(i). One receives ``excess'' 
amounts of student financial assistance and the other does not, instead 
earning the same amount of income from employment (that is not excluded 
from income calculations). Before HUD changed the rule through this 
rulemaking, the student that had the excess amount of student financial 
assistance would have had that excess amount of student financial 
assistance excluded from their family's income. On the other hand, the 
student with an equal amount of wages (that are not excluded from 
income) would have had those wages included in their family's income. 
The result would have been that the family of the student who worked 
and received wages would pay a higher rent than the family of the 
student that received an equal amount of excess student financial 
assistance. The rule, as revised, would treat both the excess amounts 
of student financial assistance and the earned income of the students 
in the example above as income.
    Specifically, the final rule provides at Sec.  
5.609(b)(9)(ii)(B)(4) that student financial assistance (other than 
assistance provided to students under Title IV of the HEA or under 
Bureau of Indian Affairs student assistance programs) does not include 
any amount of the scholarship or grant that either by itself or when in 
combination with the excluded financial assistance under 479B of the 
HEA, exceeds the actual cost of tuition, books and supplies (including 
supplies and equipment to support students with learning disabilities 
or other disabilities), room and board, or other fees required and 
charged to a student by the education institution, and for a student 
who is not the head of household or spouse, the reasonable and actual 
costs of housing while attending the institution of higher education 
and not residing in an assisted unit (i.e., the student is living in 
off-campus/non-college owned housing while away at school instead of a 
dorm or college owned housing). HUD refers to all of these costs as the 
``actual covered costs'' in the regulation and preamble.
    The final rule includes a new paragraph at Sec.  5.609(b)(9)(ii)(E) 
that explains how to determine the amount of assistance that exceeds 
these actual covered costs when the student is receiving assistance 
excluded from income under section 479B of the HEA as well as student 
financial assistance from other sources. As noted earlier, all 
assistance under section 479B of the HEA is excluded from income, 
regardless of whether those amounts exceed the actual covered costs 
described above. The new paragraph at Sec.  5.609(b)(9)(ii)(E) provides 
that when determining the amount of assistance in excess of actual 
covered costs, as required under Sec.  5.609(b)(9)(ii)(B)(4), the 
assistance provided under section 479B of the HEA will be the first 
assistance deducted from the actual covered costs. This is because 
assistance under section 479B of the HEA is intended to pay the actual 
covered costs, and so HUD has determined that these amounts must be the 
first amounts subtracted from actual covered costs before any student 
financial assistance that HUD is excluding under HUD's discretionary 
exclusion authority.
    If the amount of assistance excluded under section 479B of the HEA 
exceeds the student's actual covered costs, then all of the amounts 
received from all other grants or scholarships the student is receiving 
from other sources would be in excess of actual covered costs and would 
not be considered student

[[Page 9609]]

financial assistance that is excluded from income. For example, assume 
a student received $26,000 in assistance excluded under section 479B of 
the HEA and another $5,000 from a scholarship that is not excluded 
under section 479B of the HEA. If the student's actual covered costs 
were $25,000, the entire $26,000 in assistance excluded under section 
479B of the HEA would still be excluded from income. However, the 
$5,000 from the other scholarship would not be considered student 
financial assistance under Sec.  5.609(b)(9)(ii), because it is 
assistance in excess of actual covered costs and would not be excluded 
from income under that paragraph.
    On the other hand, if the amount of assistance excluded under 
section 479B of the HEA is less than the student's actual covered 
costs, then some or all of the other scholarships and grants would be 
excluded from income. The amount that HUD considers student financial 
assistance under Sec.  5.609(b)(9)(ii) excluded from income is the 
lower of either (1) the total amount of scholarships and grants the 
student received that are not excluded under section 479B of the HEA or 
(2) the amount by which the student's actual covered costs exceeds the 
assistance the student received that is excluded under section 479B of 
the HEA. For example, assume a student received $15,000 in assistance 
from assistance excluded under 479B of the HEA and another $5,000 from 
a scholarship not excluded under section 479B of the HEA. The entire 
$15,000 excluded under section 479B of the HEA is excluded from income. 
If the student's actual covered costs are $22,000, then the entire 
amount of the $5,000 scholarship that is not excluded under section 
479B of the HEA would also be student financial assistance that is 
excluded from income, as the amount of the scholarship combined with 
the assistance excluded under section 479B of the HEA ($20,000) is 
still less than the student's actual covered costs ($22,000). But if 
the student's actual covered costs are only $18,000, the amount of the 
scholarship that is considered student financial assistance under Sec.  
5.609(b)(9)(ii) and excluded from income would be $3,000. This is 
because the $3,000 by which the student's actual covered cost exceeds 
the assistance excluded under section 479B ($18,000-$15,000) is less 
than the scholarship amount that is not excluded under 479B of the HEA 
($5,000). Consequently, the amount of that scholarship that is in 
excess of the student's actual covered costs ($2,000) is not student 
financial assistance and is not excluded under Sec.  5.609(b)(9)(ii).
Safe Harbor
    This final rule revises the provision in Sec.  5.609(c)(3) that 
states that PHAs and owners may, but are not required to, use income 
calculation information from other programs or agencies to determine a 
family's income prior to applying deductions under Sec.  5.611. Based 
on suggestions received in public comments, HUD adds the following to 
the list of means-tested forms of public assistance that PHAs and 
owners may rely upon: the Low-Income Housing Credit (LIHTC); the 
Special Supplemental Nutrition Program for Women, Infants, and Children 
(WIC); and Supplemental Security Income (SSI). In addition to these 
specific forms of public assistance, HUD is including other HUD 
programs, other means-tested forms of Federal public assistance for 
which HUD establishes a memorandum of understanding, and other means-
tested forms of Federal public assistance that HUD may announce through 
a Federal Register notice.
    In response to questions received in public comments, HUD is also 
adding regulatory language specifying how PHAs or owners that choose to 
use income determinations from other programs are to verify the 
information. PHAs or owners are to use third-party verification, which 
must include the tenant's family size and composition and state the 
family's annual income. The verification must also be dated within the 
time frame specified for the type of verification, including within the 
previous 12-month period for purposes of the specified means-tested 
forms of Federal public assistance. If the PHA or owner cannot obtain 
the required third-party verification, or if the family disputes the 
determination, the PHA or owner must calculate the family's annual 
income using the methods established in Sec.  5.609(c)(1) and (2) or in 
the applicable program regulations.
Permissive Deductions
    This final rule clarifies that PHAs administering the public 
housing, HCV, and Section 8 moderate rehabilitation programs are 
authorized to adopt additional deductions under HOTMA in accordance 
with the terms and conditions at Sec.  5.611(b). Additionally, the 
final rule states that only PHAs, not owners that happen to also be 
PHAs, may adopt additional deductions. The proposed rule stated that 
permissive deductions could be adopted when a PHA is an owner in the 
Section 8 project-based rental assistance (PBRA) program, but HUD has 
since determined that such a policy would not comport with HOTMA. Even 
if a PHA owns a PBRA property, it does so as any other PBRA owner, and 
without any special status conveyed upon it just because it is a PHA. 
Thus, because HOTMA permits only PHAs, and not owners, to adopt 
additional deductions, HUD concludes that a PBRA owner that is a PHA is 
precluded from adopting permissive deductions at a PBRA property.
    This final rule updates Sec.  5.611(b) to explain how permissive 
deductions are established under each applicable program and splits 
Sec.  5.611(b)(1) into paragraphs (i) and (ii) for the public housing 
and the applicable Section 8 programs (HCV, moderate rehabilitation, 
and moderate rehabilitation Single-Room Occupancy (SRO) programs), 
respectively.
    HUD is also adding additional language clarifying how HUD will 
ensure compliance with the amended 1937 Act's requirement that 
permissive deductions not ``materially increase Federal expenditures.'' 
PHAs can respond to community needs by using a wide range of permissive 
deductions, including permissive deductions to provide incentives to 
work. However, given the statutory requirement that permissive 
deductions may not materially increase Federal expenditures, HUD does 
not want to reduce funding for all PHAs by factoring in permissive 
deductions prior to allocating PHA Operating Funds or Section 8 funds. 
Therefore, HUD will not be revising the public housing Operating Fund 
formula to account for any decrease in PHA revenue attributable to 
implementing permissive deductions in accordance with Sec.  5.611. The 
subsidy costs attributable to permissive deductions will not be taken 
into consideration in determining the PHA's HCV renewal funding or 
moderate rehabilitation funding. When establishing permissive 
deductions, PHAs are still subject to Federal nondiscrimination 
requirements, including the obligation to provide reasonable 
accommodations that may be necessary for households with family members 
with disabilities.
    These permissive deductions impact the calculation of the family's 
adjusted income that is then used to determine the Total Tenant Payment 
(TTP), which is then used to calculate the tenant rent in the public 
housing and moderate rehabilitation programs and the family share in 
the HCV program. Permissive deductions do not affect the family's 
annual income and consequently have

[[Page 9610]]

no impact on the family's income eligibility for the public housing, 
HCV, or moderate rehabilitation programs.
Hardship Exemptions
    As discussed in section III of this preamble, HUD received numerous 
comments on the structure and form of hardship exemptions for 
unreimbursed health and medical care and reasonable attendant care and 
auxiliary apparatus expenses and child care expenses in Sec.  5.611(c). 
HUD therefore is revising the language in this final rule to provide 
additional clarity and to ease burdens on families experiencing 
financial hardships, including reorganizing the financial hardship 
exemption sections from what was included in the proposed rule. 
Hardship exemptions for unreimbursed health and medical care and 
reasonable attendant care and auxiliary apparatus expenses are now 
defined in Sec.  5.611(c). Hardship exemptions for child care expenses 
are now defined in Sec.  5.611(d). Finally, hardship policy 
requirements are now described in Sec.  5.611(e).
    The final rule provides two types of hardship exemptions to the new 
ten percent threshold for unreimbursed health and medical care expenses 
(for elderly and disabled families) and reasonable attendant care and 
auxiliary apparatus expenses (for families that includes a person with 
disabilities).
    The first category, defined in Sec.  5.611(c)(1), is for families 
eligible for and taking the unreimbursed health and medical care 
expenses and reasonable attendant care and auxiliary apparatus expenses 
deduction in effect prior to this final rule. The second category, 
defined in Sec.  5.611(c)(2), is for families that can demonstrate that 
the family's health and medical care expenses or reasonable attendant 
care and auxiliary apparatus expenses increased, or the family's 
financial hardship is a result of a change in circumstances that would 
not otherwise trigger an interim reexamination.
    HUD is adding this second category in the final rule in recognition 
that the change from the three percent threshold to the new ten percent 
threshold for unreimbursed health and medical care expenses and/or 
reasonable attendant care and auxiliary apparatus expenses may result 
in financial hardship for families, including those families who were 
not receiving the deduction or may not even have been receiving housing 
assistance at the time this rule went into effect. For example, a 
family may have had health and medical care and reasonable attendant 
care and auxiliary apparatus expenses that did not exceed three percent 
on the effective date of the rule, but their health and medical care 
expenses may have subsequently increased although those expenses do not 
exceed the now effective ten percent threshold. This family may receive 
temporary hardship relief if their health and medical care expenses or 
reasonable attendant care and auxiliary apparatus expenses exceed 5 
percent of the family's income, as discussed in detail below. Another 
example is a case where the family's health and medical care expenses 
and reasonable attendant care and auxiliary apparatus expenses have not 
increased, but the family has had a decrease in income or increase in 
other expenses that has resulted in the family's financial hardship. In 
such a circumstance the family may receive temporary hardship relief if 
their health and medical care expenses or reasonable attendant care and 
auxiliary apparatus expenses exceed 5 percent of the family's income. 
The second category may also include families that either qualified 
under the first category but have exhausted the relief in that 
exemption or have chosen to apply for relief under the second category 
before completing the transition to the ten percent threshold in 
accordance with the terms and conditions discussed below, so long as 
they independently qualify under Sec.  5.611(c)(2).
    Under the first category at Sec.  5.611(c)(1), the responsible 
entity must deduct eligible expenses exceeding 5 percent of the 
family's income for the first year. The second year, the responsible 
entity must deduct expenses exceeding 7.5 percent of the family's 
annual income. However, beginning with the third year, the responsible 
entity must deduct only the expenses that exceed ten percent of the 
family's annual income, unless the family qualifies for a new exemption 
under the other eligible category of health and medical care and 
reasonable attendant care and auxiliary apparatus expense hardships 
defined in Sec.  5.611(c)(2).
    Under the second category defined in Sec.  5.611(c)(2), a family 
may also qualify for hardship exemptions for health and medical care 
expenses or reasonable attendant care and auxiliary apparatus expenses 
if the family can demonstrate that the family's applicable health and 
medical care expenses or reasonable attendant care and auxiliary 
apparatus expenses increased or the family's financial hardship is a 
result of a change in circumstances (as defined by the responsible 
entity). For these families, the responsible entity deducts the 
eligible expenses in excess of 5 percent of the family's income for a 
period of up to 90 days. Responsible entities may extend such 
exemptions for additional 90-day periods at their discretion, based on 
the family's circumstances. As in the proposed rule, a responsible 
entity may also terminate the hardship exemption if the responsible 
entity determines that the family no longer needs the exemption.
    In some circumstances, a family that is still receiving the health 
and medical care and reasonable attendant care and auxiliary apparatus 
expense hardship relief under the first category (a family that was 
receiving the health and medical care and/or reasonable attendant care 
and auxiliary apparatus expense deduction on the effective date of the 
rule and is transitioning to the new ten percent threshold) may request 
relief under the second category of hardship relief. During the second 
year of the transition, the responsible entity deducts expenses 
exceeding 7.5 percent of the family's annual income if they are 
obtaining relief under Sec.  5.611(c)(1). If the family can demonstrate 
that the family's applicable health and medical care and/or reasonable 
attendant care and auxiliary apparatus expenses increased or the 
family's financial hardship is a result of a change in circumstances 
(as defined by the responsible entity) other than the transition to the 
higher threshold under the hardship relief policy of Sec.  5.611(c)(1), 
the family may be granted hardship relief under the second category of 
hardship relief in Sec.  5.611(c)(2). In this case, the responsible 
entity would deduct expenses exceeding 5 percent of the family's annual 
income instead of 7.5 percent. However, Sec.  5.611(c)(2) provides 
relief only for a period of up to 90 days (unless extended by the 
responsible entity at their discretion), and a family granted hardship 
relief under the second category is no longer eligible for relief under 
the first category, as per Sec.  5.611(c)(1)(D). In other words, at the 
end of the relief period for the second category that is defined in 
Sec.  5.611(c)(2), the family would be subject to the regular health 
and medical care expenses or reasonable attendant care and auxiliary 
apparatus expenses deduction threshold of ten percent, regardless of 
whether they fully transitioned to the ten percent threshold under 
Sec.  5.611(c)(1) before receiving hardship relief under the second 
category.
    HUD reminds responsible entities that they must comply with the 
Health Insurance Portability and Accountability Act (HIPAA) (Pub. L. 
104-191, 110 Stat. 1936) and the Privacy Act of 1974 (Pub. L. 93-579, 
88 Stat. 1896) when requesting documentation to determine eligibility

[[Page 9611]]

for a financial hardship exemption for unreimbursed health and medical 
care expenses. Responsible entities may not request documentation 
beyond what is sufficient to determine anticipated health and medical 
care and/or reasonable attendant care and auxiliary apparatus costs or 
when a change in circumstances took place. Before placing bills and 
documentation in the tenant file, the responsible entity must redact 
all personally identifiable information. Responsible entities must also 
comply with all Federal nondiscrimination and civil rights statutes and 
requirements, including, but not limited to, the Fair Housing Act, 
Title VI of the Civil Rights Act, Section 504, and the Americans with 
Disabilities Act, as applicable. Among other obligations, this includes 
providing for reasonable accommodations that may be necessary for 
persons with disabilities.
    HUD also includes language in Sec.  5.611(d) creating a 90-day time 
frame for the hardship exemption to the child care income deduction in 
this final rule. Responsible entities may extend the hardship for 
additional 90-day periods if the family demonstrates to the responsible 
entity's satisfaction that the family is unable to pay their rent 
because of loss of the child care expense deduction, and the child care 
expense is still necessary even though the family member is no longer 
employed or furthering his or her education. The 90-day time frame for 
the child care hardship in Sec.  5.611(d) is similar to the 90-day time 
frame for the second hardship exemption for health and medical care 
expenses or reasonable attendant care and auxiliary apparatus expenses 
and is also consistent with the 90-day length of time provided for 
minimum rent hardship exemptions under Sec.  5.630(b)(2). As in the 
proposed rule, responsible entities may also terminate the hardship 
exemption if the responsible entity determines that the family no 
longer needs the exemption. HUD believes that this 90-day term is 
fairer to families than the proposed rule's reliance on the family's 
next regular reexamination, where the applicability of the child care 
hardship exemption could vary significantly in length depending on when 
the event requiring the child care hardship occurred in relationship to 
the effective date of the family's next regular reexamination.
    For example, assume a family no longer qualifies for the child care 
deduction because the child care is no longer necessary to enable a 
member of the family to be employed or to further his or her education. 
The family member who was employed has left their job in order to 
provide uncompensated care to an elderly friend who is severally ill 
and lives across town. Under the proposed rule, the length of time that 
the hardship exception for the child care deduction could continue 
(assuming the need continued to exist) would depend on the timing of 
the next regular reexamination. Under the final rule, the hardship 
exemption and the resulting alternative adjusted income calculation 
must remain in place for a period of up to 90 days, regardless of the 
relationship of the timing of the circumstance to the need for the 
hardship exemption and the next regular reexamination. In addition, the 
final rule provides that responsible entities have the discretion to 
extend the hardship exemption for additional 90-day periods based on 
family circumstances.
    In what is Sec.  5.611(e) in this final rule, HUD has included the 
proposed provisions related to how responsible entities are to 
establish hardship policies and requirements for notifying families, 
which are moved but largely unchanged from what was included in the 
proposed rule. In addition to correcting some cross citations that have 
changed, the only difference is that HUD has revised the provision to 
reflect that hardship exemptions are either phased (Sec.  5.611(c)(1)) 
or expire within 90 days (Sec.  5.611(c)(2) and (d)), rather than at 
the next regular income reexamination, or when the responsible entity 
determines the hardship exemption is no longer necessary.

C. Assets

Income From Assets
    HOTMA specifically includes actual income from assets in the 
definition of income. Therefore, any actual income received must be 
counted as family income. In Sec.  5.609(a)(2) of this final rule, HUD 
clarifies the regulatory language regarding income from assets to help 
PHAs and owners determine what income from assets should be included in 
the family's annual income, while also minimizing the burden on PHAs, 
owners, and families. This final rule includes language in Sec.  
5.609(a)(2) to indicate that the imputed return on assets of a combined 
value of more than $50,000 must be calculated if no actual income can 
be computed. In addition, if the actual income can be computed for some 
assets, but not all assets, housing providers must compute the actual 
income for those assets, calculate the imputed income for all remaining 
assets where the actual income cannot be computed, and combine both 
amounts to account for assets of a combined value of over $50,000.
Limitation on Eligibility for Assistance Based on Assets
    Per requirements in HOTMA, Sec.  5.618 creates a restriction on the 
eligibility of a family to receive assistance if the family owns real 
property that is suitable for occupancy by the family as a residence or 
has assets in excess of $100,000, as adjusted annually in accordance 
with the Consumer Price Index for Urban Wage Earners and Clerical 
Workers. The proposed rule included an exception to the restriction 
against owning real property suitable for occupancy by the family as a 
residence if the property does not meet the disability-related needs 
for all members of the family, including physical accessibility 
requirements. In response to public comment, HUD is adding language 
clarifying that the example of physical accessibility requirements is 
not the sole type of disability-related need that the property must 
meet for all family members. There are various circumstances where a 
property may not be suitable for occupancy for a household with a 
household member with disabilities. Other examples include, but are not 
limited to, a disability-related need for additional bedrooms, 
proximity to accessible transportation, etc.
    HUD is also adding clarifying language throughout the section, 
including in Sec.  5.618(a), on the programs covered by the section. In 
Sec.  5.618(a)(1)(ii), the final rule adds language that clarifies the 
ability to sell is based on the State and local laws of the 
jurisdiction where the property is located. HUD has revised Sec.  
5.618(a)(1)(ii)(B) to clarify that asset limitations do not apply to a 
member of a family that jointly owns real property with another non-
household member that does not reside with the family when that non-
household member lives in the jointly owned property. This can apply in 
instances where a family member owns a fractional interest of a 
property with other relatives that do not reside with the family.
    HUD has revised Sec.  5.618(a)(2) since the proposed rule to add 
clarifications and examples of different ways in which a property will 
be considered ``suitable for occupancy'' under the amended 1937 Act. 
These clarifications and examples indicate that if a property is 
geographically located so that the distance or commuting time between 
the property and the family's place of work or a family member's 
educational institution would create a hardship for the family, as 
determined by the PHA or

[[Page 9612]]

owner, it may not be suitable. These clarifications and examples also 
specify that a property is considered unsafe to reside in when the 
property's physical condition poses a risk to the family's health and 
safety and the condition of the property cannot be easily remedied. 
This could include where environmental factors outside the control of 
the family are contributing to the unsafe condition or where the 
alterations necessary to make the physical condition of the property 
safe are cost prohibitive.
    HUD is also adding a new provision at Sec.  5.618(a)(2)(v) to 
clarify that, for purposes of the asset limitation, a property that a 
family may not reside in under State or local laws of the jurisdiction 
where the property is located is not a property that is suitable for 
occupancy by the family as a residence. This can happen when an 
assisted family owns a commercial property that cannot legally be 
occupied as a residence by the family, such as a convenience store or a 
retail establishment. While owning such a property is not the form of 
property ownership prohibited under HOTMA, HUD notes that the real 
property would be considered an asset for purposes of determining: net 
family assets under Sec.  5.603; annual income from net family assets 
under Sec.  5.609(a)(2); and for purposes of determining if the family 
owns net family assets in excess of $100,000 under 5.618(a)(1)(i). The 
real property's value under these regulations is the net cash value of 
the real property after deducting reasonable costs that would be 
incurred in disposing of the family's real property, which would 
include repayment of any mortgage debt or other monetary liens on the 
real property.
    HUD is changing the paragraph header in Sec.  5.618(b) from ``Self-
certification'' to ``Acceptable documentation; confidentiality'' for 
clarity.
    Finally, in Sec.  5.618(d), HUD adds language that states that 
while the PHA or owner has six months to begin eviction or termination 
proceedings for families that have excess or prohibited assets, the PHA 
or owner is still bound by other provisions of law.
    For clarity, HUD is also adding a cross-reference to the new 
restrictions in Sec.  5.618 in the regulations for denial or 
termination of assistance for the Section 8 moderate rehabilitation, 
HCV, and public housing programs at Sec. Sec.  882.515(d), 982.552(b), 
960.201(a) and 966.4(l)(2), respectively.

D. HOME Investment Partnerships Program (HOME) Changes

Definitions
    Section 92.2 is being amended to add the term Live-in aide, which 
has the same meaning given that term in Sec.  5.403. Section 92.2 is 
also amended by adding the terms Foster adult, Foster child, Full-time 
student, and Net family assets, which are defined in Sec.  5.603. HUD 
believes that this will help participating jurisdictions (PJs) locate 
the applicable regulatory definitions for these new or revised terms.
Use of Annual Income in the HOME Program
    To determine whether a family is eligible to participate in HOME 
program activities, a PJ must calculate a family's annual income. HOME 
program activities include the support and development of affordable 
rental and homeownership housing, homebuyer downpayment assistance, 
rehabilitation of owner-occupied housing, and tenant-based rental 
assistance (TBRA) for very low-income and low-income families as 
defined in Sec.  92.2. A PJ uses a family's annual income to determine 
eligibility for: occupancy of HOME-assisted rental unit, purchase of a 
homeownership unit, receiving homebuyer downpayment assistance, and 
obtaining rental assistance in TBRA.
    The HOME regulations at Sec.  92.203 permit a PJ to use one of two 
definitions for annual income for each rental project or program 
assisted with HOME funds: (1) adjusted gross income in IRA Form 1040 
Individual Income Tax Return (IRS Form 1040) or (2) annual income as 
defined at Sec.  5.609. The definition of adjusted gross income in the 
IRS Form 1040 is not changed in this rulemaking and will continue to 
align with the definition of adjusted gross income developed by the 
Department of Treasury. HUD is revising the definition of annual income 
at Sec.  5.609 as part of this rulemaking and the changes will apply to 
income calculations made after the effective date of this final rule.
    In this final rule, HUD is revising Sec. Sec.  92.203 and 92.252 to 
align with the income and net family assets provisions amended by HOTMA 
and to reduce the administrative burden of calculating income when HOME 
funds are layered with other HUD programs. The final rule also 
clarifies who is considered a member of the family for the purpose of 
calculating income; identifies three cases where a PJ must calculate a 
tenant's adjusted income; and removes references to and the 
applicability of the disallowance of earned income at Sec.  5.617 from 
the HOME program regulations two years after the effective date of the 
rule in conformity with the revisions to program regulations subject to 
the 1937 Act.

Use of Adjusted Income in the HOME Program

    Under certain circumstances, the HOME program also uses the 
definition of adjusted income in Sec.  5.611. This definition is used 
for the calculation of the maximum subsidy allowable for a family 
receiving TBRA, for the calculation of a family's Low HOME rent in 
accordance with Sec.  92.252(b)(2), and for the calculation of rent for 
over-income tenants, in accordance with Sec.  92.252(i)(2).

Annual Income Determinations in the HOME Program

    HUD is amending paragraph Sec.  92.203(a) to add the subheading 
``Methods of determining annual income'' to clarify the section's 
intent and add new paragraphs (a)(1), (a)(2), and (a)(3) to describe 
new requirements for how a PJ must determine the annual income of 
families living in HOME-assisted rental units.
    In accordance with new Sec.  92.203(a)(1), a PJ must accept a PHA, 
owner, or rental subsidy provider's income determinations, in 
accordance with Sec.  5.609, if a family is applying for or living in a 
HOME-assisted rental unit and the unit is being assisted by Federal 
project-based rental subsidy. Similarly, a PJ must accept a State 
project-based rental subsidy provider's income determination under the 
rules of that State program. Prior to this rulemaking, this requirement 
was only described in Sec.  92.252(b)(2). This aligns the calculation 
of a family's income under the HOME program with the calculation of a 
family's income in other rental assistance or subsidy programs that 
assist the same unit. The requirement to accept a PHA's or owner's 
income determination applies when HOME funds are used in a project 
where units also receive a Federal project-based rental subsidy such as 
Section 8 Project-Based Rental Assistance, PBV, project-based 
assistance under HUD-VASH Vouchers, or rental assistance provided in 
conjunction with the Section 202 Supportive Housing for the Elderly 
Program (Section 202) or the Section 811 Supportive Housing for Persons 
with Disabilities Program (Section 811). For these units, the family's 
income must be calculated in accordance with the rules of the program 
providing the rental assistance or subsidy.
    In accordance with Sec.  92.203(a)(1), PJs must accept the PHA, 
owner, or rental

[[Page 9613]]

subsidy provider's determinations of annual and adjusted income 
conducted at initial occupancy, interim reexaminations, and annual 
reviews of eligibility, as applicable under that program's rules. For 
subsequent income determinations during the HOME affordability period, 
a PJ must continue to accept the income determinations performed by the 
PHA, owner, or rental subsidy provider in accordance with the rules of 
those programs.
    In an effort to further align HOME with the HCV Program as well as 
other forms of Federal tenant-based rental assistance, HUD is providing 
a new flexibility for PJs in Sec.  92.203(a)(2). This new flexibility 
allows a PJ to accept a Federal tenant-based rental assistance 
provider's income determinations if the family is applying for or 
living in a HOME-assisted rental unit and the family is being assisted 
by a Federal tenant-based rental assistance program. This flexibility 
is an option when tenants in HOME-assisted units are assisted by 
programs that provide Federal tenant-based rental assistance such as 
the HCV program (including special purpose vouchers such as HUD-VASH 
vouchers), HOME-American Rescue Plan (HOME-ARP) Program, Emergency 
Solutions Grants Program (ESG), and the Housing Opportunities for 
Persons with AIDS (HOPWA) Program. For these units, the PJ may accept 
the income determinations made for the family in accordance with the 
rules of the program providing the rental assistance. When exercising 
this option, the PJ may accept determinations of annual and adjusted 
income conducted at initial occupancy, interim reexaminations, and 
annual reviews of eligibility, as applicable under that program's 
rules. However, a PJ must ensure these units comply with HOME rent 
limitations at Sec.  92.252 (e.g., High HOME, Low HOME, and SROs).
    This rule does not change the requirement that a PJ enter into 
agreement with the owner, developer, or sponsor of rental housing to 
commit HOME funds and impose the HOME affordability restrictions. 
However, HUD recommends that a PJ also enter into an agreement with the 
PHA, owner, or rental subsidy provider for Federal or State project-
based rental subsidy programs, or with the rental assistance provider 
for Federal tenant-based rental assistance programs, to facilitate the 
sharing of income and rent determinations when income will be 
calculated in accordance with Sec.  92.203(a)(1) or (2). This will 
ensure the project is able to meet the HOME rental occupancy 
requirements established in the HOME written agreement and 24 CFR part 
92 (e.g., fixed or floating, High HOME, and Low HOME unit mix).
    For HOME-assisted units not assisted by Federal or State project-
based rental subsidy or where a PJ has chosen not to accept a PHA, 
owner, or rental subsidy provider's determination of annual income, the 
PJ is subject to Sec.  92.203(a)(3) and must continue to comply with 
the HOME requirements regarding determination of income in Sec.  
92.203(b) through (f), as applicable.
    In applying Sec.  92.203(a)(1) and (2), the PJ must accept a PHA's, 
owner, rental subsidy provider, or rental assistance provider's 
determination of annual and adjusted income under the rules of the 
applicable program. For HUD project-based rental subsidy programs, this 
includes but is not limited to the determination to: make the 
deductions under Sec.  5.611(a), provide any permissive deductions 
under Sec.  5.611(b), grant financial hardship exemptions to the family 
under Sec.  5.611(c) through (e), and allow for any disallowance of 
earned income made under those program rules in accordance with Sec.  
5.617 (while those provisions remain in place). HUD also reminds PJs 
that, when applying Sec.  92.203(a)(1) and (2), there are new 
flexibilities in Sec.  5.609(c)(3) allowing PHAs administering HCV and 
owners of projects with project-based rental subsidies a safe harbor 
that allows them to accept annual income determinations made by 
administrators of means-tested forms of Federal public assistance such 
as Temporary Assistance for Needy Families (TANF) or Supplemental 
Nutrition Assistance Program (SNAP). To reduce burden and preserve 
program alignment, HUD is requiring that where the PHA or owner has 
accepted such a determination pursuant to Sec.  5.609(c)(3), the PJ 
must also accept the PHA or owner's determination of annual and (as 
applicable) adjusted income regardless of whether the safe harbor was 
used in making that determination.
    Furthermore, HUD similarly reminds PJs that though the HOME program 
does not incorporate asset limitations because there is no statutory 
basis to exclude families from the HOME program based upon the amount 
of assets that are held by those families, families that are subject to 
the asset limitations under Sec.  5.618 because of their participation 
in a different program may be denied continued assistance under that 
program. PJs are under no requirement under the HOME program to exclude 
these families from participation and must continue to follow the 
tenant protection requirements in Sec.  92.253(c) even if the families 
may no longer receive assistance under other HUD programs because of 
the family's assets. A HOME PJ may only terminate the tenancy or refuse 
to renew the lease of a tenant of rental housing assisted with HOME 
funds for good cause, as defined in Sec.  92.253(c), which does not 
include having the type of assets or an amount of assets in excess of 
the limitations in Sec.  5.618.
    Where the PHA or owner enforces the asset limitations and 
terminates assistance to the unit or the family because the family's 
net family assets exceed the asset limitations in Sec.  5.618, the 
family may remain in the HOME-assisted rental unit and the PJ must 
determine the family's annual income in accordance with Sec.  92.203(b) 
through (e); calculate the family's adjusted income, if applicable, in 
accordance with Sec.  92.203(f); and charge a rent in accordance with 
Sec.  92.252(a) through (i).
Required Documentation for Annual Income Calculations in the HOME 
Program
    Unless a PJ falls into one of the exceptions listed in Sec.  
92.203(a)(1) or (2), a PJ must calculate annual and (as applicable) 
adjusted income each year for HOME-assisted families in accordance with 
Sec.  92.203(a)(3) and (f). HUD is not changing the requirements for 
what evidence a PJ must use for the first year the family is assisted 
or the documentation options available to the PJ in subsequent years. 
However, due to the changes discussed above, HUD is redesignating these 
options from Sec.  92.203(a)(1) and (a)(2) to paragraphs Sec.  
92.203(b)(1) and (b)(2) and redesignating the introductory text to a 
new paragraph (b) and revises the new paragraph (b)(1) to update the 
reference to the new paragraph Sec.  92.203(b)(1)(i). HUD also revises 
the paragraph to add the heading ``Required Documentation for Annual 
Income Calculations.''
Defining Income for Eligibility in the HOME Program
    While HUD is not changing the two options of calculating annual 
income as part of this rulemaking, HUD is redesignating the paragraph 
explaining the two options of calculating annual income from Sec.  
92.203(b) to Sec.  92.203(c), is revising new paragraph Sec.  92.203(c) 
to add subheading Defining income for eligibility, and is incorporating 
revisions made to the definitions of annual income at Sec.  5.609(a) 
and (b). Notably, this revision in Sec.  92.203(c)(1) does not 
incorporate Sec.  5.609(c), which describes how to calculate annual 
income in the public housing or Section 8 programs and is therefore not 
applicable to the HOME program. Section 92.203(c)

[[Page 9614]]

retains the reference to the definition of net family assets at Sec.  
5.603 used to determine the imputed income on assets over $50,000 based 
on the current passbook savings rate in Sec.  5.609(a), as the new 
definition has no impact on HOME-funded owner rehabilitation 
activities. For HOME-assisted owner-occupied rehabilitation activities, 
a PJ would continue to exclude the value of a homeowner's principal 
residence pursuant to new paragraph Sec.  92.203(c)(1) from the 
calculation of net family assets, as defined in Sec.  5.603.
Using Income Definitions in the HOME Program
    HUD is also redesignating the paragraph explaining that PJs have 
the option of using one of these two income definitions from Sec.  
92.203(c) to Sec.  92.203(d), and adding a clarification of existing 
policy in the redesignated Sec.  92.203(d). This clarification explains 
that though a PJ has the option to use either the definition of 
adjusted gross income contained in the IRS Form 1040 or the definition 
of annual income in Sec.  5.609 as the definition of annual income for 
each rental project, there are some cases where a PJ will be required 
to use the definition of annual income in Sec.  5.609 for the 
calculation of income for a rental project. This is because for rental 
housing projects containing units assisted by a Federal or State 
project-based rental subsidy, the PJ must accept the determination of 
annual and adjusted income made by the PHA, owner, or rental subsidy 
provider under that program's rules. Moreover, in cases where the PJ is 
accepting the calculations of a rental assistance provider's 
determination of annual and adjusted income for tenants receiving 
Federal tenant-based rental assistance, the PJ must calculate income in 
accordance with the rules of that program. For HUD-assisted tenant-
based rental assistance and project-based rental subsidy programs, this 
would generally be the calculation of annual income under Sec.  5.609. 
While this has been a longstanding HUD policy contained in Sec.  
92.252, HUD is making this clarification in the income regulations at 
Sec.  92.203 to help PJs align the HOME program with project-based 
rental assistance programs.
Determining Family Composition and Projecting Income in the HOME 
Program
    HUD is redesignating paragraph (d) in Sec.  92.203 as paragraph (e) 
and adding the heading ``Determining Family Composition and Projecting 
Income'' to the redesignated paragraph (e). HUD is also adding 
clarifications of existing policy that annual income includes income 
from all persons living in the household except live-in aides, foster 
children, and foster adults. PJs must project annual income based on 
the requirements in Sec.  92.203(e) regardless of which definition of 
annual income in Sec.  92.203(c) the PJ applies to its HOME-funded 
programs or to each HOME-assisted rental project (Sec.  5.609 or IRS 
Form 1040).
    In Sec.  92.203(e)(1), HUD is also permitting grantees to use the 
certification process established in Sec.  5.618(b) when imputing 
income for families whose net family assets, as defined in Sec.  5.603, 
do not exceed $50,000 without taking further steps to verify the 
accuracy of the declaration. HUD is also clarifying that when families 
are homeowners applying for homeowner rehabilitation assistance under 
the HOME program, they may also exclude the value of their principal 
residence from the calculation of their Net Family Assets for purposes 
of the certification. This rule also clarifies, in Sec.  92.203(e)(1), 
that the PJ must exclude the Federal tenant-based rental assistance 
provided to the family or any Federal or State project-based rental 
subsidy provided to the HOME rental housing unit from the calculation 
of annual income when determining eligibility for occupancy of HOME-
assisted rental housing units.
    The redesignated paragraph Sec.  92.203(e)(3) restates the 
requirement that PJs continue to disallow increases in earned income of 
persons with disabilities occupying HOME-assisted rental units or 
receiving TBRA in accordance with Sec.  5.617 until the elimination of 
the requirement. This requirement is derived from Sec.  5.617(e). As 
Sec.  5.617 will lapse two years after the effective date of this rule, 
HUD is revising paragraph Sec.  92.203(e)(3), to explain that the 
requirements of Sec.  92.203(e)(3) shall lapse on January 1, 2026.
Determining Adjusted Income in the HOME Program
    In Sec.  92.203, HUD redesignates paragraph (e) as paragraph (f), 
revises new paragraph (f), and adds subheading Determining Adjusted 
Income. HUD also clarifies the three scenarios in which the PJ must 
calculate a tenant's adjusted income and added new paragraphs 
(f)(1)(i), (f)(1)(ii), (f)(1)(iii), and (f)(2). The new paragraph 
(f)(1)(i) incorporates the revisions to the definition of adjusted 
income at Sec.  5.611(a) and (c) and requires the PJ to apply the 
deductions at Sec.  5.611(a) for families in HOME TBRA. The PJ may 
grant financial hardship exemptions according to the requirements of 
the revised Sec.  5.611(c) through (c) to families affected by the 
statutory increase in the threshold to receive health and medical care 
expense and reasonable attendant care and auxiliary apparatus expenses 
deductions from annual income under Sec.  5.611(a)(3), as well as 
families that apply for a continued child care expense deduction. To 
use the authority, the PJ must develop policies and procedures for 
qualifying and granting hardship exemptions in accordance with the 
requirements contained in Sec.  5.611(e).
    The new paragraph (f)(1)(ii) requires the PJ to apply the mandatory 
deductions from income established at Sec.  5.611(a) when determining a 
family's adjusted income for the purpose of calculating the rent 
applicable to a tenant in Low HOME Rent unit that is subject to the 
provisions of new paragraph Sec.  92.252(b)(2)(i). Furthermore, the PJ 
may grant financial hardship exemptions according to the requirements 
of Sec.  5.611(c) through (e) to families affected by the statutory 
increase in the threshold to receive health and medical care expense 
and reasonable attendant care and auxiliary apparatus expenses 
deductions from annual income under Sec.  5.611(a)(3), as well as 
families that apply for a continued child care expense deduction. To 
use the authority, the PJ must develop policies and procedures for 
qualifying and granting the hardship exemptions in accordance with the 
requirements contained in Sec.  5.611(e).
    The new paragraph (f)(1)(iii) requires the PJ to apply the 
mandatory deductions from income established at Sec.  5.611(a) when 
determining a family's adjusted income for the purpose of calculating 
the rent applicable to over-income tenants in accordance with Sec.  
92.252(i)(2).
    Similar to earlier sections of the rule, the new paragraph (f)(2) 
clarifies that for Low HOME Rent units that receive Federal or State 
project-based rental subsidy, the PJ does not have to calculate the 
family's adjusted income and must accept the PHA, owner, or rental 
subsidy provider's determination of adjusted income under that 
program's rules.
Qualification as Affordable Housing: Rental Housing in the HOME Program
    While HUD is not changing the definitions of the High or Low HOME 
rents, HUD is revising Sec.  92.252(b)(2) by splitting it into two 
paragraphs. Section 92.252(b) states that a PJ has the option of 
charging a family either (1) a rent that does not exceed 30 percent of 
the annual income of a family whose

[[Page 9615]]

income equals 50 percent of the median income for the area, as 
determined by HUD, or (2) a rent that is equal to 30 percent of a 
family's adjusted income. This final rule separates into new Sec.  
92.252(b)(2)(ii) the conditions that a HOME-assisted unit that also 
receives Federal or State project-based rental subsidy must meet in 
order for a project owner to charge the maximum rent allowable under 
the Federal or State project-based rental subsidy program.
    To conform HOME requirements for subsequent income determinations, 
HUD is revising paragraph (h) of Sec.  92.252 to update the cross 
references from Sec.  92.203 to Sec.  92.203(b)(1), from Sec.  
92.203(a)(1)(i) to Sec.  92.203(b)(1)(i), and from Sec.  
92.203(a)(1)(ii) to Sec.  92.203(b)(1)(ii). In the sixth year of a HOME 
rental project's affordability period, a PJ is not required to review 
source documentation for families whose incomes are determined in 
accordance with Sec.  92.203(a)(1) and (2). HUD further specifies that 
if rental housing projects contain units assisted by a Federal or State 
project-based rental subsidy, the PJ must accept the determination of 
annual and adjusted income made by the PHA, owner, or rental subsidy 
provider under that program's rules. The revisions also permit a PJ to 
accept a rental assistance provider's income determination if the 
family is living in a HOME-assisted rental unit and the family is being 
assisted by Federal tenant-based rental assistance.

E. Housing Trust Fund (HTF) Changes

Definitions
    Section 93.2 is being amended to add the term Live-in aide, which 
has the same meaning given that term in Sec.  5.403. Section 93.2 is 
also amended by adding the terms Foster adult, Foster child, Full-time 
student, and Net family assets, which are defined in Sec.  5.603. HUD 
is also adding a definition of Public Housing Agency (PHA) that 
provides that this term has the same meaning as the definition provided 
in Sec.  5.100. HUD believes that this will help HTF grantees locate 
and use the applicable regulatory definitions in calculating income.
Use of Annual Income in the HTF Program
    To determine whether a family is eligible to participate in HTF 
program activities, the HTF grantee must calculate the family's annual 
income. HTF program activities include the support and development of 
affordable rental and homeownership housing and homebuyer downpayment 
assistance for extremely low-income and very low-income families as 
defined in Sec.  93.2. An HTF grantee uses a family's annual income to 
determine eligibility for occupancy of an HTF-assisted rental unit, 
purchase of a homeownership unit, and receiving homebuyer downpayment 
assistance.
    In this final rule, HUD is revising Sec.  93.151 and Sec.  93.302 
to align with HOTMA's income and net family assets provisions and 
reduce the administrative burden of calculating income when HTF funds 
are layered with other HUD programs. This final rule also codifies 
existing program requirements regarding income calculations, 
establishes who is considered a member of the family, explains how to 
determine the annual income of a family (projecting income), sets a 
limit on how long income determinations are good for, and clarifies 
that income or assets enhancement derived from the investment of HTF 
funds in a project cannot be included when calculating annual income. 
Although HUD aligned HTF with other HUD rental programs as much as 
possible, the Department codified these requirements to avoid confusion 
on which income requirements in the final rule applied to the HTF 
program.
Annual Income Determinations in the HTF Program
    HUD is revising Sec.  93.151(a) to describe how grantees must 
determine the annual income of families living in HTF-assisted rental 
units. In Sec.  93.151(a)(1), HUD specifies that if a family is 
applying for or living in an HTF-assisted rental unit, and the unit is 
assisted under the PHP, then an HTF grantee must accept the PHA's 
determination of the family's annual income and adjusted income under 
Sec. Sec.  5.609 and 5.611, respectively. This requirement applies when 
HTF funds are used in projects that also include public housing funding 
in accordance with Sec.  93.203.
    In Sec.  93.151(a)(2), HUD explains that if a family is applying 
for or living in an HTF-assisted rental unit, and the family is 
assisted under a Federal tenant-based rental assistance program, then 
an HTF grantee must accept the rental assistance provider's 
determination of the family's annual income and adjusted income under 
the rules of that program. This requirement applies when HTF funds are 
used in projects that also include families that receive Federal 
tenant-based rental assistance such as HOME TBRA, HOME-ARP TBRA, HCVs, 
ESG, CDBG-CV, HUD-VASH, and HOPWA assistance.
    Section 93.151(a)(3) explains that if a family is applying for or 
living in an HTF-assisted rental unit and the unit is assisted with a 
Federal or State project-based rental subsidy, then an HTF grantee must 
accept the PHA, owner, or rental subsidy provider's determination of 
the family's annual income and adjusted income under that program's 
rules. This requirement applies when HTF funds are used in projects 
that also receive Federal or State project-based rental subsidy such as 
Section 8 Project-Based Rental Assistance, PBV, project-based 
assistance under HUD-VASH Vouchers, or rental assistance provided in 
conjunction with the Section 202 and Section 811 Programs. This aligns 
the calculation of a family's income under the HTF program with the 
calculation of a family's income in other rental assistance or project-
based rental subsidy programs that assist the same family or unit as 
the HTF assistance.
    In accordance with Sec.  93.151(a)(1) through (3), HTF grantees 
must accept examinations of a family's annual and adjusted income 
conducted at initial occupancy, interim reexaminations, and annual 
reviews of eligibility, as applicable under that program's rules. This 
includes but is not limited to the determination to: make the 
deductions under Sec.  5.611(a), provide any permissive deductions 
under Sec.  5.611(b), grant financial hardship exemptions to the family 
under Sec.  5.611(c) through (e), and allow for any disallowance of 
earned income made under those program rules in accordance with Sec.  
5.617 (while those provisions remain in place).
    This rule does not change the requirement that an HTF grantee enter 
into an agreement with the recipient (owner or developer) of rental 
housing to commit HTF funds and impose the HTF affordability 
restrictions. However, HUD recommends that an HTF grantee also enter 
into agreement with the PHA, rental assistance provider, rental subsidy 
provider, or owner, as applicable, to facilitate the sharing of income 
and rent determinations to ensure the project is able to meet the HTF 
rental occupancy requirements established in the HTF written agreement 
and 24 CFR part 93 (e.g., fixed or floating and applicable HTF rents).
    HUD also reminds HTF grantees that Sec.  5.609(c)(3) contains new 
flexibilities allowing PHAs administering HCV and public housing and 
owners of projects with project-based rental subsidies a safe harbor 
that allows them to accept annual income determinations made by 
administrators of means-tested forms of Federal public assistance such 
as TANF

[[Page 9616]]

or SNAP. To reduce burden and preserve program alignment, HUD is 
requiring that where the PHA or owner has accepted such determination 
pursuant to Sec.  5.609(c)(3), the HTF grantee must also accept the PHA 
or owner's determination of annual and (as applicable) adjusted income 
regardless of whether the safe harbor was used in making that 
determination.
    HUD similarly reminds HTF grantees that though the HTF program does 
not incorporate asset limitations because there is no statutory basis 
to exclude families from the HTF program based upon the amount of 
assets that are held by those families, families that are subject to 
the asset limitations under Sec.  5.618 because of their participation 
in a different program may be denied continued assistance under that 
program. HTF grantees are under no requirement under the HTF program to 
exclude these families from participation and must continue to follow 
the tenant protection requirements in Sec.  93.303(c) even if the 
families no longer receive assistance under other HUD programs because 
of the family's assets. An HTF grantee may only terminate the tenancy 
or refuse to renew the lease of a tenant of rental housing assisted 
with HTF funds for good cause under Sec.  93.303(c), which does not 
include having the type of assets or an amount of assets in excess of 
the limitations in Sec.  5.618.
    Where the PHA or owner enforces the asset limitations and 
terminates assistance to the unit or the family because the family's 
net family assets exceed the asset limitations in Sec.  5.618, the 
family may remain in the HTF-assisted rental unit and the grantee must 
determine the family's annual income in accordance with Sec.  93.151(b) 
through (e) and charge a rent in accordance with Sec.  93.302(b).
    Under Sec.  93.151(a)(4), for HTF-assisted units not assisted by 
the PHP or Federal or State project-based rental subsidy, and for 
families that are not assisted by Federal tenant-based rental 
assistance, a grantee must (a) continue to comply with the HTF 
requirements to determine annual income of families by examining at 
least 2 months of source documents at initial occupancy and every six 
years of the HTF period of affordability, (b) project the prevailing 
rate of income of the family, (c) specify which of three methods to 
determine annual income (i.e., source, self-certification, written 
statement) will apply to subsequent income determinations (other than 
at initial occupancy and every six years) during the HTF affordability 
period.
    While HUD is not changing the two options of calculating annual 
income as part of this rulemaking, HUD is revising Sec.  93.151(b)(1) 
to incorporate HUD's revisions to the definition of income at Sec.  
5.609(a) and (b), which is the definition of income provided by HOTMA. 
Notably, this requirement does not fully incorporate Sec.  5.609(c), 
which describes how to calculate annual income in the public housing or 
Section 8 programs. The section does incorporate revisions to the 
definition of Net Family Assets at Sec.  5.603 that are used to 
determine the imputed income on assets over $50,000 based on the 
current passbook saving rate in Sec.  5.609(a).
    HUD is also revising Sec.  93.151(b)(2) to add a clarification of 
existing policy. An HTF grantee has the option to use either the 
definition of adjusted gross income contained in the IRS Form 1040 or 
the definition of annual income in Sec.  5.609 as the definition of 
annual income for each rental project. While the provisions addressing 
the use of the IRS Form 1040 are not changing, HUD is revising the 
provisions allowing grantees to use the definition of annual income in 
Sec.  5.609 to specify that there are some cases where an HTF grantee 
will be required to use the definition of annual income in Sec.  5.609 
for the calculation of income for a rental project. This is because for 
rental housing projects containing units assisted through the PHP, a 
Federal or State project-based rental subsidy, or through a Federal 
tenant-based rental assistance program, the HTF grantee must accept the 
determination of annual and adjusted income made under that program's 
rules. While this has been a HUD policy in Sec.  93.302(b)(2) for units 
assisted by a Federal or State project-based rental subsidy, HUD is 
expanding this policy to also align HTF with the public housing and 
other Federal tenant-based rental assistance programs in response to 
public comment and HUD's policy of aligning HUD programs. HUD is making 
this clarification in the income regulations at Sec.  93.151 to better 
help HTF grantees in complying with HTF program requirements.
    HUD is also revising the header for paragraph (d) of Sec.  93.151 
to read as ``Required documentation for Annual Income calculations'' to 
clarify the intent of the paragraphs and align with the HOME income 
rules.
Determining Family Composition and Projecting Income in the HTF Program
    HUD is revising Sec.  93.151 to add a new paragraph (e), entitled 
``Determining Family Composition and Projecting Income'' to clarify 
existing HUD policy that grantees must calculate annual income by 
projecting the prevailing rate of income of the family at the time the 
grantee determines that the family is income eligible. In addition, HUD 
clarifies that annual income includes income from all persons living in 
the family except live-in aides, foster children, and foster adults 
regardless of which definition of annual income the grantee applies to 
its HTF-assisted programs or projects. HUD also clarifies that income 
determinations made in the HTF program are valid for a period of 6 
months. Unless the HTF grantee is exempt from projecting a family's 
annual income because it is accepting the annual income calculation 
performed pursuant to Sec.  93.151(a)(1) through (3), the grantee may 
not assist a family whose income determination was made more than 6 
months prior to the provision of HTF assistance. In Sec.  93.151(e)(1), 
HUD is also permitting grantees to use the certification process 
established in Sec.  5.618(b) when imputing income for families whose 
net family assets, as defined in Sec.  5.603, do not exceed $50,000, 
without taking further steps to verify the accuracy of the declaration. 
Lastly, HUD clarifies that for families living in HTF-assisted rental 
housing units, any rental assistance provided to the family under a 
Federal tenant-based rental assistance program or any Federal or State 
project-based rental subsidy provided to the HTF rental housing unit is 
not tenant income for purposes of determining annual income.
Use of Adjusted Income in the HTF Program
    HUD also revises Sec.  93.151 to add a new paragraph (f) to clarify 
that grantees do not have to calculate adjusted income in the HTF 
program. This paragraph explains that the only time a tenant's adjusted 
income is relevant to the HTF program is if a family or unit is 
assisted with Federal tenant-based rental assistance (e.g., HCV 
program, HOME tenant-based rental assistance, etc.), public housing, or 
by a Federal or State project-based rental subsidy. In those cases a 
grantee must then accept the determination of adjusted income made 
under that program's rules.
Qualification as Affordable Housing: Rental Housing Under the HTF 
Program
    HUD revises Sec.  93.302(e)(1) to update the reference to Sec.  
93.151(c) to read as Sec.  93.151(d). In addition, HUD revises Sec.  
93.302(e)(2) to conform to the new requirement that grantees must 
continue to accept annual and adjusted income determinations performed 
under the rules of those programs for subsequent income determinations 
during the HTF affordability period for HTF-assisted

[[Page 9617]]

units where the unit is assisted by the PHP, through Federal or State 
project-based rental assistance subsidies, or where the tenant is 
assisted by Federal tenant-based rental assistance. In the sixth year 
of an HTF rental project's affordability period, a grantee is not 
required to review source documentation for families assisted under the 
PHP, a Federal tenant based rental assistance program, or by a Federal 
or State project-based rental subsidy. Additionally, HUD notes that 
Sec.  93.302(b) of the HTF regulation already specifies that for 
projects with project-based rental subsidies, the HTF grantee may 
continue to permit the project owner to charge the maximum rent 
allowable under the Federal or State project-based rental subsidy 
program. Lastly, HUD amends the last sentence of paragraph (e) to 
update the reference to Sec.  93.151(a)(1)(iii) to read as Sec.  
93.151(d)(2).

