[Federal Register Volume 88, Number 129 (Friday, July 7, 2023)]
[Notices]
[Pages 43371-43380]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14362]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-6086-N-06]


National Standards for the Physical Inspection of Real Estate and 
Associated Protocols, Scoring Notice

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Office of the Assistant Secretary for Public and Indian 
Housing, U.S. Department of Housing and Urban Development (HUD).

ACTION: Final notice.

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SUMMARY: This notice serves as a complementary document to the Economic 
Growth Regulatory Relief and Consumer Protection Act: Implementation of 
National Standards for the Physical Inspection of Real Estate (NSPIRE) 
rule published May 11, 2023. The NSPIRE rule provides that HUD will 
publish in the Federal Register the NSPIRE inspection standards and 
scoring methodology to assess the overall condition, health, and safety 
of properties and units assisted or insured by HUD. The NSPIRE 
Standards were published for public comment on June 17, 2022 and posted 
as final on June 22, 2023. On March 28, 2023, HUD published a proposed 
scoring methodology for public comment. HUD establishes with this 
notice the NSPIRE physical inspection scoring and ranking methodology 
to implement HUD's NSPIRE rule for Public Housing and Multifamily 
Housing programs, including Section 8 Project-Based Rental Assistance 
(PBRA) and other Multifamily assisted housing, Section 202/811 
programs, and HUD-insured Multifamily as described in the NSPIRE rule. 
The scoring methodology converts observed defects into a numerical 
score and sets a threshold for HUD to perform additional administrative 
oversight by establishing a level for when a property fails an 
inspection (less than 60 points) and when an enforcement referral is 
automatic or required (less than or equal to 30 points).

DATES: July 1, 2023.

FOR FURTHER INFORMATION CONTACT: Tara J. Radosevich, Real Estate 
Assessment Center, Office of Public and Indian Housing, Department of 
Housing and Urban Development, 550 12th Street SW, Suite 100, 
Washington, DC 20410-4000, telephone number 612-370-3009 (this is not a 
toll-free number), 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 or 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.

SUPPLEMENTARY INFORMATION:

I. Background

A. UPCS Standards and Scoring

    Prior to the implementation of NSPIRE, HUD used two assessment 
methodologies to ascertain the quality and health and safety of HUD-
assisted and insured properties and units: (1) Pass/Fail, used for the 
Housing Quality Standards (HQS) for the Housing Choice Voucher (HCV) 
and Project-based Voucher (PBV) programs; and (2) a zero to 100-point 
(0-100) scale used for properties inspected under the Uniform Physical 
Condition Standards (UPCS) for public housing and properties managed by 
HUD's Office of Multifamily Housing Programs.\1\
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    \1\ ``Uniform Physical Condition Standards and Physical 
Inspection Requirements for Certain HUD Housing,'' Final Rule, 63 FR 
46565 (Sept. 1, 1998).
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B. NSPIRE Final Rule and Implementation Timeline

    On May 11, 2023, HUD published the NSPIRE Rule \2\ to implement one 
of NSPIRE's core objectives--the formal alignment of expectations of 
housing quality and consolidation of inspection standards across HUD 
programs. The final rule is effective July 1, 2023, for public housing 
and Multifamily Housing programs. HUD's Real Estate Assessment Center 
(REAC) intends to commence scored inspections using the NSPIRE 
standards for public housing and Multifamily NSPIRE Demonstration 
participants that did not opt for a Uniform Physical Condition Standard 
inspection after this date pursuant to the Notice of Modifications to 
the Demonstration to Assess the National Standards for the Physical 
Inspection of Real Estate and Associated Protocols

[[Page 43372]]

cited below.\3\ NSPIRE inspection scores will be included in future 
Public Housing Assessment System (PHAS) scores after July 1, 2023 once 
every public housing asset management project (AMP) has been inspected 
under the final NSPIRE standards. For example, if a PHA has ten asset 
management projects, the physical condition portion of the PHAS score 
will not be issued until a sample of all units at each of those ten 
public housing asset management projects have received a NSPIRE 
inspection.
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    \2\ 88 FR 30442 (May 11, 2023)
    \3\ ``Notice of Modification to the Demonstration to Assess the 
National Standards for the Physical Inspection of Real Estate and 
Associated Protocols,'' 88 FR 4727, January 25, 2023.
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    In the NSPIRE rule, HUD stated its intent to publish updates to the 
NSPIRE standards and scoring methodology through future Federal 
Register notices at least once every three years with an opportunity 
for public comment. The NSPIRE Standards were published for comment in 
the Federal Register on June 17, 2022,\4\ and published as final on 
June 22, 2023].\5\
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    \4\ 87 FR 36426 (June 17, 2022).
    \5\ 88 FR 40832 (June 22, 2023)
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    On April 21, 2023, HUD published an NSPIRE Scoring Calculator \6\ 
to estimate a potential NSPIRE score based on the types and locations 
of deficiencies identified during an NSPIRE inspection. This calculator 
was based on the NSPIRE Standards 2.2 proposed for comment on June 17, 
2022. It will be updated for the most recent NSPIRE Standards 3.0 and 
this scoring model and remain available on the REAC NSPIRE website at 
www.hud.gov/program_offices/public_indian_housing/reac/nspire.
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    \6\ National Standards for the Physical Inspection of Real 
Estate (NSPIRE) [verbar] HUD.gov/U.S. Department of Housing and 
Urban Development (HUD), available at: https://www.hud.gov/program_offices/public_indian_housing/reac/nspire.
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C. HCV and PBV Assessment