F. HOPWA Program Changes

HOPWA Income Determinations
    This final rule makes various changes to clarify how jurisdictions 
should make income determinations for the HOPWA program for resident 
rent payments. As explained in the proposed rule's preamble, Section 
859 of the AIDS Housing Opportunity Act (42 U.S.C. 12908) requires that 
HOPWA rental assistance ``be provided to the extent practicable in the 
manner'' of the Section 8 program. Accordingly, the changes this final 
rule makes to the HOPWA regulations in 24 CFR part 574 generally track 
the changes this final rule makes regarding income determinations, 
income examinations, income reexaminations, net family asset 
requirements, and de minimis errors for the HCV program, the Section 8 
program that is the most practicable for the largest share of HOPWA-
funded projects to track. Accordingly, HOPWA has adopted most of the 
provisions in Sec. Sec.  5.609, 5.611, 5.617, and 5.618, where 
practicable, in addition to many of the changes in part 982. Although 
HUD recognizes additional regulatory changes could be made to bring 
HOPWA rental assistance into closer alignment with the Section 8 
program, HUD has determined some changes are not practicable to 
implement in HOPWA, as explained below, and other changes would require 
a separate rulemaking because they are beyond the scope of this 
particular rulemaking.
    As discussed in the proposed rule, this final rule revises part 574 
to apply the part 5 definition of net family assets in HOTMA as applied 
to the Section 8 program, except the value of a home of a participant 
receiving short-term mortgage or utility assistance under Sec.  
574.300(b)(6) or other assistance for which homeowners are eligible 
under the HOPWA program is excluded from the definition.
    Section 574.310(d) is being revised to clarify the use of annual 
and adjusted income in the calculation of resident rent payments for 
persons receiving rental assistance or residing in any rental housing 
assisted under the HOPWA program, excluding short-term supported 
housing. Section 574.310(d) requires that the resident rent payments 
shall be the higher of three options. HUD is clarifying that for option 
one, the rent payment including utilities would be 30 percent of the 
family's monthly adjusted income. Option two is clarified as ten 
percent of the family's monthly income. Option three, which applies if 
a family receives welfare assistance from a public agency, remains 
unchanged.
    As stated in Sec.  574.310(e)(1)(i), references to PHAs and 
responsible entities in Sec. Sec.  5.609 and 5.611 are understood to 
refer to the grantees or project sponsors that are determining income. 
This provision has been added to provide clarity to the HOPWA grantees 
on their roles and responsibilities.
    HUD has determined that it is not practicable to permit permissive 
deductions in the HOPWA program as this final rule permits PHAs to do 
in the HCV program under Sec.  5.611(b). HOTMA amends section 3 of the 
1937 Act to provide PHAs with the ability to apply permissive 
deductions in the public housing, HCV, and Section 8 moderate 
rehabilitation programs. Other entities, even when administering the 
1937 Act programs, were not provided this statutory authority. 
Likewise, HUD does not see any intent or justification in either HOTMA 
or the HOPWA program statute to give all HOPWA grantees and project 
sponsors the same ability and accountability as PHAs with developing 
and administering permissive deductions. Moreover, unlike in the HCV 
program, PHAs are just one subset of the entities that may administer 
HOPWA-funded rental assistance and housing, and HUD sees no intent or 
justification in HOTMA or the HOPWA program statute to provide PHAs 
with greater ability or accountability than other HOPWA grantees in 
administering HOPWA assistance. Accordingly, the HOPWA rule does not 
incorporate the part 5 provision on permissive deductions.
    Additionally, unlike the Section 8 programs that make hardship 
exemptions mandatory, this final rule allows HOPWA grantees to make 
their own determination on whether to grant hardship exemptions. If a 
grantee implements hardship exemptions in their program, the grantee 
must follow the requirements of the revised Sec.  5.611(c) through (e) 
for families affected by the statutory increase in the threshold to 
receive health and medical care expense and reasonable attendant care 
and auxiliary apparatus expenses deductions from annual income under 
Sec.  5.611(a)(3), as well as families that apply for a continued child 
care expense deduction. To use the authority, the grantee must develop 
policies and procedures for qualifying and granting hardship exemptions 
in accordance with the requirements contained in Sec.  5.611(c) through 
(e). Given the amount of administrative work required to institute 
these hardship exemptions as provided for the Section 8 programs, HUD 
has determined that it is practicable only to apply Sec.  5.611(c)-(e) 
to HOPWA grantees who determine they have the capacity and choose to 
make available the hardship exemption as provided by Sec.  5.611(c)-
(e). In addition to the grantee's discretion to grant hardship 
exceptions, grantees are subject to Federal nondiscrimination 
requirements, including the obligation to provide reasonable 
accommodations that may be necessary for households with family members 
with disabilities.
    This rule also revises part 574 to incorporate HOTMA's provisions 
for restrictions on assistance to families with certain assets but only 
for activities subject to the resident rent payment requirements.
    Section 574.310(e)(1)(vi) restates the requirement that grantees 
disallow increases in earned income of persons with disabilities 
occupying HOPWA-assisted rental units as stated in Sec.  5.617(e). As 
HUD is removing the requirement in Sec.  5.617 two years after the 
effective date of this rule, HUD is only requiring that grantees follow 
Sec.  5.617 during that time period.
    Section 574.310(e)(3) details requirements for obtaining and 
documenting third-party income verification consistent with the 
provisions in Sec.  982.516(a), aligning HOPWA requirements with the 
HCV program to the extent practicable. HUD recognizes that grantees do 
not have access to the same information that PHAs do; however, HUD 
believes the flexibility built into the regulation still makes it 
practicable for HOPWA grantees and project sponsors to comply with 
third-party verification requirements.

[[Page 9618]]

    Lastly, Sec.  574.310(e)(4)(v) allows a HOPWA grantee to provide a 
family with retroactive rent decreases in the event that the family 
fails to provide a grantee with timely information about a decrease in 
income that would trigger an interim reexamination. In these instances, 
just as in the HCV program, HOPWA grantees will have the option of 
retroactively adjusting rent as of the date of the change leading to 
the interim reexamination of family income or the effective date of the 
family's most recent previous interim or annual reexamination (or 
initial examination if that was the family's last examination). To 
provide a retroactive rent decrease to an eligible family, the HOPWA 
grantee must develop a written policy allowing for retroactive rent 
decreases. HUD believes that these revisions may be made to the HOPWA 
regulations because they are consistent with changes in the HCV program 
and because HUD has determined that it is practicable to allow HOPWA 
grantees the same discretion to apply rent decreases retroactively, as 
is performed in the HCV program. For more information on how this 
provision operates, please see the extended Preamble discussion on 
Interim Reexaminations below.

G. Supportive Housing for the Elderly (Section 202) and Supportive 
Housing for Persons With Disabilities (Section 811) Programs

Definitions
    This final rule updates certain definitions in the Section 202 and 
Section 811 program regulations to revise outdated references, clarify 
ambiguous terms, and consistently apply Section 8 provisions in part 5 
of this title to the Section 202 and Section 811 programs. HUD is 
adding a definition of ``Net family asset'' to Sec.  891.105 and 
defining it consistently with Sec.  5.603. HUD is also revising the 
defined term ``Tenant payment to Owner'' at Sec.  891.105 to ``Tenant 
rent'' while maintaining its definition. HUD is updating the 
corresponding instances of ``tenant payment'' (in part 891 that do not 
mean ``Total tenant payment'') to ``Tenant rent.'' This change does not 
affect the use of the defined term and merely avoids confusion between 
``tenant payment'' and ``Total tenant payment.'' HUD is defining 
``Gross rent'' for all Section 202 and Section 811 projects at Sec.  
891.105 consistent with the Section 8 Housing Assistance Payment 
program at Sec.  880.603(c)(3). HUD is therefore removing the project-
specific definitions of ``Gross rent'' for Section 202/8 projects at 
Sec.  891.520 and for Section 202/162 projects at Sec.  891.655.
Use of Section 8 Income Reexamination and Eligibility Requirements in 
the Section 202 and Section 811 Programs
    The Section 202 and Section 811 programs have income eligibility 
requirements, including income reexamination requirements, that follow 
Section 8 requirements. In this final rule, HUD is revising Sec. Sec.  
891.410(g)(1) and (3) (Section 202 program) and Sec. Sec.  
891.610(g)(1) and (3) (Section 811 program) to replace outdated cross 
references to part 813 of this chapter, which HUD removed in a final 
rule that took effect November 18, 1996 (61 FR 54492), with references 
to the Section 8 project-based assistance program at Sec.  5.657. These 
references provide the regular income reexamination requirements as 
well as the income eligibility requirements. HUD is further revising 
the interim reexamination requirements at Sec.  891.410(g)(2) and Sec.  
891.610(g)(2) by replacing the references to lease provisions with 
references to the Section 8 project-based assistance program at Sec.  
5.657. These changes provide for consistent application of Section 8 
requirements in part 5 to the Section 202 and Section 811 programs and 
do not substantively change the requirements for grantees. Finally, HUD 
is revising Sec.  891.410(g)(3)(i) to clarify that termination of 
eligibility for project rental assistance payment does not mean removal 
of the unit or residential space from the Project Rental Assistance 
Contract (PRAC).
Technical Amendments
    HUD is making several technical amendments to part 891 in this 
final rule. This final rule updates outdated citations in the Section 
202 and Section 811 program regulations. HUD is removing and reserving 
Sec.  891.230 because it purports to apply selection preferences in 
part 5, subpart D, but there are no longer selection preferences 
defined in part 5 (including subpart D). HUD is making editorial 
revisions to Sec.  810.410(g)(1) to discuss changes to payment amounts 
in one sentence and changes to the unit size in another sentence. HUD 
is also removing the reference to Sec.  5.410(g) for informal review 
provisions for the denial of a Federal preference at Sec.  891.610(e) 
because Sec.  5.410(g) was removed. These changes will not affect 
grantees in a substantive manner, because the references are to 
provisions previously eliminated by statute and removed by HUD in a 
final rule that took effect April 28, 2000 (65 FR 16720).
    This final rule also clarifies that the new ``Net family assets'' 
definition this rule adds to Sec.  5.603 is applicable to the Section 
202 and Section 811 programs, and there is no discretion to use the IRS 
income definition as suggested in the ``HOTMA Section 102'' chart in 
the proposed rule. The proposed rule's chart referenced the IRS 
definition; this was a drafting error. This final rule also clarifies 
that the hardship exemptions provided at Sec.  5.611(c) through (e) are 
applicable to the Section 202 and Section 811 programs. The ``HOTMA 
Section 102'' chart in the proposed rule mistakenly stated that the 
hardship exemptions were not applicable; this error resulted from HUD 
conflating ``adjusted income'' and ``minimum rent.''
    Finally, this final rule replaces ``should'' with ``must'' in Sec.  
891.440 regarding Section 202/811 owners providing utility data as part 
of a utility allowance analysis. This change clarifies that providing 
these data is a requirement, which is not a substantive change because 
the utility allowance analysis has always treated this as a 
requirement.

H. PHA Requirements

Over-Income Families in Public Housing
    Based on the public comments received during the reopened comment 
period, HUD makes changes to the new Sec.  960.507, adds a new Sec.  
960.509, and inserts cross-references accordingly in Sec. Sec.  5.520, 
5.628, 960.253(a)(3) and (f)(1), 960.257(a)(5) and (b)(4) and 966.4(a) 
and (l). HUD also adds new or amended definitions at Sec.  960.102, 
including ``alternative non-public housing rent'' (alternative rent), 
``covered person,'' ``non-public housing over-income family'' (NPHOI 
family), and ``over-income family'' (OI family) which are discussed 
above. Small additional changes for clarity are also added throughout. 
Additionally, HUD adds a sentence regarding compliance for NPHOI 
families to Sec.  960.600.
    In Sec.  960.206, HUD adds a new paragraph (b)(6) stating that the 
PHA may adopt a preference for admission of current NPHOI families who 
become a low-income family as defined in Sec.  5.603(b) and are 
eligible for admission to the PHP. PHAs whose policy is to terminate OI 
families after the 24 consecutive month grace period may not use this 
preference because this preference may not be applied to current public 
housing families or families who have vacated the public housing 
project.

[[Page 9619]]

    In Sec.  960.253(a), HUD adds a new paragraph (3) in relation to 
the choice of rent for NPHOI families. The intent of this new paragraph 
is to make clear that, if allowed by PHA policy to remain in a public 
housing unit, NPHOI families will not have a choice in rent and instead 
must pay the alternative rent as defined in Sec.  960.102. Paragraph 
(f)(1) of Sec.  960.253 has been revised to address the new 
requirements for PHAs when conducting reexamination of family income 
for families paying the flat rent after a family is determined to be 
OI. Currently, the PHA conducts a reexamination of family income and 
composition at least once every three years for a family paying the 
flat rent. In the proposed rule, this paragraph had been modified to 
make clear that once a PHA determines a family is OI, the PHA must 
follow the income examination, documentation, and notification 
requirements under Sec.  960.507(c) including conducting a 
reexamination of family income annually instead of once every three 
years.
    In Sec.  960.257(a)(5), HUD makes clear that the PHA may not 
conduct an annual reexamination of family income for NPHOI families. In 
Sec.  960.257(b)(4), HUD clarifies that when OI families are in the 
period of up to six months before their tenancy is terminated, the PHA 
must conduct an interim reexamination of family income as otherwise 
required because the OI family is still a program participant prior to 
termination. However, the resulting income determination will not make 
the family eligible to remain in the PHP beyond the period defined by 
PHA policy.
    HUD is making extensive changes to the proposed Sec.  960.507. 
Throughout the sections addressing OI families, HUD clarifies that the 
period of time a family has to reside in their unit before having to 
vacate or pay a higher rent is 24 consecutive months, rather than 2 
years.
    HUD also includes a new Sec.  960.509, covering the provisions that 
must be in leases provided to NPHOI families paying the alternative 
rent. HUD also makes conforming edits to use defined terms or terms 
more understood as part of the PHP, rather than introducing new 
terminology.
    In Sec.  960.507(a)(1), HUD clarifies that the OI provisions at 
Sec.  960.507 apply to all families in the PHP, including families in 
the FSS program, or receiving the Earned Income Disregard (EID). In 
paragraph (a)(1), HUD has added language specifying the following: (1) 
mixed families (as defined in Sec.  5.504) who are NPHOI families pay 
the alternative rent in accordance with the continued occupancy policy 
for OI families; (2) NPHOI families cannot participate in public 
housing resident councils; (3) NPHOI families cannot participate in 
programs only for public housing or low-income families; and (4) NPHOI 
families cannot receive Federal assistance, including a utility 
allowance, from PHAs.
    In paragraph (a)(2), HUD states that PHAs must implement the 
requirements of Sec.  960.507 by amending all applicable admission and 
continued occupancy policies according to the provisions in 24 CFR part 
903. All PHAs must have effective OI policies, consistent with Sec.  
960.507, no later than 120 days after the date of publication of this 
final rule in the Federal Register. HUD has determined that this 
requirement is fair to PHAs considering PHAs have had years of prior 
notice that these policies will be required as detailed in HUD's July 
26, 2018 notice (83 FR 35490) (2018 FR Notice) and Notice PIH-2019-
11(HA) issued May 3, 2019.\7\ The 2018 FR Notice announced the official 
applicable effective date of the provisions of Section 103 of HOTMA as 
September 24, 2018, and instructed PHAs to complete the process for 
amending their OI policy within six months after the applicable date of 
the 2018 FR Notice or by March 24, 2019.
---------------------------------------------------------------------------

    \7\ Available at: https://www.hud.gov/sites/dfiles/OCHCO/documents/2019-11pihn.pdf.
---------------------------------------------------------------------------

    It should be noted that OI families who have already exceeded the 
24 consecutive month grace period, in accordance with a continued 
occupancy policy established in compliance with the 2018 FR Notice, are 
not entitled to another 24 consecutive month grace period when the rule 
is published. However, until this rule is effective, HUD will not 
enforce any requirement to terminate OI families who exceed the OI 
limit for 24 consecutive months. If a PHA chooses not to enforce an 
established termination policy, then the PHA must continue to treat 
such OI families as public housing families and offer the option of 
paying the income-based rent or a flat rent. For PHAs that adopted OI 
related waivers under HUD's CARES Act notice (Notice PIH 2021-14),\8\ 
guidance on the status of OI families and the amount of rent to charge 
the family is detailed in the Navigating CARES Act Waiver Expiration 
factsheet.\9\
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    \8\ Available at: https://www.hud.gov/sites/dfiles/PIH/documents/PIH2021-14.pdf.
    \9\ Available at: https://www.hud.gov/sites/dfiles/PIH/documents/CaresAct_Occupancy_Policiesv2.pdf.
---------------------------------------------------------------------------

    Consistent with the proposed rule, Sec.  960.507(b) describes how 
to determine the OI limit. The OI limit is determined by multiplying 
the applicable income limit for a very low-income family as defined in 
Sec.  5.603(b), by a factor of 2.4. In paragraph (c), HUD provides 
additional details on the procedures a PHA must follow in notifying OI 
families of their status. HUD is removing proposed language referring 
to multiple ways for the PHA to become aware of a family's OI status, 
instead specifying that OI procedures are triggered by annual or 
interim reexaminations, in order to reduce burden on PHAs and provide 
clarity on exactly how a PHA is to determine that a family is OI. When 
a PHA determines that a family is OI, the PHA must notify the family in 
writing of the family's OI status at that time, in accordance with 
paragraph (c)(1).
    If a family continues to exceed the income limit for 12 consecutive 
months after receiving the first OI determination, the PHA must provide 
a second notice in accordance with Sec.  960.507(c)(2). This second 
notice informs the family that they have been OI for 12 consecutive 
months and, if the family continues to be OI for another 12 consecutive 
months, the PHA will follow its continued occupancy policies for OI 
families in accordance with Sec.  960.507(d). This notification must be 
provided within 30 days after the income examination that led the PHA 
to determine that the family has been OI for 12 consecutive months. The 
notice must also include the estimated alternative rent (i.e., based on 
data current to the date of the notice), when a PHA's OI policy permits 
NPHOI families to remain in a public housing unit paying the 
alternative rent.
    For families that maintain their OI status for a further 12 
consecutive months (24 consecutive months in total), the PHA must 
provide the family with a third notice in accordance with Sec.  
960.507(c)(3). The third notice informs the family that it has exceeded 
the OI limit for 24 consecutive months. The third notice also states 
that the family must either pay the alternative rent as an NPHOI family 
or have their tenancy terminated in no more than six months, depending 
on the PHA's continued occupancy policy for OI families. If the family 
is allowed to stay as a NPHOI family under the PHA's OI policy, the PHA 
must also present the family with a new NPHOI lease under the terms 
contained in the new Sec.  960.509 and inform the family that the least 
must be executed no later than 60 days of the date of the notice or at 
the next lease renewal, whichever is sooner.
    Furthermore, HUD specifies in Sec.  960.507(c)(4) that if a family 
falls below the OI limit at any time during the 24 consecutive months, 
the family is

[[Page 9620]]

entitled to a new 24 consecutive month grace period, and the 
notification cycle starts over.
    HUD is modifying and clarifying, in what is now Sec.  960.507(d), 
the requirements for PHAs after a family has exceeded the OI limit for 
24 consecutive months. Rather than specify how to determine the 
alternative non-public housing rent in that provision, HUD has moved 
that detail into the definition of the term ``alternative non-public 
housing rent'' (or ``alternative rent'') and instead simply states that 
the PHA must charge NPHOI families the alternative rent within 60 days 
of, or terminate the family's tenancy within six months after, the 
third notification to the family (pursuant to Sec.  960.507(c)(3)), in 
accordance with the PHA's policies and State and local laws. If a PHA 
is terminating the family's tenancy, the PHA must continue to charge 
the families their public housing rent during the period prior to the 
termination.
    In Sec.  960.507(e), HUD clarifies the status of OI families once 
the 24-month grace period ends. The family's status will depend on the 
continued occupancy policy of the PHA. For PHAs that have a policy to 
terminate OI families, those families will still be PHP participants 
until their tenancy is terminated in the time frame established by the 
PHA (up to 6 months). During that time, the family may request an 
interim reexamination of income to potentially reduce their rent 
burden. However, the resulting income determination will not make the 
family eligible to remain in the PHP beyond the period before 
termination as defined by PHA policy.
    For PHAs that have a policy to allow OI families to pay the 
alternative rent, those families will no longer be PHP participants 
once the 24-month grace period ends, and they execute a NPHOI lease. In 
other words, the OI family members will continue to be PHP participants 
until their tenancy is terminated or they execute the NPHOI lease. 
Section 960.509(a) states that the OI family must execute a NPHOI lease 
no later than the earlier of the next lease renewal or 60 days after 
the PHA notifies the family, pursuant to Sec.  960.507(c)(3), that they 
have been OI for 24 consecutive months. If the family does not execute 
the NPHOI lease within this period, per Sec.  960.509(a), the PHA must 
terminate the tenancy of the family no more than 6 months after the 
notification under Sec.  960.507(c)(3) in accordance with Sec.  
960.507(d)(2). Notwithstanding, pursuant to Sec.  960.509(a), the PHA 
may permit, in accordance with its OI policies, an OI family to execute 
the lease after the deadline, but before termination of the tenancy, if 
the OI family pays the PHA the total difference between the alternative 
non-public housing rent and their public housing rent dating back to 
the lease execution deadline. HUD largely retains the reporting 
requirements in the proposed rule, now found in Sec.  960.507(f), for 
PHAs. HUD has only added language that would allow HUD to request other 
information on OI families from PHAs.
    As a response to requests and comments that HUD received, both upon 
the initial proposed rule and the reopening of public comment, HUD is 
adding in this final rule a new Sec.  960.509, which sets forth the 
lease requirements for OI families that are remaining in a public 
housing unit and paying the alternative rent as NPHOI families. This 
new section pulls heavily from existing regulations governing public 
housing leases in Sec.  966.4, with adjustments made as needed to 
accommodate the fact that these families are not public housing 
participants. Notwithstanding, PHAs must still comply with Federal 
nondiscrimination requirements, including but not limited to, the Fair 
Housing Act, Title VI of the Civil Rights Act, Section 504, and Title 
II of the Americans with Disabilities Act (ADA), as applicable. In 
response to the public comment regarding reasonable accommodations, 
PHAs still have a legal obligation to provide for reasonable 
accommodations that may be necessary for individuals with disabilities. 
PHAs do not have discretion whether to provide reasonable 
accommodations. Moreover, in the context of unit transfers for a family 
when repairs to improve the life, health, or safety of a resident 
cannot be made within a reasonable time, consistent with fair housing 
and civil rights obligations, PHAs must provide comparable alternative 
accommodations having the appropriate number of bedrooms based on the 
family's need and accessible accommodations and reasonable 
accommodations for persons with disabilities.
    Section 960.509(a) states that families who will remain as tenants 
paying the alternative rent must execute the lease for the NPHOI family 
no later than the earlier of the next lease renewal or 60 days after 
the third OI notification as described in Sec.  960.507(c)(3). If the 
family does not execute the lease within this time, the PHA shall 
terminate the tenancy of the OI family pursuant to 960.507(d)(2).
    In paragraph (b), HUD specifies the various provisions that must be 
in leases for NPHOI families, such as information on who is a party to 
the lease, how long the lease is for, what the costs covered by the 
lease are, how the lease is to be renewed or terminated, the tenant's 
rent and possible charges, tenant rights for use, the responsibilities 
of both the PHA and the tenant, repair and access obligations, 
procedures around lease termination and grievances, and how leases are 
to be modified.
    The regulations at Sec.  960.600 have been revised to include an 
additional sentence confirming that NPHOI families are not required to 
comply with the Community Service and Self-Sufficiency Requirements 
(CSSR). In the revised Sec.  960.601, the definition of individuals 
exempt from the community service requirements is updated to reflect 
that members of NPHOI families are also exempt from those requirements. 
It should be noted that OI families, in the period before termination 
of tenancy or prior to becoming NPHOI families, are still PHP 
participants and so must remain compliant with all PHP requirements 
including the community service and self-sufficiency requirements 
(CSSR). New language in an amended Sec.  964.125 clarifies that members 
of a NPHOI family are not eligible to be members of a public housing 
resident council organized in accordance with 24 CFR part 964, subpart 
B.
    HUD has made conforming changes to the lease requirements provision 
under Sec.  966.4(a)(2) regarding the term of the public housing lease 
for PHAs that have a continued occupancy policy under Sec.  
960.507(d)(2). This change requires the public housing lease to convert 
to a month-to-month term to account for the period before tenancy 
termination as determined by PHA policy.
    The regulation at Sec.  966.4(l)(2)(ii) has also been revised to 
remove the reference to Sec.  960.261 as one of the grounds for 
termination of tenancy and replaced it with a reference to Sec.  
960.507. To conform to HOTMA, this final rule also removes the existing 
Sec.  960.261 from HUD's regulations, which provides that PHAs may not 
evict or terminate the tenancy of a family that is over the income 
limit for public housing if the family is participating in the FSS 
program, or if they receive EID.
    Section 960.261 has been removed as a part of the rulemaking 
process for two reasons. First, the reference made in Sec.  960.261 to 
families who are over income is currently understood to mean a family 
whose annual income exceeds the limit for a low-income family at the 
time of initial occupancy which is 80 percent of the area median income 
(AMI) or lower. However, with HOTMA, Congress established a statutory

[[Page 9621]]

framework of how PHAs must treat OI families. Additionally, HOTMA does 
not establish the OI limit at 80 percent of AMI. Therefore, HUD has 
determined that Sec.  960.261 must be removed because the HOTMA OI 
limitations, as well as these implementing regulations, supersede the 
prior regulation provision at Sec.  960.261. As a result of removing 
Sec.  960.261, a PHA may not evict or terminate the tenancy of OI 
families in the PHP based on income until they have been over 120 
percent AMI for 24 consecutive months and the PHA has implemented an OI 
policy in their written policies. Some PHAs may need to amend their 
written policies if they previously had a policy to not allow families 
to stay in the PHP if their income exceeded 80 percent of AMI.
    Second, Sec.  960.261 has been deleted to remove the exception to 
evict or terminate the tenancy of a family solely because the family is 
OI provided the family has a valid contract for participation in an FSS 
program under part 984 or if the family receives EID. With this final 
rule, HUD intends for there to be no exceptions to the HOTMA OI 
provision.
Enterprise Income Verification (EIV)
    This final rule revises Sec.  5.233(a)(2)(i) to clarify that the 
use of EIV is required only at annual reexaminations, and not at 
interim reexaminations. However, PHAs and owners may use EIV for 
interim reexaminations if desired. Prior to this final rule, HUD 
interpreted ``reexaminations'' in Sec.  5.233(a)(2)(i), which required 
the use of EIV at all reexaminations, to include interim 
reexaminations. However, since the EIV Income Report can take up to 90 
days to be updated, it often is not helpful during an interim 
reexamination. This change also decreases PHAs' and owners' 
administrative burden.
Consent Forms
    The final rule changes Sec.  5.230 to clarify that, except in 
enumerated circumstances, on or after this final rule's effective date, 
once an applicant has signed and submitted a new consent form, they are 
not required to do so again at the next interim or regularly scheduled 
income examination.
    Additionally, this rule retains in large part the new paragraph (c) 
added by the proposed rule to Sec.  5.232 but removes the reference to 
the PHA's Annual Plan as the proper place for a PHA to establish 
policies regarding an applicant, participant, or family member's 
revocation of consent to access financial records. Since the PHA's 
Annual Plan is not the appropriate place for such a policy, the final 
rule changes this and allows PHAs to address this within an admission 
and continued occupancy policy instead. As discussed in the preamble to 
the proposed rule, HOTMA provides PHAs with the discretion to determine 
whether applicants or recipients are ineligible for benefits if they, 
or their family members, refuse to provide or revoke the authorization 
to obtain financial records. The revision to Sec.  5.232 is therefore 
necessary to clarify that the penalties described in that section will 
not apply if applicants or participants or their family members revoke 
their consent for the PHA to access financial records unless the PHA 
has established a policy that revocation of consent to access financial 
records will result in denial or termination of assistance or 
admission.

I. General Requirements

Inflationary Index
    For consistency, this final rule specifies in the following 
regulatory provisions that the inflationary index for all necessary 
adjustments will be based on the Consumer Price Index for Urban Wage 
Earners and Clerical Workers (CPI-W): \10\ Sec. Sec.  5.603(b)(3)(ii); 
5.609(a)(2) and (b)(1); 5.611(a)(1) and (2); 5.618(a)(1)(i) and (b)(1); 
5.659(e); 574.310(e)(3)(ii) and (f); 882.515(a), 882.808(i)(1), 
960.259(c)(2); and 982.516(a)(3). HUD has chosen to use the CPI-W based 
on public comments and because HUD believes this publicly available 
index is an accurate measure of inflation to use in making income and 
asset determinations in HUD programs. Moreover, the Cost-of-Living 
Adjustment (COLA) adjustment for Social Security and SSI benefits for 
approximately 70 million Americans is based on increases in the CPI-W 
and consequently many PHAs, owners, grantees, and families are familiar 
with it.
---------------------------------------------------------------------------

    \10\ Social Security Administration, CPI For Urban Wage Earners 
And Clerical Workers, https://www.ssa.gov/oact/STATS/cpiw.html.
---------------------------------------------------------------------------

    In this final rule, annual inflationary adjustments will be 
established by rounding to the nearest dollar except that annual 
inflationary adjustments for the dependent deduction (Sec.  
5.611(a)(1)) and the elderly or disabled family deduction ((Sec.  
5.611(a)(2)) will be rounded to the next lowest multiple of $25. HUD 
makes this differentiation because HOTMA requires HUD to determine the 
dependent and elderly or disabled family deductions for each year by 
``rounding such amount to the next lowest multiple of $25.'' HUD notes 
that the amounts described in the income exclusions in Sec.  
5.609(b)(14) and (15) both reference the dependent deduction, which is 
required to be rounded to the lowest multiple of $25. HUD declines to 
round to the next lowest multiple of $25 elsewhere in this final rule.
    In general, HUD expects to make the revised amounts effective 
January 1st of each year for the following requirements in accordance 
with the inflationary adjustments covered by this final rule: the value 
cap on net family asset cap for imputing returns (Sec.  5.609(a)(2) and 
(b)(1)); the mandatory deduction for elderly and disabled families 
(Sec.  5.611(a)(2)); the restriction on the net family assets 
(Sec. Sec.  5.618(a)(1)(i), 574.310(f)); the amount of net assets the 
PHA or owner may determine based on a certification by the family 
(Sec. Sec.  5.618(b)(1), 5.659(e), 92.203(e); 93.151(e); 
574.310(e)(3)(ii); 960.259(c)(2), and 982.516(a)(3)); and the mandatory 
deduction for a dependent ((Sec.  5.611(a)(1)), which is also used to 
calculate the income exclusion for earned income of dependent students 
(Sec.  5.609(b)(14)) and adoption assistance payments (Sec.  
5.609(b)(15)).
De Minimis Errors
    HUD revises provisions in this final rule (in Sec. Sec.  
5.609(c)(4), 5.657(f), 574.310(h), 882.515(f), 882.808(i)(5), 
960.257(f), and 982.516(f)) to define a de minimis error as an error 
that results in a difference in the determination of a family's 
adjusted income of $30 or less per month. This change from defining a 
de minimis error as a percentage error will enable a PHA or owner to 
make de minimis determinations on a family-by-family basis rather than 
having to do a full portfolio review to determine if a PHA, owner, or 
grantee exceeds the threshold. In addition, using a dollar amount 
instead of a percentage will make de minimis errors easier to 
calculate. However, HUD also provides that through issuance of a 
Federal Register notice for comment, HUD may re-define de minimis 
errors.
    In addition, to clarify that the de minimis protections apply to 
all calculations of income, not just during interim reexaminations, HUD 
moves the language about the de minimis safe harbor into its own 
paragraph in each location in which it is included in the regulations.
    HUD also adds language to clarify that where a PHA or owner has 
made a mistake resulting in the family underpaying their rent, the 
family will not be held liable for the underpaid rent. This is in 
addition to language that was included in the proposed rule that would 
require PHAs and owners to repay families that were overcharged due to 
miscalculation errors.

[[Page 9622]]

Interim Reexaminations
    In response to public comments asking for additional clarification 
on interim reexaminations, this final rule ensures that the language in 
Sec. Sec.  5.657(c), 574.310(e)(4), 960.257(b), 882.515(b), and 
982.516(c) is as consistent as possible. HUD also revises the language 
to clarify that the threshold for when a PHA, owner, or grantee must 
conduct a reexamination due to decreases in a family's income is a 
change of ten percent or a lower threshold set by the PHA or owner. 
Further, in most circumstances, PHAs, owners, or grantees must conduct 
interim reexaminations if a family's income has increased by ten 
percent or more, or such other amount established by HUD through 
notice.
    HUD also adds language in each instance clarifying that 
``reasonable'' interim reexamination processing time should be based on 
the amount of time it takes to verify information, but generally should 
not be longer than 30 days after changes in income are reported. HUD 
does not add more specific language in Sec.  960.253(g), which 
addresses the ability of a public housing tenant to switch from flat 
rents to income-based rents due to a hardship, as it is beyond this 
rulemaking's scope. However, HUD expects that PHAs will follow a 
similar time frame for changing rent determination methods due to 
hardship as they do for other hardship evaluations. HUD also did not 
add the more specific language to Sec.  574.310(e)(4) because the HOPWA 
program rule does not provide for flat rents.
    Finally, HUD adds language in each location regarding the effective 
dates of any changes in rent due to an interim reexamination. If the 
tenant complies with the interim reporting requirements, the PHA, 
owner, or grantee must give the tenant 30 days advance notice of any 
rent increase, and the rent increase will be effective the first of the 
month commencing after the end of the 30-day period. If the tenant has 
complied with the interim reporting requirement and the tenant's rent 
will decrease, the change in rent is effective on the first day of the 
month after the date of action that caused the interim certification, 
for example the first of the month after the date of loss of 
employment. A 30-day notice is not required for these rent decreases.
    If the tenant does not comply with the interim reporting 
requirements, and the PHA, owner, or grantee discovers the tenant has 
failed to report changes as required, the PHA, owner, or grantee must 
initiate an interim reexamination and implement rent changes as 
follows:PHAs, owners, or grantees must implement any resulting rent 
increase retroactive to the first of the month following the date that 
the action occurred, and any resulting rent decrease must be 
implemented no later than the effective date of the first rent period 
following completion of the reexamination.
    However, rent or family share decreases may also be applied 
retroactively at the PHA's, owner's, or grantee's discretion, in 
accordance with the conditions established by the PHA, owner, or 
grantee in written policy. For example, a PHA, owner, or grantee may 
adopt a policy that would make the effective date of an interim 
reexamination retroactive to the first of the month following the date 
of the actual decrease in income as opposed to the first of the month 
following the interim reexamination. However, the final rule clarifies 
that a retroactive rent or family share decrease may not be applied 
prior to the later of the first of the month following the date of the 
change leading to the interim reexamination or the first of the month 
following the effective date of the family's most recent previous 
income examination (either interim or annual reexamination, or the 
first of the month following the family's initial examination if that 
was family's only income examination before the interim reexamination 
in question). In other words, a family's failure to report the change 
at a previous examination or reexamination may not be taken into 
consideration in applying the effective date of the interim 
reexamination.
    The PHA, owner, or grantee may also choose to establish conditions 
or requirements for when such a retroactive application would apply 
(for example, where a family's ability to report a change in income 
promptly may have been hampered due to extenuating circumstances such 
as a natural disaster or disruptions to the PHA's, owner's, or 
grantee's management operations). In applying a retroactive change in 
rent or family share as the result of an interim reexamination, the PHA 
or owner must clearly communicate the impact of the retroactive 
adjustment to the family so there is no confusion over the amount of 
the rent that is the family's responsibility. In the HCV program, 
moderate rehabilitation program, and HOPWA's project- or tenant-based 
rental assistance programs, the PHA or grantee must also clearly 
communicate the impact of the retroactive adjustment to the owner as 
well. These policies may reduce the potential hardship on families and 
eliminate or significantly reduce the amount a family may owe for back 
rent if the family has had difficulty in making timely rent payments 
during the time between loss of income and the interim reexamination.
    HUD anticipates that questions may arise about whether the 
retroactive rent regulations may apply back to decreases in income 
occurring before the effective date of this final rule. Any interim 
reexamination conducted under this final rule may not be applied 
retroactively to any period of time prior to the effective date of the 
final rule.
    HUD intends to issue additional guidance in the future on 
retroactively applying interim reexaminations for PHAs and owners that 
may be interested in permitting retroactive rent decreases.
    In Sec.  960.257(c) and (d), HUD inserts the word ``continued'' to 
clarify that the policies PHAs are required to adopt regarding annual 
and interim reexaminations are part of the PHA's admission and 
continued occupancy policies. This brings the language in those 
paragraphs in line with language referring to the same policies in 
Sec.  960.507(d) to create consistency when referring to the same 
things.
    HUD intends to publish additional guidance to PHAs and owners on 
how they may use self-certifications from tenants and how PHAs and 
owners may help their tenants determine if any income change meets the 
threshold. HUD does acknowledge, however, that depending on the PHA's 
or owner's policies, the PHA or owner may be required to do extensive 
reviews of income to determine if the change in income meets the 
relevant threshold to trigger an interim reexamination.
Other Guidance
    This final rule and this preamble reference additional guidance 
that HUD will publish relating to implementation. Such guidance will be 
issued for the various HUD programs impacted by this final rule and 
will also include the applicable requirements for PHAs and owners, 
including fair housing and civil rights requirements, to ensure 
administration and implementation of HOTMA's statutory mandates and 
this final rule.
    In addition to the HOTMA Section 102 provisions implemented through 
this final rule, Section 102 further provides in section 3(a)(7)(e) of 
the USHA that HUD shall develop a mechanism for disclosing information 
to a PHA for the purpose of verifying the employment and income of 
individuals and families in accordance with section 453(j)(7)(E) of the 
Social Security Act (42 U.S.C. 653(j)(7)(E)), and shall ensure PHAs 
have access to information

[[Page 9623]]

contained in the `Do Not Pay' system established by section 5 of the 
Improper Payments Elimination and Recovery Improvement Act of 2012 
(Pub. L. 112-248; 126 Stat. 2392). HUD will issue guidance on this 
provision regarding how and what information PHAs may access consistent 
with the Section 102 effective date established by this final rule of 
January 1, 2024.

J. Conforming Changes to Section 8 Moderate Rehabilitation Regulations 
at 24 CFR Part 882

    HUD is using this final rule to conform its moderate rehabilitation 
program and moderate rehabilitation SRO programs to HOTMA Section 102 
and 104. While HUD's proposed rule inadvertently omitted proposed 
conforming changes to the moderate rehabilitation regulations at Sec.  
882.515 and the moderate rehabilitation SRO regulations at Sec.  
882.808 that it included for the public housing and other Section 8 
programs, HUD has a solid justification for making these changes in 
this final rule.
    Initially, Sections 102 and 104 of HOTMA amend the 1937 Act, 
respectively, to revise the frequency of family income reviews and 
calculations of income in HUD's public housing and Section 8 programs 
and to set limits on the assets that families residing in public 
housing and families receiving assistance under Section 8 may own. 
These HOTMA changes impact all Section 8 programs, including the 
Section 8 moderate rehabilitation program and the Section 8 moderate 
rehabilitation SRO program. Equally important, with respect to the 
income calculations, income reexaminations, and eligibility 
determinations, HUD's moderate rehabilitation programs function in the 
same manner as its HCV program. Specifically, the PHA (as opposed to 
the owner) is responsible for conducting income reviews and adjusting 
the tenant rent and housing assistance payment accordingly and is 
likewise responsible for issues related to a tenant's eligibility for 
admission to the program and continued assistance under the program. 
The owner does not have any role in income calculations, 
reexaminations, and eligibility determinations. Because of this 
similarity in functional roles and responsibilities to the HCV program, 
HUD believes that the public comments submitted in response to the 
proposed rule on these topics, which were presented as uniform polices 
impacting the public housing and all Section 8 programs in the same 
manner in the preamble discussion, provide HUD with a solid basis to 
make conforming changes to its moderate rehabilitation program and 
moderate rehabilitation SRO program regulations. In this regard, the 
interests of the parties most affected by HUD conforming changes--PHAs 
and program participants--are substantially identical to the parties 
impacted by the changes made to the HCV program. Finally, most of the 
HOTMA income changes impacting the moderate rehabilitation programs are 
implemented by revisions to part 5 of this final rule. The ability to 
use these part 5 changes in accordance with other interrelated HOTMA 
Section 102 and 104 requirements would be hindered without conforming 
changes to part 882. For example, while the PHA could apply the asset 
limitation under the new part 5, it could not rely on the statutorily 
permitted self-certification of the family that they have less than 
$50,000 in assets.
    As a result, this final rule makes conforming changes to HUD's 
moderate rehabilitation regulations. These conforming changes are 
largely identical to those made to HUD's HCV program regulations at 
Sec.  982.516. A discussion of the specific revisions to Sec. Sec.  
882.515 and 882.880 follows.
Sec. Sec.  882.515(a) and Sec.  882.808(i)(1)--Self-Certification of 
Net Family Assets
    HUD is making conforming amendments to Sec.  882.515(a) and Sec.  
882.808(i) for the moderate rehabilitation programs regarding the 
amendments made by HOTMA to allow families to self-certify when their 
combined net family assets are $50,000 or less, with that amount 
adjusted by an inflationary factor. As discussed in the preamble of the 
proposed rule, Section 104 of HOTMA not only establishes a limitation 
on the amount and type of assets that a family residing in public 
housing or assisted under the Section 8 programs may own but also 
provides that the PHA or owner could determine the net assets of a 
family based on a certification by the family that their net family 
assets do not exceed $50,000. This self-certification is codified at 
Sec.  5.618(b). Under this final rule, HUD is also adding language on 
the self-certification of net family assets to moderate rehabilitation 
program regulations, consistent with the language added to the 
regulations specific to the other Section 8 programs. For more 
information on these Section 8 program changes, please see the 
discussion of the public comments received on the asset limitation and 
the self-certification under Section III, Income--Income from Assets, 
and Assets--Value of Assets, of this preamble.
Sec. Sec.  882.515(b) and (e), and 882.808(i)(4)--Timing of Interim 
Reexaminations
    HUD is making conforming changes to Sec.  882.515(b), adding a new 
paragraph (e) to Sec.  882.515, and adding a new paragraph (4) to Sec.  
882.808(i) for the moderate rehabilitation programs regarding the 
amendments made by HOTMA on requirements related to the timing of 
interim reexaminations. As discussed in the proposed rule, Section 102 
of HOTMA deals with income reviews in HUD's public housing and Section 
8 programs, including interim reexaminations. HUD is revising these 
regulations, consistent with revisions made for the program specific 
regulations for public housing and the other Section 8 programs, to 
implement requirements related to when interim reexaminations are 
conducted under HOTMA, what qualifies as a reasonable time for the PHA 
to conduct the interim reexamination, and the effective date of the 
rent changes. For more information on these Section 8 program changes, 
please see the discussion of public comments received related to 
interim reexamination issues under Section III--Interim Reexamination 
of Income, of this preamble.
Sec. Sec.  882.515(f) and Sec.  882.808(i)(5)--De Minimis Errors
    HUD is making conforming changes by adding new paragraphs at Sec.  
882.515(f) and Sec.  882.808(i)(5) for the moderate rehabilitation 
program and moderate rehabilitation SRO program regarding the 
amendments made by HOTMA for de minimis errors made by the PHA in 
calculating income. As discussed in the proposed rule, HOTMA provides 
that a PHA or owner will not be out of compliance with the statute's 
new provisions regarding income review and income calculation solely 
due to any de minimis errors made by the agency or owner in calculating 
family income. HUD is revising these regulations, consistent with 
revisions made for the program specific regulations for public housing 
and other Section 8 programs. For more information on these Section 8 
program changes, please see the discussion of public comments received 
related to de minimis errors under Section III- De minimis errors, of 
this preamble.

III. The Public Comments

General Comments

    Commenters submitted comments that were not on a specific proposal, 
but about the rulemaking in general. Some commenters expressed general 
support,

[[Page 9624]]

while others expressed a general opposition to the changes.
    Some commenters suggested that HUD should choose between competing 
priorities by choosing alternatives that most reduce burdens or 
increase the likelihood that tenants can pay their rent. A commenter 
also expressed concerns that the proposed changes will hurt those who 
access HUD programs, particularly those with disabilities, and will 
price them out of extremely low-income programs. One commenter stated 
that the proposed rule would increase the difficulty for low-income 
populations supported with Federal housing funding.
    A commenter stated that HUD should start an analysis to model HOTMA 
to determine the extent of adverse changes in PHA funding sources 
resulting from the changes and report the results to Congress prior to 
the changes going into effect.
    HUD Response: HUD appreciates all the members of the public who 
submitted comments. This rulemaking is required due to statutory 
changes brought about by the enactment of HOTMA. HUD is sensitive to 
the needs of all populations participating in HUD programs and has 
considered the needs of all groups when making any discretionary 
changes. HUD therefore believes that this final rule appropriately 
balances the need for flexibility in HUD programs with the interest of 
protecting the investment of government funding involved.

Effective Date

    Commenters stated that HUD should create an extended time after 
publication of the final rule before the rule is effective. Some 
suggested allowing PHAs up to 2 years to enforce the rule, while 
allowing PHAs to proceed earlier if they wish. Others stated that HUD 
should make the effective date 120 days after publication to allow for 
revision of training materials and to ease the transition for 
households.
    HUD Response: HUD agrees that additional time after this final 
rule's publication will be appropriate before the provisions are 
effective; HOTMA also specifies that some of the statutory changes are 
not effective until the beginning of the calendar year after HUD issues 
implementing regulations. In addition to allowing PHAs and owners time 
to decide on how to exercise their discretionary authorities, HUD will 
need time to adjust its systems to properly account for these changes. 
Therefore, HUD established an effective date for the majority of this 
final rule of January 1, 2024. However, because HUD has taken extensive 
comments and issued previous implementation direction for the 
provisions regarding public housing tenants who exceed the income 
limit, those regulatory provisions will be effective 30 days after the 
publication of this final rule.

Program Alignment

A. General
    Commenters supported the idea of HUD aligning rules and regulations 
across HUD programs where possible. The commenters stated that such 
alignment would ensure consistency, minimize errors and duplicate work, 
and reduce administrative burdens, particularly where projects blend 
multiple forms of assistance. Some commenters stated specifically that 
HUD should work with the IRS to streamline HUD programs with the LIHTC 
program.
    Commenters also stated that when HUD cannot align rules across HUD 
programs, HUD should describe the differences between the programs and 
have a rule specifying what rule takes precedence when programs 
conflict and multiple funding sources are being used for the same 
household.
    HUD Response: HUD agrees with commenters advocating for aligned 
regulations. In this rule, HUD, to the extent practicable and allowed 
by statute, is aligning programmatic regulations and requirements 
across HUD programs. Aligning with LIHTC is outside this rule's scope, 
but HUD would note that income for tenants occupying LIHTC projects is 
calculated in accordance with 26 U.S.C. 42(g)(4) (referencing 26 U.S.C. 
142(d)(2)(B)), which says ``income of individuals and area median gross 
income shall be determined by the Secretary in a manner consistent with 
determinations of lower income families and area median gross income 
under section 8 of the United States Housing Act of 1937.'' Section 
1.42-5(b)(1)(vii) of title 26, Code of Federal Regulations, has similar 
language that states, ``[t]enant income is calculated in a manner 
consistent with the determination of annual income under Section 8 of 
the United States Housing Act of 1937 (`Section 8').'' Therefore, HUD 
believes that LIHTC and HUD program income calculations are currently 
aligned and will continue to be aligned when the changes in HOTMA are 
codified.
    When a project is using multiple sources of HUD funding, HUD 
already has in place programmatic policies and requirements on how to 
combine and administer those multiple sources. For example, MFH 
addresses tenant rent issues for units with LIHTC financing and HAP 
assistance in the Multifamily Occupancy Handbook. PHAs and owners 
should continue to follow such policies.
B. HOME
    Generally, commenters were in favor of aligning requirements 
between the HOME and other programs. Commenters stated that HUD should 
apply all revisions to adjusted income when combining HOME and other 
Federal programs. Commenters stated that HUD should adopt financial 
hardship exemptions for families receiving HOME TBRA but should do so 
through a separate process to ensure that all interested stakeholders 
have the opportunity to comment.
    Others wrote that HUD should apply asset restrictions for any 
program funded by HOME to align regulations across the programs. 
However, one commenter stated that agencies that combine HOME funds 
with other program funds should be allowed to not enforce asset 
limitations.
    A commenter asked for clarity on which entities are required to 
determine rent for HOME units receiving Federal or State subsidy, as 
the proposed rule seemed to require participating jurisdictions to do 
so, rather than the subsidy provider.
    A commenter stated that, when a unit receives a Federal or State 
project-based rental subsidy, participating jurisdictions should rely 
on the other program's determination of adjusted income and rent 
calculations rather than requiring the participating jurisdiction to 
determine adjusted income.
    HUD Response: HUD agrees with commenters that, to the extent 
possible, requirements between HUD programs should be aligned. That is 
why at Sec.  92.203(a)(1) of the final rule HUD requires the PJ to 
accept the income determinations (initial, interim, and annual 
reexaminations or recertifications) performed by the PHA, owner, or 
rental subsidy provider when families applying for or living in HOME-
assisted units receive Federal or State project-based rental subsidies. 
In addition, at Sec.  92.203(a)(2) of this final rule, HUD permits PJs 
to accept the rental assistance provider's income determinations when 
families are applying for or living in HOME-assisted units and are also 
assisted by a Federal tenant-based rental assistance program. These 
revisions align HOME with other HUD programs when a responsible entity 
has made hardship deductions pursuant to the process established in 
Sec.  5.611(c) through (e), as PJs must accept

[[Page 9625]]

the determination of annual and adjusted income performed under those 
program rules. For HOME TBRA, the proposed rule included the option for 
PJs to provide hardship exemptions in accordance with the process 
established in Sec.  5.611, and those provisions are still included in 
this final rule.
    There is no HOME statutory requirement to limit a family's assets 
or to remove a family from the HOME program if the family's net family 
assets exceed a threshold. HUD solicited public comment on whether HUD 
should impose asset limitations in the proposed rule to align with 
other programs. However, after due consideration and examination of the 
Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12701 et 
seq.), HUD has determined that it will not impose asset limitations 
through this rulemaking. Section 225(b) of the Cranston-Gonzalez 
National Affordable Housing Act (42 U.S.C. 12755(b)), which provides 
tenant protections in the HOME program, states in relevant part that 
``[a]n owner shall not terminate the tenancy or refuse to renew the 
lease of a tenant of rental housing assisted under this subchapter 
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.'' HUD has never interpreted holding a certain 
level or type of assets as sufficient good cause for an owner to 
terminate a tenancy under the HOME statute and declines to do so in 
this rulemaking.
    Similarly, HUD has determined that there is no statutory basis for 
excluding families from participating in HOME homeownership activities 
because of the amount or types of assets they own, and that imposing an 
asset limitation for the HOME program would be counter to Congressional 
intent. The HOME program serves a broader group of beneficiaries 
through activities not authorized under many other HUD programs, and it 
is appropriate that potential homebuyers and homeowners seeking 
rehabilitation assistance have higher incomes and more assets than 
Section 8 families or public housing residents so that they can sustain 
homeownership. Applying an asset restriction to the HOME program would 
impact potential beneficiaries of HOME-funded activities and would 
result in fewer families being assisted. Also, applying an asset 
restriction to only one or two HOME sub-programs (e.g., rental housing, 
HOME TBRA) would create inconsistencies within the HOME program, be 
administratively burdensome to implement, and cause potential 
noncompliance.
    PJs are responsible for ensuring compliance with rent and income 
requirements applicable to rental housing assisted with HOME funds even 
if the rent and income eligibility determinations are conducted by 
entities under contract with the PJ or the PJ's housing partners (e.g., 
owner of a HOME rental housing project, subrecipient administering HOME 
TBRA, etc.). In accordance with Sec.  92.252(f)(2), which is unchanged 
in this final rule, owners of rental housing must annually provide the 
PJ with information on rents and occupancy of HOME-assisted units to 
demonstrate compliance and the PJ must review rents for compliance and 
approve or disapprove them every year. Under the newly revised Sec.  
92.203(a)(1) and (2), where a PJ must accept or chooses to accept the 
income determinations made in accordance with the rules of those 
programs, the PJ may rely upon that income determination and is not 
required to perform further income calculations under the remainder of 
Sec.  92.203. The PJ must document the income determination made by the 
PHA, owner, rental subsidy provider, or rental assistance provider, as 
applicable, in their files to demonstrate compliance with Sec. Sec.  
92.203 and 92.508(a)(3)(v).
C. HOPWA
    Commenters asked for the Housing Opportunities for Persons with 
AIDS (HOPWA) program to have flexibility to not adopt some of the 
changes to the larger Section 8 program. A commenter stated support for 
the idea of having discretion not to enforce restrictions based on net 
assets and ownership of properties; the commenter stated that 
supportive housing programs like HOPWA should remain focused on 
achieving positive health outcomes, not excluding households from 
participation based on an arbitrary definition of wealth. A commenter 
also opposed applying the calculation of income changes to HOPWA, as 
the proposed rule separates income eligibility certifications and 
recertifications from income examinations and reexaminations for rental 
assistance activities, which would create confusion for HOPWA project 
sponsors. The commenter specifically cited the example that it is 
unclear if current income should be used for annual income eligibility 
certification, but old income should be used to determine rental 
assistance calculations.
    Commenters stated that with the final rule, HUD should release an 
updated HOPWA income resident rent calculation spreadsheet.
    HUD Response: As discussed throughout HUD's responses to comment, 
HUD believes that it is in the public's best interest for HUD program 
requirements to be aligned, where practicable. Because HUD uses asset 
limitations in Sec.  5.618, and the determination of net family assets 
to impute income for income determinations made in accordance with 
Sec.  5.609(a)(2) in the HCV program, HUD is also adopting similar 
provisions at Sec.  574.310(e) for HOPWA activities that use the income 
calculation method in 24 CFR part 5 to determine resident rent payment. 
However, the unique nature, purpose, and statutory basis of certain 
HOPWA activities, such as short-term supported housing, do justify 
limited exceptions, some of which are made in this rule and some of 
which may be proposed in a separate rulemaking.
    HUD allows, but does not require, grantees to calculate income as 
provided by Sec.  5.609 for the purposes of determining income 
eligibility. Due to the unique nature of the HOPWA program and its 
activities, HUD has determined that remaining flexible about the method 
used to determine income for eligibility purposes will best enable 
grantees to meet the needs of the program's intended beneficiaries 
regardless of the type of assistance an individual or family is 
seeking. However, HUD has determined it is generally practicable to 
align HOPWA with the HCV program in determining how to calculate 
resident rent payments. So Sec.  574.310(e) will generally require 
HOPWA grantees to calculate income in accordance with Sec.  5.609 for 
the purposes of determining the resident rent payment under 574.310(d). 
At initial occupancy, Sec. Sec.  574.310 and 5.609(c)(1) require 
grantees to estimate a family's income for the upcoming 12-month period 
to determine the family's resident rent payment. For subsequent 
reexaminations of income, Sec. Sec.  574.310 and 5.609(c)(2) require 
that a grantee calculate examine family's prior-year income (including 
any redetermination of income that took place during the year) and make 
adjustments to reflect current income if there was a change in income 
during the previous 12-month period that was not accounted for in a 
redetermination of income. This process, which is also being used in 
the HCV program, is explained in greater detail in the section of this 
preamble entitled ``Prior-year income.''
    HUD also agrees that additional guidance and support can be offered 
to HOPWA project sponsors to add clarity to this final rule and will be 
providing guidance after publication of the rule.

[[Page 9626]]

D. HTF
    Commenters requested that HUD align the HTF program's income 
calculation with other HUD programs as many properties have combined 
HTF with HOME or Section 8 assistance. Commenters were divided about 
whether asset restrictions should be applied to the HTF program. Some 
stated that homeownership programs should not have asset restrictions. 
Others supported adopting asset restrictions for housing programs 
funded with the HTF.
    HUD Response: HUD agrees with commenters that, to the extent 
possible, requirements between programs should be aligned. That is why 
at Sec.  93.151(a)(1) through (3) in the final rule HUD requires the 
HTF grantee to accept the income determinations (initial, interim, 
annual reexaminations or recertifications) performed by the PHA, owner, 
rental subsidy provider, or rental assistance provider when families 
applying for or living in HTF-assisted units are assisted under the 
PHP, a Federal or State project-based rental assistance program, or a 
Federal tenant-based rental assistance program. This should provide 
greater alignment between HTF, Section 8, and the HOME programs.
    The HTF program serves beneficiaries through activities not 
authorized under many other HUD programs, and it is appropriate that 
potential homebuyers seeking homebuyer assistance have more assets than 
Section 8 families or public housing residents so that they can sustain 
homeownership. Applying an asset restriction to the HTF Program would 
impact potential beneficiaries of HTF-funded homebuyer activities and 
would result in fewer families being assisted. Because there is no 
statutory restriction on a family's assets in the HTF program, HUD 
declines to add any restrictions with this rulemaking.

Income

A. General
    Commenters asked HUD to eliminate deductions and exclusions in 
income, in order to streamline determinations. A commenter stated that 
the proposed definition of ``income'' was too vague and asked for 
additional information on the interaction between seasonal and 
inconsistent income and its relationship to annual income for purposes 
of interim reexaminations. Another commenter stated that the suggested 
language defining ``income'' did not clarify anything.
    A commenter stated that HOTMA's use of ``determination of income'' 
when referring to prior-year income instead of ``estimation of income'' 
for the upcoming year indicates that PHAs and owners may be expected to 
use different income calculation methods based on the time period 
covered. The commenter stated that using two methods would lead to 
increased errors when performing reexaminations, increasing the burden 
of operating the voucher program.
    HUD Response: The statutory language of the 1937 Act, as amended by 
HOTMA, requires that deductions and exclusions be applied to 
determinations of income. In addition, HOTMA creates a very broad 
statutory definition of income. Given that the statutory definition 
encompasses such a wide range of monetary receipts, HUD believes that 
it is more appropriate to use the broad definition of income, and 
instead define the specific items that are excluded from income.
    HUD recognizes how the language surrounding income determinations 
in different circumstances may be confusing, and HUD will consider 
whether to issue further guidance with more information in the future. 
However, HOTMA requires a different method for calculating income at 
different stages. For initial occupancy, as well as for interim 
reexaminations, PHAs and owners must estimate the family's income for 
the upcoming year (see, Sec.  5.609(c)(1)). However, for annual 
reexaminations, PHAs and owners must generally use the family's income 
from the preceding year (see, Sec.  5.609(c)(2)(i)).
B. Income From Assets
    Commenters stated that income from assets should be based on self-
certification for all assets under $50,000 after the family's 
admittance to the housing program.
    Commenters also asked for additional guidance on what to do when 
there has been some change in the asset values (such as changes to the 
value of a stock portfolio) that cannot be computed.
    Several commenters asked HUD to use the passbook savings rate, 
either by disregarding imputed returns on assets and only using the 
passbook rate on the totality of the family's assets or for imputing 
asset returns.
    Commenters asked if HUD intended PHAs and owners to only use 
imputed income for assets if the PHA or owner cannot calculate any 
income from assets.
    Commenters stated that the withdrawal of earned interest should 
continue to count as income.
    HUD Response: HOTMA specifically includes actual income from assets 
in the definition of income. Therefore, any actual income received must 
be counted as family income. In Sec.  5.609(a)(2) of this final rule, 
HUD has worked to clarify the regulatory language regarding income from 
assets to help PHAs and owners determine what income from assets should 
be included in the family's annual income while also minimizing the 
burden on PHAs, owners, and families.
    When the combined value of all net family assets has a total value 
of $50,000 or less, the family must include, on its self-certification 
that the net family assets do not exceed $50,000, the amount of actual 
income the family expects to receive from such assets, and that this 
amount is to be included in the family's income. The PHA or owner may 
determine both the value of the net family assets and the amount of 
actual income the family expects to receive from such assets based on 
the family's self-certification (see, Sec.  5.618(b)).
    When net family assets have a total value over $50,000, if the PHA 
or owner can compute actual income for some assets, but not all assets, 
the PHA or owner must compute the actual income for those assets where 
possible, calculate the imputed income for all remaining assets where 
the actual income cannot be computed, and combine both amounts to 
determine the family's income for all assets. The PHA or owner must 
calculate the imputed return on all net family assets when net family 
assets are over $50,000 if no actual income can be computed. In all 
cases where a return is to be imputed for some or all net family 
assets, the current passbook savings rate, as determined by HUD, must 
be used.
    This final rule does not change the requirement that PHAs and 
owners count earned interest as income.
C. HOPWA
    A commenter stated that any lack of clarity and standardization of 
the application of a COLA for streamlined income determinations will 
lead to inconsistent applications and errors in rent calculations, and 
therefore HUD should provide standardized, updated sources for COLA 
calculation, an updated HOPWA rent calculator, and training. Without 
these additional resources, the commenter stated that HUD should allow 
jurisdictions to continue to recertify based on documentation of fixed-
income sources such as benefit letters.
    HUD Response: HUD agrees that additional guidance will be useful 
for the consistent application of COLAs and that such guidance will 
assist in avoiding errors. Therefore, additional guidance is 
forthcoming.

[[Page 9627]]

    In addition, throughout this final rule, HUD has specified that 
amounts that are statutorily required to change due to inflation will 
be adjusted by HUD using the CPI-W.

Outside Determinations of Income

A. General
    Commenters stated that the use of income determinations from other 
programs should be discretionary. Other commenters stated that allowing 
PHAs and owners to use income determinations from other forms of 
assistance would reduce administrative burden and the time required to 
verify income. A commenter stated that the level of administrative 
relief from this policy will depend on the level of PHA discretion to 
determine which program information to use. A commenter stated that HUD 
should require PHAs and owners to adopt written, publicly available 
policies stating the circumstances under which they will use income 
determinations from other programs and then apply the policies 
consistently.
    A commenter stated that it is not clear that HOTMA allows PHAs and 
owners to completely substitute another program's definition of income 
for the definition in the 1937 Act; allowing such a substitution would 
be a fundamental and far-reaching policy change.
    A commenter stated that a PHA should not be required to recalculate 
income if the tenant has failed to provide the documentation needed 
within a timely manner and the PHA has had to use an outside 
determination of income. Another commenter stated that entitlement 
municipalities that provide rental assistance and non-PHA nonprofits 
should also be able to use outside income determinations.
    Commenters asked if the ability to use an outside determination of 
income would allow a PHA or owner to obtain IRS records, including tax 
returns. A commenter stated that tenants should not be required to 
obtain the income determinations themselves. A commenter stated that 
HUD should add language to the consent form to authorize the PHA or 
owner to obtain income determination information from the relevant 
local administrators.
    Another commenter stated that tenants should be made aware of what 
income reporting will affect their rent; specifically, the tenant 
should know whether reporting income changes to a LIHTC owner will 
result in that information being passed along to a PHA.
    Commenters also expressed concerns about using income 
determinations by other agencies. One commenter stated that other forms 
of assistance may take income information at face value without 
additional verification and expressed concern that if there is a 
difference between information from EIV and the other agency, the PHA 
may receive an audit finding. Another stated that there may be errors 
or other inconsistencies in the income calculation by other agencies 
that may affect participation in HUD programs, especially if there was 
fraud involved in the original calculation of income. A commenter also 
stated that differences between States and between programs will result 
in inequities in determining rents.
    HUD Response: HUD appreciates all the public comments. HOTMA added 
language to the 1937 Act that allows, but does not require, PHAs and 
owners to use determinations of a family's income prior to applying any 
deductions based on timely income determinations made for the purposes 
of means-tested Federal public assistance. Therefore, PHAs and owners 
have the discretion not to use this ``safe harbor,'' and if a PHA or 
owner does take advantage of this flexibility and documents that 
determination with the appropriate third-party verification in 
accordance with the requirements of Sec.  5.609(c)(3)(ii), they are not 
subject to penalties for doing so.
    In this final rule, HUD is clarifying that PHAs and owners will be 
able to use income determinations received through established data 
sharing agreements, or PHAs or owners can obtain income determinations 
directly from administrators for means-tested public assistance 
specified on the approved list in the regulation at Sec.  5.609(c)(3). 
A PHA or owner may also rely on third-party documentation provided to 
the PHA or owner by the tenant of a determination made by a form of 
assistance on the list in the regulatory text.
B. Additional Guidance
    Commenters asked for additional information and guidance on how to 
use determinations of income made by other agencies. Some asked for 
general guidelines, while others specifically asked for additional 
information on what documentation would be acceptable evidence of the 
income determination, including whether it has to come from the other 
agency or if it can come from the tenants. A commenter stated that HUD 
should delay rulemaking on allowing outside determinations of income 
until HUD provides additional information on how verification would 
work and the forms and sources of appropriate proof of the 
determinations.
    Commenters asked HUD to provide additional information on how other 
agencies determine income and how the other determination can be used 
by PHAs or owners as a safe harbor. A commenter stated that HUD should 
provide information on how similar other agencies' definition of income 
is to HUDs, as using a calculation not aligned with HUD requirements 
may jeopardize a PHA's ability to provide fair determinations of 
income, leaving the PHA with legal vulnerabilities. The commenter 
further stated that having the list of the approved agencies' income 
sources will provide a safe harbor for PHAs. Commenters stated that HUD 
should delay rulemaking until it has conducted further research across 
programs and States to inform the rulemaking.
    Many commenters stated that HUD should provide requirements on 
which determination to use when there is more than one available, and 
one suggested that if a discrepancy between determinations exists, PHAs 
should use the higher income. A commenter stated that if discretion 
lies with PHAs or owners, inconsistencies will arise, complicating the 
coordination of care between Continuums of Care providing case 
management. Others stated that HUD should give PHAs the discretion to 
determine which program's income information to use when more than one 
is available. A commenter stated that HUD should provide guidance on 
the best practices for resolving differences in determinations.
    A commenter also asked for guidance on what to do if a participant 
disputes an income determination from another agency.
    A commenter stated that HUD and Congress should work to eliminate 
duplicative, burdensome recertification requirements.
    HUD Response: HUD's revision of the regulatory text in this final 
rule, discussed more fully above, should address commenters' concerns 
about what documentation is required. In addition, any PHA or owner 
using income determinations from the list of assistance in the 
regulatory text will meet the requirements for the statutory safe 
harbor. If third-party verification of the income determination is 
unavailable, or if the family disputes the determination, the PHA or 
owner must determine the family's annual income in accordance with 24 
CFR part 5, subpart F.

[[Page 9628]]

    Because many of the other forms of public assistance have 
definitions of income that vary from State to State, it is not 
practical for HUD to provide detailed information to PHAs and owners on 
how the other forms of assistance define income. However, HUD intends 
to offer further guidance to PHAs and owners containing best practices 
for choosing between multiple available determinations and on how to 
resolve any discrepancies.
    HUD also appreciates the suggestion to continue to streamline 
reexamination requirements across Federal agencies administering means-
tested public assistance, and hopefully the efforts in using this 
interagency flexibility will highlight additional areas where the 
government can seek alignment.
C. Eligible Forms of Assistance
    Commenters responded to HUD's request for input on which types of 
assistance should be included in the list of outside determinations a 
PHA or owner may use. A commenter stated that HUD should establish a 
list of eligible programs, while others stated that HUD should allow 
PHAs to submit other methods to be approved by HUD or that HUD should 
not limit the forms of Federal assistance on the list. A commenter 
stated that HUD should give PHAs the flexibility to choose programs 
from a list provided by HUD and set out the choice in the 
administrative plan. Commenters also stated that HUD should not limit 
the number of programs that a PHA may use for determinations.
    A commenter stated that PHAs or owners should be allowed to use 
Federal tax return information, particularly if the family was eligible 
for an earned income tax credit (EITC) or child tax credit. Others 
stated that HUD should not use EITC determinations, because tax returns 
contain a lot of personal information or because the data will be at 
least a year out of date. Another commenter stated that the 
calculations to determine EITC eligibility exclude substantial sources 
of income that the 1937 Act includes, which would increase program 
costs and would have varying effects on different groups of 
participants in HUD programs.
    Commenters stated that HUD should allow determinations for Social 
Security or Supplemental Security Income. Others suggested including VA 
benefits or Social Security Disability Insurance (SSDI). A commenter 
stated that the income definition for SNAP is similar to the 1937 Act 
and is national, so it would be appropriate to use. Commenters stated 
that the programs in the 1937 Act should be allowed to use income 
determinations made for the HOME program, or determinations used for 
LIHTC. Commenters also suggested using determinations for the Head 
Start program or determinations made by child support enforcement 
agencies.
    Other commenters stated that HUD should not allow PHAs and owners 
to use determinations for TANF, as States have wide leeway in setting 
the formula to determine income, and therefore there would be a wide 
range of different income determinations making it harder for HUD to 
provide effective oversight.
    HUD Response: HOTMA mandates that HUD allow PHAs and owners to use 
income determinations from TANF block grants, Medicaid, and SNAP 
assistance. In addition, HUD believes that the definition of adjusted 
gross income used for the EITC is similar enough to the definition of 
income used by HUD to justify the inclusion of the EITC on the list.
    In this final rule, HUD is adding several forms of assistance to 
the list of means-tested public assistance that a PHA or owner may rely 
upon for an alternative income determination under Sec.  5.609(c)(3): 
LIHTC; WIC; the SSI program; and other HUD programs, such as the HOME 
program. In addition, PHAs or owners may use income determinations from 
other forms of means-tested Federal public assistance if HUD has 
established a memorandum of understanding with the agency administering 
the assistance.
    Because the use of outside income determinations is permissive for 
PHAs or owners, PHAs or owners must specify in their written admission 
and continued occupancy policies, HCV administrative plan, or House 
Rules, as applicable, the policies that they are adopting, including 
which programs from the HUD-approved list, if any, they will accept and 
their method for choosing between potentially competing determinations 
from different programs.
D. Data Sharing
    Commenters stated that using determinations by other agencies would 
be useful if the PHA could obtain the information the other agency used 
for verification. A commenter stated that the level of administrative 
relief from this policy will depend on the PHA's ability to develop and 
implement data-sharing agreements. Commenters wrote that HUD should 
facilitate data sharing to allow PHAs and owners to obtain information 
from other programs, because without such data sharing, the ability of 
PHAs and owners to use outside determinations would be limited. Some 
stated that HUD should provide capacity development and technical 
assistance to PHAs and owners for data sharing.
    Commenters stated that PHAs should have the freedom to create their 
own data-sharing partnerships, and PHAs should have the freedom to 
create such partnerships with as many programs as possible. A commenter 
stated that local PHAs will have a better understanding of the accuracy 
of different program administrators and may have better relationships 
for sharing information.
    Commenters stated that HUD should prioritize agreements with the 
Social Security Administration, given the number of families receiving 
Social Security, or the Department of Agriculture, due to the number of 
families receiving SNAP benefits.
    Commenters stated that HUD should determine a way to share 
information electronically and asked for details about whether 
administrators of other programs would be willing to supply the 
information. A commenter stated that getting information from other 
agencies means that additional privacy protections will be needed.
    HUD Response: HUD agrees that the ability of PHAs and owners to 
have data sharing agreements will be crucial for this safe harbor 
provision to relieve administrative burden. As stated above, in this 
final rule, HUD amends the regulatory text in Sec.  5.609(c)(3) to 
provide that a PHA or owner is allowed to use the safe harbor 
flexibility only if HUD has included it on the approved list of means-
tested Federal public assistance or established a memorandum of 
understanding. If assistance has been listed in Sec.  5.609(c)(3) and 
the PHA wishes to obtain a data sharing agreement with an agency 
administering that assistance, this is allowable so long as the data 
sharing agreement allows the PHA access to the necessary third-party 
documentation required under Sec.  5.609(c)(3)(ii).
    HUD is prioritizing MOUs with the Social Security Administration 
and the Veterans' Administration, given existing agreements in other 
contexts, but HUD cannot guarantee which agreements will be in place 
first.
E. Timely Income Determinations
    Many commenters stated that HUD should define ``timely'' with 
respect to a determination of income made by another agency; a 
commenter said that a time limit will prevent improper payments that 
might otherwise occur if a tenant does not honor reporting obligations 
to an outside agency. Some stated that the outside determination should 
be no older than 120 days, while

[[Page 9629]]

others stated that the determination by the other agency should be made 
within the previous 12 months. A commenter stated that the 
determination should be made no more than 180 days prior to the 
effective date of the rents set using the outside determinations of 
income.
    Another commenter stated that HUD should not establish a firm 
definition of timeliness, but HUD should publicize best practices, as 
PHAs and owners often consider determinations more than 90 days old to 
be stale.
    HUD Response: HUD is revising the text of this final rule in Sec.  
5.609(c)(3) to remove the inclusion of the word ``timely.'' The final 
rule provides that the verification must meet all HUD requirements 
related to the length of time that is permitted before the third-party 
verification is considered out-of-date and is no longer an eligible 
source of income verification.

Annualization of Income

    Commenters stated that HOTMA does not eliminate the current 
practice of some PHAs of conducting more frequent income reviews of 
sporadic income sources and annualizing income. These commenters asked 
that HUD ensure the revised regulations do not preclude these practices 
and asked for HUD to provide explicit guidance permitting such actions.
    Commenters also asked for additional clarity from HUD on what the 
revisions to annualizing income mean for PHAs and owners practically, 
so it will be clear what will happen when a PHA or owner cannot project 
long-term income.
    HUD Response: The HOTMA statutory revisions require that for annual 
income reviews, PHAs and owners must use a family's income from the 
preceding year, taking into account any adjustments the PHA or owner 
has made due to an interim reexamination. Therefore, PHAs and owners 
are no longer projecting long-term income for annual reviews, and more 
frequent income reviews will not be necessary.
    This final rule retains changes from the proposed rule that 
eliminate the provision on annualizing income. PHAs and owners will 
look at the income for the previous 12 months for annual 
reexaminations.

Prior-Year Income

    Some commenters stated that shifting from anticipated income to 
actual income from the prior year was an important and positive change.
    Other commenters stated that HUD's interpretation of the HOTMA 
language about prior-year income was not correct. Instead of referring 
to the prior 12 months of income, the commenters wrote, the intent was 
to use the family's income from the prior calendar year, which would 
allow the use of year-end documents and would create an incentive to 
increase earnings by delaying the impact of increased earnings on rent 
obligations.
    Commenters also asked for additional guidance on how to use past 
income, particularly when a family's income may have started and 
stopped during the year or when there were multiple income changes 
during the prior year, since either may present significant difficulty 
for PHAs or owners. A commenter suggested allowing PHAs to use 
documentation from the immediately preceding 60 to 90 days.
    Commenters stated that PHAs and owners must be given instructions 
to retain information submitted in the prior 12 months to determine if 
the annual review finds a change in income not accounted for 
previously. Others stated that HUD should provide PHAs with clear 
guidance on what would be acceptable forms of income verification.
    Commenters opposed the idea of using past income, stating that 
using the income in the preceding year would not provide the most 
accurate and current family income. Instead, the commenters stated that 
PHAs should be given the most flexibility to determine accurate income, 
including just taking the prior-year determinations into consideration. 
A commenter stated that the regulation did not seem to reflect the 
HOTMA statutory language that allows PHAs and owners to make other 
adjustments to prior-year income that the PHA or owner considers 
appropriate to reflect current income.
    HUD Response: HUD appreciates the comments on how to implement the 
statutory requirement that PHAs and owners use the prior year's income 
at annual certifications. HUD is maintaining the language that PHAs and 
owners must use the income the family received over the preceding 12 
months, because this is the most reasonable reading of section 
3(a)(6)(A)(ii) of the 1937 Act, as amended by HOTMA. The statute states 
that PHAs and owners must ``use the income of the family as determined 
by the agency or owner for the preceding year, taking into 
consideration any redetermination of income during such prior year . . 
.'' (42 U.S.C. 1437a(a)(6)(A)(ii)). HUD believes that a plain language 
reading of ``preceding year'' is the 12 months prior to the income 
calculation. If ``preceding year'' were to mean ``preceding calendar 
year,'' this would deviate from the plain language reading of the 
statute. Using a calendar-year cycle would provide recent information 
for families with annual examinations earlier in the year, and a much 
larger gap of time for families with annual examinations later in the 
year. This would result in families being treated differently from one 
another merely due to when the family's income certification cycle 
began, which HUD does not believe Congress intended by the statutory 
language.
    Moreover, reading ``preceding year'' to mean the ``preceding 
calendar year'' creates contradictions in the statute and the rule. 
Consider the scenario where a family had an interim reexamination of 
income that took place in the current calendar year but preceding 
income calculation cycle: Under the statute, the PHA or owner must take 
``into consideration any redetermination of income during such prior 
year'' when performing an annual income reexamination. If HUD 
interpreted ``such prior year'' to mean the ``preceding calendar 
year,'' the PHA or owner would ignore any interim reexaminations of 
income performed in the current calendar year and only consider interim 
reexaminations that took place in the preceding calendar year. This 
result runs counter to clear Congressional intent that PHAs and owners 
take the most recent calculation of income into consideration when 
performing an annual income reexamination. As a result, HUD concludes 
that the most reasonable reading of the statute is that ``preceding 
year'' means the 12 months preceding the calculation of income.
    If a PHA or owner determines that the family's prior-year income 
does not reflect the family's current income, the PHA or owner is 
required to adjust the income determination under Sec.  5.609(c)(2)(ii) 
and (iii).
    While the existing procedures related to the order of hierarchy or 
acceptability for verification for income, assets, and expenses \11\ is 
not changed as part of this rulemaking, HUD may make adjustments to 
those procedures in the future as warranted. HUD does not believe it is 
necessary for the final rule to specifically require PHAs and owners to 
retain information submitted by the family in the prior 12 months in 
order to complete the annual reexamination. The family is required to 
provide information to the PHA or owner in order for the PHA or owner 
to complete the annual reexamination, regardless of whether the family 
submitted information related to an increase or

[[Page 9630]]

decrease in income prior to the annual reexamination.
---------------------------------------------------------------------------

    \11\ See PIH Notice 2018-18 and chapter 5 of Handbook 4350.3.
---------------------------------------------------------------------------

Income Inclusions

A. General
    Commenters stated that HUD should not rely on broad language to 
define what is included as income but should continue to have a list of 
what is specifically included, as the broader language may create 
confusion and increase the risk of litigation, while the specific list 
provides answers to questions from the public and individuals.
    Some commenters asked that HUD specifically include certain 
payments as income, such as per capita payments to Native Americans 
from gaming operations and tribal kinship or guardianship payments or 
net income from businesses.
    A commenter also stated that HUD should specify that funds only 
count as income if the family actually receives the income, not just 
because the family is entitled to it, such as child support payments.
    HUD Response: Given the wide range of receipts that would count as 
income and the broad language included in HOTMA, HUD continues to 
believe that it is more appropriate to define income very broadly and 
only specify what is not included as income. Generally, per capita 
payments to Native Americans that are not derived from interests held 
in trust or restricted lands are considered income unless such payments 
satisfy the requirements of another exclusion in this regulation or are 
specifically excluded from being considered income under Federal 
statutes. However, HUD is revising Sec.  5.609(b)(4), which, as 
proposed, would exclude from income payments to care for foster 
children or adults, to also exclude Tribal kinship payments from being 
considered income under the rule. This change aligns the regulation's 
treatment of Tribal kinship payments with that of State kinship 
payments, which were already excluded from income in the proposed rule.
    HUD declines to specify in this final rule that income excludes 
payments not actually received by a family, such as child support 
payments that the family is entitled to but does not receive. It is 
HUD's position that such an exclusion is not necessary because Sec.  
5.609(a) states that all amounts ``received from all sources'' that are 
not excluded in paragraph (b) are income.
B. Gifts
    Commenters asked for HUD to define what a ``gift'' is for purposes 
of including it in income. Commenters also requested information on how 
HUD defines sporadic income for inclusion, and what types of funds 
would fall into this category.
    HUD Response: HOTMA specifically provides that income includes 
recurring gifts. As discussed more fully below, in response to public 
comments, HUD is retaining the current exclusion for nonrecurring 
income, with some modifications for clarification in Sec.  5.609(b). 
This revised exclusion specifies that gifts for holidays, birthdays, or 
other significant life events or milestones are excluded from income. 
However, other gifts that are simply provided to the family on a 
regular and routine basis (e.g., a relative or friend provides a member 
of the family with cash gifts on a weekly or monthly basis) would be 
included in income.

Interim Reexaminations of Income

A. General Policies
    Commenters stated that PHAs should not have to perform interim 
reexaminations for decreases in income if the family never had to 
report the change and the PHA used the family's prior 12 months of 
income to determine rent. While some commenters supported the 
elimination of interim reexaminations in the final 3 months of a 
certification period, others stated that PHAs and owners should still 
be required to conduct interim reexaminations for decreases in income.
    A commenter suggested creating an expedited process, with a lower 
level of verification and a strict deadline, for downward adjustments 
in tenant rents. Another commenter stated that HUD should require 
providers to prioritize interim reexaminations for decreases over 
interim reexaminations for increases in income. A commenter stated that 
it would be appropriate for a PHA to inform an HCV owner that there is 
a potential adjustment being discussed, along with a timeline, to allow 
the owner to make an informed decision on whether to hold off on a 
lease enforcement action or whether a solution from the PHA is likely.
    A commenter pointed out that there is inconsistency in certain 
language in the proposed Sec. Sec.  5.657, 960.257, and 982.516. The 
commenter stated that the use of both ``must'' and ``may'' as well as 
both ``make [the interim reexamination]'' and ``conduct [an interim 
reexamination]'' within the proposed regulations regarding interim 
recertifications may be confusing and misinterpreted.
    HUD Response: HUD reiterates that, under this final rule, interim 
reexaminations for income decreases would only be conducted at the 
request of the family so PHAs will not have to conduct interim 
reexaminations for a decrease if the family does not report the change. 
HOTMA requires interim reexaminations be conducted whenever the PHA, 
grantee, or owner has estimated that the family's income has increased 
by ten percent or more. When conducting its estimate, the PHA, owner, 
or grantee must also consider whether the increase is due to earned 
income, and whether a previous interim reexamination already occurred 
due to a decrease in income. Only where the PHA, owner, or grantee 
estimates that such increase is not attributable to earned income does 
HUD require that a PHA, owner, or grantee perform an interim 
reexamination of income for a family. If the family has undergone an 
interim reexamination for a decrease in income, the PHA owner, or 
grantee has discretion regarding whether or not to count increases in 
earned income when estimating or calculating whether the family's 
adjusted income has increased. Further, the HOTMA statutory language 
allows PHAs and owners to decline to conduct interim reexaminations due 
to increased income only in the final 3 months of an annual 
certification cycle; PHAs and owners are still required to conduct 
interim reexaminations for income decreases. In the case of zero-income 
families, PHAs and owners will estimate whether they must conduct 
interim reexaminations whenever there is an increase in income because 
the family's change in income is greater than ten percent. If the 
increase in a zero-income family's income is entirely from unearned 
income then the PHA or owner must conduct an interim reexamination of 
family income. However, just as in all other cases, the PHA or owner 
may choose not to conduct an interim reexamination of a family's income 
in the last 3 months of a family's income certification period.
    HUD is already creating in this final rule, at Sec.  
5.233(a)(2)(i), a simplified process for interim reexaminations by 
removing the requirement to use EIV, and HUD does not feel additional 
flexibilities are needed. In addition, because the changes made by 
HOTMA are intended to relieve burdens on PHAs and owners, HUD is 
declining to impose additional restrictions on PHAs and owners. A PHA 
and owner already prioritize interim reexaminations based on the order 
in which families request them, and HUD further declines to add 
notification requirements to HCV

[[Page 9631]]

owners to what is already a short timeline for conducting interim 
reexaminations.
    HUD thanks commenters for pointing out where the regulatory 
language could be clearer. In some cases, different language is 
required. For example, families have the option (``may'') to request an 
interim, while PHAs and owners must perform the interim reexamination 
when requested if the changes in income or deductions meet the interim 
threshold percentage. However, HUD has revised the language referring 
to interim reexaminations in this final rule (in Sec. Sec.  5.657(c), 
574.310(e), 960.257(b), and 982.516(c)) to be consistent about the 
obligations of PHAs, owners, and grantees to ``conduct'' interim 
reexaminations.
B. Errors
    Commenters stated that if there is an error in a downward 
adjustment, repayment can be arranged as with EIV.
    HUD Response: HUD agrees with the commenters, and therefore has 
added language to this final rule to clarify the issue, in Sec. Sec.  
5.609(c)(4), 5.657(f), 574.310(h), 960.257(f), and 982.516(f). When 
mistakes result in rent being erroneously decreased, the error must be 
corrected but the family is not responsible for repayment if the PHA or 
owner made the error. If the tenant provided inaccurate information, 
the family must repay the PHA or owner per the established repayment 
agreement.
C. Treatment of Earned Income
    A commenter opposed the prohibition on considering increased earned 
income when estimating if a family's income has increased; the 
commenter stated that this was equivalent to keeping the earned income 
disregard and would complicate administrative workflows by creating a 
different definition of income for interim and annual reexaminations. 
Another commenter stated that HUD should clarify that the reason a PHA 
would be required to take into account the family's actual decreased 
adjusted income over the previous 12 months on a prospective basis 
would be because the PHA would be determining the family's actual 
adjusted income over the previous 12 months.
    HUD Response: HOTMA amends the 1937 Act so that PHAs and owners may 
not consider a family's increases in earned income for the purposes of 
an interim reexamination unless the family had previously undergone an 
interim reexamination during the year for any decrease in income. If 
the family has undergone an interim reexamination for a decrease in 
income after the completion of the last annual reexamination, the PHA 
or owner has discretion regarding whether or not to count increases in 
earned income when estimating or calculating whether the family's 
adjusted income has increased. Under this final rule, annual 
reexaminations will be based on income from the preceding 12 months. 
If, during an annual certification period, the family's income 
decreases from the prior year, the family may be due an adjustment, per 
Sec.  5.609(c)(2).
D. Payment Standards
    Commenters stated that HUD should require PHAs to apply mid-year 
payment standard increases as promptly as possible. A commenter stated 
that if the payment standard is increased and the landlord increases 
rent before the next regular certification, the revised Section 
8(o)(2)(A) of the 1937 Act requires the PHA to provide tenants with the 
benefit of the new payment standard immediately instead of waiting for 
the next regular examination. Commenters stated that HUD should revise 
the payment standard regulations to clarify that tenants who request a 
reasonable accommodation for an increase in payment standards are not 
required to pay 40 percent of their income in rent to see the benefits 
of the accommodation.
    Commenters also stated that HUD should be explicit that PHAs and 
owners have the authority to adjust the total tenant payment (TTP) to 
account for the amount and timing of changes in income.
    HUD Response: HUD appreciates the comments, but changes to payment 
standards requirements were not contemplated by the proposed rule and 
are consequently beyond the scope of this rulemaking. HUD did propose 
changes to the payment standard requirements in the HCV regulations in 
another proposed rule (Housing Opportunity Through Modernization Act of 
2016--Housing Choice Voucher (HCV) and Project-Based Voucher 
Implementation; Additional Streamlining Changes; (85 FR 63664, October 
8, 2020)) and received similar comments in response to that proposed 
rule, which will be taken into consideration as part of the development 
of that final rule.
E. Effective Date of Rent Changes
    Commenters made suggestions regarding when rent calculations from 
interim reexaminations should take effect. A commenter stated that the 
effective date should be aligned with the next month. Another stated 
that HUD should clarify that the effective date of any change in rent 
would be based on the actual change in income and would be dependent on 
appropriate notice to the PHA of that change in income. A commenter 
suggested HUD adopt the provisions in the HUD Handbook 4350.3 
``Occupancy Requirements of Subsidized Multifamily Housing Programs'' 
that makes changes from increases effective on the first of the month 
after the end of a 30-day notice period, while changes from decreases 
in income are effective on the first day of the month after the date of 
the action that led to the interim reexamination.
    Commenters also stated that HUD should prohibit housing providers 
from requiring retroactive increases in rent where a tenant has timely 
reported an increase in income.
    HUD Response: With this final rule, HUD is adopting regulatory text 
similar to the guidance previously included for Multifamily programs 
regarding the effective date of interim reexaminations, in Sec. Sec.  
5.657(c)(5), 574.310(e)(4)(v), 960.257(b)(6), and 982.516(c)(4). If the 
tenant complies with the reporting requirements by timely reporting 
changes based on PHA or owner policy and the interim reexamination 
results in a rent increase, the PHA or owner must give the family 30 
days advance notice of the increase, and the increase will be effective 
on the first of the month starting after that 30-day period. If the 
tenant's rent will decrease, the change in rent is effective on the 
first day of the month after the date of the action that caused the 
interim certification (e.g., the first day of the month after the date 
of the loss of employment).
    If the tenant does not timely report a change in income as required 
by the PHA or owner's policy, any resulting rent increases from an 
interim reexamination will be retroactive to the first of the month 
following the date of the action resulting in an increased income and 
rent decreases will be effective no later than the first of the month 
following the completion of the interim reexamination.
F. Interim Reexamination Process
    Commenters stated that HUD should adopt the process from the HUD 
Handbook 4350.3: Occupancy Requirements of Subsidized Multifamily 
Housing Programs on interim reexaminations. Specifically, commenters 
called out the handbook prohibitions on eviction or other adverse 
impacts while a request for a rent adjustment due to a loss of income 
is being processed, along with a 30-day cure period and the requirement 
of written advance notice of rent increases.
    HUD Response: As stated above, HUD is adopting, with this final 
rule,

[[Page 9632]]

language similar to the guidance previously included for Multifamily 
programs regarding the effective date of interim reexaminations in 
Sec. Sec.  5.657(c)(5), 574.310(e)(4)(v), 882.515(b)(4), 960.257(b)(6), 
and 982.516(c)(4). HUD agrees that tenants should experience no adverse 
impact for failure to pay rent when there is a pending interim 
adjustment if the family reports the income change in a timely manner 
according to PHA, owner, or grantee policies.
G. Threshold for Conducting Interim Reexaminations
    Some commenters expressed support of the proposal that interim 
reexaminations would be triggered only by a ten percent change in 
income. Some stated that it is appropriate to move to percentages from 
a set dollar amount. Others stated that allowing a request for 
decreased rent when income falls ten percent is fair or will benefit 
families who need rental assistance. A commenter explicitly supported 
the grace period that allows families to benefit from earned income 
increases unless the family previously requested a decreased rent due 
to an income decrease.
    Commenters stated that a PHA or owner should not be allowed to 
decline interim reexamination requests because the family's income 
change is below ten percent, especially if the change is for a decrease 
in income, to avoid creating a rent burden. Others stated that it 
should be up to the PHA's discretion to conduct interim reexaminations 
for income increases; commenters stated that some PHAs do not currently 
do interim reexaminations for income increases and requiring it now 
would increase their burden. Another commenter stated that instead of 
requiring reexaminations for families when the PHA or owner suspects an 
increased income, the need for interim reexaminations should be based 
on a family's self-reported monthly income at the request of families.
    Some commenters opposed requiring PHAs to do interim reexaminations 
when a threshold change is met, because there is already a 90-day lag 
in EIV information and annualized income requires an even longer period 
of time; the commenters stated that it would not make sense to conduct 
interim reexaminations every time there is a fairly small change in 
income. A commenter stated that HUD should not implement requirements 
for interim reexaminations beyond what is statutorily required by 
HOTMA. Another commenter stated that HUD should be clear that PHAs and 
owners have a wide range of discretion, but MTW agencies still cannot 
exceed the ten percent threshold.
    Other commenters stated that estimating when income has changed by 
ten percent would be difficult and it would basically require the PHA 
or owner to do all the income determination work anyway. Commenters 
stated that households will report many more minor changes to confirm 
they have not reached the threshold.
    Some commenters opined on what type of income should be used to 
determine whether an interim reexamination is justified. Commenters 
stated that HUD should base the threshold on gross income, even self-
declared, rather than adjusted income. A commenter stated that tenants 
earning hourly wages should be subject to a full calculation of income 
and assets, while fixed-income participants should be able to submit 
just gross expected income.
    Commenters stated that the percentage triggering reexaminations 
should be higher than ten percent, because at lower income levels, 
small dollar changes in income will meet the ten percent threshold. A 
commenter stated that HUD should set a higher threshold for increases 
in income to set an incentive for increased earned income.
    A commenter stated that HUD should set a threshold lower than ten 
percent to be fair to the poorest recipients of HUD assistance and 
stated that setting a national threshold instead of allowing PHA or 
owner discretion would obviate different rules and levels of hardship.
    Other commenters suggested setting the threshold at fixed dollar 
amounts. Commenters suggested that using dollar amounts would increase 
clarity and ease of administration for PHAs and owners, because using a 
percentage would require a PHA or owner to go through a full 
calculation to determine if the threshold has been met. Another 
commenter stated that percentage changes would result in a disparate 
impact on lower-income households versus higher-income families--the 
same dollar amount change could trigger an interim reexamination for a 
lower-income family but not for a family with a higher income. 
Commenters suggested a change of $200 a month and suggested adjusting 
it for inflation. Others proposed a threshold of $400-$500 a month. A 
commenter pointed out that given that the Multifamily guidance 
currently suggests a threshold change of $200, whether or not a PHA or 
owner experiences a decrease in burden depends on the number of 
families served with income below $20,000.
    Some commenters stated that PHAs and owners should have the 
discretion to use a percentage change or fixed dollar amount to set the 
threshold. Commenters stated that HUD should spell out the exemption 
for interim reexaminations for increases in income more clearly. A 
commenter suggested how HUD could clarify how PHAs and owners could 
determine whether a family has met the threshold for an interim 
reexamination and stated that HUD could provide tools to help families 
to determine if their income changes meet the interim reexamination 
threshold. A commenter stated that HUD should clarify that participants 
are not held responsible for unreported increased income below the ten 
percent threshold or if the PHA has a policy that does not require 
reporting increased income between annual reexaminations.
    Commenters stated that HUD should set a different threshold for 
increases in income than for decreases and suggested the Multifamily 
standard of $200; a commenter stated that doing so would decrease 
interim reexaminations for very small increases in income, decreasing 
the burden on PHAs and owners. Another commenter suggested a threshold 
of $500 for increases in income.
    Commenters stated that HUD should lower the threshold for decreases 
in income. A commenter stated that the downward threshold should be the 
lower of $100 per month or 5 percent of income to protect families and 
allow for easy determination that the family qualifies for an interim. 
Another commenter stated that the threshold should be 5 percent for 
income decreases for households with income less than 20 percent of 
AMI. Commenters stated that HUD should set a lower threshold because 
not decreasing rent when there is a significant income loss, which may 
be less than a ten percent change, could make a difference in being 
able to pay rent. A commenter suggested a threshold of $25 for 
extremely low-income families with decreased income.
    HUD Response: The language of HOTMA requires that interim 
reexaminations for decreases in income must be conducted by a PHA or 
owner at the request of the family when there is an estimated change of 
ten percent or more in a family's annual adjusted income, or such lower 
amount as the Secretary may establish. HUD has determined that adding a 
dollar threshold may add more administrative burden than it relieves, 
because the amendments made by HOTMA set the

[[Page 9633]]

threshold statutorily at ten percent; therefore, HUD would have to 
incorporate the percentage threshold into any dollar limitation 
provided. However, the final rule allows HUD to establish a lower 
amount by notice in accordance with HOTMA, which could include 
establishing a lower threshold percentage in general or in certain 
circumstances (e.g., in cases where a family has requested a hardship 
exception for unreimbursed health and medical care and reasonable 
attendant care and auxiliary apparatus expenses or child care expenses 
in accordance with Sec. Sec.  5.611(c) and 5.611(d).
    However, there are some flexibilities built in for PHAs and owners. 
PHAs and owners may establish a lower threshold for changes in income 
or deductions resulting in a decrease of family income if they wish to 
do so and are willing to take on the additional administrative burden. 
In addition, with respect to income reviews for increases in income, 
PHAs or owners may elect not to conduct income reviews in the final 3 
months of a certification period.
    Unless the family has undergone an interim reexamination for a 
decrease in income after the completion of the last annual 
reexamination (or the family's initial income examination in the case 
where the family has not yet had its first annual reexamination), an 
interim reexamination is not triggered by an increase in the family's 
earned income, even if the increase is above the ten percent threshold. 
The PHA or owner has discretion regarding whether or not to conduct an 
interim reexamination based on any increases in earned income only if 
the family has undergone an interim certification for a decrease in 
income after the completion of the last annual reexamination (or 
initial examination, if the first annual reexamination has not yet 
occurred). The existence of the threshold also means that if there is 
an income change below the threshold, the tenant is not required to 
report the income change. Otherwise, only changes of more than ten 
percent of unearned income trigger an interim reexamination under the 
revised rule.
    HUD notes that although there are flexibilities for PHAs and 
owners, entities must apply their policies uniformly and in compliance 
with all Federal nondiscrimination and fair housing requirements, 
including, but not limited to, the Fair Housing Act, Title VI of the 
Civil Rights Act, Section 504, and Title II of the Americans with 
Disabilities Act, as applicable. This also includes, among other 
requirements, providing for reasonable accommodations that may be 
necessary for individuals with disabilities.
    Finally, HUD intends to publish additional guidance for PHAs and 
owners on how they may use self-certifications from tenants and how 
PHAs and owners may help their tenants determine if any income change 
meets the threshold. One objective of using self-certifications and 
other helpful guidance on estimating income changes that may meet the 
interim reexamination threshold is to alleviate the administrative 
burden on the PHA and owner of performing interim reexaminations where 
an interim reexamination will not lead to changes in income or amount 
the family must pay. HUD does acknowledge, however, that depending on 
the PHA's or owner's policies, the PHA or owner may be required to do 
extensive reviews of income to determine if the change in income meets 
the relevant threshold to trigger an interim.
H. Reasonable Period of Time
    HUD received many comments on how long a PHA or owner should have 
to conduct an interim reexamination. Some commenters stated that HUD 
should provide a definition of ``a reasonable period of time'' to 
conduct an interim reexamination. A commenter suggested providing a 
time frame to start the interim reexamination but should leave out a 
timeline for completing the review. Other commenters opposed HUD 
providing a definition of ``reasonable time'' in favor of allowing PHAs 
and owners to define it. These commenters stated that getting 
information may be outside the control of a PHA or owner, and size or 
financial differences between PHAs and owners mean a one-size-fits-all 
solution would not work.
    Commenters stated that HUD should provide clarity on what exactly 
is covered by any specified deadline. Commenters stated that timeliness 
has two components, including how soon a family must report a change 
and how soon the PHA or owner must act upon that knowledge. Commenters 
asked whether the deadline should cover the time between the request 
and when the review is completed or the request and when the change is 
effective or whether the deadline would cover only the time between the 
request and when the review is started. Some stated that the clock 
should start from the date the PHA or owner receives all the 
information, while another commenter stated that the clock should start 
from the date the family reports a change.
    Some commenters stated that it is reasonable to require an interim 
reexamination to be started within 2 weeks, but it is not enough time 
to complete the review.
    Commenters supported following the Multifamily handbook, which 
states that, in general, interim reexaminations should not take longer 
than 4 weeks. However, these commenters stated that HUD should make 
this a more concrete deadline to avoid questions about whether the PHA 
or owner is compliant with the required time frame. Other commenters 
stated that it would take 30 days just to obtain all the needed 
information. Some pointed out that interim reexaminations are 
unexpected work that staff has to fit in around the regularly planned 
workload. A commenter stated that a PHA or owner may complete the 
review in less time if they prefer.
    A commenter stated that the interim reexamination should be 
conducted in the same month that the information is received by the 
PHA, as long as it is not in the last 5 business days of the month.
    Other commenters recommended a 60-day period, stating that such a 
time frame would give adequate time to receive required paperwork from 
tenants, review it, and calculate the revised income. A commenter 
stated that HUD should allow at least 60 days for PHAs with 30,000 or 
more vouchers, in line with the current time frame for annual 
reexaminations.
    Other commenters stated that HUD should not set a time less than 90 
days, as that would allow time to receive required documentation and to 
account for error corrections. A commenter also stated that this will 
lead to fewer interim reexaminations that only deal with small job 
changes. A commenter wrote that HOPWA should allow for 90 days to align 
with HOPWA assessment and service plan cycles and to minimize staff 
burden in reexaminations.
    A commenter stated that 120 days was a reasonable time. Another 
suggested a time frame of 90-120 days to allow for the collection of 4 
paystubs to demonstrate a long-term change, rather than just a short-
term shift.
    Some commenters distinguished between requests for changes due to 
increases in income and decreases in income. A commenter stated that 
HUD should specify a period to complete interim reexaminations for 
decreases in family income, as a failure to provide downward 
adjustments promptly could expose families to hardships and potential 
displacement and homelessness. The commenter stated that reexaminations 
for decreases in income should be completed in time to be effective 
before the family's next rent payment or one week, whichever is

[[Page 9634]]

later, and that a family should not be evicted or sanctioned if they 
have reported a decrease in income, but the review is pending. Another 
commenter stated that interim reexaminations for decreases should be 
effective the first of the following month, unless it is after the 20th 
of the month, in which case the PHA or owner would have the option to 
delay another month.
    HUD Response: HUD does not feel that a set time frame is 
appropriate. Some of the proposed time frames from commenters are also 
too long for families experiencing a decrease in income and facing a 
potential inability to pay their rent. Therefore, in Sec. Sec.  
5.657(c)(1), 574.310(e)(4), 882.515(b)(1), 960.257(b)(1), and 
982.516(c)(1) of this final rule HUD is adopting a policy similar to 
the existing Multifamily guidance. While the PHA or owner may determine 
a reasonable time frame based on the amount of time it takes to verify 
information, it generally should not be longer than 30 days after a 
change in income is reported. HUD also notes that PHAs and owners must 
ensure that the time frames established are consistent with 
requirements under Federal nondiscrimination requirements, including, 
but not limited to, the obligation to provide reasonable 
accommodations. Therefore, if families have a disability-related need 
for a different time frame, PHAs and owners may be required to 
accommodate that need by extending a time frame.