    Consistent with existing practice and with the NSPIRE proposed 
rule, NSPIRE retains a pass/fail indicator for the HCV and PBV programs 
and uses a 0-100-point scale for public housing and properties 
previously inspected under UPCS. This Scoring notice does not apply to 
the HCV and PBV programs and does not revise the inspection frequencies 
established under the applicable program regulations. The individual 
NSPIRE Standards include an indication of whether defects in the 
standard would result in an HCV fail for the unit or property.\7\
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    \7\ 88 FR 40832 (June 22, 2023)
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D. Comments on UPCS Scoring and Changes From the Proposed NSPIRE 
Scoring Methodology

    To develop a new scoring methodology for comment, HUD reviewed its 
current scoring model under UPCS and solicited feedback from the 
public, including residents, housing industry groups, and housing 
professionals within and outside of HUD through the NSPIRE proposed 
rule.\8\ HUD also considered feedback on the UPCS inspection and 
scoring process received from industry, residents, advocacy groups, and 
Congress, and acknowledges concerns about consistency and subjectivity, 
including the disproportionate impact of certain defects based on item 
weighting and disproportionate impact of certain non-unit observed 
defects in smaller properties. The final Scoring methodology considered 
public comment on the draft methodology, the results of the NSPIRE 
Demonstration, and user acceptance/pilot testing with volunteer PHA and 
owners.
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    \8\ Public comments can be reviewed in the rulemaking docket at: 
https://www.regulations.gov/docket/HUD-2021-0005.
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    HUD received 97 public comments on the NSPIRE proposed Scoring 
notice. Below, HUD discusses these comments and the major changes from 
the proposed Scoring methodology.
Letter Grades
    HUD proposed the use of letter grades in conjunction with 
inspection scores in the NSPIRE proposed Scoring notice. The rationale 
for using letter grades was rooted in making property inspection scores 
easy to interpret for HUD-assisted housing residents. Several public 
comments underscored how such letter grading might lead to 
misinterpreting the inspection outcomes, or possibly ``stigmatize'' 
affordable housing. In line with these potential concerns, letter 
grading has been removed from the final Scoring notice. HUD may decide 
to use letter grades in the future, and if so, will announce that 
decision via notice before implementing. Until such time, HUD will 
continue to only issue scores on the 0-100 point scale. An alternative 
suggestion was to adopt Management and Occupancy Review (MOR) 
terminology to eliminate the risk of misinterpretations in the public 
eye: superior, above average, satisfactory, below average, and 
unsatisfactory. REAC will share comments on the MOR process with the 
Office of Housing; that is not in the NSPIRE rulemaking.
Unit Threshold of Performance
    In the NSPIRE final rule and proposed Scoring notice, HUD 
identified three inspectable areas: Unit, Inside, and Outside. For 
scoring, HUD proposed that properties be rated against two performance 
thresholds: (1) Properties need to score 60 or above in all inspectable 
areas (``Property Threshold of Performance''), and (2) a ``Unit 
Threshold of Performance''; where a loss of 30 points or more in the 
Unit portion of the inspection will result in a score adjustment to 59 
or failing, even if the Inside and Outside portions of the inspection 
allowed it to score over 60. The establishment of the Unit Threshold of 
Performance reflects HUD's concern with resident health and safety in 
its inspection protocols. Several public comments misinterpreted the 
Unit Threshold of Performance to suggest that the deduction of 30 
points or more in a single inspected unit could fail an entire 
property. This interpretation does not reflect the intended goal or 
application of this policy. This final Scoring notice clarifies that 
the Unit Threshold of Performance applies to all the inspected units in 
a property collectively (e.g., Unit Defection Deduction Value divided 
by the number of inspected units). Additionally, HUD will only lower 
the score to 59 if it was previously 60 or above. HUD will not further 
adjust scores that were already below 60.
Duplicate Defects
    In the proposed NSPIRE Scoring notice, HUD scored all deficiencies, 
even repeated instances of the same deficiency. Public comments raised 
important considerations about certain types of deficiencies; for 
example, some deficiencies can be observed in multiple rooms or 
inspectable items even if they are the same deficiency. Examples 
include pest infestation, blocked egress, sharp edges, and damaged 
walls. To estimate the scoring impact of scoring every deficiency cited 
versus the overall condition, HUD conducted a statistical analysis of 
how scoring the same deficiency multiple times affects overall property 
scores, using data gathered from the NSPIRE Demonstration. The analysis 
showed that the difference between point deductions for each instance 
of deficiencies and point deductions in only the first observation of 
the deficiency is small and might lead to a negligible increase in the 
inspection failure rate. In other cases--such as pest infestation--the 
final NSPIRE Standard will not require that the inspector count each 
piece of evidence of a pest as an individual deficiency and will, 
instead,