Earned Income Disregard

A. General
    Some commenters explicitly supported the elimination of the EID, 
stating that it will reduce the burden on PHAs and reduce income 
calculation errors.
    Others objected to the elimination. They cited the benefits of EID 
in helping families become self-sufficient. Others stated that it 
allows families to secure their homes while maintaining employment. One 
commenter stated that Congress did not properly remove the EID from the 
statute with the language in HOTMA. Another commenter recognized the 
statutory change, even as they oppose eliminating the EID.
    A commenter stated that HUD should provide PHAs with viable 
alternatives to EID, such as a once-in-a-lifetime deduction for 
residents that experience an EID qualifying event, such as excluding a 
percentage of the increase due to new earned income over the baseline 
income prior to the event.
    Some commenters stated that current recipients should not be 
allowed to continue using the benefit until the end of their current 
period. However, many others stated that current participants should be 
allowed to continue to receive the EID benefit until their time ends. 
They stated that this would be fair to the current recipients, and some 
suggested that this would prevent the PHA from having to contact all 
affected families. A commenter even suggested that families in this 
group could have a limited form of the benefit, excluding the increased 
income of EID recipients during the 12-month period from when 
employment started, and then fully including all income after that 
period.
    Commenters stated that HUD should continue to include families in 
EID if they had a qualifying event before the phase-out date of the 
EID, including if the family was not determined to be eligible until 
after the date the EID is fully phased out. Commenters stated that not 
allowing families that experience a qualifying event before the benefit 
is ended would upend the financial planning of those families.
    HUD Response: HOTMA properly and correctly removed the statutory 
authority for EID, so HUD cannot retain the disallowance once the 
statutory change is in effect, which it will be upon the effective date 
of this final rule. However, HUD agrees that if a family is receiving a 
disallowance of increase in annual income in accordance with Sec. Sec.  
5.617(c) and 960.255(b) on this final rule's effective date, 
participants should be able to benefit from EID for the full 24 months. 
Therefore, this final rule retains the regulations for EID for this 
time period. However, the EID will be available only to families that 
are eligible for and participating in the program on the effective date 
of the final rule; no new families may be added. Additionally, in this 
final rule, HUD clarifies in Sec.  960.255(e) that families eligible to 
receive the Jobs Plus program rent incentive, Jobs Plus Earned Income 
Disregard (JPEID) pursuant to the FY2023 notice of funding opportunity 
(NOFO) or earlier appropriation distributed through prior Jobs Plus 
NOFOs may continue to receive JPEID under the terms of the NOFO. This 
clarification is necessary to ensure that FY22 Jobs Plus grantees, as 
well as all prior Jobs Plus grantees, can offer JPEID as a rent 
incentive to individuals living at Jobs Plus target sites. The JPEID 
was established by HUD as an alternative requirement to EID for Jobs 
Plus grantees by waiving section 3(d) of the U.S. Housing Act of 1937 
and Sec.  960.255(b) and (d). For more information about JPEID waivers 
and alternative requirements, please review the March 13, 2015 (80 FR 
13415) and March 28, 2018 (83 FR 13506) Federal Register notices.
B. HOPWA and HOME EID
    Some commenters supported ending EID for HOPWA. Many commenters, 
however, opposed ending the benefit. These commenters stated that 
removing the policy would create a disincentive to work for people who 
already face significant economic and affordable housing barriers. 
Commenters stated that EID affords recipients the ability and time to 
adequately transition and to adjust to higher cost burdens. Commenters 
stated that the loss of the EID will threaten participants' housing 
stability, thereby threatening their health.
    Commenters also stated that if HUD ends EID for the HOPWA program, 
current recipients should continue to receive the benefit, as abrupt 
removal of the benefit could destabilize tenants, causing them to 
possibly lose their homes.
    Some commenters stated that they disagreed with HUD's conclusion 
that EID must be eliminated for the HOPWA program. Commenters stated 
that the language of HOTMA does not eliminate HUD's regulatory 
authority to continue EID with HOPWA, stating that HUD, in applying EID 
to the HOPWA program initially, relied on its authority under the HOPWA 
statute, not the 1937 Act.
    HUD Response: In general, HUD would agree that EID has helped 
improve employment, health, and housing stability among HOPWA program 
beneficiaries. HUD also agrees that abrupt termination of EID could 
adversely affect the housing stability and health of HOPWA 
beneficiaries who are currently benefiting from EID. Accordingly, HUD 
has revised the rule to extend EID in HOPWA to the same extent that HUD 
is extending EID in HUD's other programs.
    However, the current statutory conditions for the HOPWA program 
(i.e., Section 859 of the Cranston-Gonzalez National Affordable Housing 
Act (42 U.S.C. 12908(a)(1))) restrict HUD from continuing EID in HOPWA 
after ending EID in the 1937 Act programs, unless HUD can determine 
that it is not practicable to administer the HOPWA assistance without 
EID. HUD cannot make this determination because HOPWA was administered 
practicably without EID from the program's inception in 1992 until the 
program's adoption of EID in 2001. Therefore, HUD has determined that 
only a statutory change can enable the extension of EID in HOPWA beyond 
the elimination of EID in the 1937 Act programs.

[[Page 9635]]

    For HOME, HUD is maintaining that there is no independent statutory 
basis for applying the EID in Sec.  5.617 to persons with disabilities 
who are tenants in HOME-assisted rental housing or who are receiving 
HOME tenant-based rental assistance. HUD will continue to allow HOME 
tenants that have already taken advantage of the EID benefit upon the 
effective date of the final rule to continue to use EID for the full 24 
months defined in Sec.  5.617(c) but will not permit additional tenants 
to use EID in HOME after the effective date of the rule. HUD believes 
this is consistent with the statutory intent of removing EID from the 
1937 Act and that this will maintain alignment between HOME and the 
Section 8 program.

Income Exclusions

A. General
    Commenters wrote in favor of providing a comprehensive list of 
income that is excluded, stating that anything not on that list is 
considered income. Some commenters specified that HUD should consider 
using the IRS exclusion list. Similarly, commenters stated that HUD 
should include in the regulation the current list of forms of income 
other statutes require to be excluded, and HUD should update the list 
through a Federal Register notice, rather than using a Federal Register 
notice to contain the list.
    There were many comments submitted offering suggestions on how HUD 
should exercise its flexibility in excluding certain funds from 
tenants' income. Some suggested that HUD exclude refunds from the EITC 
or even all tax refunds that are intended to alleviate poverty. A 
commenter suggested that HUD should exclude income taxes withheld by 
employers, child tax credits, adoption expense tax credits, or higher 
education tax credits.
    Commenters stated that HUD should exclude all sporadic, 
nonrecurring gifts, with some writing that the statutory definition of 
income specifies ``recurring gifts.'' Commenters also stated that 
requiring tenants to report such amounts would create confusion and 
would put tenants at risk for not reporting a one-time amount. Others 
stated that tracking these amounts would be administratively difficult, 
and that including them would also make SSI and SSDI calculations, 
which are usually simple, more complex. A commenter stated that 
including sporadic funds would trigger many more interim 
reexaminations, and PHAs and owners cannot annualize such one-time 
funds. Other commenters stated that it is unfair to include 
nonrecurring amounts, because they are not consistent forms of income 
for which a family can budget, and tenants would be exposed to 
terminations for windfalls that may be depleted in months. A commenter 
stated that ending the exclusion of an inheritance could result in a 
family being OI and could affect asset calculations for subsequent 
years. A commenter stated, however, that it is administratively 
burdensome to determine if an amount is a sporadic gift, and therefore 
such amounts should be included in income.
    A commenter suggested that as an alternative to fully including 
nonrecurring income, HUD should leave the sporadic income exclusion in 
place, allow rent to increase for a year (but prohibit terminations due 
to this type of income), and specify that previously terminated 
families will, after 30 days, be allowed back with a new income 
calculation; this would allow families with small inheritances to 
maintain support after 30, 60, or 90 days.
    Commenters also wrote on the proposed exclusion for certain State 
Medicaid-managed care system payments to allow families to keep 
individuals with disabilities living at home. Some stated that HUD 
should explicitly exclude income from such payments, going beyond the 
proposed language that merely excludes ``payments.'' Others stated that 
HUD should not limit the exclusion to Medicaid-managed care payments 
but should extend the exclusion to all payments to a family from a 
State agency. Commenters supported the exclusion of ABLE accounts and 
stated that HUD should exclude State-run savings programs for eligible 
persons with disabilities.
    Commenters suggested that HUD should exclude payments into long-
term care insurance. Others stated that HUD should exclude not only 
medical reimbursements, but also reimbursements for disability-related 
expenses. Commenters suggested that HUD should exclude: payments for 
participation in a research study; amounts the household pays in formal 
child support; earnings for full-time students 18 years of age or older 
other than heads of households, co-heads of household, or spouses; 
income of foster adults; and annual income replacement housing ``gap'' 
payments or loan proceeds. Commenters suggested excluding income 
derived from Census employment. Commenters stated that HUD should 
exclude child support income, as such payments are often sporadic and 
are meant to cover the needs of the child.
    Some commenters stated that HUD should exclude all veterans' 
disability benefits. However, another commenter stated that this would 
be too big an exclusion, and HUD should exclude only a percentage of 
such payments.
    A commenter stated that HUD should adjust income exclusions for 
inflation.
    HUD Response: HUD agrees with commenters that it is cleaner and 
clearer to define what is not income, rather than list the almost 
infinite other types of money that should be considered income. HUD 
will continue to evaluate the list of exclusions in the IRS definition 
of income to determine if further regulatory changes are appropriate, 
but due to statutory restrictions on each definition, the lists of 
exclusions will necessarily be at least somewhat different. While 
certain programs, such as HOME and HTF, have statutory authority to 
allow grantees a choice about which definition may be used, i.e., the 
definition of Adjusted Gross Income under the IRS Form 1040 or the 
definition of annual income under Sec.  5.609, the 1937 Act programs do 
not have that same statutory provision. HUD also believes that the 
current practice of using publications in the Federal Register to list 
the types of funds that are excluded from HUD income calculations by 
other statutes is the appropriate way to handle a lengthy list that may 
need fairly regular updating. The most recent Federal Register notice 
can be found at 79 FR 28938, from May 20, 2014.
    Under current policies, certain tax refund payments, such as the 
EITC, are already excluded from income, and this final rule does not 
change that. In addition, PHAs and owners will continue to base income 
determinations on gross income, which includes income before Federal 
and State taxes are paid. Any Federal refund (or advance payment, with 
respect to a refundable credit) is excluded from income by statute (26 
U.S.C. 6409). As far as excluding specific other refundable tax credits 
from States, HUD is including in this final rule language to exclude 
from income amounts directly received by the family as a result of 
State refundable tax credits or State tax refunds at the time they are 
received (Sec.  5.609(b)(24)(iii)).
    In response to the public comments received, this final rule will 
no longer eliminate the exclusion from income of ``temporary, 
nonrecurring, or sporadic'' income. Rather, to address the concerns 
that the language in the existing regulation is unclear, HUD is 
modifying the language to exclude ``nonrecurring'' income received in 
the previous year that will not be repeated in

[[Page 9636]]

Sec.  5.609(b)(24). However, earnings as an independent contractor, day 
laborer, or seasonal worker are explicitly not within the category of 
excluded income. HUD is defining the terms day laborer, independent 
contractor, and seasonal worker in Sec.  5.603 of this final rule. Some 
examples of a seasonal worker include a holiday gift wrapper, 
lifeguard, ballpark vendors, or snowplow driver.
    Additionally, to address other forms of short-term payments that 
would have been excluded under the previous blanket exemption, HUD is 
specifying certain forms of income that are included in the category of 
``nonrecurring'' income that would be excluded from the calculation of 
income: work on the decennial Census (less than 180 days and not 
resulting in a permanent position) (Sec.  5.609(b)(24)(i)); direct 
Federal or State payments or tax credits intended for economic stimulus 
or recovery (Sec.  5.609(b)(24)(ii)); amounts received directly by the 
family as a result of State or Federal refundable tax credits or 
refunds at the time they are received (Sec.  5.609(b)(24)(iii) and 
(iv)); gifts for holidays, birthdays, or special occasions (Sec.  
5.609(b)(24)(v)); in-kind donations from food banks or other 
organizations (Sec.  5.609(b)(24)(vi)); and lump-sum additions to 
assets such as lottery or other contest winnings (Sec.  
5.609(b)(24)(vii)). As discussed above, because there has been some 
confusion, HUD is adding an exclusion in Sec.  5.609(b)(25) to make 
clear HUD's existing practice of excluding civil rights settlements or 
judgments, including settlements or judgments for back pay. The wording 
of this exclusion reflects the fact that resolutions of civil rights 
matters may be structured settlements instead of lump-sum payments. 
With these revisions and additions, HUD intends to exclude from income 
sources of funds that cannot be relied upon to pay for a family's 
housing needs, while providing additional clarity to PHAs and owners 
about what funds should still be considered income, given the broad 
definition contained in HOTMA.
    However, other types of funds that commenters asked to be excluded 
from income will be included in income under these revisions. Income 
from research studies or money received for child support, for example, 
would not fall into any of the exclusions and would be considered 
income under the final rule, unless the family can demonstrate that the 
funds will not be received in the coming year. HUD believes that these 
funds are potentially reliable enough to not automatically assume they 
will not be repeated, and they are funds that can be used to pay for a 
family's housing needs. Therefore, under the broad definition of income 
in HOTMA, these sorts of funds should be included in the calculation of 
income. However, PHAs have the discretion to use permissive deductions 
for these payments based on their policies.
    HUD intends these changes to reduce burden, both on tenant families 
and on PHAs and owners. Determining if a payment is nonrecurring is 
difficult and can be unclear. Using past income consistently will 
ensure that families that do not receive the income regularly will see 
the adjustment in their calculated income at the next interim or annual 
reexamination. For the voucher program, families are not immediately 
terminated if their income increases and they reach zero for the 
housing assistance payment (HAP). Under Sec.  982.455 (which HUD is not 
amending in this final rule), the family's HAP contract does not 
terminate until 180 days after the last payment has been made to the 
owner. Families are not likely to stop receiving assistance due to the 
inclusion of nonrecurring payments. Congress intended to streamline 
these requirements to reduce burden on PHAs and owners. Accepting 
proposed alternatives such as more frequent evaluations or temporary 
exclusions of certain types of income would limit the effect of that 
burden reduction.
    HUD also appreciates comments about certain payments from States to 
allow families to keep individuals with disabilities living at home. If 
a family receives such a payment and it was already excluded from the 
family's income under the current regulation at 24 CFR 5.609(c)(16), 
this final rule does not change that. The proposed rule eliminated the 
requirement that such payments offset the cost of services or 
equipment, and this final rule retains that change. However, HUD is 
expanding Sec.  5.609(b)(19) to cover all payments to a family from a 
State agency, regardless of whether such a payment is through Medicaid, 
in response to public comments that pointed out the wording under the 
proposed rule was too limiting because some States use a source of 
funding other than Medicaid managed care to provide for in-home 
support. In response to these comments, the final rule includes funding 
through any Medicaid structure, not just managed care. Furthermore, it 
also excludes payments from, or authorized by, State agencies in states 
which use a source of funding other than Medicaid to provide for in-
home support. In addition, as discussed previously in this preamble, 
HUD is also clarifying in the final rule that payments may be made 
directly by a State Medicaid agency (including through a managed care 
entity) or other State agency or federal agency, or made by another 
entity authorized by the State Medicaid agency, or other State or 
Federal agency to do so on its behalf to enable a family member with a 
disability to remain living at home. HUD is also adding language in the 
final rule that payments to a member of the assisted family by the 
State Medicaid agency-managed care system or other State or Federal 
agency (or other entities authorized by those agencies to make such 
payments) for caregiving services to enable a family member who has a 
disability to live in the assisted unit are covered payments and would 
be excluded from the family's income.
    HUD will continue to count payments for long-term care insurance as 
an unreimbursed health and medical care expense for purposes of Sec.  
5.611(a)(3)(i), but HUD declines to exclude such payments from the 
family's income. However, Sec.  5.609(b)(6), which is not substantively 
changed by this final rule from the current regulatory text, excludes 
amounts received by the family that are specifically for, or in 
reimbursement of, the cost of health and medical care expenses for any 
family member.
    Many other suggestions from commenters continue to be excluded from 
income under this final rule, such as the earned income of dependent 
full-time students and any income from foster adults and foster 
children. In addition, this final rule retains the language from the 
proposed rule excluding from income replacement housing ``gap'' 
payments in Sec.  5.609(b)(23) and loan proceeds in Sec.  5.609(b)(20). 
However, HUD declines to exclude payments either paid or received as 
child support from the family's income or additional veterans' 
disability payments not already excluded by another provision of Sec.  
5.609(b). PHAs still retain the ability to create permissive deductions 
from income.
    The majority of income exclusions are categorical--funds that fit 
into one of the exclusions, regardless of amount, are excluded from 
income. However, to the extent that an exclusion is for a set dollar 
amount, almost all such amounts are to be adjusted annually according 
to the CPI-W.
B. Returns on Assets
    A commenter stated that HUD should exclude income from assets from 
income, which would decrease labor costs for staff with a minimal 
impact on tenant rent payments. A commenter

[[Page 9637]]

stated that there may be assets an individual cannot access or benefit 
directly from, and therefore those assets should not count as income.
    A commenter stated that the proposed regulation in Sec.  
5.609(b)(1) excluded only imputed returns on assets and asks how actual 
income on assets under $50,000 should be treated.
    HUD Response: The 1937 Act, as amended by HOTMA, specifically 
includes actual income from assets in the definition of income. 
Therefore, any actual income received must be counted as family income. 
However, if the family does not have access to a specific asset, as 
determined by the applicable State law, it should not be counted as 
belonging to the family, because the family would not own the asset as 
required under the definition of ``net family assets'' in Sec.  5.603. 
This includes any funds held in escrow as a result of a family's 
participation in the FSS program, as the family does not have access to 
those funds during their participation in the program.
    In Sec.  5.609(a)(2) of this final rule, HUD is clarifying the 
regulatory language regarding income from assets to help PHAs and 
owners determine what income from assets should be included in the 
family's annual income while also minimizing the burden on PHAs, 
owners, and families. Under Sec.  5.618(b)(1), when all net family 
assets have a combined value of $50,000 or less, the family is to 
include on its self-certification that the combined value of net family 
assets do not exceed $50,000, and the amount of actual income the 
family expects to receive from the family's assets. This amount is to 
be included in the family's income. The PHA or owner may rely on this 
self-certification to serve as verification for both assets and the 
amount of actual income the family expects to receive from such assets.
    When all net family assets have a combined value over $50,000, if 
the PHA or owner can compute the actual income for some assets, but not 
all assets, the PHA or owner must compute the actual income for those 
assets, calculate the imputed income for all remaining assets where the 
actual income cannot be computed, and combine both amounts to determine 
the income for all assets. The PHA or owner must calculate the imputed 
return on the combined value of all net family assets when the net 
family assets are more than $50,000 if no actual income can be computed 
from any of the net family assets.
C. Student Financial Assistance
    Commenters suggested that HUD should exclude the full amount of 
student financial assistance a tenant receives. Others stated that HUD 
should exclude only amounts paid to the educational institution while 
counting everything else as part of annual income.
    Commenters asked for additional information and updated handbook 
guidance on the application of the student rule. Others asked for 
additional clarification on the definition of ``grant-in-aid'' and 
whether recurring gifts from family members to pay tuition and expenses 
would be included or excluded.
    Commenters also stated that HUD should provide clarification on 
whether the financial aid exclusion applies to public housing as well 
as the HCV and PBRA programs.
    A commenter also stated that HUD should ensure its policies do not 
create barriers to education or create undue hardships for part-time 
students.
    HUD Response: In this final rule, HUD codifies a Federally mandated 
income exclusion under section 479B of the Higher Education Act of 1965 
(HEA) (20 U.S.C. 1087uu). Section 5.609(b)(9)(i) of the final rule 
excludes assistance that section 479B of the HEA requires to be 
excluded from a family's income. This provision excludes from income 
assistance to students under Title IV of the HEA and under Bureau of 
Indian Affairs student assistance programs, even assistance in excess 
of tuition and required fees and charges.
    Additionally, in response to the comments on the proposed rule, HUD 
has provided, in Sec.  5.609(b)(9)(ii), additional language to define 
``student financial assistance'' that is not otherwise excluded by the 
Federally mandated income exclusion in Sec.  5.609(b)(9)(i). HUD 
defines ``student financial assistance'' in order to provide greater 
consistency of application. As discussed earlier in this preamble, the 
final rule provides that student financial assistance excluded by Sec.  
5.609(b)(9)(ii) is limited to financial assistance provided for the 
actual covered costs of the student, which are the actual costs of 
tuition, books and supplies (including supplies and equipment to 
support students with learning disabilities or other disabilities), 
room and board, and other fees required and charged to a student by an 
institution of higher education, and for a student who is not the head 
of household or spouse, the reasonable and actual costs of housing 
while attending the institution of higher education and not residing in 
an assisted unit. Student financial assistance must be a grant or 
scholarship received from the Federal government; a State, Tribal, or 
local government; a private foundation registered as a nonprofit; a 
business entity; or an institution of higher education. Furthermore, 
the grant or scholarship must be either expressly for tuition, book, 
supplies, room and board, or other fees required and charged to the 
student by the education institution; expressly to assist a student 
with the costs of higher education; or expressly to assist a student 
who is not the head of household or spouse with the reasonable and 
actual costs of housing while attending the education institution and 
not residing in an assisted unit.
    The final rule states that student financial assistance does not 
include gifts from family or friends. In other words, gifts that are 
recurring and otherwise do not meet the criteria for the income 
exclusion for gifts would be counted as income under the final rule, 
regardless of whether the recipient of the gift is a student. This 
ensures that the application of the student financial assistance 
exclusion is equitable as it does not advantage students with wealthy 
family members or friends over other students.
    The income exclusions in Sec.  5.609(b)(9) apply to all families in 
assisted housing, regardless of whether the family participates in 
public housing or Section 8 programs. However, as discussed in an 
earlier part of this preamble, the application of the income exclusion 
in Sec.  5.609(b)(9)(i) to families in the Section 8 programs may be 
limited when using funding from years when HUD appropriations language 
contains overriding language that requires HUD to include student 
assistance listed in Title IV of the HEA in the calculation of student 
financial assistance in excess of tuition and required costs and fees 
for purposes of determining the income for Section 8 heads of household 
or spouses who are either age 23 and under or without dependent 
children.
    In response to the comment that HUD avoid creating barriers or 
hardships for part-time students, HUD notes that the exclusion in Sec.  
5.609(b)(9)(i) applies to part-time and full-time students equally. 
Additionally, HUD is expanding the student financial assistance 
exclusion in Sec.  5.609(b)(9)(ii) to include part-time as well as 
full-time students. HUD believes that that it is appropriate to exclude 
student financial assistance, as defined in Sec.  5.609(b)(9)(ii), from 
income regardless of whether the student is full or part-time. The 
reason the family is

[[Page 9638]]

receiving the student financial assistance is to assist the family with 
actual educational expenses, and under Sec.  5.609(b)(9)(ii) the 
student financial assistance is limited to costs required and charged 
to the student by the institution of higher education. Consequently, 
the student financial assistance should be excluded from income, 
regardless of whether the student is a full or part-time student. While 
HOTMA specifies that the student financial assistance exclusion is for 
full-time students, HUD is using its authority when defining income to 
provide the same student financial assistance exclusion for part-time 
students.
    A noted elsewhere in this preamble, HUD intends to offer further 
guidance on the student financial aid exclusion under this final rule.
D. Lump-Sum Payments
    Commenters weighed in on whether lump-sum payments should be 
counted as income. A commenter stated that HUD should maintain the 
current exclusion of lump-sum receipts from income because those lump 
sums cannot be annualized for income calculations.
    Commenters stated that lump-sum insurance payments or settlements, 
which are meant to help recipients recover from significant financial 
losses, should not be included as income. Commenters stated that HUD 
should exclude damage awards from civil actions that do not result in 
disability other than such awards that represent lost wages, 
settlements for injuries resulting in disability but for which there is 
no declaration of culpability, or compensation for physical injuries 
recovered in various claims by injured people and their families, 
similar to IRS exemptions. Others stated that HUD should exclude only 
deferred disability lump-sum payments and current exclusions but should 
not add more blanket exemptions.
    Others stated that it is fair to count as income settlements and 
subsequent drawdowns of funds meant to replace income or lump sums 
deposited into a bank account. A commenter said that lump sums 
deposited into trusts should not be counted as income unless it is 
drawn upon.
    A commenter stated that the proposed exemption language would 
require a PHA to determine the specific legal claim under which the 
funds were awarded and would exclude settlements where the defendant 
avoids admitting to causing harm.
    HUD Response: This final rule is including as an exclusion from 
income lump-sum additions to family assets, including lottery or other 
contest winnings, in Sec.  5.609(b)(24)(vii), as a type of nonrecurring 
income. PHAs and owners would consider any actual or imputed returns 
from assets as income at the next applicable income examination, as may 
be required by Sec.  5.609(a)(2). In the case where the lump sum 
addition to assets would lead to imputed income, which is unearned 
income, that increases the family's annual adjusted income by ten 
percent or more, then the addition of the lump sum to the family's 
assets will trigger an immediate interim reexamination of income. This 
reexamination of income must take place as soon as the lump sum is 
added to the family's net family assets unless the addition takes place 
in the last 3 months of family's income certification period and the 
PHA or owner chooses not to conduct the examination.
    In addition, this final rule in Sec.  5.609(b)(5) and (7) retains 
language from the proposed rule that excludes from income insurance 
payments, settlements for personal or property losses, and recoveries 
from civil actions or settlements based on claims of malpractice, 
negligence, or other breach of duty owed to a family member arising out 
of law that resulted in a member of the family becoming a family member 
with a disability. This final rule is silent on requirements regarding 
culpability of the parties, so that is not a factor in whether or not 
the recoveries or settlements are excluded from income. HUD is also 
adding a clarification that the exclusion of settlements for personal 
or property losses covers insurance payments and settlements for 
personal or property losses. Finally, HUD is further clarifying that 
payments made pursuant to the resolution of civil rights matters, which 
have always been excluded from income, are now explicitly listed in new 
Sec.  5.609(b)(25), as explained above.
E. Trust Distributions
    Commenters stated that the proposed regulation exempting certain 
payments from special needs trusts (SNTs) is too narrow. Some stated 
that the regulation unfairly counts as income funds distributed for 
non-medical, quality-of-life expenses, and many tenants with 
disabilities may create SNTs to pay for a variety of future needs, not 
just medical expenses. Commenters stated that the proposed rule could 
result in people with disabilities being forced to choose between 
housing and other necessities, and including all distributions would 
harm the relationships sanctioned by other means-tested programs 
between SNTs and other vendors.
    Another commenter stated that limiting the exemption to only 
irrevocable trusts exclude payments that would qualify for the 
exemption other than the fact that they are in a different type of 
trust or account.
    Commenters stated that requiring PHAs to verify the existence of 
the trusts and to project annual amounts received would be 
administratively burdensome.
    Commenters stated that the plain meaning of the HOTMA amendments is 
that the distributions of the principal of trusts should not be income. 
Others stated that excluding only withdrawals for specific purposes 
would create operational and administrative challenges.
    HUD Response: HOTMA amended the 1937 Act to codify in statute a 
very broad definition of ``income,'' with limited exceptions to what is 
to be considered income. Section 104 of HOTMA, which amended Section 16 
of the 1937 Act, excluded irrevocable trusts and trust funds that are 
not under the control of the family or household from being considered 
part of a family's net family assets. Section 104 of HOTMA amended the 
1937 Act to explicitly require PHAs or owners to consider any income 
distributed from an irrevocable trust fund or a trust fund that is not 
under the control of a family or household member as annual income to 
the family unless the income distributed was used to pay for the health 
and medical care expenses of a minor. In considering the effect of the 
language, HUD recognizes that the corpus (or principal) of a trust is 
not new money coming in for the family. Therefore, HUD is clarifying 
Sec.  5.609(b)(2) to exclude from a family's income any distributions 
of a trust's principal, regardless of the form of the trust, because 
this is not income for the family.
    As a general rule, PHAs and owners must count any distributions of 
income from an irrevocable trust or a trust not under the control of 
the family (e.g., distributions of earned interest) as income to the 
family. However, this general rule does not apply to distributions used 
to pay the health and medical care expenses of a minor. Distributions, 
even of trust income, are not considered part of family income if used 
for this purpose.
    HUD notes that these rules apply equally to irrevocable SNTs or 
revocable SNTs not under the control of the family or household. HUD 
recognizes that individuals with disabilities rely on SNT distributions 
to pay for a variety of

[[Page 9639]]

needs. However, HUD has no discretion in applying the statutory 
requirements surrounding income distributions from irrevocable trusts 
and trusts held outside of the control of the family or household.
    Finally, per the amendments made by Section 104 of HOTMA, revocable 
trusts under control of the family count as an asset under the 
definition of ``net family assets'' in Sec.  5.603. Only trusts that 
are irrevocable or not under the control of a family or household 
member are excluded from a family's net family assets. Since revocable 
trusts under the control of the family or household are considered part 
of the net family assets, the final rule clarifies at Sec.  
5.609(b)(2)(ii) that distributions from these trusts are not used to 
calculate annual income. Instead, the PHA or owner must count all 
actual returns (e.g., interest earned) from the trust as income or, if 
the trust has no actual returns and the total value of the combined net 
family assets exceeds $50,000 (as that amount is updated for 
inflation), as imputed returns, as applicable, under Sec.  5.609(a)(2).
F. Withdrawals From Assets
    Some commenters stated that HUD should count as income any amount 
drawn against a payment from a bank or trust fund, including insurance 
payments or settlements. A commenter stated that the proposed 
regulations regarding distributions from trusts are complex, prone to 
error, and subject to subjective interpretations, and would privilege 
or penalize certain forms of income over other comparable incomes, 
often hinging on details such as whether or not there was a lawsuit, 
the type of account into which the funds were deposited, and whether 
the expenses are for a minor, none of which seem relevant to the 
availability of the funds to the family.
    Others stated that HUD should exclude from income all withdrawals 
from insurance payments or settlements. A commenter stated that 
withdrawals from existing assets included in asset determinations 
should not be considered income; only ``new money'' to the family is 
income. A commenter stated that limiting the exclusion to disability-
related withdrawals specifically related to the settlement would lead 
to confusion about what counts and what documentation is required, 
making things more complex and time-consuming, in direct opposition to 
the purpose of HOTMA. Others stated that insurance settlements are 
meant to compensate the family for a loss and verifying the 
circumstances around the payment or settlement would greatly add 
administrative burden to PHAs and owners. A commenter stated that the 
exclusion should apply regardless of whether the payment or settlement 
is related to a minor.
    A commenter stated that both the lump sum and any interest earned 
from the lump sum should be counted as income if the sum is placed in a 
bank account.
    Commenters stated that withdrawals of principal from accounts 
should not be counted as income if the original source is excluded from 
income. However, other commenters stated that including withdrawals as 
income in specific circumstances would increase the administrative 
burden on staff and residents to allow PHAs and owners to determine 
whether a withdrawal is included in the exclusion or not.
    With respect to SNTs, commenters stated that all withdrawals from 
such trusts established for tenants with disabilities should be 
excluded from income. A commenter stated that all funds pulled from 
irrevocable trusts should be counted as income, as the trusts provide 
documentation on amounts distributed, but it would be difficult or 
impossible to track or prove the purpose of the distribution.
    HUD Response: Withdrawals of a family's assets (e.g., money 
deposited in a bank account under the name of a family member) are not 
considered new income to the family or part of a family's annual income 
unless the family's assets are held in a trust that is not revocable by 
or under the control of a member of the family or household. In those 
rare instances, PHAs or owners must consider income that is distributed 
to a family member as part of a family's annual income unless the 
withdrawal is for the health and medical care expenses of a minor (as 
discussed above).
    However, unless the amount meets one of the exceptions in Sec.  
5.603, i.e., is a specific type of recovery or placed in a specific 
type of trust, the money in the bank account would still count as a 
family asset. Therefore, any actual returns (such as interest) on those 
funds will be considered family income, or barring any actual returns, 
if the net family assets exceed $50,000 (as adjusted annually by CPI-
W), any imputed income will be considered family income.
    Please see the discussion under ``Trust Distributions,'' above, for 
a discussion of the treatment of distributions of income or principal 
from trusts.

Deductions From Income

A. Attendants Deduction
    Commenters stated that HUD should restore the deduction of 
attendant care and auxiliary apparatus expenses in excess of the 
earnings of the family member who can work because of such expenses, as 
the amendments in HOTMA do not require removing the deduction, and the 
deductions may pay for themselves over time by allowing higher 
earnings.
    HUD Response: These deductions are currently located in Sec.  
5.611. There is no change from the current regulations in this final 
rule other than the statutory change from 3 to 10 percent of annual 
income for the threshold that applies to unreimbursed health and 
medical care expenses and reasonable attendant care and auxiliary 
apparatus deductions.
B. Child Care Deduction
    Commenters expressed concern that increasing the threshold for 
deductions will make it more difficult for families. Commenters 
suggested that expenses should qualify as a deduction at 4 percent of a 
family's income. Another commenter stated that child care deductions 
should be treated the same way as medical deductions, with a reasonable 
threshold before the allowance applies.
    Commenters asked HUD to clarify that child care deductions are 
available year-round to a household with seasonal employment or 
education, otherwise PHAs or owners may limit the deduction only to 
months when the family member is working or taking classes.
    HUD Response: While the 1937 Act, as amended by HOTMA, sets a 
threshold for health and medical care and reasonable attendant care and 
auxiliary apparatus expenses deductions, it does not do so for child 
care deductions. Rather, the statute requires only that the expenses be 
reasonable and necessary to enable a member of the family to be 
employed or attend classes. Therefore, requiring a threshold of 
expenses is inconsistent with the statute.
    HUD will consider providing additional guidance clarifying how to 
determine what expenses are deductible and how to determine such 
amounts.
C. Deductions for Elderly Families or Families With a Person With 
Disabilities
    Commenters supported increasing the deduction for elderly families 
or families with persons with disabilities. Some asked HUD to consider 
a more realistic increase, such as up to $750.

[[Page 9640]]

    However, some commenters stated that HUD has not done the study 
required by Section 102(i) of HOTMA, and HUD should defer any 
rulemaking until the report is completed and submitted to Congress.
    HUD Response: Because the HOTMA statute mandates the deduction of 
$525, HUD cannot change it. HUD will conduct the study required by 
Section 102(i) of HOTMA 12 months after this final rule is effective, 
which will allow HUD to determine the effects of the new deductions as 
mandated by the statute.
D. Inflation
    Commenters stated that adjusting the annual dependent deduction by 
inflation would create a hardship on PHAs, because HUD does not specify 
the inflation factor.
    HUD Response: HUD has specified that the CPI-W will be the 
inflation factor used to adjust the deduction amounts for elderly and 
disabled families and for minors, students, and persons with 
disabilities. In accordance with HOTMA, HUD will annually recalculate 
these deductions and make the revised amounts available to PHAs. HOTMA 
requires that HUD recalculate the deductions by rounding the inflated 
amount to the next lowest multiple of $25.
E. Health and Medical Care and Reasonable Attendant Care and Auxiliary 
Apparatus Expense Deductions
    Some commenters supported raising the threshold for medical 
deductions, as it would reduce burdens on PHA and owner staff. Others 
opposed the increase. Some stated that it would eliminate the deduction 
for many households or would create an untenable situation for families 
already facing financial challenges due to health or disability. A 
commenter stated that the higher threshold would result in PHAs having 
to process many hardship exemptions.
    Commenters expressed concern that increasing the threshold for 
deductions will make it more difficult for families. Commenters 
suggested that expenses should qualify as a deduction at 4 percent of a 
family's income. Others stated that increasing the threshold from 3 
percent to 10 percent at one time is not fair to those who need the 
medical deduction; instead, the commenters suggested that HUD stagger 
the increase, either by relating increases only to inflation or doing a 
set amount each year for 3 to 7 years. Others suggested creating a 
maximum rent increase every year.
    Some commenters had specific suggestions on how to ease the 
difficulties on families. One suggested a threshold of 6.5 percent. 
Another stated that HUD should make the current medical allowance 
available to all households, regardless of age or disability status.
    HUD Response: HUD agrees that raising the threshold will reduce 
burdens on staff of PHAs and owners. In addition, HUD believes that the 
increased deductions for elderly families or families with a person 
with disabilities may help to offset the increased threshold for 
deductions due to health and medical care and reasonable attendant care 
and auxiliary apparatus expenses. Families still experiencing a 
hardship may be eligible for hardship exemptions.
    Deductions for health and medical care expenses for elderly or 
disabled families are statutorily mandated, including the threshold 
that must generally be met for a family to receive the deductions. 
Therefore, HUD may not change the deduction to a different percent, as 
some commenters have requested. However, PHAs may adopt additional 
deductions from annual income for all families as a permissive 
deduction, though they will not be eligible for an increase in subsidy 
amounts to cover the costs of such permissive deductions, as discussed 
further later in this preamble. HUD has also provided hardship 
exemptions in accordance with HOTMA's requirements, thereby providing 
relief to affected families.
F. Permissive Deductions
    Some commenters were opposed to the use of permissive deductions. 
Some stated that they could result in disparate impacts, such as if a 
PHA creates a permissive deduction only for earned income, which would 
result in a discriminatory effect on certain protected classes with 
unearned income, such as persons with disabilities. Some stated that 
additional deductions, and proving such deductions did not materially 
increase subsidy, would be burdensome to the PHAs. One commenter 
requested that subsidy be increased if additional deductions are 
required.
    Commenters stated that HUD should allow PHAs to adopt additional 
deductions based on the needs of their communities. One commenter 
stated that the standard for what is permitted should be broad enough 
not to discourage PHAs from exploring innovative solutions to the goals 
of HUD, PHA, and the community. A commenter stated that extending 
permissive deductions to Section 8 programs would add equity between 
programs and would reduce the complexity of administering different 
programs.
    Commenters wrote that HUD should find ways to encourage the use of 
permissive deductions to encourage work. One stated that the statutory 
limitation on material increases in subsidy was a missed opportunity to 
provide such a work incentive. Others supported the idea of using 
permissive deductions to encourage tenants to work but stated that 
funding support from HUD is needed to make it work. A commenter also 
stated that even if HUD permits some subsidies for work incentives, it 
should still be left to PHAs to decide whether to implement them.
    Commenters also wrote about allowing additional subsidy. Some 
stated that HUD should not allow additional subsidy to cover permissive 
deductions. Other commenters stated that requiring PHAs to bear all 
costs will result in very few permissive deductions being used and may 
even disincentivize PHAs from providing necessary deductions for 
residents. A commenter stated that allowing permissive deductions as 
described in the proposed rule could result in reduced funding 
resources for all agencies in the medium term. A commenter stated that 
the statute does allow some added subsidy costs because it only 
prohibits ``material'' increases.
    Commenters spoke to how HUD proposed to define whether an increase 
in subsidy is ``material.'' A commenter stated that HUD should define 
``materially increase Federal expenditures'' in such a way as to allow 
PHAs to create an earned income deduction, excluding 15 percent of 
earned income to remove disincentives for work and creating parity 
between families with earned income and families with fixed-income 
sources. Another suggested defining materially at 5 percent, as it is a 
figure HUD uses elsewhere. A commenter stated that HUD should clearly 
communicate the standard, and that it should be measured at a PHA's 
portfolio level, rather than at the family level. A commenter suggested 
that it may be more administratively burdensome for PHAs to demonstrate 
that there is no increased subsidy cost than it is worth it to the PHA 
to provide the additional deduction.
    HUD Response: Amendments made by HOTMA explicitly permit PHAs to 
adopt permissive deductions, so PHAs may do so for public housing and 
for the HCV program and moderate rehabilitation programs (including the

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moderate rehabilitation Single-Room Occupancy (SRO) program). 
Permissive deductions were already allowed in the regulations for 
public housing, so it is not new for that program. This discretion is 
only available for PHAs, not for non-PHA owners. When establishing 
permissive deductions, PHAs are still subject to Federal 
nondiscrimination requirements, including the obligation to provide 
reasonable accommodations that may be necessary for households with 
family members with disabilities.
    PHAs can respond to community needs by using a wide range of 
permissive deductions, including permissive deductions to provide 
incentives to work. However, given the statutory requirement that 
permissive deductions may not materially increase Federal expenditures, 
HUD does not want to reduce funding for all PHAs by factoring in 
permissive deductions prior to allocating PHA Operating Funds. 
Consequently, the final rule provides that a PHA that adopts such 
deductions for public housing will not be eligible for an increase in 
Capital Fund and Operating Fund formula grants and the costs of 
permissive deductions must be covered by each individual PHA rather 
than by HUD. Likewise, for the HCV, moderate rehabilitation, and 
moderate rehabilitation SRO programs, the final rule provides that the 
subsidy costs attributable to permissive deductions will not be taken 
into consideration in determining the PHA's HCV renewal funding or 
moderate rehabilitation funding.

Assets

A. Cap
    Commenters expressed support for there being a cap on assets held 
by families receiving assistance under the 1937 Act. Some asked that 
the cap be raised to $250,000, because the cap of $100,000 may make 
elderly families with retirement savings ineligible for assistance. 
Commenters also requested that HUD permit PHAs to defer termination of 
families that are over the asset cap until the next annual 
reexamination to allow the family to demonstrate that the owner of the 
asset is selling the asset or is moving out of the household.
    HUD Response: HUD appreciates the public comments. Under the new 
definition of Net family assets in both the proposed rule and this 
final rule, in Sec.  5.603(b), the value of any retirement accounts 
recognized as such by the IRS are not included in net family assets. In 
addition, pursuant to Sec.  5.618(c), PHAs and owners are given 
discretion in enforcing the asset limitation on eligibility for 
assistance at reexamination in Sec.  5.618(a). HUD will issue 
additional guidance on the use of this discretionary authority. PHAs 
and owners are reminded that they may not create polices, criteria, or 
methods of administration that result in discrimination against 
individuals with protected characteristics under fair housing and civil 
rights laws and regulations. As such, PHAs and owners may need to 
provide reasonable accommodations to policies established under this 
provision to ensure equal access to their programs and activities by 
individuals with disabilities.
B. Exclusions
    While some commenters agreed with the exclusion of IRAs from family 
assets, commenters also requested additional exclusions. Some suggested 
that HUD exclude disability-related durable medical equipment (such as 
electronic wheelchairs, lifts, or disability-adapted vehicles). 
Commenters stated that HUD should exclude any assets that are 
inaccessible to the tenants and provide no income. Commenters suggested 
that HUD exclude inheritances, or insurance payments, or amounts 
recovered for personal or property losses.
    Commenters also stated that HUD is required to exclude equity in 
units bought under public housing homeownership programs when 
determining a family's eligibility for assistance. Others stated that 
HUD should exclude homes with negative equity.
    HUD Response: Medical equipment such as described by commenters 
would count as necessary personal property, and therefore would be 
excluded from assets under Sec.  5.603(b). If the household does not 
have control of a trust fund asset or the effective legal authority to 
sell real property, both as defined by the applicable State or local 
law, neither the fund nor the real property will be counted as part of 
the net family assets. Irrespective of whether an asset generates 
income, if the asset is not excluded, then the asset must be included 
in net family asset calculations.
    HUD believes that insurance payments should continue to be counted 
as an asset. The 1937 Act, as amended by HOTMA, has a provision that a 
civil recovery or settlement for claims of malpractice, negligence, or 
other breach of duty owed to a family member arising out of law that 
resulted in a family member becoming disabled is excluded from net 
family assets. Given the specificity of the statutory language, HUD 
believes the intent of the statute is that other payments or 
settlements are to be counted as assets.
    Under the amended 1937 Act, families that have a present ownership 
interest in, a legal right to reside in, and the legal authority to 
sell real property that is suitable for occupancy for the family 
(unless the person is a victim of domestic violence or if the family is 
offering the property for sale) are not eligible to receive rental 
assistance. A present ownership interest would include any title to a 
home, any ownership of membership shares in a cooperative, and any 
lease or other right to occupy a home or cooperative, all as defined by 
the State or local laws of the jurisdiction where the property is 
located. It would not include the right to purchase title to a 
residence under a lease-purchase agreement. In addition, the statutory 
language excludes from net family assets (1) real property for which 
the family does not have the effective legal authority to sell in the 
jurisdiction in which the property is located and (2) equity in 
property for which the family is currently receiving homeownership 
assistance through the HCV program from a PHA. These exclusions are 
contained in the definition of Net family assets in Sec.  5.603(b). HUD 
will provide PHAs and owners additional guidance on how to calculate 
the value of real property with negative equity for those families who 
meet one of the exemption categories.
C. Inclusions in Assets
    Commenters asked HUD for clear and comprehensive guidelines on what 
constitutes ``net family assets.'' Commenters suggested that HUD 
specify in the definition of assets that it includes lump-sum items 
like insurance payments, settlements, and inheritances to prevent PHAs 
and owners from counting such funds as income.
    Commenters requested clear guidance on the difference in treatment 
between whole life insurance and term life insurance, as community-
based service providers experience barriers in getting vulnerable 
individuals housed due to life insurance issues.
    HUD Response: Given that there are many categories of funds that 
would be considered assets and should be included in asset 
calculations, HUD does not believe that the regulation should specify 
every form of asset. Instead, any type of asset not specifically 
excluded should be included in the calculation of net family assets. 
However, HUD believes that guidance may be an appropriate vehicle for 
providing additional information on

[[Page 9642]]

what can constitute an asset and how to calculate its value.
    This final rule does not change current practice regarding the 
treatment of different forms of life insurance. The cash value of an 
insurance policy is considered an asset, but the face value of any 
policy is not. Similarly, the final rule does not change current 
practices regarding the valuation of any form of real property owned by 
a family (e.g., commercial real property) for purposes of calculating 
net family assets. The value of real property included in net family 
assets is the net cash value after deducting reasonable cost that would 
be incurred in disposing of the family's real property, which would 
include repayment of any mortgage debt or other monetary liens on the 
real property.
D. Personal Property
    Some commenters supported the proposed exclusion of personal 
property valued at $50,000 or less from assets. A commenter stated that 
allowing PHAs to determine whether specific items are assets allows too 
much ``fluidity'' in making income determinations. In addition, 
commenters stated that the proposal aligns with the asset self-
certification threshold, reducing the verification burden on staff.
    Other commenters objected to the proposed exclusion of personal 
property from the determination of assets.
    Commenters stated that HUD should define ``necessary items'' to 
prevent confusion of what they are, as PHAs and owners determine 
whether families are over the income and asset caps. Some commenters 
suggested that HUD include a non-exclusive list of necessary items in 
guidance.
    Commenters suggested items to include in the list of ``necessary 
items.'' Some stated that the term should include items like home 
furniture or cars that are necessary for work or getting children to 
school. Commenters asked whether all cars would be considered 
``necessary'' and whether the term ``necessary'' meant that there were, 
by implication, items that would be considered ``non-necessary'' (such 
as jewelry) that would then have to be included as assets. Some 
commenters suggested that HUD define ``necessary'' to include cars (or 
other forms of personal transportation), medical equipment, and other 
items essential for daily living (including furniture), education, and 
employment.
    Some commenters also stated that HUD should not limit the exception 
to ``necessary items.'' Commenters stated that requiring PHAs or owners 
to determine the value of items like collectibles or jewelry, which may 
not be considered ``necessary,'' would be burdensome because values may 
differ based on local market conditions. Other commenters stated that 
it would be administratively burdensome to determine what items were 
``necessary'' and what items would be included as an asset.
    Commenters also stated that HUD should make it explicit that the 
PHA has the right to establish different levels of personal property to 
exclude from assets, in line with PHAs' ability to exercise flexibility 
in enforcement on asset restrictions or to establish other exceptions. 
Other commenters asked for clarity on whether the $50,000 cap is per 
item or total value of necessary items.
    Commenters suggested that HUD should allow families to self-certify 
that their personal property is valued under $50,000, eliminating the 
burdensome requirement that PHAs itemize such property. Commenters 
stated that HUD should not require PHAs to document the value of 
personal property that is excluded from the calculation of net family 
assets.
    HUD Response: Determining what is a ``necessary item'' for personal 
property is a highly fact-specific determination, and therefore 
creating a list in the regulation would be inappropriate. However, HUD 
will issue additional guidance for PHAs, owners, and grantees to 
determine whether an item is a ``necessary item of personal property'' 
or whether the value of the item should be included in calculating the 
value of all non-necessary items of personal property for the $50,000 
exclusion. In this final rule, in paragraphs (3)(i) and (ii) of the 
definition of Net family assets in Sec.  5.603(b), HUD is clarifying 
that all necessary items are excluded from any calculations of personal 
property value; items of personal property not counted as ``necessary 
items'' must have a combined total value of $50,000 or less (as such 
amount is adjusted by CPI-W annually) for the PHA, owner, or grantee to 
exclude the property value from the family's assets.
    In addition, the regulation, at Sec.  5.618(b), allows PHAs, 
owners, grantees, and responsible entities to determine the worth of a 
family's personal property by accepting a family's self-certification 
that their property falls under the cap. This will reduce the burden on 
PHAs and owners to determine the value of any specific item.
E. Real Property
    Many commenters reacted to HUD's proposed implementation of the new 
prohibition imposed by HOTMA on providing rental assistance to families 
with a present ownership interest in real property that is suitable for 
occupancy. Some commenters stated that HUD should not prohibit families 
that own real property from being assisted, as the family may not be 
able to afford upkeep, insurance, or taxes on the property. Others 
suggested that HUD could allow families to keep any properties worth 
less than $50,000 or stated that HUD could exclude equity in a property 
for which a family receives homeownership assistance or units that were 
purchased under public housing homeownership programs. Commenters also 
stated that HUD should ensure that PHAs have discretion in whether or 
not to enforce the prohibition on real property ownership. Commenters 
asked HUD to provide additional clarity on how PHAs and owners should 
approach properties that the family is renting out.
    Commenters asked HUD to provide additional clarity on what 
documentation a family must provide in order to qualify for an 
exception to the prohibition. Commenters stated that leaving it up to a 
PHA to determine what is acceptable documentation would invite 
litigation and suggested that HUD use the existing Multifamily 
Occupancy Handbook (4350.3) to allow for owners and PHAs to collect 
information in a broad range of formats. Other commenters stated that 
HUD should provide guidance for PHAs and owners, but not prescribe 
standards for determining suitability of the property. Some commenters 
suggested that families should be allowed to self-certify that they 
qualify for an exception. Commenters suggested that HUD could establish 
a hierarchy of acceptable verification.
    Commenters also asked how PHAs and owners are to determine whether 
a family owns real property. Commenters suggested that families should 
be allowed to self-certify that they do not own property, stating that 
it would be counterproductive to require more. Some commenters stated 
that requiring PHAs to establish ownership relationships would be 
extremely onerous, and HUD should defer rulemaking on this issue until 
HUD can issue clear and comprehensive guidelines. Some commenters 
suggested that local auditor websites could be a way to determine 
ownership interests in real property.
    Commenters also responded to the proposed list of types of 
ownership interests a family may have without affecting the family's 
eligibility to receive assistance. Some commenters stated that there 
are multiple forms of

[[Page 9643]]

ownership that may be particular to a certain State and suggested that 
HUD expand the list of exceptions in the rule. Commenters stated that 
the burden of proof needed to demonstrate ownership will make this 
provision hard to implement; instead, the commenters stated that the 
question should be whether the family legally owns the home and has the 
ability to liquidate.
    Commenters made suggestions regarding determining whether a 
property is suitable for the family's occupancy. Some commenters stated 
that allowing exceptions to the prohibition on owning real property 
would cause PHAs to be out of compliance with the intention of the 
proposed rule. Other commenters stated that suitability of the property 
should not be limited to circumstances around a physical disability, as 
there may be circumstances where disability-related needs for a family 
may not be related to a physical disability. Commenters also stated 
that it would be beyond the expertise of owners or PHAs to make 
determinations of whether a property owned today will meet the needs of 
an older adult as they seek to age in place in their community.
    HUD Response: When it comes to real property, HUD is bound by the 
terms of the amendments made by HOTMA, which prohibit families from 
receiving rental assistance if they have a present ownership in real 
property in which they have the legal right to reside and the effective 
legal authority to sell, unless such property is not suitable for 
occupancy by the family as a residence, the family is receiving HCV 
homeownership assistance for the property, the owner of the property is 
a victim of domestic violence, or the family is selling the property. 
These are statutory restrictions. Based on certain factual 
circumstances, as described above, though, PHAs and owners have 
discretion when enforcing the restrictions.
    However, the documentation to determine whether a family qualifies 
for one of the real property exemptions can vary widely according to 
the family's circumstances or what may be available. Therefore, 
specifying in the rule what documentation a PHA or owner may accept 
would be inappropriate. HUD will issue additional guidance with details 
on what forms of documentation may be appropriate under different 
circumstances, including how a PHA or owner may determine whether a 
family has a present ownership interest in or the effective legal 
authority to sell or whether the property is suitable for the family to 
occupy as a residence.
    HUD also notes that the regulatory language regarding suitability 
due to disability includes unsuitability due to physical needs, but it 
does not exclude other, non-physical reasons why a property may not be 
suitable for a family member with a disability. HUD agrees that there 
may be various circumstances where a property may not be suitable for 
occupancy for a household with a member with disabilities. Examples 
include, but are not limited to, disability-related need for additional 
bedrooms, proximity to accessible transportation, etc.
    Finally, Sec.  5.618 provides that PHAs and owners can determine 
that a family does not have any present ownership interest in any real 
property based on a certification by the family. By statute, the family 
certification only addresses whether or not the family has any current 
ownership interest in any real property. Thus, PHAs and owners must be 
aware that this certification only addresses one aspect of the general 
real property ownership limitation. A PHA and owner must still inquire 
whether or not the family has a present ownership interest in, a legal 
right to reside in, and the effective legal authority to sell real 
property that is suitable for occupancy by the family as a residence. 
For instance, a PHA or owner could use a form that includes both the 
certification as well as questions for the family to answer regarding 
the other restrictions.
F. Residential Real Property (Domestic Violence)
    Commenters supported the idea that HUD would also allow exceptions 
to the prohibition on owning real properties for survivors of domestic 
violence, dating violence, sexual assault, or stalking. Commenters 
stated that HUD should follow the procedures already established under 
the Violence Against Women Act (VAWA), including the documentation 
requirements and ability of survivors to self-certify their 
eligibility.
    Some commenters stated that HUD should modify its existing forms 
(Forms 5380 and 5382) to allow families to identify the location of 
real property and to document their exemption from the real property 
prohibition due to being a survivor.
    Other commenters stated that HUD should do a separate rulemaking 
for domestic violence survivors, perhaps waiting until after VAWA is 
reauthorized.
    HUD Response: HUD appreciates the commenters indicating support for 
the exceptions to the prohibition on owning real properties for 
survivors of domestic violence, dating violence, sexual assault, or 
stalking. As indicated in the regulation, the real property restriction 
does not apply to any person who is a victim of domestic violence, 
dating violence, sexual assault, or stalking. For example, if such 
person has an ownership interest that otherwise would make the family 
ineligible, the prohibition will not apply. Additionally, HUD 
interprets this provision such that if a minor child within the family 
is a victim of domestic violence, dating violence, sexual assault, or 
stalking, an ownership interest held by that child's parent or guardian 
within the household will not trigger the prohibition. HUD agrees with 
commenters that the confidentiality requirements and restrictions on 
documentation requests associated with protections under VAWA should be 
extended to protect families seeking the domestic violence-related 
exception to the real property restriction in this rule. Therefore, 
this final rule adds language to Sec.  5.618 to require the PHA or 
owner to comply with the confidentiality requirements and restrictions 
on requesting documentation under Sec.  5.2007 whenever a family asks 
for or about an exception to the real property restriction because a 
family member is a victim of domestic violence, dating violence, sexual 
assault, or stalking.
    HUD also appreciates the commenters' concerns with HUD's VAWA 
forms. In accordance with the Paperwork Reduction Act, HUD will at a 
later date update its VAWA forms and the relevant information 
collection requests. Rulemaking related to VAWA reauthorization is 
beyond the scope of this HOTMA final rule, and HUD has determined that 
this final rule is the appropriate vehicle to implement the exception 
to the prohibition on owning real properties for survivors of domestic 
violence, dating violence, sexual assault, or stalking.
G. Value of Assets
    Many commenters spoke to how PHAs and owners should determine the 
value of assets of a family. Some stated that assets should be given 
the value assigned by the local tax assessor and applying inflation 
rates would be unfair and too burdensome to tenants. Other comments 
suggested that residents should be allowed to report the value of their 
assets, without requiring PHAs to do further research.
    Commenters said that there should be a way to avoid itemization and 
valuation of assets and allowing self-certification that the family 
assets are below $50,000 would reduce the burden on staff and tenants. 
Commenters further stated that PHAs and owners

[[Page 9644]]

should be allowed to accept self-certification that net family assets 
are below the $100,000 limit for eligibility for assistance.
    Commenters stated that allowing families to self-certify that their 
assets are under $50,000 is an ``extreme'' jump from the current self-
certification amount of $5,000.
    Commenters stated that HUD should not require PHAs to verify all 
assets triennially, since the income from assets is negligible in most 
cases and verifying and calculating assets requires a great deal of 
staff time.
    Commenters also stated that HUD should round valuation figures down 
to the nearest $1,000 for assets so that staff have round numbers to 
use when applying inflation adjustments.
    HUD Response: The amendments made by HOTMA allow families to self-
certify when their combined net family assets are $50,000 or less, with 
that amount adjusted annually by an inflationary factor. In this final 
rule, HUD specifies, in Sec.  5.618(b), that the inflation factor used 
to adjust the self-certification cap of $50,000 annually will be the 
CPI-W. HUD does not believe that it is permitted to round asset 
valuation amounts, given the definition of assets created by HOTMA as 
the net cash value of all assets after deducting reasonable costs for 
disposing of an asset.
    However, it is statutory that PHAs and owners are required to 
redetermine a family's income on an annual or triennial basis, and 
those income reexaminations include valuation and returns of assets.

Hardships

    While commenters submitted comments that covered a range of topics 
on hardships in general in HUD programs, most of the comments focused 
on the hardship provisions around the new deductions for healthcare and 
child care expenses.
A. General
    Some commenters stated that it was premature for HUD to be issuing 
this rule. Commenters stated that HUD has not submitted the 
certification to Congress as required by Section 102(b) of HOTMA. 
Others stated that Congress contemplated more than normal notice-and-
comment rulemaking regarding hardship exceptions. Commenters also 
stated that HUD should defer rulemaking on hardships for deductions 
until HUD can perform the study of the impact of HOTMA on tenants.
    A commenter stated that there should not be hardship exemptions to 
rent requirements because the reduction in deductions for participants 
will be partially offset by the increase in the standard elderly/
disabled deduction. A commenter also pointed out that having a 
different threshold for receiving deductions for some participants will 
be confusing for staff members and software providers, increasing the 
chance for error.
    Commenters stated that placing the burden of determining whether a 
family should get a hardship on the PHA or owner would require 
residents to share personal information, and it would require owners to 
make determinations and subjective judgments based on deep levels of 
financial considerations, like credit card debt and budgeting 
priorities. Others stated that requiring families to demonstrate that 
the hardship is due to the decrease in deduction places too great a 
burden on the families, even potentially creating a litigation risk for 
PHAs because they are making subjective decisions. A commenter stated 
that allowing hardship exemptions when someone is attending school or 
is out of work would add burden and extra work to the PHA.
    A commenter stated that HUD should adopt hardship exemptions for 
families consistently in all HUD-funded programs.
    HUD Response: HUD does not believe that it is too early to issue 
this rule. In addition to receiving input from HHS during an 
interagency clearance process, HUD received input from a wide array of 
interested parties as part of the public comment process for the 
proposed rule, including: individuals; PHAs; public housing and tenant 
interest groups; health advocates; and legal services organizations. In 
addition, HUD cannot perform the study of the impact of the changes 
made by HOTMA on tenants until all the changes are in place.
    The 1937 Act, as it existed both before and after HOTMA, requires 
that tenants who are facing financial difficulties receive hardship 
exemptions for the amount of rent that they owe. In 2019, HUD submitted 
the certification pursuant to Section 102(b) of HOTMA that hardship and 
tenant protections in the 1937 Act, as amended by HOTMA, are being 
fully provided to tenants.
    Determining whether a family is facing a financial difficulty, and 
what is causing that financial difficulty, is a very fact-specific 
determination, and therefore it is a determination best left up to an 
individual PHA or owner. HUD reminds PHAs and owners, however, that in 
undertaking the fact-specific determination relating to a family's 
financial difficulty, they must comply with Federal fair housing and 
nondiscrimination requirements, including but not limited to Title VI 
of the Civil Rights Act, Section 504, the Fair Housing Act, and the 
Americans with Disabilities Act, as applicable, which may include 
providing reasonable accommodations. However, the HOTMA amendments do 
require that HUD, by regulation, specifically provide hardship 
exemptions when the financial difficulty faced by the family is due to 
specific circumstances around child care or health and medical care and 
reasonable attendant care and auxiliary apparatus expenses. For the 
child care deduction, it is necessary, in those circumstances, for PHAs 
and owners to perform detailed analyses of what is causing the family's 
inability to pay rent.
HUD does agree that it would be beneficial for hardships to apply 
across HUD programs as much as possible, so, as discussed below, HUD is 
revising Sec.  5.601 to be sure that all of Sec.  5.611, including the 
hardship provisions in paragraphs (c) through (e), apply to the other 
HUD programs listed in Sec.  5.601 that use the determination of 
adjusted income in Sec.  5.611.
B. 202/811
    Commenters stated that it is unclear why there were no hardship 
provisions provided for residents in Section 202/811 properties.
    HUD Response: HUD agrees with the commenters. Therefore, in this 
final rule, HUD has revised Sec.  5.601 to be sure that Sec.  5.611(a) 
and (c) through (e) apply to the Section 202 and Section 811 programs.
C. Child Care
    Commenters stated that the hardship exemption as proposed for the 
child care deduction is appropriate. Others stated that HUD should 
allow PHAs to establish a time limit for families to receive child care 
exemptions in their hardship policy. A commenter also stated that it is 
unclear if the proposed rule would allow the child care hardship 
exemption to continue after the next regular reexamination if the PHA 
finds that the family's hardship still exists.
    HUD Response: HUD agrees that the hardship exemption language for 
the child care deduction could be clarified and is revising the 
language regarding the duration of the hardship exemption. Therefore, 
in Sec.  5.611(d) of this final rule, HUD is adding language to the 
child care hardship exemption to specify that the resulting alternative 
adjusted income calculation must remain in place for a period of up to 
90 days. The final rule further provides that

[[Page 9645]]

responsible entities, at their discretion, may extend such hardship 
exemptions for additional 90-day periods based on family circumstances.
D. Hardship Criteria
    Commenters stated that HUD should set the criteria for what 
constitutes a hardship and what the relief should be, rather than 
leaving it up to PHAs and owners. Some stated that allowing local 
decisions would create inconsistency and would create demand for 
certain apartments with more relaxed policies. Others stated that 
allowing discretion would create an atmosphere for litigation and the 
resulting variation would make it more difficult to audit and monitor 
PHAs and owners. A commenter stated that without set parameters for 
what is a hardship, the added research, paperwork, and time required 
for a PHA to determine the accuracy of a hardship claim would not fit 
within the Paperwork Reduction Act guidelines.
    A commenter suggested that HUD should provide parameters for what 
constitutes a hardship and a skeleton framework of what would be 
required, such as how often it would need to be verified, how to 
verify, and what the family must provide to demonstrate the hardship.
    Commenters suggested how HUD may define that a family is facing a 
hardship. One suggested that HUD define a hardship to be when rent and 
allowable expenses exceed 40 percent of adjusted income. Another 
suggested that if the household's housing payment exceeds 30 percent of 
adjusted household income, the family should be eligible for a hardship 
exemption.
    Other commenters stated that HUD should continue to leave the 
definition of hardship up to the PHAs, remaining consistent with how 
the PHA defines it in other related contexts. Commenters stated that 
PHAs have already developed policies and procedures to document and 
provide hardship relief. A commenter stated that HUD should require 
PHAs and owners to include a procedure for exemptions in local policies 
and procedures along with resident notices.
    HUD Response: HUD agrees with commenters that PHAs and owners 
should continue to be able to determine when a family is eligible for a 
hardship exemption to their rent. However, given the language of the 
hardship requirement added by HOTMA, HUD believes that it is 
appropriate to provide additional parameters on when a family may 
qualify for a hardship specifically due to HOTMA amendments on the 
child care and health and medical care and reasonable attendant care 
and auxiliary apparatus expenses deductions.
    Therefore, in Sec.  5.611(c)(1) of this final rule, HUD is creating 
two ways by which a family may qualify for a health and medical care 
and reasonable attendant care and auxiliary apparatus expenses 
hardship. First, a family may qualify for a lower threshold for 
unreimbursed health and medical care expenses and reasonable attendant 
care and auxiliary apparatus expenses to be deducted from income if the 
family, at the time of the effective date of this final rule, is 
receiving the unreimbursed health and medical care expense and 
reasonable attendant care and auxiliary apparatus expense deduction at 
the 3 percent threshold. The form of that deduction is discussed in 
more detail below.
    However, even families not receiving a deduction for health and 
medical care expenses and reasonable attendant care and auxiliary 
apparatus expenses at the time that this final rule is effective may 
still qualify for a hardship exemption if the family is experiencing a 
change in circumstances (as determined by the responsible entity) that 
would not otherwise trigger an interim reexamination. Families seeking 
a hardship exemption in this category must have eligible expenses that 
exceed 5 percent of the family's annual income in order to receive the 
benefit of the hardship exemption.
    The reason behind creating these two categories is two-fold. First, 
HUD would like to relieve the financial burden placed on families 
currently receiving the health and medical care expense and reasonable 
attendant care and auxiliary apparatus expense deduction that would be 
affected by the increase in the threshold for such a deduction to be 
applied by providing a transition period to the new higher ten percent 
of family annual income threshold. Second, HUD recognizes that families 
may face financial hardships apart from changes made by HOTMA, where 
allowing the family to have a lower threshold to take such a deduction 
may be beneficial to the family. Determinations of what constitutes a 
financial hardship are fact-based determinations, however, and HUD 
feels that such determinations are best handled by the responsible 
entity that is closest to the family, rather than through regulatory 
text.
    HUD is not making changes to the eligibility criteria proposed for 
hardship exemptions for child care but, as discussed above, is revising 
the length of time that the hardship exemption for child care may 
remain in effect.
E. Forms of Hardship Exemptions
    Commenters had many suggestions on the form of relief that a 
hardship exemption should offer. Some suggested keeping the threshold 
for expenses at 3 percent for as long as the household demonstrates the 
hardship. Others stated that the PHA or owner should suspend the 
payment of the difference between what the family would have owed with 
a threshold of 3 percent and the new amount, allowing the household to 
repay when it can.
    Commenters supported setting a ten percent cap on annual rent 
increases due to statutory changes in the medical deduction. Others 
stated that HUD should allow families experiencing a hardship to deduct 
their full health and medical expenses. One commenter stated that, at 
the least, HUD should allow for exemptions from the full increase 
required by amendments made by HOTMA.
    Some commenters suggested phasing in the new thresholds for 
everyone, perhaps by setting the threshold at 6.5 percent for the first 
year for everyone.
    HUD Response: In Sec.  5.611(c)(1) of this final rule, HUD is 
changing the hardship exemption for health and medical care expenses 
and reasonable attendant care and auxiliary apparatus expenses for 
affected families that receive the 3 percent unreimbursed health and 
medical care expense and reasonable attendant care and/or auxiliary 
apparatus expense deduction as of the effective date of this final rule 
from what was proposed in the proposed rule. Rather than simply setting 
a flat exemption by allowing deductions for expenses meeting or 
exceeding 6.5 percent of the family's income, the exemption contained 
in this final rule is a gradually increasing percentage each year so 
that annual reexaminations beginning after the effective date of this 
final rule should have the threshold increased to 5 percent the first 
year, 7.5 percent the second year, and reaching the new statutory 
standard of 10 percent in the third year.
    In addition, this final rule revises the health and medical care 
expense and reasonable attendant care and auxiliary apparatus expense 
deduction hardship exemption for elderly or disabled families or 
families that include a person with disabilities that may not have been 
receiving the health and medical care and reasonable attendant care and 
auxiliary apparatus expense deduction on the effective date of the 
final rule but are experiencing a financial hardship. The family must 
demonstrate that the family's applicable medical expenses and/or 
reasonable

[[Page 9646]]

attendant care and auxiliary apparatus expenses increased, or the 
family's financial hardship is a result of a change in circumstances 
(defined by the responsible entity) that would not otherwise trigger an 
interim reexamination. A family would only benefit from the exemption 
in Sec.  5.611(c)(2) if the sum of eligible expenses in 5.611(a)(3) 
exceed 5 percent of the family's annual income. In such a case, the 
family will receive a deduction for the eligible expenses that exceed 5 
percent of the annual income. The family's hardship relief ends when 
the circumstances that made the family eligible for the relief are no 
longer applicable or after 90 days, whichever comes earlier. However, 
the responsible entity may choose to extend the relief for one or more 
additional 90-day periods while the family's hardship condition 
continues.
    HUD is not making any changes from the proposed rule to the form of 
the hardship exemption for child care expenses but, as discussed above, 
is revising the length of time that the hardship exemption for child 
care may remain in effect.
F. Duration of Hardship Exemptions
    Commenters also opined on how long a family should be eligible to 
receive a hardship exemption. Some suggested that families should be 
allowed to retain the exemption as long as it is needed, with no time 
limit. Commenters stated that the amendments in HOTMA do not limit the 
hardship provision to only the first year of implementation or to an 
interim reexamination. Others stated that, with older families, it is 
unlikely the family will be able to access any additional resources to 
make them able to afford the full increase in the deduction threshold.
    Some commenters stated that allowing hardship exemptions to expire 
when the PHA or owner determines the family can pay would permit 
inconsistent and arbitrary determinations. Others stated that the 
hardship exemption should be extended for at least a year after the 
need for the exemption is established to allow the family to recover 
financially. Another commenter stated that HUD should provide a 
definite duration for exemptions, such as 90 or 180 days, not tied to 
annual reexaminations.
    HUD Response: In this final rule, HUD is providing a financial 
hardship exemption in Sec.  5.611(c) for families that were receiving 
the health and medical care expense and reasonable attendant care and 
auxiliary apparatus expense deduction on the effective date of the 
final rule that gradually phases out over a 24-month period. Other 
financial hardship exemptions for health and medical care expenses and 
reasonable attendant care and auxiliary apparatus expenses will remain 
in place for a period not to exceed 90 days. However, housing providers 
may provide exemptions beyond 90 days based on family circumstances at 
their discretion. Similarly, HUD is placing the same 90-day time 
restrictions on hardship exemptions available for child care expenses. 
As a reminder, in addition to the grantee's discretion to provide for 
longer exemptions, grantees are subject to Federal nondiscrimination 
requirements, including the obligation to provide reasonable 
accommodations that may be necessary for households with family members 
with disabilities.

Over-Income Families in Public Housing

    As discussed above, HUD collected public comments in the proposed 
rule on regulatory provisions regarding the new statutory income 
restrictions in public housing. However, HUD also re-opened public 
comments regarding the treatment of OI families and lease provisions 
for families remaining in a public housing unit and paying the 
alternative rent as a NPHOI family. This summary includes comments 
received in both solicitations and responses to those comments.
A. OI Families as Public Housing Residents
    Some commenters objected to HUD's statement that OI families should 
not be considered residents of public housing. A few commenters simply 
stated that families should be allowed to remain in the PHP.
    Other commenters stated that HUD's interpretation that all OI 
families remaining in their units can no longer participate in the PHP 
is an incorrect interpretation of the HOTMA amendments. These 
commenters stated that the statutory text explicitly allows PHAs to 
either terminate the family's tenancy or to charge the family a higher 
rent; the termination of tenancy is an alternative to allowing the 
family to stay. Commenters stated that the interpretation put forth by 
HUD in the proposed rule is inconsistent with its earlier proposed rule 
and other publications, including PIH Notice 2019-11, which seemed to 
support the idea that OI families remaining in a public housing unit 
would continue to be PHP participants.
    A commenter stated that if HUD continues with the proposed 
interpretation, additional rule changes in parts 5, 960, 966, and 983 
(plus changes to the Rental Assistance Demonstration (RAD) notice) 
would be required to effectuate new requirements impacting the 
remaining OI families, and that required termination would also impact 
many provisions dealing with public housing administration in general. 
Another commenter stated that other requirements on the physical unit 
would support the idea that the families living in them must be PHP 
participants: HUD must continue to treat the physical unit as a unit of 
public housing; the PHA remains obligated to lease the unit to an 
income-eligible public housing family upon turnover, and the unit 
remains part of the PHA's Faircloth limit and subject to a HUD 
Declaration of Trust and an Annual Contributions Contract.
    A commenter stated that requiring an end to program participation, 
even for those families that stay in their units would be disruptive to 
the family. The commenter stated that if the family experiences a drop 
in income, they may not be able to find replacement housing that they 
can afford nearby, disrupting school, employment, and family 
obligations. The commenter also stated that wage-earning household 
members may opt to move out of the unit because of the loss of rights 
due to the end of PHP participation, and any remaining seniors in the 
family would be hurt because they would lose the support of their 
family members and would face additional uncertainty.
    Several commenters also stated that requiring PHAs to end the 
program participation of remaining OI families would likely induce 
families to leave their units, thereby going against the income-mixing 
goals of various HUD statutes and policies, including Section 16 of the 
1937 Act.
    HUD Response: HUD agrees that in the proposed rulemaking in 2019 
and other publications, such as the July 26, 2018, Federal Register 
notice implementing the public housing OI limit (83 FR 35490), HUD was 
silent on the status of OI families remaining in a public housing unit 
after the 24 consecutive month grace period. It was due to HUD's 
silence on this status that it became necessary to obtain additional 
public comments on the implementation of the OI limit for public 
housing. HUD's interpretation of the changes made by Section 103 of 
HOTMA is that the unit of an OI family must no longer be subsidized and 
therefore the family can no longer be PHP participants if they stay and 
pay the alternative non-public housing rent (alternative rent) once the 
24 consecutive month grace period ends. In response to concerns that 
other requirements on the physical unit

[[Page 9647]]

conflict with the new statutory requirements, HUD assures the 
commenters that the current requirements related to the obligation to 
lease public housing units to income eligible families when units turn 
over (24 CFR 960.201) as well units continuing to be subject to the 
Declaration of Trust (42 U.S.C. 1437g(d)(3); 24 CFR 905.108, 905.304), 
Annual Contributions Contract (42 U.S.C. 1437d(a)) and the PHA's 
Faircloth limit (42 U.S.C. 1437g(g)(3)) remain unchanged. Furthermore, 
HUD would like to remind the public that housing OI families is not 
unique to the PHP and that PHAs can continue to house otherwise 
ineligible OI families in certain circumstances as per Sec.  960.503. 
Section 103 of HOTMA simply creates new limitations on tenancy and 
program participation for formerly income-eligible families who become 
consistently OI.
    While HUD appreciates the public's concern that termination from 
the public housing program may be disruptive to families; such 
disruptions caused by implementing this policy will be addressed by 
requiring adequate notice to families of their status and the effects 
of such status as stipulated in the final rule. Furthermore, this rule 
also provides in Sec.  960.507 a new 24 consecutive month grace period 
once a family becomes OI and allows the OI family to maintain its 
status in public housing should an OI family experience a drop in 
income below the OI limit while in the grace period. If a family's 
income drops below the OI limit before exhausting the 24 consecutive 
month grace period, this final rule provides in Sec.  960.507(c)(4) 
that the family shall be entitled to another 24 consecutive month grace 
period if its income again goes above the OI limit. Additionally, the 
specific risk to seniors can be mitigated by updates to other HUD 
regulations made by HOTMA, such as the elderly family deduction, the 
health and medical care and reasonable attendant care and auxiliary 
apparatus expense deduction and associated hardship exemptions, as well 
as the continued use of permissive deductions as applicable. If a 
family continues to be OI for 24 consecutive months, HUD reasonably 
believes that their income will continue to be stable and the 
disruption due to termination or having to pay the alternative rent 
would be minimal.
    In response to the concerns that HUD's HOTMA OI interpretation goes 
against the income-mixing goals of various HUD statutes and policies, 
including Section 16 of the 1937 Act, HUD believes that this final rule 
appropriately balances the need for local flexibility in HUD programs 
with the interest of meeting the new requirements in HOTMA. It should 
be noted that income-mixing goals are met at admissions. Per Sec.  
960.202(b)(1), 40 percent of the families admitted to the PHP must be 
30 percent of AMI or lower. As a result, the income-mixing goals of the 
PHA are based on the families entering the program, not those exiting 
the program. Additionally, income-mixing goals will continue to be met 
by families whose income falls below the OI limit for the jurisdiction.
B. Tenant Protection Vouchers
    Commenters stated that the PHA's allotment of tenant protection 
vouchers (TPVs) should not change simply because some of the families 
on the property are non-public housing OI families. Commenters stated 
that HUD should continue to provide a TPV for every occupied unit, 
regardless of the family's OI status. One commenter stated that PHAs 
should be able to provide the TPV to the family and offer it to the 
first available income-eligible family on their waiting list, as the OI 
family would not be able to use the voucher.
    HUD Response: HUD appreciates the concerns raised about the 
possibility of PHAs having reduced allotments of TPVs. This would only 
occur in cases where a public housing unit has been unsubsidized for 2 
years (e.g., occupied by a NPHOI family for 2 or more years). HUD 
intends to provide guidance to PHAs to ensure they are aware of this 
factor should they choose to permit families to remain in a public 
housing unit as a NPHOI family. The authority of Section 103 of HOTMA 
is limited to the PHP so the suggestion to provide additional TPVs for 
all PHAs goes beyond the scope of this provision. Lastly, the ability 
to issue allotted TPVs to income-eligible families on the PHA's voucher 
waiting list if the NPHOI family living in the public housing project 
is not eligible for TPV assistance is already permitted.
C. Preferences for Over-Income Families
    Commenters stated that OI families that fall below the OI threshold 
during their 2-year grace period should not have to start as a new 
applicant for public housing, as they have not yet transitioned out of 
the program. Another commenter suggested also including OI families 
during the period before they have to vacate their tenancy.
    Commenters supported the idea that PHAs should be allowed to easily 
readmit families to the PHP if they fall below the eligible income 
threshold again. A commenter stated that families that have already 
finished their grace period but remain on the property should be 
readmitted to public housing. Commenters stated that it should be up to 
the PHA to determine whether or not to create a preference for OI 
families that remain in the property, including whether or not to 
immediately readmit such families. Another commenter stated that 
allowing PHAs to adopt policies to facilitate timely (whether immediate 
or on another timeline set by the PHA) admittance of OI households 
remaining in their units that requalify for subsidy would help keep 
people housed and potentially prevent homelessness.
    One commenter stated that OI families remaining in their unit 
should continue to be public housing residents and therefore should not 
have to face issues of readmittance or waiting lists.
    HUD Response: Neither HOTMA nor this final rule requires that 
families who fall below the OI threshold during the 24 consecutive 
month grace period become new applicants for public housing. Section 
960.507(c)(4) of this final rule provides that if a family's income 
falls below the OI threshold at any point during the 24 consecutive 
month grace period, the family's status as a PHP participant remains 
unchanged. In the event the family becomes OI again, the family would 
be entitled to a new 24 consecutive month grace period per Sec.  
960.507(c)(4). As suggested by the commenters, at Sec.  960.206(b)(6), 
this final rule allows PHAs to give preference to former public housing 
program participants paying the alternative rent who once again become 
income-eligible. PHAs whose policy is to terminate OI families after 
the 24 consecutive month grace period may not use this preference and 
this preference may not be applied to current public housing families 
(e.g., OI families facing termination of tenancy pursuant to PHA 
policies, consistent with Sec.  960.507(e)) or families who have 
vacated the public housing project. PHAs will have the discretion to 
adopt this preference consistent with Sec.  960.206(a) and (b)(6). PHAs 
must implement this preference consistent with all other program 
requirements and Federal nondiscrimination requirements.
D. Repositioning
    A commenter stated that because many OI families remaining on the 
public housing property would not be eligible for admission into a 
Section 8 program, PHAs will need to factor in alternative units within 
their redevelopment/repositioning plans,

[[Page 9648]]

including allowing OI families to transfer to a unit in a non-
converting property. Another commenter stated that it is still unclear 
how PHAs should deal with in-place OI families when the family is 
ineligible for assistance after conversion under RAD, or how their 
priority for Section 8 assistance should be handled. A commenter asked 
about the effect that conversion under RAD would have on OI tenants. 
The commenter asked whether such family would be considered 
``continuously assisted'' and be able to benefit from tenant 
protections available to other public housing residents after 
conversion.
    A commenter stated that special considerations should be afforded 
during the period before termination, or after the two-year grace 
period, if a PHA chooses to allow OI families to stay.
    A commenter stated that PHAs should be able to allow remaining OI 
families to receive similar protections as in-place public housing-
assisted families who are not OI when units have assistance converted 
under RAD or Section 18 of the 1937 Act. According to the commenter, 
PHAs should have the discretion to (i) allow OI families the right to 
remain in the unit post-conversion; (ii) permit them a right to return 
(if displaced due to work in the unit); (iii) allow them the right to 
be admitted immediately if they become income eligible in the future, 
delayed only by the time it takes to make an eligibility determination; 
and (iv) phase in the contract rent post-conversion.
    Some commenters stated that HUD should not provide any special 
consideration to OI households if a PHA repositions their public 
housing property. One commenter opposed considerations because the 
families are no longer public housing families. However, the commenter 
stated that PHAs should be allowed to revisit the landlord-tenant 
relationship with such families upon repositioning. Another commenter 
opposed special considerations because the existing requirements for 
repositioning are sufficient, and policies specific to OI families can 
be set forth in the applicable relocation plan documents, which are 
reviewed by HUD. This commenter also stated that HUD should not use 
this proposed rule to promulgate new requirements for RAD, Section 18, 
and Section 22 programs; instead, existing program-specific guidance 
may provide protections, otherwise the URA would govern.
    HUD Response: HUD agrees that PHAs need to factor in the presence 
of OI families and NPHOI families in public housing projects when 
developing any redevelopment or repositioning plans. However, this 
final rule implements Section 103 of HOTMA, and HUD agrees with the 
comment that this provision does not create new requirements for RAD 
and other repositioning or removal authorities (e.g., Section 18 or 
Section 22 of the 1937 Act). Thus, most of the comments regarding RAD 
and other repositioning authorities are outside the scope of this 
rulemaking. For example, this final rule does not address how PHAs 
should deal with NPHOI families in RAD conversions. PHAs converting 
public housing projects under RAD must follow the RAD statute and 
notices. HUD intends to provide further RAD guidance regarding 
treatment of OI families who remain public housing participants as well 
as NPHOI families who are unassisted. This rule does not alter existing 
RAD and Section 18 requirements regarding OI public housing families. 
For example, sections 1.6.C.1 (PBV) and 1.7.B.1 (PBRA) of the RAD 
Notice (revision 4) (H-2019-09 PIH-2019-23 (HA)) address the treatment 
of OI public housing families (but not NPHOI families) upon conversion, 
and this rulemaking does not amend either provision. This rulemaking 
also does not amend Section 18 relocation and ``comparable housing'' 
requirements in Sec.  970.21. This final rule gives consideration to an 
NPHOI family paying the alternative rent who becomes income-eligible 
again. PHAs have the option to adopt a local preference for NPHOI 
families pursuant to Sec.  960.206(b)(6). However, this rule makes no 
changes to existing rules and requirements surrounding Section 8 
preferences, including RAD PBV and RAD PBRA preferences.
    For OI families that must relocate due to a RAD conversion action, 
the URA may apply, depending upon the fact-specific determinations made 
under the URA's regulations at 49 CFR part 24 and PIH Notice 2016-17 
(``Rental Assistance Demonstration (RAD) Notice Regarding Fair Housing 
and Civil Rights Requirements and Relocation Requirements Applicable to 
RAD First Component--Public Housing Conversions'').
    However, the URA does not apply to Section 18 actions nor does the 
RAD `right to remain.
E. Community Service and Self-Sufficiency
    Commenters stated that if OI families are allowed to stay in the 
unit, they should still be considered public housing families and 
should be afforded all the rights and responsibilities as any other 
public housing family, including being subject to the community service 
requirements.
    Other commenters stated that CSSR should not be mandated by HUD. 
One commenter stated that requiring families not in public housing to 
perform community service would put a strain on families that are 
likely already struggling, including possibly already working more than 
one job.
    Some commenters stated that because OI families are not public 
housing residents, HUD cannot require a PHA to ensure the household 
meets community service or self-sufficiency requirements. Commenters 
stated that PHAs should be allowed to choose to add any such 
requirements to the new lease after the grace period, including CSSR. 
Another commenter stated that the family is no longer receiving a 
subsidy, and ostensibly no longer requires support from the PHA to 
develop marketable skills and a work history, so the household should 
not be obligated to meet with additional requirements such as CSSR but 
should have a more traditional landlord-tenant relationship with the 
PHA.
    A commenter stated that OI families still in the FSS program should 
be allowed to continue to finish their FSS participation, even if they 
are no longer part of public housing or able to contribute additional 
money to the escrow, as continued access to the FSS service coordinator 
may still be beneficial, particularly when HUD allows non heads of 
households to participate in FSS.
    A commenter stated that CSSR is outdated because it requires 
residents to prove they are worthy of aid, and staff time to administer 
the requirements would be better spent doing other things; therefore, 
the commenter advocated that HUD work with Congress to end the 
requirement entirely.
    HUD Response: In this final rule, HUD is clarifying in Sec.  
960.507(e) that OI families that the PHA has allowed to remain in a 
public housing unit, paying the alternative non-public housing rent, 
are no longer public housing program participants and thus, pursuant to 
Sec. Sec.  960.600 and 960.601, are no longer subject to the community 
service requirements. However, pursuant to Sec.  960.507(e), OI 
families, in the period before termination, are still considered public 
housing program participants and so must remain compliant with all 
public housing program requirements including the community service and 
self-sufficiency requirements. HUD appreciates that some members of the 
public disagree with CSSR; however, HOTMA did not alter these existing 
provisions for public housing program

[[Page 9649]]

participants. Families participating in the FSS program who become 
over-income would also be entitled to the 24 consecutive month grace 
period after which, if they remain over-income, they would then be 
subject to their respective PHA's over-income policy. As noted in Sec.  
960.507(a)(1), there are no exceptions for families participating in 
the FSS program.
F. Lease Requirements
    Some commenters stated that because remaining OI families would not 
be public housing families and would not be receiving any subsidy, HUD 
has does not have authority to mandate lease provisions outside of what 
the 1937 Act, as amended by HOTMA, specifies. One commenter cited 
section 2 of the 1937 Act, which states that PHAs should be given ``the 
maximum amount of responsibility and flexibility in program 
administration'' and stated that PHAs should be allowed to apply all of 
the requirements in 24 CFR part 966 to remaining OI families.
    Other commenters advocated for allowing PHAs broad discretion in 
setting the terms of leases for remaining OI families, as long as they 
are in accordance with State and local laws. A commenter stated that 
allowing PHAs discretion would allow them to administer OI tenancies in 
the manner that is most efficient and least disruptive to their 
operations and to the families involved.
    A commenter stated that PHAs should have the discretion to treat 
remaining OI families as public housing families in all non-rent 
aspects because all families living in the same building should be 
treated consistently, including the termination of tenancy process; the 
transfer process; reasonable accommodation requests; and succession 
rights. The commenter stated that a family should not be deprived of 
administrative hearing rights because of their OI status, nor should 
the PHA have to create a new series of rules and regulations for these 
families.
    Commenters stated that HUD should mandate minimum lease provisions 
for conduct and occupancy restrictions related to drugs or sex offender 
status, but a commenter also stated that there should not be any 
additional grievance or due process rights because the families are 
choosing to remain as non-public housing residents.
    Commenters stated that PHAs should have the discretion to determine 
whether to conduct income reviews. A commenter stated that HUD should 
not impose requirements because the HOTMA amendments already set the 
families' rents separate from their income. Another commenter stated 
that allowing PHAs to conduct annual and interim examinations would 
help provide a safety net to families in case their income falls again. 
A commenter stated that PHAs should specifically be allowed to conduct 
interim reexaminations for household additions.
    A commenter stated that PHAs should be given discretion on how 
often to conduct unit inspections.
    Some commenters felt that over-income residents should be given the 
same rights as other public housing families in the property, either 
because the property itself is remaining public housing, or because the 
families should stay in the public housing program.
    A commenter also stated that increased rental charges to remaining 
OI families will not pay for increased administrative costs if their 
public housing tenancies are terminated, and HUD should provide 
additional tools to the PHA to assist administration of non-public 
housing units.
    HUD Response: HUD appreciates all public comments received and 
agrees that mandated lease provisions for OI families remaining in a 
public housing property should be minimal outside of the alternative 
non-public housing rent required by the amended 1937 Act. As a result, 
in Sec.  960.509 in the final rule PHAs are given the maximum amount of 
flexibility in deciding what lease requirements (drawn largely from 
Sec.  966.4 public housing lease requirements) should apply to OI 
families. Where possible, PHAs are given broad discretion in setting 
the terms of leases for remaining NPHOI families in accordance with 
State and local laws to allow PHAs to administer NPHOI tenancies in the 
manner that is most efficient and least disruptive to their operations 
and to the families involved. Given this discretion, HUD believes that 
there should be no increased administrative costs. However, HUD is 
clarifying in the final rule that NPHOI families are not required to 
comply with CSSR (Sec. Sec.  960.600, 960.601), and NPHOI families 
cannot be subject to income reexaminations (Sec.  960.257(a)(5)) and 
are not provided utility allowances (Sec.  960.507(a)(1)(iv)). PHAs 
will have discretion in extending certain public housing policies to 
NPHOI families such as administrative hearing rights (Sec.  
960.509(b)(13)). PHAs have no discretion on lease provisions for NPHOI 
families remaining in a public housing property concerning requirements 
related to conduct and occupancy restrictions affecting the health and 
safety of residents, particularly those pertaining to drugs, drug-
related criminal activity, or State registered lifetime sex offenders 
(see Sec.  960.509(b)(6) and (b)(11)).
    PHAs must still comply with Federal nondiscrimination requirements, 
including but not limited to the Fair Housing Act, Title VI of the 
Civil Rights Act, Section 504, and Title II of the ADA, as applicable. 
In response to the public comment regarding reasonable accommodations, 
PHAs still have a legal obligation to provide for reasonable 
accommodations that may be necessary for individuals with disabilities. 
PHAs do not have discretion whether to provide for reasonable 
accommodations. Moreover, in the context of unit transfers for a family 
when repairs to improve the life, health, or safety of a resident 
cannot be made within a reasonable time, consistent with fair housing 
and civil rights obligations, PHAs must provide comparable alternative 
accommodations having the appropriate number of bedrooms based on the 
family's need and accessible accommodations and reasonable 
accommodations for persons with disabilities.
G. Impact of OI Families on PHAs
    A commenter stated that as long as OI households are following the 
same rules as everyone else, there will not be additional burdens on 
the PHA. Another commenter stated that even if there are additional 
burdens on a PHA from allowing OI families to stay, the PHA has the 
option to not allow the families to stay, so the extra burdens will be 
willingly assumed by the PHA. A commenter stated that there would be no 
consequences to PHAs or to OI families who elect to remain in their 
public housing unit.
    A commenter stated that requiring termination of public housing 
tenancy will impose administrative burdens on PHAs by requiring PHAs to 
administer different tenancy types within the same development and to 
develop and translate new forms of leases and develop new procedures 
for these tenants.
    In addition, a commenter stated that keeping OI families in public 
housing also reduces subsidy costs for HUD. A commenter stated that 
allowing OI families to stay will decrease PHA administrative burdens, 
and families will have greater success in achieving self-sufficiency. 
Another commenter stated that permitting OI families to stay helps 
maintain a sense of community, rewards self-sufficiency, promotes 
mixed-income communities, and allows families to live in areas that may 
be among the least affordable areas in the country that they may not be 
able to

[[Page 9650]]

find suitable housing on the private rental market. A commenter stated 
that there is a value in allowing OI families to stay as an incentive 
to other families to gain employment and self-sufficiency, and there is 
an economic benefit to the PHA and HUD to allow the family to stay.
    A commenter stated that allowing OI families to stay will reduce or 
delay the availability of public housing units for additional families.
    HUD Response: HUD agrees that the administrative burden to PHAs 
should be minimized where possible and HUD believes that this final 
rule appropriately balances the need for local flexibility in HUD 
programs with the interest of meeting the requirements in HOTMA. With 
PHA discretionary flexibility, the PHA could choose to eliminate any 
additional administrative burden by treating all families the same 
while also having the ability to make any policy changes deemed 
necessary to meet their financial goals and community needs of their 
jurisdiction.
    HUD appreciates that some members of the public believe that 
allowing OI families to stay will lead to greater success in achieving 
self-sufficiency, help maintain a sense of community, reward self-
sufficiency, promote mixed-income communities, and allow families to 
live in areas that may be among the least affordable areas in the 
country. However, given the variety of circumstances throughout the 
country, these priorities are best set by local PHAs. HUD understands 
that allowing OI families to stay in a public housing unit may reduce 
or delay the availability of public housing units for additional 
families; however, HOTMA has made this a matter of PHA discretion.
H. Other OI Comments
    Some commenters stated that it is unreasonable to allow OI families 
to continue to reside in public housing, especially for a period of 
over 12 months.
    A commenter stated that HUD should issue guidance for PHAs on 
calculating the amount of monthly subsidy provided to the unit as set 
forth in Section 103 of HOTMA and should develop sample notices that 
PHAs could provide to OI families, informing them about their right to 
remain in public housing at the end of the six-month grace period. 
Commenters also asked for further guidance on the impacts of allowing 
OI families to stay. Some stated that additional guidance on how the 
subsidy for the unit is calculated is needed, as that information would 
be needed to allow families to calculate how much rent they will have 
to pay if they stay. Others stated that HUD should clarify if the 
subsidy amounts for the PHA would be decreased if OI families remain 
and pay higher rent.
    Commenters stated that HUD should provide model notices, with 
translations, for PHAs to give to families once their incomes are over 
the limit for 2 consecutive years so that there is nationwide 
uniformity in such documents.
    Commenters stated that PHAs should be able to defer termination for 
a family until the next annual reexamination if there is no housing in 
the geographic area that would not create a rent hardship or a hardship 
due to its distance from work, school, medical needs, or other 
essential services for the family. Commenters also stated that HUD 
should, in Sec.  960.507(a), allow OI families to stay in public 
housing as a reasonable accommodation.
    Commenters opposed the proposal that would not exempt families 
participating in FSS or EID from the over-income policy. One commenter 
stated that not allowing such an exemption would violate the intent of 
the 2018 Economic Growth, Regulatory Relief, and Consumer Protection 
Act (Pub. L. 115-174, 132 Stat. 1296).
    Other commenters submitted comments on the requirement that PHAs 
submit certain information for HUD to report to Congress. Some 
commenters asked for the opportunity to review and comment on the tool 
to report the number of over-income families and the families on the 
waiting list. Others stated that HUD has not yet developed the 
reporting system to collect the needed information.
    HUD Response: The limit on OI families residing in public housing 
is statutory, and therefore required. However, PHAs can consider 
specific circumstances in which they would provide for flexibility in 
the administration of over-income requirements, provided such policies 
are in compliance with the 1937 Act, all public housing regulations, 
and all applicable fair housing requirements. PHAs are subject to, 
among other fair housing and civil rights authorities, Section 504, the 
Fair Housing Act, and Title II of the ADA, which include, among other 
requirements, the obligation to grant reasonable accommodations that 
may be necessary for persons with disabilities.
    Guidance on calculating the amount of monthly subsidy provided to 
the unit will be provided by HUD annually. The final rule also provides 
detailed guidance on the notices PHAs are required to provide to OI 
families. For this reason, HUD does not plan to develop sample notices 
for PHAs to provide to OI families. However, HUD will continue to 
evaluate the need for further guidance on OI policies and procedures.
    HUD is modifying the regulatory language in Sec.  960.102(b) to 
include a definition of alternative non-public housing rent, i.e., the 
amount a NPHOI family pays in rent. Alternative non-public housing rent 
is defined as a monthly rent equal to the greater of: (i) The 
applicable fair market rent, as defined in 24 CFR part 888, subpart A, 
for the unit; or (ii) The amount of the monthly subsidy provided for 
the unit, which will be determined by adding the per unit assistance 
provided to a public housing property as calculated through the 
applicable formulas for the Public Housing Capital Fund and Public 
Housing Operating Fund. For the Public Housing Capital Fund, the amount 
of Capital Funds provided to the unit will be calculated as the per 
unit Capital Fund assistance provided to a PHA for the development in 
which the family resides for the most recent funding year for which 
Capital Funds have been allocated. For the Public Housing Operating 
Fund, the amount of Operating Funds provided to the unit will be 
calculated as the per unit amount provided to the public housing 
project where the unit is located for the most recent funding year for 
which a final funding obligation determination has been made. In the 
proposed rule, the rent for a NPHOI family was described in Sec.  
960.507(d)(1), and paragraphs (d)(1)(ii)(A) and (B) explained how the 
monthly subsidy amount for Public Housing Capital Fund and Operating 
Fund was to be calculated. In the proposed rule, for the Public Housing 
Operating Fund, HUD proposed that the amount of Operating Funds 
provided to the unit be calculated as the per unit amount provided to 
the public housing project where the unit is located for the most 
recent funding year for which a final funding eligibility determination 
has been made. However, as noted above, the final rule revises the 
Operating Fund monthly subsidy amount to be calculated based on the 
final funding obligation amount, not the eligibility amount. Because 
such amounts are based on appropriations, HUD will publish the specific 
amounts annually. If PHA policy allows NPHOI families to remain in the 
unit and pay the alternative non-public housing rent, the PHA will no 
longer receive subsidy for these units.
    While HUD appreciates the public's concern about the hardships a 
family whose tenancy is terminated may face, the amendments in HOTMA 
state that if

[[Page 9651]]

a PHA chooses to adopt a policy to terminate families that have been 
over-income for 24 consecutive months, the family must have their 
tenancy terminated within no more than 6 months. In addition, whether 
an OI family is allowed to remain in public housing is determined by 
the local PHA's policy decision. Federal nondiscrimination requirements 
under the Fair Housing Act, Title VI, Section 504, and Title II of the 
ADA continue to apply. Federal nondiscrimination laws that require, 
among other things, PHAs and owners to make reasonable accommodations 
for individuals with disabilities continue to exist notwithstanding any 
changes by HOTMA.
    Because the determination of a family's OI status is based on the 
determination of their income, PHAs must not include income that is 
excluded from income calculations, such as amounts based on 
participation in an EID or FSS program when determining if a family is 
OI.
    HOTMA requires PHAs to submit an annual report on the number of OI 
families in public housing and the number of families on the PHA's 
waiting list for admission into public housing. HUD recognizes that 
there are needed system updates, and these updates will be put into 
place over the time period between the publication of this rule and the 
overall effective date of January 1, 2024.