[[Page 43373]]

characterize the infestation severity at the overall unit level. In 
view of the public comments and pilot testing results--and the minimal 
impact on overall inspection score--HUD will continue citing a 
deficiency multiple times in all inspectable areas (i.e., Unit, Inside, 
Outside) but will deduct points once per inspected unit, inspected 
building, or Outside area, for the Unit, Inside, and Outside areas, 
respectively. Examples of deficiencies that will be cited for each 
instance but scored only once in the same inspectable area include 
blocked egress, damaged doors, damaged walls, sharp edges, and 
infestation. This revision takes into consideration concerns expressed 
in public comments while upholding HUD's focus on resident health and 
safety as standards for acceptable living conditions.
Comparison Between UPCS and NSPIRE Standards and Scoring
    Several public comments requested a comparison between UPCS and 
NSPIRE scoring methodologies. HUD is still considering publishing a 
crosswalk analysis of UPCS and final NSPIRE standards and scores. 
However, the two scoring methodologies are fundamentally different from 
each other in several ways, rendering a direct comparison 
uninformative. The two methodologies differ in what is inspected (e.g., 
new affirmative requirements) and the approach to assessment--
determining health and safety impact rather than identifying the broken 
component. Additionally, they differ in the scoring calculations, the 
weights assigned to each inspected item, how inspectable areas are 
structured, the weight of each inspectable area, and how individual 
inspectable area point deductions are aggregated. Some UPCS standards, 
such as overgrown vegetation, erosion, and graffiti are no longer 
standards, but related health and safety conditions are included as new 
defects under different standards and condensed to new thresholds that 
capture the most important adverse conditions.
    Additionally, the number of inspectable areas under NSPIRE has been 
reduced for the purposes of protocols and scoring, but NSPIRE has not 
reduced the inspection footprint in the inside area. The outside areas 
assessed will be reduced with new inspection protocols and the number 
of inspectable items have been marginally reduced to capture the most 
critical health and safety conditions. The focus of the NSPIRE 
inspection will continue to be on the units and the places where 
residents spend time. These differences between UPCS and NSPIRE reflect 
HUD's renewed emphasis on resident health and safety.
Property Size
    HUD's focus on units as the most important element of resident 
health and safety drives the NSPIRE scoring methodology. As part of 
this emphasis, the NSPIRE Scoring methodology no longer requires every 
building of the property to be inspected; instead, only those buildings 
that contain a unit in the inspection sample are to be inspected. The 
inspection will also include at least two non-dwelling area spaces, 
with a priority on spaces that residents can access or will spend time 
in, in addition to those common areas within a building that includes 
sampled units. For example, residents are more likely to spend time in 
a community room as compared to a basement storage area or the 
management office. Public comments expressed concerns about how this 
new approach might disadvantage properties of certain sizes or 
configurations, simultaneously. However, the comments appear to be 
based on an incorrect reading of the scoring formula. The NSPIRE 
scoring methodology controls for property size by dividing Defect 
Deduction Value for all three areas: Unit, Inside, and Outside portions 
of the inspection by the number of units inspected. HUD's assertion is 
that number of units inspected is a simple and easy-to-measure proxy 
value for number of items inspected at a property. For large 
properties, there is a chance that the numerator, or number of total 
defects in each area will be larger because they will have more and 
larger common areas. Units inspected acts as an simple and easy-to-
measure proxy value for number of items inspected at a property. For 
smaller properties, the concern is that the denominator will be smaller 
due to smaller number of units in the property, so every defect counts 
``more.'' By using the total number of units inspected as the 
denominator in the scoring formula, HUD controls for the effect of the 
property size on the overall score for both small and large properties. 
Dividing the Defect Deduction Value by the total number of units 
inspected normalizes the impact of deficiencies on the property score, 
thereby eliminating a potential source of bias in the scoring due to 
property size. Alternative measures to control for property size 
yielded inconclusive results. Further, HUD's systems of record do not 
include building square footage by inspectable area, so the number of 
units inspected acts as a simple and easy-to-measure proxy value for 
number of items inspected at a property. HUD will use its inspector 
protocols and the individual NSPIRE Standard to define what is 
inspected, by inspectable item. Further, not all non-dwelling or other 
inside areas will be inspected. By limiting the score deductions for 
repeated Life-threatening (LT) conditions, the size of the inspectable 
area or building will have less of an impact on the overall score.