De Minimis Errors

    Commenters made many suggestions on how HUD should determine ``de 
minimis'' errors that would not cause a PHA or owner to be out of 
compliance with HOTMA provisions regarding income review and 
calculation. Some commenters stated that disregarding errors below a 
set amount may mask larger problems, such as improper application of 
regulations, that need to be systematically investigated and corrected.
    Many commenters stated that HUD should use the Section Eight 
Management Assessment Program (SEMAP) de minimis threshold of 5 percent 
of all income determinations made during a calendar year. A commenter 
stated that structuring the de minimis protections in this way would 
avoid penalizing a PHA or owner for a large number of tiny errors or a 
few substantial errors. Other commenters stated that the threshold 
should be ten percent of all income determinations during a calendar 
year and noted that ten percent would match the proposed threshold for 
interim reexaminations. Some suggested that HUD could set a threshold 
using determinations made at a property during the year. However, some 
commenters stated that using a threshold as a percentage of all 
determinations would require reviewers to conduct a 100 percent file 
review to determine if the errors were de minimis, creating a large 
administrative burden.
    Many commenters also asked how HUD will determine whether an error 
fits within the de minimis allowance. Some commenters asked whether the 
error rate was per file or per total income determinations. Commenters 
stated that HUD should not aggregate errors on a calendar year, because 
rent calculation compliance has historically been made at the 
participant level. Others asked for clarification on the additional 
activities to which the de minimis threshold might apply.
    Several commenters stated that HUD should not use 5 percent of 
individual income determinations. Others, however, agreed that HUD 
should use 5 percent of the family's adjusted income. Some suggested 
that the threshold should be lower, at 1 to 2 percent of household 
income.
    Some commenters stated that HUD should set the threshold at a 
specific dollar amount instead of a percentage. Other commenters stated 
that using a percentage standard was more appropriate than using a set 
dollar amount because a specific dollar amount would not allow that 
error to scale to meet the income thresholds of families or localities, 
based on family income and the area cost of living.
    Some stated that the threshold should be $30, others $50. 
Commenters that suggested a $50 threshold stated that it would ease the 
strain on the PHA. Some commenters stated that, following the 
requirements of the EIV discrepancy report, HUD should count as de 
minimis those errors that do not exceed $200 a month for any family.
    Some commenters suggested de minimis be defined as a difference 
less than or equal to $10 per month in the assistance payment. Others 
suggested a combination approach of allowing errors less than the 
greater of $50 per month per household or 5 percent per month per 
household. Commenters also suggested the greater of $5 or 5 percent.
    Some stated that every file should demonstrate that the owner or 
PHA has taken appropriate corrective action to repay the family for any 
overpayments for purposes of audits. Others stated that HUD should 
retain language in the regulation that makes it clear an owner or PHA 
must still repay overcharged families. Commenters asked for 
clarification on how owners or PHAs should proceed when a de minimis 
error results in an over-income family being approved for assistance. 
Commenters also stated that the regulation should be clear that the de 
minimis protection applies both for upward and downward adjustments.
    Commenters also stated that HUD should also allow for de minimis 
errors made by tenant families. Commenters stated that HUD should work 
within the Management and Occupancy Review (MOR) process and with 
industry partners to find a reasonable alternative.
    HUD Response: HUD understands that it is important for income 
determinations to be accurate in its rental assistance programs; 
however, HUD also recognizes that there are minor calculation errors 
that an owner, PHA, or grantee may make that result in minimal effects 
on the rent paid by a family, and HUD does not believe that a PHA or 
owner or renter would be negatively affected by such small differences. 
In addition, the amendments to the 1937 Act made by HOTMA explicitly 
state that PHAs and owners are not considered to be failing to comply 
with provisions dealing with the determination of income solely due to 
de minimis errors made by the PHA or owner, nor small errors made by 
the family in reporting income. The de minimis threshold applies to all 
income reviews and calculations of a family's adjusted income for PHAs 
or owners in 1937 Act programs, 202 and 811 programs, or HOPWA grantees 
and project sponsors subject to 24 CFR part 574.
    HUD is revising this final rule (in Sec. Sec.  574.310(h), 
960.257(f), and 982.516(f)) so that rather than defining a de minimis 
error as a percentage error, de minimis errors will be errors that 
result in a difference in the determination of a family's adjusted 
income of $30 or less per month. This change will allow de minimis 
determinations to be made on a family-by-family basis and will avoid 
having to do a full portfolio review to determine if a PHA, owner, or 
grantee exceeds the threshold. In addition, using a dollar amount 
instead of a percentage will make de minimis errors easier to 
calculate. However, HUD may issue a Federal Register notice for comment 
in the future to re-define de minimis errors.
    HUD is also adding language to clarify that where a PHA, owner, or 
grantee has made a mistake resulting in the family underpaying their 
rent, the family will not be held liable for the underpaid rent, 
regardless of whether the mistake resulted in a de minimis error. This 
is in addition to language that was included in the proposed rule that

[[Page 9652]]

would require PHAs, owners, and grantees to repay or credit families 
who were overcharged due to miscalculation errors. Improper payments 
must be reconciled pursuant to existing program requirements, as HOTMA 
did not change the requirements currently in place.

Enterprise Income Verification (EIV)

    Some commenters stated that HUD should continue to require the use 
of EIV at interim reexaminations. Commenters stated that allowing PHAs 
the choice would expose PHAs to litigation risks over their decisions 
on how to verify income, and it could increase fraud and the 
misreporting of income. Commenters also stated that the information in 
the reports is significant and is needed to capture potential income 
changes.
    Other commenters agreed with the proposal to make the use of EIV 
optional at interim reexaminations. Commenters stated that the 
information is too out of date to be useful and eliminating EIV as a 
requirement will reduce the burden on PHAs and owners. Commenters 
stated that they did not believe eliminating the requirement would 
result in an increase of incorrect income calculations or improper 
payments.
    Commenters wrote that if EIV reveals at an annual examination that 
there was inaccurate information, the PHA can retroactively charge the 
family as needed. Commenters also stated that unreported income can be 
captured at annual reexaminations. Commenters stated that tenants 
should be advised that inaccurate reporting at interim reexaminations, 
discovered later, can lead to a requirement to repay any underpayments 
attributable to errors.
    Commenters also stated that the Income Validation Tool (IVT) is 
redundant of EIV and therefore should not be required, either.
    HUD Response: HUD agrees with commenters that eliminating the 
requirement that PHAs and owners use EIV for interim reexaminations 
would reduce the burden on PHAs and owners without sacrificing the 
accuracy of the interim reexaminations. Therefore, HUD is including in 
this final rule, in Sec.  5.233(a)(2)(i), language that EIV must be 
used for annual and streamlined reexaminations only and not interim 
certifications, which replaces the less specific existing regulatory 
text that EIV must be used for ``mandatory reexaminations or 
recertifications.'' While a PHA or owner may opt to use EIV at interim 
reexaminations, it is not required to do so by this final rule.
    HUD appreciates the suggestion to eliminate the required use of the 
IVT. While that is beyond the scope of this current rule, HUD will 
continue to evaluate what guidance must be updated to reflect these 
decisions.
    In addition, HUD agrees that tenants should be aware that 
inaccurately reporting income at an interim reexamination could result 
in the family having to repay the PHA or owner, which is discussed in 
current HUD guidance. HUD will evaluate the guidance to see if 
additional clarifications are warranted.

Financial Disclosures

    Commenters weighed in on the proposed changes to the financial 
disclosure requirements. One requested that the changes to the consent 
form be made effective immediately upon the effective date of the final 
rule. A commenter also stated that the termination of residency or 
subsidy should be pursued if a family member revokes consent.
    HUD Response: Section 104 of HOTMA amended the 1937 Act to allow 
for PHA discretion to determine if applicants or recipients are 
ineligible for assistance if the family revokes its authorization to 
obtain financial records. The final rule, in Sec.  5.232(c), provides 
that, in order to exercise this authority, PHAs must establish an 
admission and continued occupancy policy that revocation of consent to 
access financial records will result in denial of admission or 
termination of assistance in order to exercise this authority. Changes 
to the Authorization for the Release of Information form will coincide 
with the effective date of this final rule.

Inflation

    Commenters suggested that HUD should use the Consumer Price Index 
(CPI) as the inflation factor when various amounts in the statute are 
to be adjusted by inflation. Commenters stated that HUD uses it for 
other data purposes. Some stated that HUD should use the CPI-W, as that 
affects the Social Security COLA. A commenter opposed using Chained 
CPI-U, as the commenter stated it underestimates the official poverty 
measure and the costs that people below the poverty line face.
    Commenters stated that HUD should have a ``hold harmless'' 
provision in the case of a decrease, and that HUD should release the 
imputed passbook rate information with the release of updated income 
limits.
    Some commenters stated that HUD should allow PHAs to use an 
inflationary index that is relevant to their geographic location.
    Commenters also differed on whether HUD should use a single index 
for all inflationary adjustments. Some stated that HUD should use a 
commonly available and understood index for inflating all elements of 
the income calculation. Another commenter stated that HUD should use 
different inflationary indexes for different provisions. The commenter 
stated that passbook savings should be used to impute asset returns, 
while deductions should be adjusted by no less than the SSI COLA.
    Commenters stated that prior to applying inflation factors, HUD 
should round figures down to the nearest $1,000 for assets and $50 for 
income to reduce administrative burden by providing round numbers for 
calculation of value after inflation.
    Commenters also weighed in on when inflationary factors should be 
implemented. One commenter stated that HUD should allow PHAs to use 
Social Security and Veterans Affairs letters documenting the COLA when 
the COLA takes place, rather than requiring families to get a letter 
dated within 60 days of the PHA's request for information, as that 
would reduce burdens and speed up reexaminations. Others stated that 
HUD should provide a clear implementation date of when the inflation 
index is effective. A commenter asked for additional information on how 
long PHAs and owners have to apply the new amounts. Another recommended 
that inflationary changes be effective on January 1 of each year, 
applied on the family's next annual certification. A commenter also 
asked for specific guidance on inflationary adjustments for 
reexaminations that do not occur annually.
    Commenters stated that adjusting annual dependent deductions based 
on inflation would create a hardship, because a national factor would 
generate inequalities but creating localized factors would require too 
much data.
    HUD Response: HUD agrees with commenters that it will be less 
administratively burdensome and fairer to specify which inflationary 
factor is appropriate to adjust various amounts, as mandated by the 
HOTMA amendments. Therefore, HUD has added language throughout this 
final rule specifying that, where baseline amounts are to receive 
annual inflationary adjustments, HUD will adjust the amounts using the 
CPI-W, which HUD believes to be the most appropriate inflationary 
factor to apply consistently throughout the final rule. The COLA 
adjustment for Social Security and SSI benefits for approximately 70 
million

[[Page 9653]]

Americans is based on increases in the CPI-W and consequently many 
PHAs, owners, grantees, and families are familiar with it.

MTW

    A commenter stated that any regulatory changes due to HOTMA should 
not undercut the flexibility of the MTW program and the ability of MTW 
agencies to design and test innovative strategies.
    HUD Response: Existing MTW agreements allow for significant program 
flexibility. Those agreements continue to be in place and in effect. 
HUD remains committed to the significant program flexibility of the MTW 
program. However, as is stated in the MTW Agreement, MTW agencies 
remain subject to statutory and regulatory provisions not waived by the 
MTW Agreement and those statutory and regulatory provisions outside the 
scope of MTW waiver authority, including any changes thereto. Any 
provisions of the 1937 Act and its implementing regulations that are 
amended by HOTMA and already explicitly waived by the MTW Agreement 
will continue to be waived by the relevant provisions of the MTW 
Agreement.

RAD

    Commenters also submitted comments regarding conversions due to 
RAD. Some stated that streamlining income and rent rules, both within 
HUD and with the LIHTC program would reduce confusion and make rent 
calculations predictable.
    A commenter also stated that PHAs need to be able to earn an 
administrative fee in the first year to be able to pay for additional 
RAD-related tasks.
    HUD Response: HUD agrees that streamlining income and rent rules 
would benefit tenants and owners, and HUD is seeking to align programs 
within HUD, but many of the differences with LIHTC are outside the 
scope of this rulemaking. In addition, changes to funding under RAD are 
bound by the notices governing that program and are outside the scope 
of this rule.

Other Miscellaneous Comments

    Commenters stated that changing income and asset limits will likely 
cause an influx of individuals looking for State and local rental 
assistance and shelter.
    Commenters also wrote on the fact that PHAs and owners would have 
many more flexibilities under the new regulations. Some stated that HUD 
should require that owners have a policy on how they are implementing 
voluntary policies, to allow for consistent auditing. Others stated 
that it is not good to allow PHAs and owners discretion over program 
eligibility, because income, assets, and deductions should be uniform.
    Commenters advocated for additional administrative fees beyond 
those for RAD, asking for an increase in Section 8 administrative fees 
to ten percent and to allow for training HOPWA project sponsors on the 
new regulations. One commenter pointed out that PHAs will have to pay 
for changes in software programs.
    A commenter also asked for additional programmatic changes beyond 
what is required by HOTMA, such as repealing annual or agency plan 
requirements, eliminating the utility allowance schedule requirement, 
mandating enrollment in the FSS program, allowing computer-generated 
documents for verification to expire in 180 days instead of 60 days, 
allowing PHAs to charge minimum rents based on market conditions, 
eliminating the community service requirement, allowing triennial 
reexaminations for everyone, lowering payment standards when Congress 
reduces funding, reforming HCV portability, allowing a percentage of 
HAP and net restricted assets to supplement administrative fees lowered 
due to proration, reserving HCV funding for fully leased PHAs that have 
exhausted their budget authority and cannot maintain the lease-up 
capacity, or establishing a consistent timeline for releasing and 
finalizing HUD regulatory changes.
    HUD Response: HUD does not expect a significant decrease in those 
eligible for HUD assistance, as the vast majority of participants do 
not have assets over $100,000 or real property that is suitable for 
occupancy by the family as a residence. PHAs and owners will be 
required to update all relevant policy documents and plans, to reflect 
both new requirements from HOTMA and any new discretionary policies.
    HUD will keep the suggestions for additional funding and 
programmatic changes in mind for future budgetary, statutory and 
legislative efforts, but they are beyond the scope of this rule.

IV. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and therefore, subject to review by the Office of Management and Budget 
(OMB) in accordance with the requirements of the order. Executive Order 
13563 (Improving Regulations and Regulatory Review) directs executive 
agencies to analyze regulations that are ``outmoded, ineffective, 
insufficient, or excessively burdensome, and to modify, streamline, 
expand, or repeal them in accordance with what has been learned.'' The 
rule would update HUD regulations for various programs to conform to 
sections 102, 103, and 104 of HOTMA by listing specific criteria for 
triggering family income reviews, providing methods for calculating 
family income, revising the definition of income and adjusted income, 
setting a limit on the amount and type of assets that assisted families 
may have, revising the definition of net family assets, and requiring 
that applicants for and recipients of assistance provide authorization 
to PHAs to obtain financial records. This final rule was determined to 
be a significant regulatory action under section 3(f) of Executive 
Order 12866 (although not an economically significant regulatory action 
under the order). HUD prepared a Regulatory Impact Analysis (RIA) that 
addresses the costs and benefits of the final rule. HUD's RIA is part 
of the docket file for this rule at http://www.regulations.gov. HUD 
strongly encourages the public to view the docket file at 
www.regulations.gov.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities.
    This final rule revises HUD regulations in certain ways that will 
reduce burden or provide flexibility for PHAs and owners and other 
housing providers. The final rule provides specific events that trigger 
an interim reexamination of family income, whereas current regulations 
provide that families may request reexaminations at any time. The final 
rule provides methods for calculating family income, but also provides 
a safe harbor for PHAs and owners who determine a family's income based 
on other forms of means-tested Federal public assistance. This final 
rule also provides that applicants and recipients of assistance must 
provide authorization for PHAs to obtain financial records in order to 
verify family income.
    For the reasons presented, the undersigned certifies that this rule 
will not have a significant economic impact

[[Page 9654]]

on a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has Federalism implications if the rule 
either imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This rule would not have 
Federalism implications and would not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive Order.

Environmental Impact

    The final rule relates to establishment and review of income limits 
and exclusions with regard to eligibility for or calculation of HUD 
housing assistance or rental assistance and related external 
administrative or fiscal requirements and procedures that do not 
constitute a development decision that affects the physical condition 
of specific project areas or building sites. Accordingly, under 24 CFR 
50.19(c)(6), this final rule is categorically excluded from 
environmental review under the National Environmental Policy Act of 
1969 (42 U.S.C. 4321).

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (UMRA) establishes requirements for Federal 
agencies to assess the effects of their regulatory actions on state, 
local, and tribal governments, and on the private sector. This rule 
does not impose any Federal mandates on any state, local, or tribal 
government, or on the private sector, within the meaning of the UMRA.

Paperwork Reduction Act

    The information collection requirements contained in this final 
rule have been approved by the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and 
assigned OMB control numbers 2506-0133, 2577-0083, 2506-0215, and 2506-
0171. HUD offices will conform the burden estimates associated with 
these control numbers to changes in this final rule. In accordance with 
the Paperwork Reduction Act of 1995, 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.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers applicable to 
the programs that would be affected by this rule are: 14.157, 
14.181,14.195, 14.218, 14.239, 14.241, 14.275, 14.850, 14.856, and 
14.871.

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Claims, Crime, 
Government contracts, Grant programs--housing and community 
development, Individuals with disabilities, Intergovernmental 
relations, Loan programs--housing and community development, Low and 
moderate income housing, Mortgage insurance, Penalties, Pets, Public 
housing, Rent subsidies, Reporting and recordkeeping requirements, 
Social security, Unemployment compensation, Wages

24 CFR Part 92

    Administrative practice and procedure, Low and moderate income 
housing, Manufactured homes, Rent subsidies, and 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.

24 CFR Part 570

    Administrative practice and procedure, American Samoa, Community 
development block grants, Grant programs--education, Grant programs--
housing and community development, Guam, Indians, Loan programs--
housing and community development, Low and moderate income housing, 
Northern Mariana Islands, Pacific Islands Trust Territory, Puerto Rico, 
Reporting and recordkeeping requirements, Student aid, Virgin Islands

24 CFR Part 574

    Community facilities, Grant programs--housing and community 
development, Grant programs--social programs, HIV/AIDS, Low and 
moderate income housing, Reporting and recordkeeping requirements.

24 CFR Part 882

    Grant programs--housing and community development, Homeless, Lead 
poisoning, Manufactured homes, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 891

    Aged, Grant programs--housing and community development, 
Individuals with disabilities, Loan programs--housing and community 
development, Rent subsidies, Reporting and recordkeeping requirements.

24 CFR Part 960

    Aged, Grant programs--housing and community development, 
Individuals with disabilities, Pets, Public housing.

24 CFR Part 964

    Grant programs--housing and community development, Public housing, 
Reporting and recordkeeping requirements.

24 CFR Part 966

    Grant programs--housing and community development, Public housing, 
Reporting and recordkeeping requirements.

24 CFR Part 982

    Grant programs--housing and community development, Grant programs--
Indians, Indians, Public housing, Rent subsidies, Reporting and 
recordkeeping requirements.

    Accordingly, for the reasons described in the preamble, HUD amends 
24 CFR parts 5, 92, 93, 570, 574, 882, 891, 960, 964, 966, and 982 as 
follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

0
1. The authority citation for part 5 continues to read as follows:

    Authority:  12 U.S.C. 1701x; 42 U.S.C. 1437a, 1437c, 1437f, 
1437n, 3535(d); Sec. 327, Pub. L. 109-115, 119 Stat. 2396; Sec. 607, 
Pub. L. 109-162, 119 Stat. 3051 (42 U.S.C. 14043e et seq.); E.O. 
13279, 67 FR 77141, 3 CFR, 2002 Comp., p. 258; E.O. 13559, 75 FR 
71319, 3 CFR, 2010 Comp., p. 273; E.O 13831, 83 FR 20715, 3 CFR, 
2018 Comp., p. 806; 42 U.S.C. 2000bb et seq.


0
2. Effective January 1, 2024, in Sec.  5.100, add alphabetically the 
definitions ``Earned income'', ``Real property'', and ``Unearned 
income'' to read as follows:


Sec.  5.100  Definitions.

* * * * *
    Earned income means income or earnings from wages, tips, salaries, 
other employee compensation, and net income from self-employment. 
Earned

[[Page 9655]]

income does not include any pension or annuity, transfer payments 
(meaning payments made or income received in which no goods or services 
are being paid for, such as welfare, social security, and governmental 
subsidies for certain benefits), or any cash or in-kind benefits.
* * * * *
    Real property as used in this part has the same meaning as that 
provided under the law of the State in which the property is located.
* * * * *
    Unearned income means any annual income, as calculated under Sec.  
5.609, that is not earned income.
* * * * *

0
3. Effective January 1, 2024, in Sec.  5.210, revise the second 
sentence in paragraph (a) and the first sentence in paragraph (b)(2) to 
read as follows:


Sec.  5.210  Purpose, applicability, and Federal preemption.

    (a) * * * This subpart B also enables HUD and PHAs to obtain income 
information about applicants and participants in the covered programs 
through computer matches with State Wage Information Collection 
Agencies (SWICAs) and Federal agencies, and from financial institutions 
and employers, in order to verify an applicant's or participant's 
eligibility for or level of assistance. * * *
    (b) * * *
    (2) The information covered by consent forms described in this 
subpart involves income information from SWICAs, wages, income, and 
resource information from financial institutions, net earnings from 
self-employment, payments of retirement income, and unearned income as 
referenced at 26 U.S.C. 6103. * * *
* * * * *

0
4. Effective January 1, 2024, in Sec.  5.230, revise paragraphs (b)(1), 
(b)(2), and (c)(4), and add paragraph (c)(5) to read as follows:


Sec.  5.230  Consent by assistance applicants and participants.

* * * * *
    (b) * * *
    (1) Applicants. The assistance applicant must submit the signed 
consent forms to the processing entity when eligibility under a covered 
program is being determined.
    (2) Subsequent consent forms. Prior to January 1, 2024, 
participants signed and submitted consent forms at each regularly 
scheduled income reexamination. On or after January 1, 2024, a 
participant must sign and submit consent forms at their next interim or 
regularly scheduled income reexamination. After all applicants or 
participants over the age of 18 in a family have signed and submitted a 
consent form once on or after January 1, 2024, family members do not 
need to sign and submit subsequent consent forms at the next interim or 
regularly scheduled income examination except under the following 
circumstances:
    (i) When any person 18 years or older becomes a member of the 
family, that family member must sign and submit a consent form;
    (ii) When a member of the family turns 18 years of age, that family 
member must sign and submit a consent form; or
    (iii) As required by HUD or the PHA in administrative instructions.
    (c) * * *
    (4) A provision authorizing PHAs to obtain any financial record 
from any financial institution, as the terms financial record and 
financial institution are defined in the Right to Financial Privacy Act 
(12 U.S.C. 3401), whenever the PHA determines the record is needed to 
determine an applicant's or participant's eligibility for assistance or 
level of benefits; and
    (5) A statement that the authorization to release the information 
requested by the consent form will remain effective until the earliest 
of:
    (i) The rendering of a final adverse decision for an assistance 
applicant;
    (ii) The cessation of a participant's eligibility for assistance 
from HUD and the PHA; or
    (iii) The express revocation by the assistance applicant or 
recipient (or applicable family member) of the authorization, in a 
written notification to HUD.

0
5. Effective January 1, 2024, in Sec.  5.232, add paragraph (c) to read 
as follows:


Sec.  5.232  Penalties for failing to sign consent form.

* * * * *
    (c) This section does not apply if the applicant or participant, or 
any member of the assistance applicant's or participant's family 
revokes his/her consent with respect to the ability of the PHA to 
access financial records from financial institutions, unless the PHA 
establishes an admission and occupancy policy that revocation of 
consent to access financial records will result in denial or 
termination of assistance or admission.

0
6. Effective January 1, 2024, in Sec.  5.233, revise paragraph 
(a)(2)(i) to read as follows:


Sec.  5.233  Mandated use of HUD's Enterprise Income Verification (EIV) 
System.

    (a) * * *
    (2) * * *
    (i) As a third-party source to verify tenant employment and income 
information during annual and streamlined reexaminations of family 
composition and income, in accordance with Sec.  5.236 and 
administrative guidance issued by HUD; and
* * * * *

0
7. Effective January 1, 2024, in Sec.  5.403, revise the definition of 
``Family'' to read as follows:


Sec.  5.403  Definitions.

* * * * *
    Family includes, but is not limited to, the following, regardless 
of actual or perceived sexual orientation, gender identity, or marital 
status:
    (1) A single person, who may be:
    (i) An elderly person, displaced person, disabled person, near-
elderly person, or any other single person;
    (ii) An otherwise eligible youth who has attained at least 18 years 
of age and not more than 24 years of age and who has left foster care, 
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 (42 U.S.C. 675(5)(H)), and is homeless or is at risk of becoming 
homeless at age 16 or older; or
    (2) A group of persons residing together, and such group includes, 
but is not limited to:
    (i) A family with or without children (a child who is temporarily 
away from the home because of placement in foster care is considered a 
member of the family);
    (ii) An elderly family;
    (iii) A near-elderly family;
    (iv) A disabled family;
    (v) A displaced family; and
    (vi) The remaining member of a tenant family.
* * * * *


Sec.  5.520  [Amended]

0
8. Effective March 16, 2023, in Sec.  5.520(d)(1) introductory text, 
add ``, except as provided in Sec.  960.507 of this title,'' after 
``the family's assistance''.

0
9. Effective January 1, 2024, in Sec.  5.601, revise paragraphs (d) and 
(e) to read as follows:


Sec.  5.601  Purpose and applicability.

* * * * *
    (d) Determining adjusted income, as provided in Sec.  5.611(a) and 
(c) through (e), for families who apply for or receive assistance under 
the following programs: Section 202 Supportive

[[Page 9656]]

Housing Program for the Elderly (24 CFR 891, subpart B); Section 202 
Direct Loans for Housing for the Elderly and Persons with Disabilities 
(24 CFR part 891, subpart E); and the Section 811 Supportive Housing 
for Persons with Disabilities (24 CFR part 891, subpart C). Unless 
specified in the regulations for each of the programs listed in this 
paragraph (d) or in another regulatory section of this part 5, subpart 
F, then the regulations in part 5, subpart F, generally are not 
applicable to these programs; and
    (e) Limitations on eligibility for assistance based on assets, as 
provided in Sec.  5.618, in the Section 8 (tenant-based and project-
based) and public housing programs.

0
10. Effective January 1, 2024, amend Sec.  5.603(b) by:
0
a. Adding in alphabetical order definitions for ``Day laborer'', 
``Foster adult'', ``Foster child'', ``Health and medical care 
expenses'', ``Independent contractor'', and ``Minor'';
0
b. Revising the definitions for ``Net family assets'', and 
``Responsible entity''; and
0
c. Adding in alphabetical order the definition of ``Seasonal worker''.
    The additions and revisions read as follows:


Sec.  5.603  Definitions.

* * * * *
    (b) * * *
    Day laborer. An individual hired and paid one day at a time without 
an agreement that the individual will be hired or work again in the 
future.
* * * * *
    Dependent. A member of the family (which excludes foster children 
and foster adults) other than the family head or spouse who is under 18 
years of age, or is a person with a disability, or is a full-time 
student.
* * * * *
    Foster adult. A member of the household who is 18 years of age or 
older and meets the definition of a foster adult under State law. In 
general, a foster adult is a person who is 18 years of age or older, is 
unable to live independently due to a debilitating physical or mental 
condition and is placed with the family by an authorized placement 
agency or by judgment, decree, or other order of any court of competent 
jurisdiction.
    Foster child. A member of the household who meets the definition of 
a foster child under State law. In general, a foster child is placed 
with the family by an authorized placement agency (e.g., public child 
welfare agency) or by judgment, decree, or other order of any court of 
competent jurisdiction.
* * * * *
    Health and medical care expenses. Health and medical care expenses 
are any costs incurred in the diagnosis, cure, mitigation, treatment, 
or prevention of disease or payments for treatments affecting any 
structure or function of the body. Health and medical care expenses 
include medical insurance premiums and long-term care premiums that are 
paid or anticipated during the period for which annual income is 
computed.
* * * * *
    Independent contractor. An individual who qualifies as an 
independent contractor instead of an employee in accordance with the 
Internal Revenue Code Federal income tax requirements and whose 
earnings are consequently subject to the Self-Employment Tax. In 
general, an individual is an independent contractor if the payer has 
the right to control or direct only the result of the work and not what 
will be done and how it will be done.
* * * * *
    Minor. A member of the family, other than the head of family or 
spouse, who is under 18 years of age.
* * * * *
    Net family assets. (1) Net family assets is the net cash value of 
all assets owned by the family, after deducting reasonable costs that 
would be incurred in disposing real property, savings, stocks, bonds, 
and other forms of capital investment.
    (2) In determining net family assets, PHAs or owners, as 
applicable, must include the value of any business or family assets 
disposed of by an applicant or tenant for less than fair market value 
(including a disposition in trust, but not in a foreclosure or 
bankruptcy sale) during the two years preceding the date of application 
for the program or reexamination, as applicable, in excess of the 
consideration received therefor. In the case of a disposition as part 
of a separation or divorce settlement, the disposition will not be 
considered to be for less than fair market value if the applicant or 
tenant receives consideration not measurable in dollar terms. Negative 
equity in real property or other investments does not prohibit the 
owner from selling the property or other investments, so negative 
equity alone would not justify excluding the property or other 
investments from family assets.
    (3) Excluded from the calculation of net family assets are:
    (i) The value of necessary items of personal property;
    (ii) The combined value of all non-necessary items of personal 
property if the combined total value does not exceed $50,000 (which 
amount will be adjusted by HUD in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Workers);
    (iii) The value of any account under a retirement plan recognized 
as such by the Internal Revenue Service, including individual 
retirement arrangements (IRAs), employer retirement plans, and 
retirement plans for self-employed individuals;
    (iv) The value of real property that the family does not have the 
effective legal authority to sell in the jurisdiction in which the 
property is located;
    (v) Any amounts recovered in any civil action or settlement based 
on a claim of malpractice, negligence, or other breach of duty owed to 
a family member arising out of law, that resulted in a family member 
being a person with a disability;
    (vi) The value of any Coverdell education savings account under 
section 530 of the Internal Revenue Code of 1986, the value of any 
qualified tuition program under section 529 of such Code, the value of 
any Achieving a Better Life Experience (ABLE) account authorized under 
Section 529A of such Code, and the value of any ``baby bond'' account 
created, authorized, or funded by Federal, State, or local government.
    (vii) Interests in Indian trust land;
    (viii) Equity in a manufactured home where the family receives 
assistance under 24 CFR part 982;
    (ix) Equity in property under the Homeownership Option for which a 
family receives assistance under 24 CFR part 982;
    (x) Family Self-Sufficiency Accounts; and
    (xi) Federal tax refunds or refundable tax credits for a period of 
12 months after receipt by the family.
    (4) In cases where a trust fund has been established and the trust 
is not revocable by, or under the control of, any member of the family 
or household, the trust fund is not a family asset and the value of the 
trust is not included in the calculation of net family assets, so long 
as the fund continues to be held in a trust that is not revocable by, 
or under the control of, any member of the family or household.
* * * * *
    Responsible entity. For Sec.  5.611, in addition to the definition 
of ``responsible entity'' in Sec.  5.100, ``responsible entity'' means:

[[Page 9657]]

    (1) For the Section 202 Supportive Housing Program for the Elderly, 
the ``Owner'' as defined in 24 CFR 891.205;
    (2) For the Section 202 Direct Loans for Housing for the Elderly 
and Persons with Disabilities, the ``Borrower'' as defined in 24 CFR 
891.505; and
    (3) For the Section 811 Supportive Housing Program for Persons with 
Disabilities, the ``Owner'' as defined in 24 CFR 891.305.
    Seasonal worker. An individual who is hired into a short-term 
position and the employment begins about the same time each year (such 
as summer or winter). Typically, the individual is hired to address 
seasonal demands that arise for the particular employer or industry.
* * * * *
0
11. Effective January 1, 2024, revise Sec.  5.609 to read as follows:


Sec.  5.609  Annual income.

    (a) Annual income includes, with respect to the family:
    (1) All amounts, not specifically excluded in paragraph (b) of this 
section, received from all sources by each member of the family who is 
18 years of age or older or is the head of household or spouse of the 
head of household, plus unearned income by or on behalf of each 
dependent who is under 18 years of age, and
    (2) When the value of net family assets exceeds $50,000 (which 
amount HUD will adjust annually in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Workers) and the actual 
returns from a given asset cannot be calculated, imputed returns on the 
asset based on the current passbook savings rate, as determined by HUD.
    (b) Annual income does not include the following:
    (1) Any imputed return on an asset when net family assets total 
$50,000 or less (which amount HUD will adjust annually in accordance 
with the Consumer Price Index for Urban Wage Earners and Clerical 
Workers) and no actual income from the net family assets can be 
determined.
    (2) The following types of trust distributions:
    (i) For an irrevocable trust or a revocable trust outside the 
control of the family or household excluded from the definition of net 
family assets under Sec.  5.603(b):
    (A) Distributions of the principal or corpus of the trust; and
    (B) Distributions of income from the trust when the distributions 
are used to pay the costs of health and medical care expenses for a 
minor.
    (ii) For a revocable trust under the control of the family or 
household, any distributions from the trust; except that any actual 
income earned by the trust, regardless of whether it is distributed, 
shall be considered income to the family at the time it is received by 
the trust.
    (3) Earned income of children under the 18 years of age.
    (4) Payments received for the care of foster children or foster 
adults, or State or Tribal kinship or guardianship care payments.
    (5) Insurance payments and settlements for personal or property 
losses, including but not limited to payments through health insurance, 
motor vehicle insurance, and workers' compensation.
    (6) Amounts received by the family that are specifically for, or in 
reimbursement of, the cost of health and medical care expenses for any 
family member.
    (7) Any amounts recovered in any civil action or settlement based 
on a claim of malpractice, negligence, or other breach of duty owed to 
a family member arising out of law, that resulted in a member of the 
family becoming disabled.
    (8) Income of a live-in aide, foster child, or foster adult as 
defined in Sec. Sec.  5.403 and 5.603, respectively.
    (9)(i) Any assistance that section 479B of the Higher Education Act 
of 1965, as amended (20 U.S.C. 1087uu), requires be excluded from a 
family's income; and
    (ii) Student financial assistance for tuition, books, and supplies 
(including supplies and equipment to support students with learning 
disabilities or other disabilities), room and board, and other fees 
required and charged to a student by an institution of higher education 
(as defined under Section 102 of the Higher Education Act of 1965 (20 
U.S.C. 1002)) and, for a student who is not the head of household or 
spouse, the reasonable and actual costs of housing while attending the 
institution of higher education and not residing in an assisted unit.
    (A) Student financial assistance, for purposes of this paragraph 
(9)(ii), means a grant or scholarship received from--
    (1) The Federal government;
    (2) A State, Tribe, or local government;
    (3) A private foundation registered as a nonprofit under 26 U.S.C. 
501(c)(3);
    (4) A business entity (such as corporation, general partnership, 
limited liability company, limited partnership, joint venture, business 
trust, public benefit corporation, or nonprofit entity); or
    (5) An institution of higher education.
    (B) Student financial assistance, for purposes of this paragraph 
(9)(ii), does not include--
    (1) Any assistance that is excluded pursuant to paragraph (b)(9)(i) 
of this section;
    (2) Financial support provided to the student in the form of a fee 
for services performed (e.g., a work study or teaching fellowship that 
is not excluded pursuant to paragraph (b)(9)(i) of this section);
    (3) Gifts, including gifts from family or friends; or
    (4) Any amount of the scholarship or grant that, either by itself 
or in combination with assistance excluded under this paragraph or 
paragraph (b)(9)(i), exceeds the actual covered costs of the student. 
The actual covered costs of the student are the actual costs of 
tuition, books and supplies (including supplies and equipment to 
support students with learning disabilities or other disabilities), 
room and board, or other fees required and charged to a student by the 
education institution, and, for a student who is not the head of 
household or spouse, the reasonable and actual costs of housing while 
attending the institution of higher education and not residing in an 
assisted unit. This calculation is described further in paragraph 
(b)(9)(ii)(E) of this section.
    (C) Student financial assistance, for purposes of this paragraph 
(b)(9)(ii) must be:
    (1) Expressly for tuition, books, room and board, or other fees 
required and charged to a student by the education institution;
    (2) Expressly to assist a student with the costs of higher 
education; or
    (3) Expressly to assist a student who is not the head of household 
or spouse with the reasonable and actual costs of housing while 
attending the education institution and not residing in an assisted 
unit.
    (D) Student financial assistance, for purposes of this paragraph 
(b)(9)(ii), may be paid directly to the student or to the educational 
institution on the student's behalf. Student financial assistance paid 
to the student must be verified by the responsible entity as student 
financial assistance consistent with this paragraph (b)(9)(ii).
    (E) When the student is also receiving assistance excluded under 
paragraph (b)(9)(i) of this section, the amount of student financial 
assistance under this paragraph (b)(9)(ii) is determined as follows:
    (1) If the amount of assistance excluded under paragraph (b)(9)(i) 
of this section is equal to or exceeds the actual covered costs under 
paragraph

[[Page 9658]]

(b)(9)(ii)(B)(4) of this section, none of the assistance described in 
this paragraph (b)(9)(ii) of this section is considered student 
financial assistance excluded from income under this paragraph 
(b)(9)(ii)(E).
    (2) If the amount of assistance excluded under paragraph (b)(9)(i) 
of this section is less than the actual covered costs under paragraph 
(b)(9)(ii)(B)(4) of this section, the amount of assistance described in 
paragraph (b)(9)(ii) of this section that is considered student 
financial assistance excluded under this paragraph is the lower of:
    (i) the total amount of student financial assistance received under 
this paragraph (b)(9)(ii) of this section, or
    (ii) the amount by which the actual covered costs under paragraph 
(b)(9)(ii)(B)(4) of this section exceeds the assistance excluded under 
paragraph (b)(9)(i) of this section.
    (10) Income and distributions from any Coverdell education savings 
account under section 530 of the Internal Revenue Code of 1986 or any 
qualified tuition program under section 529 of such Code; and income 
earned by government contributions to, and distributions from, ``baby 
bond'' accounts created, authorized, or funded by Federal, State, or 
local government.
    (11) The special pay to a family member serving in the Armed Forces 
who is exposed to hostile fire.
    (12)(i) Amounts received by a person with a disability that are 
disregarded for a limited time for purposes of Supplemental Security 
Income eligibility and benefits because they are set aside for use 
under a Plan to Attain Self-Sufficiency (PASS);
    (ii) Amounts received by a participant in other publicly assisted 
programs which are specifically for or in reimbursement of out-of-
pocket expenses incurred (e.g., special equipment, clothing, 
transportation, child care, etc.) and which are made solely to allow 
participation in a specific program;
    (iii) Amounts received under a resident service stipend not to 
exceed $200 per month. A resident service stipend is a modest amount 
received by a resident for performing a service for the PHA or owner, 
on a part-time basis, that enhances the quality of life in the 
development.
    (iv) Incremental earnings and benefits resulting to any family 
member from participation in training programs funded by HUD or in 
qualifying Federal, State, Tribal, or local employment training 
programs (including training programs not affiliated with a local 
government) and training of a family member as resident management 
staff. Amounts excluded by this provision must be received under 
employment training programs with clearly defined goals and objectives 
and are excluded only for the period during which the family member 
participates in the employment training program unless those amounts 
are excluded under paragraph (b)(9)(i) of this section.
    (13) Reparation payments paid by a foreign government pursuant to 
claims filed under the laws of that government by persons who were 
persecuted during the Nazi era.
    (14) Earned income of dependent full-time students in excess of the 
amount of the deduction for a dependent in Sec.  5.611.
    (15) Adoption assistance payments for a child in excess of the 
amount of the deduction for a dependent in Sec.  5.611.
    (16) Deferred periodic amounts from Supplemental Security Income 
and Social Security benefits that are received in a lump sum amount or 
in prospective monthly amounts, or any deferred Department of Veterans 
Affairs disability benefits that are received in a lump sum amount or 
in prospective monthly amounts.
    (17) Payments related to aid and attendance under 38 U.S.C. 1521 to 
veterans in need of regular aid and attendance.
    (18) Amounts received by the family in the form of refunds or 
rebates under State or local law for property taxes paid on the 
dwelling unit.
    (19) Payments made by or authorized by a State Medicaid agency 
(including through a managed care entity) or other State or Federal 
agency to a family to enable a family member who has a disability to 
reside in the family's assisted unit. Authorized payments may include 
payments to a member of the assisted family through the State Medicaid 
agency (including through a managed care entity) or other State or 
Federal agency for caregiving services the family member provides to 
enable a family member who has a disability to reside in the family's 
assisted unit.
    (20) Loan proceeds (the net amount disbursed by a lender to or on 
behalf of a borrower, under the terms of a loan agreement) received by 
the family or a third party (e.g., proceeds received by the family from 
a private loan to enable attendance at an educational institution or to 
finance the purchase of a car).
    (21) Payments received by Tribal members as a result of claims 
relating to the mismanagement of assets held in trust by the United 
States, to the extent such payments are also excluded from gross income 
under the Internal Revenue Code or other Federal law.
    (22) Amounts that HUD is required by Federal statute to exclude 
from consideration as income for purposes of determining eligibility or 
benefits under a category of assistance programs that includes 
assistance under any program to which the exclusions set forth in 
paragraph (b) of this section apply. HUD will publish a notice in the 
Federal Register to identify the benefits that qualify for this 
exclusion. Updates will be published when necessary.
    (23) Replacement housing ``gap'' payments made in accordance with 
49 CFR part 24 that offset increased out of pocket costs of displaced 
persons that move from one federally subsidized housing unit to another 
Federally subsidized housing unit. Such replacement housing ``gap'' 
payments are not excluded from annual income if the increased cost of 
rent and utilities is subsequently reduced or eliminated, and the 
displaced person retains or continues to receive the replacement 
housing ``gap'' payments.
    (24) Nonrecurring income, which is income that will not be repeated 
in the coming year based on information provided by the family. Income 
received as an independent contractor, day laborer, or seasonal worker 
is not excluded from income under this paragraph, even if the source, 
date, or amount of the income varies. Nonrecurring income includes:
    (i) Payments from the U.S. Census Bureau for employment (relating 
to decennial census or the American Community Survey) lasting no longer 
than 180 days and not culminating in permanent employment.
    (ii) Direct Federal or State payments intended for economic 
stimulus or recovery.
    (iii) Amounts directly received by the family as a result of State 
refundable tax credits or State tax refunds at the time they are 
received.
    (iv) Amounts directly received by the family as a result of Federal 
refundable tax credits and Federal tax refunds at the time they are 
received.
    (v) Gifts for holidays, birthdays, or other significant life events 
or milestones (e.g., wedding gifts, baby showers, anniversaries).
    (vi) Non-monetary, in-kind donations, such as food, clothing, or 
toiletries, received from a food bank or similar organization.
    (vii) Lump-sum additions to net family assets, including but not 
limited to lottery or other contest winnings.
    (25) Civil rights settlements or judgments, including settlements 
or judgments for back pay.
    (26) Income received from any account under a retirement plan

[[Page 9659]]

recognized as such by the Internal Revenue Service, including 
individual retirement arrangements (IRAs), employer retirement plans, 
and retirement plans for self-employed individuals; except that any 
distribution of periodic payments from such accounts shall be income at 
the time they are received by the family.
    (27) Income earned on amounts placed in a family's Family Self 
Sufficiency Account.
    (28) Gross income a family member receives through self-employment 
or operation of a business; except that the following shall be 
considered income to a family member:
    (i) Net income from the operation of a business or profession. 
Expenditures for business expansion or amortization of capital 
indebtedness shall not be used as deductions in determining net income. 
An allowance for depreciation of assets used in a business or 
profession may be deducted, based on straight line depreciation, as 
provided in Internal Revenue Service regulations; and
    (ii) Any withdrawal of cash or assets from the operation of a 
business or profession will be included in income, except to the extent 
the withdrawal is reimbursement of cash or assets invested in the 
operation by the family.
    (c) Calculation of Income. The PHA or owner must calculate family 
income as follows:
    (1) Initial occupancy or assistance and interim reexaminations. The 
PHA or owner must estimate the income of the family for the upcoming 
12-month period:
    (i) To determine family income for initial occupancy or for the 
initial provision of housing assistance; or
    (ii) To determine family income for an interim reexamination of 
family income under Sec. Sec.  5.657(c), 960.257(b), or 982.516(c) of 
this title.
    (2) Annual Reexaminations. (i) The PHA or owner must determine the 
income of the family for the previous 12-month period and use this 
amount as the family income for annual reexaminations, except where the 
PHA or owner uses a streamlined income determination under Sec. Sec.  
5.657(d), 960.257(c), or 982.516(b) of this title.
    (ii) In determining the income of the family for the previous 12-
month period, the PHA or owner must take into consideration any 
redetermination of income during the previous 12-month period resulting 
from an interim reexamination of family income under Sec. Sec.  
5.657(c), 960.257(b), or 982.516(c) of this title.
    (iii) The PHA or owner must make adjustments to reflect current 
income if there was a change in income during the previous 12-month 
period that was not accounted for in a redetermination of income.
    (3) Use of other programs' determination of income. (i) The PHA or 
owner may, using the verification methods in paragraph (c)(3)(ii) of 
this section, determine the family's income prior to the application of 
any deductions applied in accordance with Sec.  5.611 based on income 
determinations made within the previous 12-month period for purposes of 
the following means-tested forms of Federal public assistance:
    (A) The Temporary Assistance for Needy Families block grant (42 
U.S.C. 601, et seq.).
    (B) Medicaid (42 U.S.C. 1396 et seq.).
    (C) The Supplemental Nutrition Assistance Program (42 U.S.C. 2011 
et seq.).
    (D) The Earned Income Tax Credit (26 U.S.C. 32).
    (E) The Low-Income Housing Credit (26 U.S.C. 42).
    (F) The Special Supplemental Nutrition Program for Woman, Infants, 
and Children (42 U.S.C. 1786).
    (G) Supplemental Security Income (42 U.S.C. 1381 et seq.).
    (H) Other programs administered by the Secretary.
    (I) Other means-tested forms of Federal public assistance for which 
HUD has established a memorandum of understanding.
    (J) Other Federal benefit determinations made in other forms of 
means-tested Federal public assistance that the Secretary determines to 
have comparable reliability and announces through the Federal Register.
    (ii) If a PHA or owner intends to use the annual income 
determination made by an administrator for allowable forms of Federal 
means-tested public assistance under this paragraph (c)(3), the PHA or 
owner must obtain it using the appropriate third-party verification. If 
the appropriate third-party verification is unavailable, or if the 
family disputes the determination made for purposes of the other form 
of Federal means-tested public assistance, the PHA or owner must 
calculate annual income in accordance with 24 CFR part 5, subpart F. 
The verification must indicate the tenant's family size and composition 
and state the amount of the family's annual income. The verification 
must also meet all HUD requirements related to the length of time that 
is permitted before the third-party verification is considered out-of-
date and is no longer an eligible source of income verification.
    (4) De minimis errors. The PHA or owner will not be considered out 
of compliance with the requirements in this paragraph (c) solely due to 
de minimis errors in calculating family income. A de minimis error is 
an error where the PHA or owner determination of family income deviates 
from the correct income determination by no more than $30 per month in 
monthly adjusted income ($360 in annual adjusted income) per family.
    (i) The PHA or owner must still take any corrective action 
necessary to credit or repay a family if the family has been 
overcharged for their rent or family share as a result of the de 
minimis error in the income determination, but families will not be 
required to repay the PHA or owner in instances where a PHA or owner 
has miscalculated income resulting in a family being undercharged for 
rent or family share.
    (ii) HUD may revise the amount of de minimis error in this 
paragraph (c)(4) through a rulemaking published in the Federal Register 
for public comment.

0
12. Effective January 1, 2024, revise Sec.  5.611 to read as follows:


Sec.  5.611  Adjusted income.

    Adjusted income means annual income (as determined under Sec.  
5.609) of the members of the family residing or intending to reside in 
the dwelling unit, after making the following deductions:
    (a) Mandatory deductions. (1) $480 for each dependent, which amount 
will be adjusted by HUD annually in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Workers, rounded to the next 
lowest multiple of $25;
    (2) $525 for any elderly family or disabled family, which amount 
will be adjusted by HUD annually in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Workers, rounded to the next 
lowest multiple of $25;
    (3) The sum of the following, to the extent the sum exceeds ten 
percent of annual income:
    (i) Unreimbursed health and medical care expenses of any elderly 
family or disabled family; and
    (ii) Unreimbursed reasonable attendant care and auxiliary apparatus 
expenses for each member of the family who is a person with a 
disability, to the extent necessary to enable any member of the family 
(including the member who is a person with a disability) to be 
employed. This deduction may not exceed the combined earned income 
received by family members who are 18 years of age or older and who are 
able to work because of such attendant care or auxiliary apparatus; and

[[Page 9660]]

    (4) Any reasonable child care expenses necessary to enable a member 
of the family to be employed or to further his or her education.
    (b) Additional deductions. (1) For public housing, the Housing 
Choice Voucher (HCV) and the Section 8 moderate rehabilitation programs 
(including the moderate rehabilitation Single-Room Occupancy (SRO) 
program), a PHA may adopt additional deductions from annual income.
    (i) Public housing. A PHA that adopts such deductions will not be 
eligible for an increase in Capital Fund and Operating Fund formula 
grants based on the application of such deductions. The PHA must 
establish a written policy for such deductions.
    (ii) HCV, moderate rehabilitation, and moderate rehabilitation 
Single-Room Occupancy (SRO) programs. A PHA that adopts such deductions 
must have sufficient funding to cover the increased housing assistance 
payment cost of the deductions. A PHA will not be eligible for an 
increase in HCV renewal funding or moderate rehabilitation program 
funding for subsidy costs resulting from such deductions. For the HCV 
program, the PHA must include such deductions in its administrative 
plan. For moderate rehabilitation, the PHA must establish a written 
policy for such deductions.
    (2) For the HUD programs listed in Sec.  5.601(d), the responsible 
entity must calculate such other deductions as required and permitted 
by the applicable program regulations.
    (c) Financial hardship exemption for unreimbursed health and 
medical care expenses and reasonable attendant care and auxiliary 
apparatus expenses. (1) Phased-in relief. This paragraph provides 
financial hardship relief for families affected by the statutory 
increase in the threshold to receive health and medical care expense 
and reasonable attendant care and auxiliary apparatus expense 
deductions from annual income.
    (i) Eligibility for relief. To receive hardship relief under this 
paragraph (c)(1), the family must have received a deduction from annual 
income because their sum of expenses under paragraph (a)(3) of this 
section exceeded 3 percent of annual income as of January 1, 2024.
    (ii) Form of relief. (A) The family will receive a deduction 
totaling the sum of the expenses under paragraph (a)(3) of this section 
that exceed 5 percent of annual income.
    (B) Twelve months after the relief in this paragraph (c)(1)(ii) is 
provided, the family must receive a deduction totaling the sum of 
expenses under paragraph (a)(3) of this section that exceed 7.5 percent 
of annual income.
    (C) Twenty-four months after the relief in this paragraph 
(c)(1)(ii) is provided, the family must receive a deduction totaling 
the sum of expenses under paragraph (a)(3) of this section that exceed 
ten percent of annual income and the only remaining relief that may be 
available to the family will be paragraph (d)(1) of this section.
    (D) A family may request hardship relief under paragraph (c)(2) of 
this section prior to the end of the twenty-four-month transition 
period. If a family making such a request is determined eligible for 
hardship relief under paragraph (c)(2) of this section, hardship relief 
under this paragraph ends and the family's hardship relief shall be 
administered in accordance with paragraph (c)(2) of this section. Once 
a family chooses to obtain relief under paragraph (c)(2) of this 
section, a family may no longer receive relief under this paragraph.
    (2) General. This paragraph (c)(2) provides financial relief for an 
elderly or disabled family or a family that includes a person with 
disabilities that is experiencing a financial hardship.
    (i) Eligibility for relief. (A) To receive hardship relief under 
this paragraph (c)(2), a family must demonstrate that the family's 
applicable health and medical care expenses or reasonable attendant 
care and auxiliary apparatus expenses increased or the family's 
financial hardship is a result of a change in circumstances (as defined 
by the responsible entity) that would not otherwise trigger an interim 
reexamination.
    (B) Relief under this paragraph (c)(2) is available regardless of 
whether the family previously received deductions under paragraph 
(a)(3) of this section, is currently receiving relief under paragraph 
(c)(1) of this section, or previously received relief under paragraph 
(c)(1) of this section.
    (ii) Form and duration of relief. (A) The family will receive a 
deduction for the sum of the eligible expenses in paragraph (a)(3) of 
this section that exceed 5 percent of annual income.
    (B) The family's hardship relief ends when the circumstances that 
made the family eligible for the relief are no longer applicable or 
after 90 days, whichever comes earlier. However, responsible entities 
may, at their discretion, extend the relief for one or more additional 
90-day periods while the family's hardship condition continues.
    (d) Exemption to continue child care expense deduction. A family 
whose eligibility for the child care expense deduction is ending may 
request a financial hardship exemption to continue the child care 
expense deduction under paragraph (a)(4) of this section. The 
responsible entity must recalculate the family's adjusted income and 
continue the child care deduction if the family demonstrates to the 
responsible entity's satisfaction that the family is unable to pay 
their rent because of loss of the child care expense deduction, and the 
child care expense is still necessary even though the family member is 
no longer employed or furthering his or her education. The hardship 
exemption and the resulting alternative adjusted income calculation 
must remain in place for a period of up to 90 days. Responsible 
entities, at their discretion, may extend such hardship exemptions for 
additional 90-day periods based on family circumstances.
    (e) Hardship policy requirements. (1) Responsible entity 
determination of family's inability to pay the rent. The responsible 
entity must establish a policy on how it defines what constitutes a 
hardship under paragraphs (c) and (d) of this section, which includes 
determining the family's inability to pay the rent, for purposes of 
determining eligibility for a hardship exemption under paragraph (d) of 
this section.
    (2) Family notification. The responsible entity must promptly 
notify the family in writing of the change in the determination of 
adjusted income and the family's rent resulting from the hardship 
exemption. The notice must also inform the family of when the hardship 
exemption will begin and expire (i.e., the time periods specified under 
paragraph (c)(1)(ii) of this section or within 90 days or at such time 
as the responsibility entity determines the exemption is no longer 
necessary in accordance with paragraphs (c)(2)(ii)(B) or (d) of this 
section).
0
13. Effective January 1, 2024, amend Sec.  5.617 by adding paragraphs 
(e) and (f) to read as follows:


Sec.  5.617  Self-sufficiency incentives for persons with 
disabilities--Disallowance of increase in annual income.

* * * * *
    (e) Limitation. This section applies to a family that is receiving 
the disallowance of earned income under this section on December 31, 
2023
    (f) Sunset. This section will lapse on January 1, 2026.
0
14. Effective January 1, 2024, add Sec.  5.618 to subpart F to read as 
follows:


Sec.  5.618  Restriction on assistance to families based on assets.

    (a) Restrictions based on net assets and property ownership. (1) A 
dwelling unit in the public housing program may

[[Page 9661]]

not be rented, and assistance under the Section 8 (tenant-based and 
project-based) programs may not be provided, either initially or upon 
reexamination of family income, to any family if:
    (i) The family's net assets (as defined in Sec.  5.603) exceed 
$100,000, which amount will be adjusted annually by HUD in accordance 
with the Consumer Price Index for Urban Wage Earners and Clerical 
Workers; or
    (ii) The family has a present ownership interest in, a legal right 
to reside in, and the effective legal authority to sell, based on State 
or local laws of the jurisdiction where the property is located, real 
property that is suitable for occupancy by the family as a residence, 
except this real property restriction does not apply to:
    (A) Any property for which the family is receiving assistance under 
24 CFR 982.620; or under the Homeownership Option in 24 CFR part 982;
    (B) Any property that is jointly owned by a member of the family 
and at least one non-household member who does not live with the 
family, if the non-household member resides at the jointly owned 
property;
    (C) Any person who is a victim of domestic violence, dating 
violence, sexual assault, or stalking, as defined in this part 5 
(subpart L); or
    (D) Any family that is offering such property for sale.
    (2) A property will be considered ``suitable for occupancy'' under 
paragraph (a)(1)(ii) of this section unless the family demonstrates 
that it:
    (i) Does not meet the disability-related needs for all members of 
the family (e.g., physical accessibility requirements, disability-
related need for additional bedrooms, proximity to accessible 
transportation, etc.);
    (ii) Is not sufficient for the size of the family;
    (iii) Is geographically located so as to be a hardship for the 
family (e.g., the distance or commuting time between the property and 
the family's place of work or school would be a hardship to the family, 
as determined by the PHA or owner);
    (iv) Is not safe to reside in because of the physical condition of 
the property (e.g., property's physical condition poses a risk to the 
family's health and safety and the condition of the property cannot be 
easily remedied); or
    (v) Is not a property that a family may reside in under the State 
or local laws of the jurisdiction where the property is located.
    (b) Acceptable documentation; confidentiality. (1) A PHA or owner 
may determine the net assets of a family based on a certification by 
the family that the net family assets (as defined in Sec.  5.603) do 
not exceed $50,000, which amount will be adjusted annually in 
accordance with the Consumer Price Index for Urban Wage Earners and 
Clerical Workers, without taking additional steps to verify the 
accuracy of the declaration. The declaration must state the amount of 
income the family expects to receive from such assets; this amount must 
be included in the family's income.
    (2) A PHA or owner may determine compliance with paragraph 
(a)(1)(ii) of this section based on a certification by a family that 
certifies that such family does not have any present ownership interest 
in any real property at the time of the income determination or review.
    (3) When a family asks for or about an exception to the real 
property restriction because a family member is a victim of domestic 
violence, dating violence, sexual assault, or stalking, the PHA or 
owner must comply with the confidentiality requirements under Sec.  
5.2007. The PHA or owner must accept a self-certification from the 
family member, and the restrictions on requesting documentation under 
Sec.  5.2007 apply.
    (c) Enforcement. (1) When recertifying the income of a family that 
is subject to the restrictions in paragraph (a) of this section, a PHA 
or owner may choose not to enforce such restrictions, or alternatively, 
may establish exceptions to the restrictions based on eligibility 
criteria.
    (2) The PHA or owner may choose not to enforce the restrictions in 
paragraph (a) of this section or establish exceptions to such 
restrictions only pursuant to a policy adopted by the PHA or owner.
    (3) Eligibility criteria for establishing exceptions may provide 
for separate treatment based on family type and may be based on 
different factors, such as age, disability, income, the ability of the 
family to find suitable alternative housing, and whether supportive 
services are being provided. Such policies must be in conformance with 
all applicable fair housing statutes and regulations, as discussed in 
this part 5.
    (d) Delay of eviction or termination of assistance. The PHA or 
owner may delay for a period of not more than 6 months the initiation 
of eviction or termination proceedings of a family based on 
noncompliance under this provision unless it conflicts with other 
provisions of law.
    (e) Applicability. This section applies to the Section 8 (tenant-
based and project-based) and public housing programs.

0
15. Effective March 16, 2023 amend Sec.  5.628(a) by:
0
a. Removing ``or'' at the end of in paragraph (a)(3);
0
b. Removing the period at the end of paragraph (a)(4) and add in its 
place ``; or''; and
0
c. Adding paragraph (a)(5);
    The addition reads as follows:


Sec.  5.628  Total tenant payment.

    (a) * * *
    (5) For public housing only, the alternative non-public housing 
rent, as determined in accordance with Sec.  960.102 of this title.
* * * * *

0
16. Effective January 1, 2024, in Sec.  5.657, revise paragraph (c) and 
add paragraphs (e) and (f) to read as follows:


Sec.  5.657  Section 8 project-based assistance programs: Reexamination 
of family income and composition.

* * * * *
    (c) Interim reexaminations. (1) Generally. A family may request an 
interim reexamination of family income because of any changes since the 
last examination. The owner must conduct any interim reexamination 
within a reasonable time after the family request or when the owner 
becomes aware of an increase in family adjusted income under paragraph 
(c)(3) of this section. What qualifies as a ``reasonable time'' may 
vary based on the amount of time it takes to verify information, but 
such time generally should not exceed 30 days from the date a family 
reports changes in income to an owner.
    (2) Decreases in the family's annual adjusted income. The owner may 
decline to conduct an interim reexamination of family income if the 
owner estimates that the family's adjusted income will decrease by an 
amount that is less than ten percent of the family's annual adjusted 
income (or a lower amount established by HUD through notice), or such 
lower threshold established by the owner.
    (3) Increases in the family's annual adjusted income. The owner 
must conduct an interim reexamination of family income when the owner 
becomes aware that the family's adjusted income (as defined in Sec.  
5.611) has changed by an amount that the owner estimates will result in 
an increase of ten percent or more in annual adjusted income or such 
other amount established by HUD through notice, except:
    (i) The owner may not consider any increase in the earned income of 
the family when estimating or calculating whether the family's adjusted 
income has increased, unless the family has previously received an 
interim reduction under paragraph (c)(1) of this

[[Page 9662]]

section during the certification period; and
    (ii) The owner may choose not to conduct an interim reexamination 
in the last three months of a certification period.
    (4) Policies on reporting changes in family income or composition. 
The owner must adopt policies consistent with this paragraph (c), 
prescribing when and under what conditions the family must report a 
change in family income or composition.
    (5) Effective date of rent changes. (i) If the family has reported 
a change in family income or composition in a timely manner according 
to the owner's policies, the owner must provide the family with 30 days 
advance notice of any rent increase, and such rent increase will be 
effective the first day of the month beginning after the end of that 
30-day notice period. Rent decreases will be effective on the first day 
of the first month after the date of the actual change leading to the 
interim reexamination of family income.
    (ii) If the family has failed to report a change in family income 
or composition in a timely manner according to the owner's policies, 
owners must implement any resulting rent increases retroactively to the 
first of the month following the date of the change leading to the 
interim reexamination of family income. Any resulting rent decrease 
must be implemented no later than the first rent period following 
completion of the reexamination. However, rent decreases may be applied 
retroactively at the discretion of the owner, in accordance with the 
owner's conditions as established in written policy, and subject to 
paragraph (c)(5)(iii) of this section.
    (iii) A retroactive rent decrease may not be applied by the owner 
prior to the later of the first of the month following:
    (A) The date of the change leading to the interim reexamination of 
family income; or
    (B) The effective date of the family's most recent previous interim 
or annual reexamination (or initial examination if that was the 
family's last examination).
* * * * *
    (e) Other applicable requirements. Reviews of family income under 
this section are subject to the provisions in Section 904 of the 
Stewart B. McKinney Homeless Assistance Amendments Act of 1988, as 
amended (42 U.S.C. 3544), and any applicable privacy rules in subpart B 
of this part.
    (f) De minimis errors. The owner will not be considered out of 
compliance with the requirements in this section due solely to de 
minimis errors in calculating family income but is still obligated to 
correct errors once the owner becomes aware of the errors. A de minimis 
error is an error where the owner determination of family income varies 
from the correct income determination by no more than $30 per month in 
monthly adjusted income ($360 in annual adjusted income) per family.
    (1) The owner must take any corrective action necessary to credit 
or repay a family if the family has been overcharged for their rent as 
a result of the de minimis error in the income determination. Families 
will not be required to repay the owner in instances where the owner 
has miscalculated income resulting in a family being undercharged for 
rent or family share.
    (2) HUD may revise the amount of de minimis error in this paragraph 
(f) through a rulemaking published in the Federal Register for public 
comment.

0
17. Effective January 1, 2024, in Sec.  5.659, revise paragraph (e) to 
read as follows:


Sec.  5.659  Family information and verification.

* * * * *
    (e) Verification of assets. For a family with net family assets (as 
the term is defined in Sec.  5.603) equal to or less than $50,000, 
which amount will be adjusted annually by HUD in accordance with the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, an 
owner may accept, for purposes of recertification of income, a family's 
declaration under Sec.  5.618(b), except that the owner must obtain 
third-party verification of all family assets every 3 years.

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

0
18. Effective January 1, 2024, the authority citation for part 92 is 
revised to read as follows:

    Authority:  42 U.S.C. 3535(d) and 12701--12839, 12 U.S.C. 1701x.


0
19. Effective January 1, 2024 in Sec.  92.2, add alphabetically the 
definitions ``Foster adult'', ``Foster child'', ``Full-time student'', 
and ``Live-in aide'' to read as follows:


Sec.  92.2  Definitions.

* * * * *
    Foster adult has the same meaning given that term in 24 CFR 5.603.
    Foster child has the same meaning given that term in 24 CFR 5.603.
    Full-time student has the same meaning given that term in 24 CFR 
5.603.
* * * * *
    Live-in aide has the same meaning given that term in 24 CFR 5.403.
* * * * *

0
20. Effective January 1, 2024, revise Sec.  92.203 to read as follows:


Sec.  92.203  Income determinations.

    (a) Methods of determining annual income. The HOME program has 
income targeting requirements for the HOME program and for HOME 
projects. Therefore, the participating jurisdiction must determine each 
family is income eligible by determining the family's annual income.
    (1) If a family is applying for or living in a HOME-assisted rental 
unit, and the unit is assisted by a Federal or State project-based 
rental subsidy program, then a participating jurisdiction must accept 
the public housing agency, owner, or rental subsidy provider's 
determination of the family's annual income and adjusted income under 
that program's rules.
    (2) If a family is applying for or living in a HOME-assisted rental 
unit, and the family is assisted by a Federal tenant-based rental 
assistance program (e.g., housing choice vouchers, etc.), then a 
participating jurisdiction may accept the rental assistance provider's 
determination of the family's annual income and adjusted income under 
that program's rules.
    (3) In all other cases, the participating jurisdiction must 
calculate annual income in accordance with paragraphs (b) through (e) 
of this section and calculate adjusted income in accordance with 
paragraph (f) of this section.
    (b) Required documentation for annual income calculations. (1) For 
families who are tenants in HOME-assisted housing and not receiving 
HOME tenant-based rental assistance, the participating jurisdiction 
must initially determine annual income using the method in paragraph 
(b)(1)(i) of this section. For subsequent income determinations during 
the period of affordability, the participating jurisdiction may use any 
one of the following methods in accordance with Sec.  92.252(h):
    (i) Examine at least 2 months of source documents evidencing annual 
income (e.g., wage statement, interest statement, unemployment 
compensation statement) for the family.
    (ii) 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.

[[Page 9663]]

    (iii) 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.
    (2) For all other families (i.e., homeowners receiving 
rehabilitation assistance, homebuyers, and recipients of HOME tenant-
based rental assistance), the participating jurisdiction must determine 
annual income by examining at least 2 months of source documents 
evidencing annual income (e.g., wage statement, interest statement, 
unemployment compensation statement) for the family.
    (c) Defining income for eligibility. When determining whether a 
family is income eligible, the participating jurisdiction must use one 
of the following two definitions of ``annual income'':
    (1) Annual income as defined at Sec. Sec.  5.609(a) and (b) of this 
title (except when determining the income of a homeowner for an owner-
occupied rehabilitation project, the value of the homeowner's principal 
residence may be excluded from the calculation of net family assets, as 
defined in Sec.  5.603 of this title); or
    (2) Adjusted gross income as defined for purposes of reporting 
under Internal Revenue Service (IRS) Form 1040 series for individual 
Federal annual income tax purposes.
    (d) Using income definitions. The participating jurisdiction may 
use only one definition of annual income for each HOME-assisted program 
(e.g., downpayment assistance program) that it administers and only one 
definition for each rental housing project. A participating 
jurisdiction may use either of the definitions of ``annual income'' 
permitted in paragraph (c) of this section. For rental housing projects 
containing units assisted by a Federal or State project-based rental 
subsidy program or for rental housing projects where a participating 
jurisdiction is accepting a public housing agency, owner, or rental 
assistance provider's determination of annual and adjusted income for 
tenants receiving Federal tenant-based rental assistance, the 
participating jurisdiction must calculate annual income in accordance 
with paragraph (c)(i) of this section so that only one definition of 
annual income is used in the rental housing project.
    (e) Determining family composition and projecting income. (1) The 
participating jurisdiction must calculate the annual income of the 
family by projecting the prevailing rate of income of the family at the 
time the participating jurisdiction determines that the family is 
income eligible. Annual income includes income from all persons in the 
household, except live-in aides, foster children, and foster adults. 
Income or asset enhancement derived from the HOME-assisted project 
shall not be considered in calculating annual income. Families may use 
the certification process in Sec.  5.618 of this title to certify that 
their net family assets are below the threshold for imputing income 
used in Sec.  5.609(a)(2) of this title, as applicable. Families using 
the certification process in Sec.  5.618 of this title that are 
homeowners applying for an owner-occupied rehabilitation project may 
also exclude the value of the homeowner's principal residence from the 
calculation of their Net Family Assets for purposes of the 
certification. For families living in HOME-assisted rental housing 
units, any rental assistance provided to the family under a Federal 
tenant-based rental assistance program or any Federal or State project-
based rental subsidy provided to the HOME rental housing unit shall not 
be counted as tenant income for purposes of determining annual income.
    (2) The participating jurisdiction is not required to re-examine 
the family's income at the time the HOME assistance is provided, unless 
more than six months has elapsed since the participating jurisdiction 
determined that the family qualified as income eligible.
    (3) The participating jurisdiction must follow the requirements in 
Sec.  5.617 of this title when making subsequent income determinations 
of persons with disabilities who are tenants in HOME-assisted rental 
housing or who receive HOME tenant-based rental assistance. This 
paragraph (e)(3) will lapse on January 1, 2026.
    (f) Determining Adjusted Income. (1) The three cases where a 
participating jurisdiction must calculate a tenant's adjusted income 
are as follows:
    (i) A participating jurisdiction must calculate the adjusted income 
of a family receiving tenant-based rental assistance to determine the 
amount of assistance in accordance with Sec.  92.209(h). To calculate 
the family's adjusted income for a family in tenant-based rental 
assistance, the participating jurisdiction must apply the deductions in 
Sec.  5.611(a) of this title and may choose to grant financial hardship 
exemptions in accordance with the process described in Sec. Sec.  
5.611(c) through (e) of this title.
    (ii) A participating jurisdiction must calculate a tenant's 
adjusted income if the tenant is living in a Low HOME Rent unit and is 
subject to the provisions of Sec.  92.252(b)(2)(i). To calculate a 
family's adjusted income to determine the Low HOME Rent in accordance 
with Sec.  92.252(b)(2)(i), a participating jurisdiction must apply the 
deductions in Sec.  5.611(a) of this title and may choose to grant 
financial hardship exemptions in accordance with the process described 
in Sec. Sec.  5.611(c) through (e) of this title.
    (iii) A participating jurisdiction must calculate a tenant's 
adjusted income if the tenant is over-income, and rent must be 
recalculated in accordance with Sec.  92.252(i)(2). To calculate the 
family's adjusted income for an over-income family, the participating 
jurisdiction must apply the deductions in Sec.  5.611(a) of this title.
    (2) If a unit is assisted by a Federal or State project-based 
rental subsidy program, then a participating jurisdiction is not 
required to calculate the family's adjusted income and must accept the 
public housing agency, owner, or rental subsidy provider's 
determination of adjusted income under that program's rules.

0
22. Effective January 1, 2024, in Sec.  92.252, revise paragraphs 
(b)(2) and (h) to read as follows:


Sec.  92.252  Qualification as affordable housing: Rental housing.

* * * * *
    (b) * * *
    (2)(i) The rent does not exceed 30 percent of the family's adjusted 
income.
    (ii) If the unit receives Federal or State project-based rental 
subsidy and the very low-income family pays as a contribution toward 
rent not more than 30 percent of the family's adjusted income, then the 
maximum rent (i.e., tenant contribution plus project-based rental 
subsidy) is the rent allowable under the Federal or State project-based 
rental subsidy program.
* * * * *
    (h) Tenant income. The income of each tenant must be determined 
initially in accordance with Sec.  92.203(b)(1)(i). In addition, 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.  92.203(b)(1) selected by the participating 
jurisdiction. An owner of a multifamily project with an affordability 
period of ten years or more who re-examines tenant's annual income

[[Page 9664]]

through a statement and certification in accordance with Sec.  
92.203(b)(1)(ii), must examine the income of each tenant, in accordance 
with Sec.  92.203(b)(1)(i), every sixth year of the affordability 
period, except that, for units that receive Federal or State project-
based rental subsidy, the owner must accept the income determination 
pursuant to Sec.  92.203(a)(1); and for a Federal tenant-based rental 
assistance program (e.g. housing choice vouchers, etc.) a participating 
jurisdiction may accept the income determination pursuant to Sec.  
92.203(a)(2). Otherwise, an owner who accepts the tenant's statement 
and certification in accordance with Sec.  92.203(b)(1)(ii) is not 
required to examine the income of tenants in multifamily or single-
family projects unless there is evidence that the tenant's written 
statement failed to completely and accurately state information about 
the family's size or income.
* * * * *

PART 93--HOUSING TRUST FUND

0
23. The authority citation for part 93 continues to read as follows:

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


0
24. Effective January 1, 2024, in Sec.  93.2, add alphabetically the 
definitions ``Foster adult'', ``Foster child'', ``Full-time student'', 
``Live-in aide'', and ``Public Housing Agency (PHA)'' to read as 
follows:


Sec.  93.2  Definitions.

* * * * *
    Foster adult has the same meaning given that term in 24 CFR 5.603.
    Foster child has the same meaning given that term in 24 CFR 5.603.
    Full-time student has the same meaning given that term in 24 CFR 
5.603.
* * * * *
    Live-in aide has the same meaning given that term in 24 CFR 5.403.
* * * * *
    Public Housing Agency (PHA) has the same meaning given that term in 
24 CFR 5.100.
* * * * *

0
25. Effective January 1, 2024, revise Sec.  93.151 to read as follows:


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.
    (1) If a family is applying for or living in an HTF-assisted rental 
unit, and the unit is assisted under the public housing program, then a 
grantee must accept the public housing agency's determination of the 
family's annual income and adjusted income under Sec. Sec.  5.609 and 
5.611 of this title, respectively.
    (2) If a family is applying for or living in an HTF-assisted rental 
unit, and the family is assisted under a Federal tenant-based rental 
assistance program (e.g., housing choice voucher program, HOME tenant 
based rental assistance, etc.), then a grantee must accept the rental 
assistance provider's determination of the family's annual income and 
adjusted income under the rules of that program.
    (3) If a family is applying for or living in an HTF-assisted rental 
unit, and the unit is assisted with a Federal or State project-based 
rental subsidy program, then a grantee must accept the public housing 
agency, owner, or rental subsidy provider's determination of the 
family's annual income and adjusted income under the rules of that 
program.
    (4) In all other cases, the grantee must calculate annual income in 
accordance with paragraphs (b) through (e) of this section.
    (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 Sec. Sec.  5.609 (a) and (b) of 
this title; 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 of annual income for 
each HTF-assisted program (e.g., down payment assistance program) that 
it administers and only one definition for each rental housing project. 
For projects where either a family or unit is assisted under the public 
housing program, a Federal tenant-based rental assistance program 
(e.g., housing choice voucher program, HOME tenant-based rental 
assistance, etc.), or a Federal or State project-based rental subsidy 
program, the grantee must calculate annual income in accordance with 
paragraph (b)(1)(i) of this section so that only one definition of 
annual income is used in the 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 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) Required documentation for Annual Income calculations. (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.
    (e) Determining family composition and projecting income. (1) The 
grantee must calculate the annual income of the family by projecting 
the prevailing rate of income of the family at the time the grantee 
determines that the family is income eligible. Annual income includes 
income from all persons in the household, except live-in aides, foster 
children, and foster adults. Income or asset enhancement derived from 
the HTF-assisted project shall not be considered in calculating annual 
income. Families may use the certification process in Sec.  5.618 of 
this title to certify that their net family assets are below the 
threshold for imputing income used in Sec.  5.609(a)(2) of this title. 
For families living in HTF-assisted rental housing units, any rental 
assistance provided to the family under a Federal tenant-based rental 
assistance program or any Federal or State project-based rental subsidy 
provided to the HTF rental housing unit shall not be counted as tenant 
income for purposes of determining annual income.
    (2) The grantee is not required to re-examine the family's income 
at the time the HTF assistance is provided, unless

[[Page 9665]]

more than six months has elapsed since the grantee determined that the 
family qualified as income eligible.
    (f) Adjusted Income. The HTF program does not require that adjusted 
income be used or calculated by HTF grantees. If a family or unit is 
assisted with public housing, Federal tenant-based rental assistance, 
(e.g., housing choice voucher program, HOME tenant-based rental 
assistance, etc.), or by a Federal or State project-based rental 
subsidy program, then a grantee must accept the determination of 
adjusted income made under the rules of that program in accordance with 
paragraphs (a)(1) through (3) of this section, as applicable.

0
26. Effective January 1, 2024, in Sec.  93.302, revise paragraph (e) to 
read as follows:


Sec.  93.302  Qualification as affordable housing: rental housing.

* * * * *
    (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(d) 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(d)(2) must 
examine the source documentation of the income of each tenant every 6th 
year of the affordability period unless the tenant or unit is assisted 
under the public housing program, Federal or State project-based rental 
assistance program, or a Federal tenant-based rental assistance program 
(e.g., housing choice voucher assistance, HOME tenant-based rental 
assistance, etc.). For families or units that receive assistance under 
the public housing program, a Federal or State project-based rental 
subsidy program, or Federal tenant-based rental assistance program, the 
grantee must accept the calculation of a tenant's annual and adjusted 
income in accordance with the rules of those programs pursuant to Sec.  
93.151(a)(1) through (3). Otherwise, an owner who accepts the tenant's 
statement and certification in accordance with Sec.  93.151(d)(2) 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.
* * * * *

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
27. The authority citation for part 570 continues to read as follows:

    Authority:  12 U.S.C. 1701x, 1701x-1; 42 U.S.C. 3535(d) and 
5301-5320.


Sec.  570.3  [Amended]

0
28. Effective January 1, 2024, in Sec.  570.3, in paragraph (1)(i) of 
the definition of ``Income,'' remove the citation ``24 CFR 813.106'' 
and add in its place ``24 CFR 5.609''.

PART 574--HOUSING OPPORTUNITIES FOR PERSONS WITH AIDS

0
29. The authority citation for part 574 continues to read as follows:

    Authority:  12 U.S.C. 1701x, 1701x-1; 42 U.S.C. 3535(d) and 
5301-5320.


0
30. Effective January 1, 2024, in Sec.  574.310, revise paragraphs 
(d)(1) and (2), redesignate paragraph (e) as paragraph (g), and add new 
paragraphs (e), (f), and (h) to read as follows:


Sec.  574.310  General Standards for eligible housing activities.

* * * * *
    (d) * * *
    (1) 30 percent of the family's monthly adjusted income;
    (2) Ten percent of the family's monthly income; or
* * * * *
    (e) Calculating income to determine resident rent payment--(1) In 
general. When determining resident rent payments, the family's monthly 
income and monthly adjusted income must be calculated as provided by 
Sec. Sec.  5.609 and 5.611 of this title, respectively, except that:
    (i) As with the references to ``grantee'' and ``grantees'' in 
paragraphs (e), (f), and (h) of this section, the references to ``PHA'' 
and ``responsible entity'' in Sec. Sec.  5.609 and 5.611 of this title 
refer to the ``grantee'' or ``project sponsor'' that is determining 
income;
    (ii) References in Sec.  5.609(c) of this title to an interim 
reexamination of family income under Sec. Sec.  5.657(c), 960.257(b), 
or 982.516(c) of this title refer to an interim reexamination provided 
under paragraph (e)(4) of this section;
    (iii) References in Sec.  5.609(c) of this title to a streamlined 
income determination under Sec. Sec.  5.657(d), 960.257(c), or 
982.516(b) of this title refer to a streamlined income determination 
provided under paragraph (e)(5) of this section;
    (iv) Section 5.611(b) of this title does not apply;
    (v) The grantee may choose to grant financial hardship exemptions 
in accordance with the process described in Sec. Sec.  5.611(c) through 
(e);
    (vi) During the period that Sec.  5.617 of this title remains in 
effect, the calculation of monthly adjusted income must also include 
the disallowance of earned income as provided by Sec.  5.617 of this 
title.
    (2) Annual reexaminations. For purposes of determining resident 
rent payments, grantees will conduct a reexamination and 
redetermination of family income and family composition every year.
    (3) Third-party verification. (i) Except as provided in paragraph 
(e)(3)(ii) of this section, the grantee must obtain and document in the 
tenant file third-party verification of the following factors, or must 
document in the tenant file why third-party verification was not 
available:
    (A) Reported family annual income;
    (B) The value of assets;
    (C) Expenses related to deductions from annual income; and
    (D) Other factors that affect the determination of adjusted income.
    (ii) For a family with net family assets (as the term is defined in 
paragraph (f) of this section) equal to or less than $50,000, which 
amount will be adjusted annually in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Worker, the grantee may 
accept, for purposes of recertification of income, a family's 
declaration under Sec.  5.618(b) of this title, except that the grantee 
must obtain third-party verification of all family assets every 3 
years.
    (iii) The grantee must establish procedures that are appropriate 
and necessary to require that income data provided by applicant or 
participant families is complete and accurate.
    (4) Interim reexaminations--(i) Generally. A family may request an 
interim reexamination of family income or composition because of any 
changes since the last determination. The grantee must make any interim 
reexamination within a reasonable period of time after the family's 
request or when the grantee becomes aware of an increase in family 
adjusted income under paragraph (e)(4)(iii) of this section. What 
qualifies as a ``reasonable time'' may vary based on the amount of time 
it takes to verify information, but generally should not exceed 30 days 
from the date a family reports changes in income to a grantee.
    (ii) Decreases in the family's annual adjusted income. Grantees may 
decline to conduct an interim reexamination of family income if the 
grantee estimates

[[Page 9666]]

that the family's adjusted income will decrease by an amount that is 
less than ten percent of the family's annual adjusted income (or a 
lower amount established by HUD through notice), or a lower threshold 
established by the grantee.
    (iii) Increases in the family's annual adjusted income. Grantees 
must conduct the interim reexamination of family income when the 
grantee becomes aware that the family's adjusted income has changed by 
an amount that the grantee estimates will result in an increase of ten 
percent or more in annual adjusted income or such other amount 
established by HUD through notice, except:
    (A) The grantee may not consider any increase in the earned income 
of the family when estimating or calculating whether the family's 
adjusted income has increased unless the family has previously received 
an interim reduction under paragraph (e)(4)(i) of this section during 
the certification period; and
    (B) The grantee may choose not to conduct an interim reexamination 
in the last three months of a certification period.
    (iv) Policies on reporting changes in family income or composition. 
The grantee must adopt policies consistent with this section 
prescribing when and under what conditions the family must report a 
change in family income or composition.
    (v) Effective date of rent changes. (A) If the family has reported 
a change in family income or composition in a timely manner according 
to the grantee's policies, the grantee must provide the family with 30 
days advance notice of any rent increase, and such rent increase will 
be effective the first day of the month beginning after the end of that 
30-day period. Rent decreases will be effective on the first day of the 
first month after the date of the actual change leading to the interim 
reexamination of family income.
    (B) If the family has failed to report a change in family income or 
composition in a timely manner according to the grantee's policies, 
grantees must implement any resulting rent increases retroactively to 
the first of the month following the date of the change leading to the 
interim reexamination of family income. Any resulting rent decrease 
must be implemented no later than the first rent period following 
completion of the reexamination. However, rent decreases may be applied 
retroactively at the discretion of the grantee, in accordance with the 
grantee's conditions as established in written policy, and subject to 
paragraph (e)(4)(v)(C) of this section.
    (C) A retroactive rent decrease may not be applied by the grantee 
prior to the later of the first of the month following:
    (1) The date of the change leading to the interim reexamination of 
family income; or
    (2) The effective date of the family's most recent previous interim 
or annual reexamination (or initial examination if that was the 
family's last examination).
    (5) Streamlined income determinations--(i) Generally. A grantee may 
elect to apply a streamlined income determination to families receiving 
fixed income as described in paragraph (e)(5)(iii) of this section.
    (ii) Definition of fixed income. For purposes of this section, 
``fixed income'' means periodic payments at reasonably predictable 
levels from one or more of the following sources:
    (A) Social Security, Supplemental Security Income, Supplemental 
Disability Insurance.
    (B) Federal, state, local, or private pension plans.
    (C) Annuities or other retirement benefit programs, insurance 
policies, disability or death benefits, or other similar types of 
periodic receipts.
    (D) Any other source of income subject to adjustment by a 
verifiable Cost-of-Living Adjustment (COLA) or current rate of 
interest.
    (iii) Method of streamlined income determination. Grantees using 
the streamlined income determination must adjust a family's income 
according to the percentage of a family's unadjusted income that is 
from fixed income.
    (A) When 90 percent or more of a family's unadjusted income 
consists of fixed income, grantees using streamlined income 
determinations must apply a COLA or COLAs to the family's fixed-income 
sources, provided that the family certifies both that 90 percent or 
more of their unadjusted income is fixed income and that their sources 
of fixed income have not changed from the previous year. For non-fixed 
income, grantees may choose, but are not required, to make appropriate 
adjustments pursuant to paragraph (e)(2) of this section.
    (B) When less than 90 percent of a family's unadjusted income 
consists of fixed income, grantees using streamlined income 
determinations must apply a COLA to each of the family's sources of 
fixed income. Grantees must determine all other income pursuant to 
paragraph (e)(2) of this section.
    (iv) COLA rate applied by grantees. Grantees using streamlined 
income determinations must adjust a family's fixed income using a COLA 
or current interest rate that applies to each specific source of fixed 
income and is available from a public source or through tenant-
provided, third-party-generated documentation. If no public 
verification or tenant-provided documentation is available, then the 
grantee must obtain third-party verification of the income amounts in 
order to calculate the change in income for the source.
    (v) Triennial verification. For any income determined pursuant to a 
streamlined income determination, a grantee must obtain third-party 
verification of all income amounts every 3 years.
    (f) Net family assets and restriction on assistance to families 
based on assets. The ``net family assets'' definition in Sec.  5.603 of 
this section applies for purposes of calculating resident rent payments 
under this section and applying the asset-based restrictions in 
Sec. Sec.  5.618(a) through (d) this title. The ``net family assets'' 
definition in Sec.  5.603 of this section may also apply where a 
grantee elects to apply Sec.  5.609 of this title alone or in 
combination with Sec.  5.611(a) of this title for other purposes under 
this part; however, the value of real property a family owns and 
occupies as its primary residence must be excluded from the calculation 
of ``net family assets'' for purposes of assistance for which 
homeowners are eligible under this part. The asset-based restrictions 
in Sec. Sec.  5.618(a) through (d) of this title apply only to housing 
activities subject to the resident rent payment requirements in this 
section. References to ``PHA'' in Sec. Sec.  5.618(a) through (d) of 
this title refer to the grantee or project sponsor that is determining 
the asset-based restrictions.
* * * * *
    (h) De minimis errors. The grantee will not be considered out of 
compliance with the requirements in paragraphs (e)(2), (e)(4), or 
(e)(5) of this section due solely to de minimis errors in calculating 
family income but is still obligated to correct errors once the grantee 
becomes aware of the errors. A de minimis error is an error where the 
grantee's determination of family income varies from the correct income 
determination by no more than $30 per month in monthly adjusted income 
($360 in annual adjusted income) per family.
    (1) The grantee must take any corrective action necessary to credit 
or repay a family if the family has been overcharged for their resident 
rent payment as a result of the de minimis error in the income 
determination.

[[Page 9667]]

Families will not be required to repay the grantee in instances where 
the grantee has miscalculated income resulting in a family being 
undercharged for their resident rent payment.
    (2) HUD may revise the amount of de minimis error in this paragraph 
(h) through a rulemaking published in the Federal Register for public 
comment.

PART 882--SECTION 8 MODERATE REHABILITATION PROGRAMS

0
31. The authority citation for part 882 continues to read as follows:

    Authority:  42 U.S.C. 1437f and 3535(d).


0
32. Effective January 1, 2024, amend Sec.  882.515 by adding a sentence 
to the end of paragraph (a), revising paragraphs (b) and (d), and 
adding paragraphs (e) and (f) to read as follows:


Sec.  882.515  Reexamination of family income and composition.

    (a) * * * For a family with net family assets (as the term is 
defined in Sec.  5.603 of this title) equal to or less than $50,000, 
which amount will be adjusted annually by HUD in accordance with the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, a PHA 
may accept, for purposes of recertification of income, a family's 
declaration under Sec.  5.618(b) of this title, except that the PHA 
must obtain third-party verification of all family assets every 3 
years.
    (b) Interim reexaminations. (1) A family may request an interim 
determination of family income or composition because of any changes 
since the last determination. The PHA must conduct any interim 
reexamination within a reasonable period of time after the family 
request or when the PHA becomes aware of an increase in family adjusted 
income under paragraph (b)(3) of this section. What qualifies as a 
``reasonable time'' may vary based on the amount of time it takes to 
verify information, but generally should not be longer than 30 days 
after changes in income are reported.
    (2) The PHA may decline to conduct an interim reexamination of 
family income if the PHA estimates the family's adjusted income will 
decrease by an amount that is less than ten percent of the family's 
annual adjusted income (or a lower amount established by HUD through 
notice), or a lower threshold established by the PHA.
    (3) The PHA must conduct an interim reexamination of family income 
when the PHA becomes aware that the family's adjusted income (Sec.  
5.611 of this title) has changed by an amount that the PHA estimates 
will result in an increase of ten percent or more in annual adjusted 
income or such other amount established by HUD through notice, except:
    (i) The PHA may not consider any increase in the earned income of 
the family when estimating or calculating whether the family's adjusted 
income has increased, unless the family has previously received an 
interim reduction under paragraph (c)(1) of this section during the 
certification period; and
    (ii) The PHA may choose not to conduct an interim reexamination in 
the last three months of a certification period.
    (4)(i) If the family has reported a change in family income or 
composition in a timely manner according to the PHA's policies, the PHA 
must provide the family with 30 days advance notice of any increase in 
the Total Tenant Payment and Tenant Rent, and such increases will be 
effective the first day of the month beginning after the end of that 
30-day period. Total Tenant Payment and Tenant Rent decreases will be 
effective on the first day of the first month after the date of the 
actual change leading to the interim reexamination of family income.
    (ii) If the family has failed to report a change in family income 
or composition in a timely manner according to the PHA's policies, PHAs 
must implement any resulting Total Tenant Payment and Tenant Rent 
increases retroactively to the first of the month following the date of 
the change leading to the interim reexamination of family income. Any 
resulting Total Tenant Payment and Tenant Rent decrease must be 
implemented no later than the first rent period following completion of 
the reexamination. However, a PHA may apply a Total Tenant Payment and 
Tenant Rent decrease retroactively at the discretion of the PHA, in 
accordance with the conditions established by the PHA in the 
administrative plan and subject to paragraph (c)(4)(iii) of this 
section.
    (iii) A retroactive Total Tenant Payment and Tenant Rent decrease 
may not be applied prior to the later of the first of the month 
following:
    (A) The date of the change leading to the interim reexamination of 
family income; or
    (B) The effective date of the family's most recent previous interim 
or annual reexamination (or initial examination if that was the 
family's last examination).
    (5) The PHA must adopt policies consistent with this section 
prescribing how to determine the effective date of a change in the 
housing assistance payment resulting from an interim redetermination.
* * * * *
    (d) Continuation of housing assistance payments. A family's 
eligibility for Housing Assistance Payments shall continue until the 
Total Tenant Payment equals the Gross Rent. The termination of 
eligibility at such point will not affect the family's other rights 
under its lease, nor will such termination preclude the resumption of 
payments as a result of later changes in income, rents or other 
relevant circumstances during the term of the Contract. However, 
eligibility also may be terminated in accordance with HUD requirements 
for such reasons as failure to submit requested verification 
information, including failure to meet the disclosure and verification 
requirements for Social Security Numbers, as provided by part 5, 
subpart B, of this title, failure to sign and submit consent forms for 
the obtaining of wage and claim information from State Wage Information 
Collection Agencies, as provided by part 5, subpart B, of this title, 
or because of the restrictions on net assets and property ownership as 
provided by Sec.  5.618 of this title. For provisions requiring 
termination of assistance when the PHA determines that a family member 
is not a U.S. citizen or does not have eligible immigration status, see 
24 CFR parts 5 and 982 for provisions concerning certain assistance for 
mixed families (families whose members include those with eligible 
immigration status, and those without eligible immigration status) in 
lieu of termination of assistance, and for provisions concerning 
deferral of termination of assistance.
    (e) Family reporting of change. The PHA must adopt policies 
consistent with this section prescribing when and under what conditions 
the family must report a change in family income or composition.
    (f) Accuracy of family income data. The PHA must establish 
procedures that are appropriate and necessary to assure that income 
data provided by applicant or participant families is complete and 
accurate. The PHA will not be considered out of compliance with the 
requirements in this section solely due to de minimis errors in 
calculating family income but is still obligated to correct errors once 
the PHA becomes aware of the errors. A de minimis error is an error 
where the PHA determination of family income deviates from the correct 
income determination by no more than $30 per month in

[[Page 9668]]

monthly adjusted income ($360 in annual adjusted income).
    (1) The PHA must take any corrective action necessary to credit or 
repay a family if the family has been overcharged for their Tenant Rent 
or Total Tenant Payment as a result of an error (including a de minimis 
error) in the income determination. Families will not be required to 
repay the PHA in instances where the PHA has miscalculated income 
resulting in a family being undercharged for Tenant Rent or Total 
Tenant Payment.
    (2) HUD may revise the amount of de minimis error in this paragraph 
(f) through a notice published in the Federal Register for public 
comment.

0
33. Effective January 1, 2024, amend Sec.  882.808 by adding a sentence 
at the end of paragraph (i)(1) and adding paragraphs (i)(4) and (5) to 
read as follows:


Sec.  882.808  Management.

* * * * *
    (i) * * *
    (1) Regular reexaminations. * * * For an individual with net family 
assets (as the term is defined in Sec.  5.603 of this title) equal to 
or less than $50,000, which amount will be adjusted annually by HUD in 
accordance with the Consumer Price Index for Urban Wage Earners and 
Clerical Workers, a PHA may accept, for purposes of recertification of 
income, an individual's declaration under Sec.  5.618(b) of this title, 
except that the PHA must obtain third-party verification of all family 
assets every 3 years.
* * * * *
    (4) Individual reporting of change. The PHA must adopt policies 
consistent with this section prescribing when and under what conditions 
the individual must report a change in family income or composition.
    (5) Accuracy of family income data. The PHA must establish 
procedures that are appropriate and necessary to assure that income 
data provided by applicant or participant individuals is complete and 
accurate. The PHA will not be considered out of compliance with the 
requirements in this section solely due to de minimis errors in 
calculating family income but is still obligated to correct errors once 
the PHA becomes aware of the errors. A de minimis error is an error 
where the PHA determination of family income deviates from the correct 
income determination by no more than $30 per month in monthly adjusted 
income ($360 in annual adjusted income).
    (A) The PHA must take any corrective action necessary to credit or 
repay an individual if the individual has been overcharged for their 
Tenant Rent or Total Tenant Payment as a result of an error (including 
a de minimis error) in the income determination. Individuals will not 
be required to repay the PHA in instances where the PHA has 
miscalculated income resulting in an individual being undercharged for 
Tenant Rent or Total Tenant Payment.
    (B) HUD may revise the amount of de minimis error in this paragraph 
(i)(5) through a rulemaking published in the Federal Register for 
public comment.
* * * * *

PART 891--SUPPORTIVE HOUSING FOR THE ELDERLY AND PERSONS WITH 
DISABILITIES

0
34. The authority citation for Part 891 continues to read as follows:

    Authority:  12 U.S.C. 1701q; 42 U.S.C. 1437f, 3535(d), and 8013.


0
35. Effective January 1, 2024, amend Sec.  891.105 by:
0
a. Adding in alphabetical order the definitions ``Gross rent'' and 
``Net family assets'';
0
b. Removing the definition of ``Tenant payment to Owner''; and
0
c. Adding the definition of ``Tenant rent''.
    The additions read as follows:


Sec.  891.105  Definitions.

* * * * *
    Gross rent means contract rent plus any utility allowance.
* * * * *
    Net family assets is defined in Sec.  5.603 of this title.
* * * * *
    Tenant rent equals total tenant payment less utility allowance, if 
any.
* * * * *


Sec.  891.230  [Removed]

0
36. Effective January 1, 2024, remove Sec.  891.230.

0
37. Effective January 1, 2024, in Sec.  891.410, revise paragraphs 
(g)(1), (2), and (3)(i) to read as follows:


Sec.  891.410  Selection and admission of tenants.

* * * * *
    (g) * * * (1) Regular reexaminations. The Owner must reexamine the 
income and composition of the household at least every 12 months. Upon 
verification of the information, the Owner must make appropriate 
adjustments in the total tenant payment in accordance with Sec.  5.657 
of this title and must adjust the tenant rent. The Owner must also 
request an appropriate adjustment to the project rental assistance 
payment. Further, the Owner must determine whether the household's unit 
size is still appropriate and must carry out any unit transfer in 
accordance with HUD standards. At the time of reexamination, the Owner 
must require the household to meet the disclosure and verification 
requirements for Social Security Numbers, as provided by 24 CFR part 5, 
subpart B. For requirements regarding the signing and submitting of 
consent forms by families for obtaining wage and claim information from 
State Wage Information Collection Agencies, see 24 CFR part 5, subpart 
B.
    (2) Interim reexaminations. The household must comply with the 
provisions in Sec.  5.657 of this title regarding interim reporting of 
changes in income. If the Owner receives information concerning a 
change in the household's income or other circumstances between 
regularly scheduled reexaminations, the Owner must consult with the 
household and make any adjustments determined to be appropriate. See 24 
CFR part 5, subpart B, for the requirements for the disclosure and 
verification of Social Security Number at interim reexaminations 
involving new household members. For requirements regarding the signing 
and submitting of consent forms by families for obtaining wage and 
claim information from State Wage Information Collection Agencies, see 
24 CFR part 5, subpart B. Any change in the household's income or other 
circumstances that result in an adjustment in the total tenant payment, 
tenant rent, or project rental assistance payment must be verified.
    (3) * * * (i) A household shall remain eligible for subsidy until 
the total tenant payment equals or exceeds the gross rent (or a pro 
rata share of the gross rent in a group home). The termination of 
subsidy eligibility will not affect the household's other rights under 
its lease, nor will the unit or residential space be removed from the 
PRAC. Project rental assistance payments may be resumed if, as a result 
of changes in income, rent, or other relevant circumstances during the 
term of the PRAC, the household meets the income eligibility 
requirements of Sec.  5.657 of this title (as modified in Sec.  
891.105) and project rental assistance is available for the unit or 
residential space under the terms of the PRAC. The household will not 
be required to establish its eligibility for admission to the project 
under the remaining requirements of paragraph (c) of this section.
* * * * *

[[Page 9669]]


0
38. Effective January 1, 2024, in Sec.  891.435, revise paragraphs (a) 
and (c)(2) to read as follows:


Sec.  891.435  Security deposits.

* * * * *
    (a) Collection of security deposits. At the time of the initial 
execution of the lease, the Owner (or Borrower, as applicable) will 
require each household (or family, as applicable) occupying an assisted 
unit or residential space in a group home to pay a security deposit in 
an amount equal to one month's tenant rent or $50, whichever is 
greater. The household (or family) is expected to pay the security 
deposit from its own resources or other available public or private 
resources. The Owner (or Borrower) may collect the security deposit on 
an installment basis.
* * * * *
    (c) * * *
    (2) One month's per unit operating cost (or contract rent, if 
applicable), minus the amount of the household's (or family's) security 
deposit balance. Any reimbursement under this section will be applied 
first toward any unpaid tenant rent due under the lease. No 
reimbursement may be claimed for any unpaid tenant rent for the period 
after termination of the tenancy. The Owner (or Borrower) may be 
eligible for vacancy payments following a vacancy in accordance with 
the requirements of Sec.  891.445 (or Sec. Sec.  891.650 or 891.790, as 
applicable).


Sec.  891.440  [Amended]

0
39. Effective January 1, 2024, in Sec.  891.440, in the third sentence, 
remove the word ``should'' and add in its place ``must,'' and in the 
fifth sentence, remove the phrase ``tenant payment (or rent, as 
applicable)'' and add in its place ``tenant rent''.


Sec.  891.445  [Amended]

0
40. Effective January 1, 2024, in Sec.  891.445(d), remove ``tenant 
payment'' and add in its place ``tenant rent''.


Sec.  891.520  [Amended]

0
41. Effective January 1, 2024, in Sec.  891.520, remove the definition 
of ``Gross rent.''

0
42. Effective January 1, 2024, in Sec.  891.610, revise paragraphs (e), 
(g)(1), (2), and (3)(i) to read as follows:


Sec.  891.610  Selection and admission of tenants.

* * * * *
    (e) Ineligibility determination. If the Borrower determines that an 
applicant is ineligible for admission or the Borrower is not selecting 
the applicant for other reasons, the Borrower will promptly notify the 
applicant in writing of the determination, the reasons for the 
determination, and that the applicant has a right to request a meeting 
with the Borrower or managing agent to review the rejection, in 
accordance with HUD requirements. The review, if requested, may not be 
conducted by a member of the Borrower's staff who made the initial 
decision to reject the applicant. The applicant may also exercise other 
rights (e.g., rights granted under Federal, State, or local civil 
rights laws) if the applicant believes he or she is being discriminated 
against on a prohibited basis.
* * * * *
    (g) * * * (1) Regular reexaminations. The Borrower must reexamine 
the income and composition of the family at least every 12 months. Upon 
verification of the information, the Borrower shall make appropriate 
adjustments in the total tenant payment in accordance with Sec.  5.657 
of this title and determine whether the family's unit size is still 
appropriate. The Borrower must adjust tenant rent and the housing 
assistance payment and must carry out any unit transfer in accordance 
with the administrative instructions issued by HUD. At the time of 
reexamination, the Borrower must require the family to meet the 
disclosure and verification requirements for Social Security Numbers, 
as provided by 24 CFR part 5, subpart B.
    (2) Interim reexaminations. The family must comply with the 
provisions in Sec.  5.657 of this title regarding interim reporting of 
changes in income. If the Borrower receives information concerning a 
change in the family's income or other circumstances between regularly 
scheduled reexaminations, the Borrower must consult with the family and 
make any adjustments determined to be appropriate. Any change in the 
family's income or other circumstances that results in an adjustment in 
the total tenant payment, tenant rent, or housing assistance payment 
must be verified.
    (3) * * * (i) A family shall remain eligible for housing assistance 
payments until the total tenant payment equals or exceeds the gross 
rent. The termination of subsidy eligibility will not affect the 
family's other rights under its lease. Housing assistance payments may 
be resumed if, as a result of changes in income, rent, or other 
relevant circumstances during the term of the HAP contract, the family 
meets the income eligibility requirements of Sec.  5.657 of this title 
and housing assistance is available for the unit under the terms of the 
HAP contract. The family will not be required to establish its 
eligibility for admission to the project under the remaining 
requirements of paragraph (c) of this section.
* * * * *


Sec.  891.655  [Amended]

0
43. In Sec.  891.655, remove the definition of ``Gross rent.''

PART 960--ADMISSION TO, AND OCCUPANCY OF, PUBLIC HOUSING

0
44. The authority citation for part 960 continues to read as follows:

    Authority:  42 U.S.C. 1437a, 1437c, 1437d, 1437n, 1437z-3, and 
3535(d).


0
45. Effective March 16, 2023, in Sec.  960.102 amend paragraph (b) by 
adding, in alphabetical order, the definitions of ``Alternative non-
public housing rent'', ``Covered person'', ``Non-public housing over-
income family'', ``Over-income limit'', and revising the definition of 
``Over-income family'' to read as follows:


Sec.  960.102  Definitions.

* * * * *
    (b) * * *
    Alternative non-public housing rent. A monthly rent equal to the 
greater of--
    (i) The applicable fair market rent, as defined in 24 CFR part 888, 
subpart A, for the unit; or
    (ii) The amount of the monthly subsidy provided for the unit, which 
will be determined by adding the per unit assistance provided to a 
public housing property as calculated through the applicable formulas 
for the Public Housing Capital Fund and Public Housing Operating Fund.
    (A) For the Public Housing Capital Fund, the amount of Capital 
Funds provided to the unit will be calculated as the per unit Capital 
Fund assistance provided to a PHA for the development in which the 
family resides for the most recent funding year for which Capital Funds 
have been allocated;
    (B) For the Public Housing Operating Fund, the amount of Operating 
Funds provided to the unit will be calculated as the per unit amount 
provided to the public housing project where the unit is located for 
the most recent funding year for which a final funding obligation 
determination has been made;
    (C) HUD will publish such funding amounts no later than December 31 
each year.
* * * * *
    Covered person. For purposes of this part, covered person means a 
tenant, any member of the tenant's household,

[[Page 9670]]

a guest or another person under the tenant's control.
* * * * *
    Non-public housing over-income family. A family whose income 
exceeds the over-income limit for 24 consecutive months and is paying 
the alternative non-public housing rent. See subpart E of this part.
    Over-income family. A family whose income exceeds the over-income 
limit. See subpart E of this part.
    Over-income limit. The over-income limit is determined by 
multiplying the applicable income limit for a very low-income family, 
as defined in Sec.  5.603(b) of this title, by a factor of 2.4. See 
Sec.  960.507(b).
* * * * *

0
46. Effective January 1, 2024, in Sec.  960.201, revise paragraph 
(a)(1) to read as follows:


Sec.  960.201  Eligibility.

    (a) * * * (1) Basic eligibility. An applicant must meet all 
eligibility requirements in order to receive housing assistance. At a 
minimum, the applicant must be a family, as defined in Sec.  5.403 of 
this title, must be income-eligible, as described in this section, and 
must meet the net asset and property ownership restriction requirements 
in Sec.  5.618 of this title. Such eligible applicants include single 
persons.
* * * * *

0
47. Effective March 16, 2023, amend Sec.  960.206 by adding paragraph 
(b)(6) to read as follows:


Sec.  960.206  Waiting list: Local preferences in admission to public 
housing program.

* * * * *
    (b) * * *
    (6) Preference for non-public housing over-income families. The PHA 
may adopt a preference for admission of non-public housing over-income 
families paying the alternative non-public housing rent and are on a 
NPHOI lease who become an income-eligible low-income family as defined 
in Sec.  5.603(b) of this title and are eligible for admission to the 
public housing program.
* * * * *

0
48. Effective March 16, 2023, in Sec.  960.253, add paragraph (a)(3) 
and revise paragraph (f)(1) to read as follows:


Sec.  960.253  Choice of rent.

    (a) * * *
    (3) Relation to non-public housing over-income families. Non-public 
housing over-income families must pay the alternative non-public 
housing rent, as applicable, as determined in accordance with Sec.  
960.102.
* * * * *
    (f) * * *
    (1) For a family that chooses the flat rent option, the PHA must 
conduct a reexamination of family income and composition at least once 
every three years, except for families a PHA determines exceed the 
over-income limit described in Sec.  960.507(b). Once a PHA determines 
that a family has an income exceeding the over-income limit, the PHA 
must follow the income examination and notification requirements under 
Sec.  960.507(c).
* * * * *

0
49. Effective January 1 2024, in Sec.  960.255, add paragraphs (e) and 
(f) to read as follows:


Sec.  960.255  Self-sufficiency incentives--Disallowance of increase in 
annual income.

* * * * *
    (e) Limitation. This section applies to a family that is:
    (1) Receiving the disallowance of earned income under this section 
on December 31, 2023 or
    (2) Eligible to receive the Jobs Plus program rent incentive 
pursuant to the Jobs Plus FY2023 notice of funding opportunity (NOFO) 
or earlier appropriations and distributed through prior Jobs Plus 
NOFOs.
    (f) Sunset. This section will lapse on January 1, 2030.

0
50. Effective March 16, 2023 amend Sec.  960.257 by:
0
a. Adding paragraph (a)(5); and
0
b. In paragraph (d) by adding the word ``continued'' before ``occupancy 
policies''.
    The addition reads as follows:


Sec.  960.257  Family income and composition: Annual and interim 
reexaminations.

    (a) * * *
    (5) For all non-public housing over-income families, the PHA may 
not conduct an annual reexamination of family income.

0
51. Effective January 1, 2024, amend Sec.  960.257 by revising 
paragraph (b) and adding paragraphs (e) and (f) to read as follows:


Sec.  960.257  Family income and composition: Annual and interim 
reexaminations.

* * * * *
    (b) Interim reexaminations. (1) A family may request an interim 
reexamination of family income or composition because of any changes 
since the last determination. The PHA must conduct any interim 
reexamination within a reasonable period of time after the family 
request or when the PHA becomes aware of an increase in family adjusted 
income under paragraph (3) of this section. What qualifies as a 
``reasonable time'' may vary based on the amount of time it takes to 
verify information, but generally should not be longer than 30 days 
after changes in income are reported.
    (2) The PHA may decline to conduct an interim reexamination of 
family income if the PHA estimates the family's adjusted income will 
decrease by an amount that is less than ten percent of the family's 
annual adjusted income (or a lower amount established by HUD by 
notice), or a lower threshold established by the PHA.
    (3) The PHA must conduct an interim reexamination of family income 
when the PHA becomes aware that the family's adjusted income (as 
defined in Sec.  5.611 of this title) has changed by an amount that the 
PHA estimates will result in an increase of ten percent or more in 
annual adjusted income or such other amount established by HUD through 
notice, except:
    (i) The PHA may not consider any increase in the earned income of 
the family when estimating or calculating whether the family's adjusted 
income has increased, except that, based on the PHA's established 
written policy, the PHA may consider increases in earned income if the 
PHA has processed an interim reexamination for a decrease in the 
family's income under paragraph (b)(1) of this section within the same 
annual or biennial reexamination cycle; and
    (ii) The PHA may choose not to conduct an interim reexamination in 
the last three months of a family's certification period, in accordance 
with the PHA's established written policy.
    (4) For over-income families in the period of up to six months 
before their tenancy termination pursuant to Sec.  960.507(d)(2), the 
PHA must conduct an interim reexamination of family income as otherwise 
required under this paragraph. However, the resulting income 
determination will not make the family eligible to remain in the public 
housing program beyond the period before termination as defined by PHA 
policy.
    (5) The PHA must adopt policies consistent with this section 
prescribing when and under what conditions the family must report a 
change in family income or composition.
    (6) Effective date of rent changes. (i) If the family has reported 
a change in family income or composition in a timely manner according 
to the PHA's policies, the PHA must provide the family with 30 days 
advance notice of any rent increases, and such rent

[[Page 9671]]

increases will be effective the first day of the month beginning after 
the end of that 30-day period. Rent decreases will be effective on the 
first day of the first month after the date of the actual change 
leading to the interim reexamination of family income.
    (ii) If the family has failed to report a change in family income 
or composition in a timely manner according to the PHA's policies, PHAs 
must implement any resulting rent increases retroactively to the first 
of the month following the date of the change leading to the interim 
reexamination of family income. Any resulting rent decrease must be 
implemented no later than the first rent period following completion of 
the reexamination. However, a PHA may apply rent decreases 
retroactively at the discretion of the PHA, in accordance with the 
conditions established by the PHA in written policy and subject to 
paragraph (b)(6)(iii) of this section.
    (iii) A retroactive rent decrease may not be applied by the PHA 
prior to the later of the first of the month following:
    (A) The date of the change leading to the interim reexamination of 
family income; or
    (B) The effective date of the family's most recent previous interim 
or annual reexamination (or initial examination if that was the 
family's last examination).
* * * * *
    (e) Reviews of family income under this section are subject to the 
provisions in section 904 of the Stewart B. McKinney Homeless 
Assistance Amendments Act of 1988, as amended (42 U.S.C. 3544).
    (f) De minimis errors. The PHA will not be considered out of 
compliance with the requirements in this section solely due to de 
minimis errors in calculating family income but is still obligated to 
correct errors once the PHA becomes aware of the errors. A de minimis 
error is an error where the PHA determination of family income varies 
from the correct income determination by no more than $30 per month in 
monthly adjusted income ($360 in annual adjusted income).
    (i) The PHA must take any corrective action necessary to credit or 
repay a family if the family has been overcharged for their rent as a 
result of an error (including a de minimis error) in the income 
determination. Families will not be required to repay the PHA in 
instances where the PHA has miscalculated income resulting in a family 
being undercharged for rent or family share.
    (ii) HUD may revise the amount of de minimis error in this 
paragraph (f) through a rulemaking published in the Federal Register 
for public comment.

0
52. Effective January 1, 2024, in Sec.  960.259, revise paragraph 
(c)(2) to read as follows:


Sec.  960.259  Family information and verification.

* * * * *
    (c) * * *
    (2) For a family with net family assets (as the term is defined in 
Sec.  5.603 of this title) equal to or less than $50,000, which amount 
will be adjusted annually by HUD in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Workers, a PHA may accept, 
for purposes of recertification of income, a family's declaration under 
Sec.  5.618(b) of this title, except that the PHA must obtain third-
party verification of all family assets every 3 years.
* * * * *


Sec.  960.261  [Removed]

0
53. Effective March 16, 2023, remove Sec.  960.261.

0
54. Effective March 16, 2023, add Sec. Sec.  960.507 and 960.509 to 
subpart E to read as follows:


Sec.  960.507  Families exceeding the income limit.

    (a) In general. Families participating in the public housing 
program must not have incomes that exceed the over-income limit, as 
determined by paragraph (b) of this section, for more than 24 
consecutive months.
    (1) This provision applies to all families in the public housing 
program, including FSS families and all families receiving EID.
    (i) Mixed families (as defined in Sec.  5.504 of this title) who 
are non-public housing over-income families pay the alternative non-
public housing rent (as defined in Sec.  960.102), as applicable.
    (ii) All non-public housing over-income families are precluded from 
participating in a public housing resident council.
    (iii) Furthermore, non-public housing over-income families cannot 
participate in programs that are only for public housing or low-income 
families.
    (iv) PHAs cannot provide any Federal assistance, including a 
utility allowance, to non-public housing over-income families.
    (2) PHAs must implement the requirements of this section by 
amending all applicable admission and continued occupancy policies 
according to the provisions in 24 CFR part 903. All PHAs must have 
effective over-income policies, consistent with the requirements of 
this section, no later than June 14, 2023.
    (b) Determination of over-income limit. The over-income limit is 
determined by multiplying the applicable income limit for a very low-
income family as defined in Sec.  5.603(b) of this title, by a factor 
of 2.4.
    (c) Notifying over-income families. (1) If the PHA determines the 
family has exceeded the over-income limit pursuant to an income 
examination, the PHA must provide written notice to the family of the 
over-income determination no later than 30 days after the income 
examination. The notice must state that the family has exceeded the 
over-income limit and continuing to exceed the over-income limit for a 
total of 24 consecutive months will result in the PHA following its 
continued occupancy policy for over-income families in accordance with 
paragraph (d) of this section. Pursuant to 24 CFR part 966, subpart B, 
the PHA must afford the family an opportunity for a hearing if the 
family disputes within a reasonable time the PHA's determination that 
the family has exceeded the over-income limit.
    (2) The PHA must conduct an income examination 12 months after the 
initial over-income determination described in paragraph (c)(1) of this 
section, unless the PHA determined the family's income fell below the 
over-income limit since the initial over-income determination. If the 
PHA determines the family has exceeded the over-income limit for 12 
consecutive months, the PHA must provide written notification of this 
12-month over-income determination no later than 30 days after the 
income examination that led to the 12-month over-income determination. 
The notice must state that the family has exceeded the over-income 
limit for 12 consecutive months and continuing to exceed the over-
income limit for a total of 24 consecutive months will result in the 
PHA following its continued occupancy policy for over-income families 
in accordance with paragraph (d) of this section. Additionally, if 
applicable under PHA policy, the notice must include an estimate (based 
on current data) of the alternative non-public housing rent for the 
family's unit. Pursuant to 24 CFR part 966, subpart B, the PHA must 
afford the family an opportunity for a hearing if the family disputes 
within a reasonable time the PHA's determination that the family has 
exceeded the over-income limit.
    (3) The PHA must conduct an income examination 24 months after the 
initial over-income determination described in paragraph (c)(1) of this 
section, unless the PHA determined the family's income fell below the 
over-income limit

[[Page 9672]]

since the second over-income determination. If the PHA determines the 
family has exceeded the over-income limit for 24 consecutive months, 
then the PHA must provide written notification of this 24-month over-
income determination no later than 30 days after the income examination 
that led to the 24-month over-income determination. The notice must 
state:
    (i) That the family has exceeded the over-income limit for 24 
consecutive months.
    (ii) That the PHA must either terminate the family's tenancy or 
charge the family the alternative non-public housing rent, in 
accordance with it continued occupancy policy for over-income families 
in accordance with paragraph (d) of this section.
    (A) If the PHA determines that under its policy the family's 
tenancy must be terminated in accordance with paragraph (d)(2) of this 
section, then the notice must inform the family of this determination 
and state the period of time before tenancy termination.
    (B) If the PHA determines that under its policy the family must be 
charged the alternative non-public housing rent in accordance with 
paragraph (d)(1) of this section, then the notice must inform the 
family of this determination and state that the family be charged the 
alternative non-public housing rent in accordance with paragraph (d)(1) 
of this section. The PHA must also present the family with a new lease, 
in accordance with the requirements at Sec.  960.509, and inform the 
family that the lease must be executed no later than 60 days of the 
date of the notice or at the next lease renewal, whichever is sooner.
    (iii) Pursuant to 24 CFR part 966, subpart B, the PHA must afford 
the family an opportunity for a hearing if the family disputes within a 
reasonable time the PHA's determination that the family has exceeded 
the over-income limit.
    (4) If, at any time during the consecutive 24-month period 
following the initial over-income determination described in paragraph 
(c)(1) of this section, a PHA determines that the family's income is 
below the over-income limit, the family is entitled to a new 24 
consecutive month period of being over-income and new notices under 
paragraphs (c)(1), (c)(2), and (c)(3) of this section if the PHA later 
determines that the family income exceeds the over-income limit.
    (d) End of the 24 consecutive month grace period. Once a family has 
exceeded the over-income limit for 24 consecutive months, the PHA must, 
as detailed in its admissions and continued occupancy policies--
    (1) Require the family to execute a new lease consistent with Sec.  
960.509 and charge the family the alternative non-public housing rent, 
as defined in Sec.  960.102, no later than 60-days after the notice is 
provided pursuant to paragraph (c)(3) of this section or at the next 
lease renewal, whichever is sooner; or
    (2) Terminate the tenancy of the family no more than 6 months after 
the notification under paragraph (c)(3) of this section as determined 
by the PHA's continued occupancy policy. PHAs must continue to charge 
these families the family's choice of income-based, flat rent, or 
prorated rent for mixed families during the period before termination. 
The PHA must give appropriate notice of lease tenancy termination 
(notice to vacate) in accordance with State and local laws.
    (e) Status of families. An over-income family will continue to be a 
public housing program participant until their tenancy is terminated by 
the PHA in accordance with paragraph (d)(2) of this section or the 
family executes a new non-public housing lease in accordance with 
paragraph (d)(1) of this section.
    (f) Reporting. Each PHA must submit a report annually to HUD that 
specifies, as of the end of the year, the number of families residing 
in public housing with incomes exceeding the over-income limit and the 
number of families on the waiting lists for admission to public housing 
projects and provide any other information regarding over-income 
families requested by HUD. These reports must also be publicly 
available.


Sec.  960.509  Lease requirements for non-public housing over-income 
families.

    (a) In general. If a family, when permitted by written PHA's 
continued occupancy policy, elects to remain in a public housing unit 
paying the alternative non-public housing rent, the PHA and each non-
public housing over-income (NPHOI) family (referred to as the 
``tenant'' in this section) must enter into a lease. The tenant and the 
PHA must execute the lease, as presented by the PHA pursuant to Sec.  
960.507(c)(3)(ii)(B) no later than 60 days after the notice provided 
pursuant to Sec.  960.507(c)(3) or at the next lease renewal, whichever 
is sooner. If the tenant does not execute the lease within this time 
period, the PHA must terminate the tenancy of the tenant no more than 6 
months after the notification under Sec.  960.507(c)(3) in accordance 
with 960.507(d)(2). Notwithstanding, a PHA may permit, in accordance 
with its policies, an over-income family to execute the lease beyond 
this time period, but before termination of the tenancy, if the over-
income family pays the PHA the total difference between the alternative 
non-public housing rent and their public housing rent dating back to 
the point in time that the over-income family was required to execute 
the lease.
    (b) Lease provisions. The non-public housing over-income lease must 
contain at a minimum the following provisions.
    (1) Parties, dwelling unit, and term. The lease must state:
    (i) The name of the PHA and names of the tenants.
    (ii) The unit rented (address, apartment number, and any other 
information needed to identify the dwelling unit).
    (iii) The term of the lease (lease term and renewal in accordance 
with paragraph (b)(2) of this section).
    (iv) A statement of the utilities, services, and equipment to be 
supplied by the PHA without additional cost, and the utilities and 
appliances to be paid for by the tenant.
    (v) The composition of the household as approved by the PHA (family 
members, foster children and adults, and any PHA-approved live-in 
aides). The family must promptly inform the PHA of the birth, adoption, 
or court-awarded custody of a child. The family must request PHA 
approval to add any other family member as an occupant of the unit.
    (2) Lease term and renewal. (i) The lease must have a term as 
determined by the PHA and included in PHA policy.
    (ii) At any time, the PHA may terminate the tenancy in accordance 
with paragraph (b)(11) of this section.
    (3) Payments due under the lease. (i) Tenant rent. (A) The tenant 
must pay the amount of the monthly tenant rent determined by the PHA in 
accordance with Sec.  960.507(e)(1).
    (B) The lease must specify the initial amount of the tenant rent at 
the beginning of the initial lease term. The PHA must comply with State 
or local law in giving the tenant written notice stating any change in 
the amount of tenant rent.
    (ii) PHA charges. The lease must provide for charges to the tenant 
for repair beyond normal wear and tear and for consumption of excess 
utilities. The lease must state the basis for the determination of such 
charges (e.g., by a posted schedule of charges for repair, amounts 
charged for excess utility consumption, etc.). The imposition of 
charges for consumption of excess utilities is permissible only if such 
charges are determined by an individual check meter servicing the 
leased unit or result from the use of major tenant-supplied appliances.

[[Page 9673]]

    (iii) Late payment penalties. The lease may provide for penalties 
for late payment of rent.
    (iv) When charges are due. The lease must provide that charges 
assessed under paragraphs (b)(3)(ii) and (b)(3)(iii) of this section 
are due in accordance with PHA policy.
    (v) Security deposits. The lease must provide that any previously 
paid security deposit will be applied to the tenancy upon signing a new 
lease. The lease must also inform the tenant of the circumstances under 
which a security deposit will be returned to the tenant or when the 
tenant will be charged for damage to the unit, consistent with State 
and local security deposit laws.
    (4) Tenant's right to use and occupancy. The lease must provide 
that the tenant has the right to exclusive use and occupancy of the 
leased unit by the members of the household authorized to reside in the 
unit in accordance with the lease, as well as their guests. The term 
guest is defined in Sec.  5.100 of this title.
    (5) The PHA's obligations. The PHA's obligations under the lease 
must include the following:
    (i) To maintain the dwelling unit and the project in decent, safe, 
and sanitary condition.
    (ii) To comply with requirements of applicable State and local 
building codes, housing codes, and HUD regulations materially affecting 
health and safety.
    (iii) To make necessary repairs to the dwelling unit.
    (iv) To keep project buildings, facilities, and common areas, not 
otherwise assigned to the tenant for maintenance and upkeep, in a clean 
and safe condition.
    (v) To maintain in good and safe working order and condition 
electrical, plumbing, sanitary, heating, ventilating, and other 
facilities, and appliances, including elevators, supplied, or required 
to be supplied by the PHA.
    (vi) To provide and maintain appropriate receptacles and facilities 
(except containers for the exclusive use of an individual tenant 
family) for the deposit of ashes, garbage, rubbish, and other waste 
removed from the dwelling unit by the tenant in accordance with 
paragraph (b)(6)(vii) of this section.
    (vii) To supply running water, including an adequate source of 
potable water, and reasonable amounts of hot water and reasonable 
amounts of heat at appropriate times of the year (according to local 
custom and usage), except where the building that includes the dwelling 
unit is not required by law to be equipped for that purpose, or where 
heat or hot water is generated by an installation within the exclusive 
control of the tenant and supplied by a direct utility connection.
    (viii) To notify the tenant of the specific grounds for any 
proposed adverse action by the PHA as required by State and local law.
    (ix) To comply with Federal, State, and local nondiscrimination and 
fair housing requirements, including Federal accessibility requirements 
and providing reasonable accommodations for persons with disabilities.
    (x) To establish necessary and reasonable policies for the benefit 
and well-being of the housing project and the tenants, post the 
policies in the project office, and incorporate the regulations by 
reference in the lease.
    (6) Tenant's obligations. The lease must, at a minimum and 
consistent with State and local law, provide that the tenant must:
    (i) Not assign the lease or sublease the dwelling unit.
    (ii) Not provide accommodations for boarders or lodgers.
    (iii) Use the dwelling unit solely as a private dwelling for the 
tenant and the tenant's household as identified in the lease, and not 
use or permit its use for any other purpose.
    (iv) Abide by necessary and reasonable policies established by the 
PHA for the benefit and well-being of the housing project and the 
tenants, which must be posted in the project office and incorporated by 
reference in the lease.
    (v) Comply with all applicable State and local building and housing 
codes materially affecting health and safety.
    (vi) Keep the dwelling unit and such other areas as may be assigned 
to the tenant for the tenant's exclusive use in a clean and safe 
condition.
    (vii) Dispose of all waste from the dwelling unit in a sanitary and 
safe manner.
    (viii) Use in a reasonable manner all electrical, plumbing, 
sanitary, heating, ventilating, air-conditioning and other facilities, 
including elevators.
    (ix) Refrain from, and cause members of the household and guests to 
refrain from destroying, defacing, damaging, or removing any part of 
the dwelling unit or housing project.
    (x) Pay reasonable charges (other than for wear and tear) for the 
repair of damages to the dwelling unit, or to the housing project 
(including damages to buildings, facilities, or common areas) caused by 
the tenant, a member of the household or a guest.
    (xi) Act, and cause household members and guests to act, in a 
manner which will not disturb other residents' peaceful enjoyment of 
their accommodations and will be conducive to maintaining the project 
in a decent, safe, and sanitary condition.
    (xii) Assure that no tenant, member of the tenant's household, 
guest, or any other person under the tenant's control engages in:
    (A) Criminal activity. (1) Any criminal activity that threatens the 
health, safety or right to peaceful enjoyment of the premises by other 
residents.
    (2) Any drug-related criminal activity on or off the premises; or
    (B) Civil activity. For non-public housing over-income units that 
are not within mixed-finance projects, any smoking of prohibited 
tobacco products in the tenant's unit as well as restricted areas, as 
defined by Sec.  965.653(a) of this chapter, or in other outdoor areas 
that the PHA has designated as smoke-free.
    (xii) To assure that no member of the household engages in an abuse 
or pattern of abuse of alcohol that affects the health, safety, or 
right to peaceful enjoyment of the premises by other residents.
    (7) Tenant maintenance. The lease may provide that the tenant must 
perform seasonal maintenance or other maintenance tasks, where 
performance of such tasks by tenants of dwellings units of a similar 
design and construction is customary, as long as such provisions are 
not for the purpose of evading the obligations of the PHA. In cases 
where a PHA adopts such lease provisions, the PHA must exempt tenants 
who are unable to perform such tasks because of age or disability.
    (8) Defects hazardous to life, health, or safety. The lease must 
set forth the rights and obligations of the tenant and the PHA if to 
the dwelling unit is damaged to the extent that conditions are created 
which are hazardous to life, health, or safety of the occupants. The 
lease must provide that:
    (i) The tenant must immediately notify project management of the 
damage.
    (ii) The PHA must repair the unit within a reasonable time. The PHA 
must charge the tenant the reasonable cost of the repairs if the damage 
was caused by the tenant, the tenant's household, or the tenant's 
guests.
    (iii) The PHA must offer standard alternative accommodations, if 
available, where necessary repairs cannot be made within a reasonable 
time, subject to paragraph (b)(5)(ix) of this section; and
    (iv) The lease must allow for abatement of rent in proportion to 
the seriousness of the damage and loss in value as a dwelling if 
repairs are not made in accordance with paragraph (b)(8)(ii) of this 
section or alternative accommodations not provided in

[[Page 9674]]

accordance with paragraph (b)(8)(iii) of this section, except that no 
abatement of rent may occur if the tenant rejects the alternative 
accommodation or if the damage was caused by the tenant, tenant's 
household or guests.
    (9) Entry of dwelling unit during tenancy. The lease must set forth 
the circumstances under which the PHA may enter the dwelling unit 
during the tenant's possession and must include the following 
requirements:
    (i) The PHA is, upon reasonable advance notification to the tenant, 
permitted to enter the dwelling unit during reasonable hours for the 
purpose of performing routine inspections and maintenance, for making 
improvement or repairs, or to show the dwelling unit for re-leasing. A 
written statement specifying the purpose of the PHA entry delivered to 
the dwelling unit at least two days before such entry is reasonable 
advance notification.
    (ii) The PHA may enter the dwelling unit at any time without 
advance notification when there is reasonable cause to believe that an 
emergency exists; and
    (iii) If the tenant and all adult members of the household are 
absent from the dwelling unit at the time of entry, the PHA must leave 
in the dwelling unit a written statement specifying the date, time, and 
purpose of entry prior to leaving the dwelling unit.
    (10) Notice procedures. The lease must provide procedures, in 
accordance with State and local laws, the PHA and tenant must follow 
when giving notices, which must include:
    (i) Except as provided in paragraph (b)(9) of this section, notice 
to a tenant must be provided in a form to allow meaningful access for 
persons who are limited English proficient and, in a form, to ensure 
effective communication with individuals with disabilities; and
    (ii) Notice to the PHA can be in writing, hand delivered, or sent 
by prepaid first-class mail to PHA address provided in the lease, 
orally, or submitted electronically through a communications system 
established by the PHA for that purpose.
    (11) Termination of tenancy and eviction. (i) Procedures. The lease 
must state the procedures to be followed by the PHA and the tenant to 
terminate the tenancy.
    (ii) Grounds for termination of tenancy. The PHA must terminate the 
tenancy for good cause, which includes, but is not limited to, the 
following:
    (A) Criminal activity or alcohol abuse as provided in paragraph 
(b)(11)(iv) of this section.
    (B) Failure to accept the PHA's offer of a lease revision to an 
existing lease: with written notice of the offer of the revision at 
least 60 calendar days before the lease revision is scheduled to take 
effect; and with the offer specifying a reasonable time limit within 
that period for acceptance by the family.
    (iii) Lease termination notice. The PHA must give notice of lease 
termination in accordance with State and local laws.
    (iv) PHA termination of tenancy for criminal activity or alcohol 
abuse. (A) Evicting drug criminals. (1) Methamphetamine conviction. The 
PHA must immediately terminate the tenancy if the PHA determines that 
any member of the household has been convicted of drug-related criminal 
activity for manufacture or production of methamphetamine on the 
premises of Federally assisted housing.
    (2) Drug crime on or off the premises. The lease must provide that 
drug-related criminal activity engaged in on or off the premises by any 
tenant, member of the tenant's household or guest, and any such 
activity engaged in on the premises by any other person under the 
tenant's control, is grounds for the PHA to terminate tenancy. In 
addition, the lease must provide that a PHA may evict a family when the 
PHA determines that a household member is illegally using a drug or 
when the PHA determines that a pattern of illegal use of a drug 
interferes with the health, safety, or right to peaceful enjoyment of 
the premises by other residents.
    (B) Evicting other criminals. (1) Threat to other residents. The 
lease must provide that any criminal activity by a covered person that 
threatens the health, safety, or right to peaceful enjoyment of the 
premises by other residents (including PHA management staff residing on 
the premises) or threatens the health, safety, or right to peaceful 
enjoyment of their residences by persons residing in the immediate 
vicinity of the premises is grounds for termination of tenancy.
    (2) Fugitive felon or parole violator. The PHA may terminate the 
tenancy if a tenant is fleeing to avoid prosecution, or custody or 
confinement after conviction, for a crime, or attempt to commit a 
crime, that is a felony under the laws of the place from which the 
individual flees, or that, in the case of the State of New Jersey, is a 
high misdemeanor; or violating a condition of probation or parole 
imposed under Federal or State law.
    (C) Eviction for criminal activity. (1) Evidence. The PHA may evict 
the tenant by judicial action for criminal activity in accordance with 
this section if the PHA determines that the covered person has engaged 
in the criminal activity, regardless of whether the covered person has 
been arrested or convicted for such activity and without satisfying the 
standard of proof used for a criminal conviction.
    (2) Notice to Post Office. When a PHA evicts an individual or 
family for criminal activity, the PHA must notify the local post office 
serving the dwelling unit that the individual or family is no longer 
residing in the unit.
    (D) Use of criminal record. If the PHA seeks to terminate the 
tenancy for criminal activity as shown by a criminal record, the PHA 
must notify the household of the proposed action to be based on the 
information and must provide the subject of the record and the tenant 
with a copy of the criminal record before a PHA grievance hearing, as 
applicable, or court trial concerning the termination of tenancy or 
eviction. The tenant must be given an opportunity to dispute the 
accuracy and relevance of that record in the grievance hearing or court 
trial.
    (E) Cost of obtaining criminal record. The PHA may not pass along 
to the tenant the costs of a criminal records check.
    (F) Evicting alcohol abusers. The PHA must establish standards that 
allow termination of tenancy if the PHA determines that a household 
member has:
    (1) Engaged in abuse or pattern of abuse of alcohol that threatens 
the health, safety, or right to peaceful enjoyment of the premises by 
other residents; or
    (2) Furnished false or misleading information concerning illegal 
drug use, alcohol abuse, or rehabilitation of illegal drug users or 
alcohol abusers.
    (G) PHA action, generally. (1) Consideration of circumstances. In a 
manner consistent with policies, procedures and practices, the PHA may 
consider all circumstances relevant to a particular case such as the 
nature and severity of the offending action, the extent of 
participation by the leaseholder in the offending action, the effects 
that the eviction would have on family members not involved in the 
offending activity, the extent to which the leaseholder has taken steps 
to prevent or mitigate the offending action, the amount of time that 
has passed since the criminal conduct occurred, whether the crime or 
conviction was related to a disability, and whether the individual has 
engaged in rehabilitative or community services.
    (2) Exclusion of culpable household member. The PHA may require a 
tenant to exclude a household member to

[[Page 9675]]

continue to reside in the dwelling unit, where that household member 
has participated in or been culpable for action or failure to act that 
warrants termination.
    (3) Consideration of rehabilitation. In determining whether to 
terminate tenancy for illegal drug use or a pattern of illegal drug use 
by a household member who is no longer engaging in such use, or for 
abuse or a pattern of abuse of alcohol by a household member who is no 
longer engaging in such abuse, the PHA may consider whether such 
household member is participating in or has successfully completed a 
supervised drug or alcohol rehabilitation program or has otherwise been 
rehabilitated successfully (42 U.S.C. 13662). For this purpose, the PHA 
may require the tenant to submit evidence of the household member's 
current participation in, or successful completion of, a supervised 
drug or alcohol rehabilitation program or evidence of otherwise having 
been rehabilitated successfully.
    (4) Nondiscrimination limitation. The PHA's eviction actions must 
be consistent with fair housing and equal opportunity provisions of 
Sec.  5.105 of this title.
    (12) No automatic lease renewal. Upon expiration of the lease term, 
the lease shall not automatically renew.
    (13) Grievance procedures. The lease may include hearing or 
grievance procedures and may explain when the procedures are available 
to the family.
    (14) Provision for modifications. The lease may be modified at any 
time by written agreement of the tenant and the PHA. The lease must 
provide that modification of the lease must be evidenced by a written 
rider or amendment to the lease, executed by both parties, except as 
permitted under Sec.  966.5 of this chapter, which allows modifications 
of the lease by posting of policies, rules and regulations.
    (15) Signature clause. The lease must provide a signature clause 
attesting that the lease has been executed by the parties.

0
55. Effective March 16, 2023, revise Sec.  960.600 to read as follows:


Sec.  960.600  Implementation.

    PHAs and residents must comply with the requirements of this 
subpart beginning with PHA fiscal years that commence on or after 
October 1, 2000. Unless otherwise provided by Sec.  903.11 of this 
chapter, Annual Plans submitted for those fiscal years are required to 
contain information regarding the PHA's compliance with the community 
service requirement, as described in Sec.  903.7 of this chapter. Non-
public housing over-income families are not required to comply with the 
requirements of this subpart.

0
56. Effective March 16, 2023, in Sec.  960.601(b), revise the 
definition of Exempt individual to read as follows:


Sec.  960.601  Definitions.

* * * * *
    Exempt individual. An adult who:
    (1) Is 62 years or older;
    (2)(i) Is a blind or disabled individual, as defined under Section 
216(i)(1) or Section 1614 of the Social Security Act (42 U.S.C. 
416(i)(1); 1382c), and who certifies that because of this disability 
she or he is unable to comply with the service provisions of this 
subpart, or
    (ii) Is a primary caretaker of such individual;
    (3) Is engaged in work activities;
    (4) Meets the requirements for being exempted from having to engage 
in a work activity under the State program funded under part A of title 
IV of the Social Security Act (42 U.S.C. 601 et seq.) or under any 
other welfare program of the State in which the PHA is located, 
including a State-administered welfare-to-work program;
    (5) Is a member of a family receiving assistance, benefits or 
services under a State program funded under part A of title IV of the 
Social Security Act (42 U.S.C. 601 et seq.) or under any other welfare 
program of the State in which the PHA is located, including a State-
administered welfare-to-work program, and has not been found by the 
State or other administering entity to be in noncompliance with such a 
program; or
    (6) is a member of a non-public housing over-income family.
* * * * *

PART 964--TENANT PARTICIPATION AND TENANT OPPORTUNITIES IN PUBLIC 
HOUSING

0
57. The authority citation for part 964 continues to read as follows:

    Authority:  42 U.S.C. 1437d, 1437g, 1437r, 3535(d).


Sec.  964.125  [Amended]

0
58. Effective March 16, 2023, amend Sec.  964.125(a) by inserting ``, 
not including members of a non-public housing over-income family as 
defined in Sec.  960.102 of this chapter,'' after ``public housing 
household''.

PART 966--PUBLIC HOUSING LEASE AND GRIEVANCE PROCEDURE

0
59. The authority citation for part 966 continues to read as follows:

    Authority:  42 U.S.C. 1437d and 3535(d).


0
60. Effective March 16, 2023, amend Sec.  966.4 by:
0
a. Revising paragraph (a)(2)(iii);
0
b. Adding paragraph (a)(2)(iv);
0
c. In paragraph (l)(2)(ii) by removing the citation to ``24 CFR 
960.261'' and adding ``24 CFR 960.507'' in its place, and
0
d. By redesignating paragraph (l)(2)(iii) as (l)(2)(iv), and adding new 
paragraph (l)(2)(iii);
    The revision and addition read as follows:


Sec.  966.4  Lease requirements.

    (a) * * *
    (2) * * *
    (iii) The lease shall convert to a month-to-month term for families 
determined to be over-income whose tenancy will be terminated in 
accordance with Sec.  960.507(d)(2) of this chapter as of the date of 
the notice provided under Sec.  960.507(c)(3) of this chapter. PHAs 
must charge these families, who continue to be public housing program 
participants, the family's choice of income-based, flat rent, or 
prorated rent for mixed families during the period before termination.
    (iv) At any time, the PHA may terminate the tenancy in accordance 
with paragraph (l) of this section.
* * * * *
    (l) * * *
    (2) * * *
    (iii) No longer meeting the restrictions on net assets and property 
ownership as provided in Sec.  5.618 of this title.
* * * * *

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM

0
61. The authority citation for part 982 continues to read as follows:

    Authority:  42 U.S.C. 1437f and 3535(d).


0
62. Effective January 1, 2024, in Sec.  982.516, revise paragraphs 
(a)(3), (c), (d), (e)(1), and (f) and add paragraph (h) to read as 
follows:


Sec.  982.516  Family income and composition: Annual and interim 
examinations.

    (a) * * *
    (3) For a family with net family assets (as the term is defined in 
Sec.  5.603 of this title) equal to or less than $50,000, which amount 
will be adjusted annually by HUD in accordance with the Consumer Price 
Index for Urban Wage Earners and Clerical Workers, a PHA may accept, 
for purposes of recertification of income, a family's declaration under 
Sec.  5.618(b) of this title, except that the PHA must obtain third-

[[Page 9676]]

party verification of all family assets every 3 years.
* * * * *
    (c) Interim reexaminations. (1) A family may request an interim 
determination of family income or composition because of any changes 
since the last determination. The PHA must conduct any interim 
reexamination within a reasonable period of time after the family 
request or when the PHA becomes aware of an increase in family adjusted 
income under paragraph (c)(3) of this section. What qualifies as a 
``reasonable time'' may vary based on the amount of time it takes to 
verify information, but generally should not be longer than 30 days 
after changes in income are reported.
    (2) The PHA may decline to conduct an interim reexamination of 
family income if the PHA estimates the family's adjusted income will 
decrease by an amount that is less than ten percent of the family's 
annual adjusted income (or a lower amount established by HUD through 
notice), or a lower threshold established by the PHA.
    (3) The PHA must conduct an interim reexamination of family income 
when the PHA becomes aware that the family's adjusted income (as 
defined in Sec.  5.611 of this title) has changed by an amount that the 
PHA estimates will result in an increase of ten percent or more in 
annual adjusted income or such other amount established by HUD through 
notice, except:
    (i) The PHA may not consider any increase in the earned income of 
the family when estimating or calculating whether the family's adjusted 
income has increased, unless the family has previously received an 
interim reduction under paragraph (c)(1) of this section during the 
certification period; and
    (ii) The PHA may choose not to conduct an interim reexamination in 
the last three months of a certification period.
    (4) Effective date of rent changes. (i) If the family has reported 
a change in family income or composition in a timely manner according 
to the PHA's policies, the PHA must provide the family with 30 days 
advance notice of any family share and family rent to owner increases, 
and such increases will be effective the first day of the month 
beginning after the end of that 30-day period. Family share and family 
rent to owner decreases will be effective on the first day of the first 
month after the date of the reported change leading to the interim 
reexamination of family income.
    (ii) If the family has failed to report a change in family income 
or composition in a timely manner according to the PHA's policies, PHAs 
must implement any resulting family share and family rent to owner 
increases retroactively to the first of the month following the date of 
the change leading to the interim reexamination of family income. Any 
resulting family share and family rent to owner decrease must be 
implemented no later than the first rent period following completion of 
the reexamination. However, a PHA may apply a family share and family 
rent to owner decrease retroactively at the discretion of the PHA, in 
accordance with the conditions established by the PHA in the 
administrative plan and subject to paragraph (c)(4)(iii) of this 
section.
    (iii) A retroactive family share and family rent to owner decrease 
may not be applied prior to the later of the first of the month 
following:
    (A) The date of the change leading to the interim reexamination of 
family income; or
    (B) The effective date of the family's most recent previous interim 
or annual reexamination (or initial examination if that was the 
family's last examination).
    (d) Family reporting of change. The PHA must adopt policies 
consistent with this section prescribing when and under what conditions 
the family must report a change in family income or composition.
    (e) * * *
    (1) The PHA must adopt policies consistent with this section 
prescribing how to determine the effective date of a change in the 
housing assistance payment resulting from an interim redetermination.
* * * * *
    (f) Accuracy of family income data. The PHA must establish 
procedures that are appropriate and necessary to assure that income 
data provided by applicant or participant families is complete and 
accurate. The PHA will not be considered out of compliance with the 
requirements in this section solely due to de minimis errors in 
calculating family income but is still obligated to correct errors once 
the PHA becomes aware of the errors. A de minimis error is an error 
where the PHA determination of family income deviates from the correct 
income determination by no more than $30 per month in monthly adjusted 
income ($360 in annual adjusted income).
    (i) The PHA must take any corrective action necessary to credit or 
repay a family if the family has been overcharged for their rent or 
family share as a result of an error (including a de minimis error) in 
the income determination. Families will not be required to repay the 
PHA in instances where the PHA has miscalculated income resulting in a 
family being undercharged for rent or family share.
    (ii) HUD may revise the amount of de minimis error in this 
paragraph (f) through a rulemaking published in the Federal Register 
for public comment.
* * * * *
    (h) Reviews of family income under this section are subject to the 
provisions in section 904 of the Stewart B. McKinney Homeless 
Assistance Amendments Act of 1988, as amended (42 U.S.C. 3544).

0
63. Effective January 1, 2024, in Sec.  982.552, add paragraph (b)(6) 
to read as follows:


Sec.  982.552  PHA denial or termination of assistance for family.

* * * * *
    (b) * * *
    (6) The PHA must deny or terminate assistance based on the 
restrictions on net assets and property ownership when required by 
Sec.  5.618 of this title.

Adrianne Todman,
Deputy Secretary.
[FR Doc. 2023-01617 Filed 2-13-23; 8:45 am]
BILLING CODE 4210-67-P