II. The NSPIRE Scoring Model

A. Applicability of the NSPIRE Scoring Notice

    The NSPIRE Scoring notice applies to all HUD housing currently 
inspected by REAC, including public housing and Multifamily Housing 
programs such as Project-based Rental Assistance, FHA Insured, and 
Sections 202 and 811 as described in the NSPIRE proposed rule at Sec.  
5.701.\9\
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    \9\ 86 FR 2582 (Jan. 13, 2021).
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B. NSPIRE Scoring Format

    NSPIRE will retain a 0-100 score for properties inspected by REAC. 
Any score under 60 is considered a failing score, and properties that 
score 30 or less will be automatically referred to HUD's Departmental 
Enforcement Center (DEC) for administrative review as provided in Sec.  
5.711(i).

C. Scoring Methodology

    The NSPIRE scoring methodology converts observed defects into a 
numerical score. It implements the NSPIRE rule's intent to provide 
reliable evaluations of health and safety conditions in housing. In 
evaluating the UPCS inspection standards and scoring, HUD identified a 
disproportionate emphasis around the appearance of items that are 
otherwise safe and functional and that the inspection standards paid 
inadequate attention to the health and safety conditions within the 
inside and outside areas and housing units. To best protect residents, 
the NSPIRE inspections will prioritize conditions that are most likely 
to impact residents in the places where they spend the most time: in 
their units. Thus, standards which are categorized as more severe 
should have a greater impact on a property's score when deficiencies 
exist in the unit, and a property with a high number of observed health 
and safety defects in its units is more likely to fail an inspection 
than a comparable property with a lower number of health and safety 
defects.
    HUD therefore scores deficiencies based on two factors: severity 
and location. The categories of severity, as

[[Page 43374]]

provided in the proposed NSPIRE Standards Notice, are Life-Threatening, 
Severe, Moderate, and Low. As described in NSPIRE Standards, defect 
severity levels include the following characteristics:
     Life-Threatening (LT). The Life-Threatening category 
includes deficiencies that, if evident in the home or on the property, 
present a high risk of death to a resident.
     Severe. The Severe category includes deficiencies that, if 
evident in the home or on the property, present a high risk of 
permanent disability, or serious injury or illness, to a resident; or 
the physical security or safety of a resident or their property would 
be seriously compromised.
     Moderate. The Moderate health and safety category includes 
deficiencies that, if evident in the home or on the property, present a 
moderate risk of an adverse medical event requiring a healthcare visit; 
cause temporary harm; or if left untreated, cause or worsen a chronic 
condition that may have long-lasting adverse health effects; or that 
the physical security or safety of a resident or their property could 
be compromised.
     Low. Deficiencies critical to habitability but not 
presenting a substantive health or safety risk to resident.
    The location categories provided in Sec.  5.703 of the NSPIRE Rule 
are the unit, inside, and outside. Under the NSPIRE scoring 
methodology, in-unit deficiencies are weighted more heavily; properties 
with in-unit deficiencies are more likely to fail inspections. HUD 
weighs deficiencies using a Defect Severity Value. Under the Defect 
Severity Value methodology, the weight of the deduction for a given 
deficiency changes depending on both the location and the severity of 
the deficiency such that a LT deficiency inside a unit will lead to the 
largest deduction and a Low deficiency observed outside the property 
will lead to the smallest deduction of points. To determine the point 
deduction of a given deficiency, HUD uses the Defect Severity Values by 
Inspectable Area as shown in Table 1, based on the rates of change 
described more in Tables 2 and 3.

                                         Table 1--Defect Severity Values
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                                                                                Inspectable area *
                    Defect severity category                     -----------------------------------------------
                                                                      Outside         Inside           Unit
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Life-Threatening (most severe)..................................            49.6            54.5            60.0
Severe..........................................................            12.2            13.4            14.8
Moderate........................................................             4.5             5.0             5.5
Low (least severe)..............................................             2.0             2.2             2.4
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    Based on the Defect Severity Values in Table 1, the sum of 
individual defect point deductions would be divided by the number of 
units inspected. If, for example, only one LT defect in a unit was 
observed during an inspection sample size of 10 units, and no other 
defects were observed, the total deduction from the score would be 6 
points (60.0 points divided by 10 units). See section D for additional 
details on property size adjustment. The survey referenced in Section I 
(Background) of the Proposed NSPIRE Scoring notice informed HUD's 
determination of the Defect Severity Values in Table 1. On average, 
most respondents indicated that the difference between a LT and a 
Severe deficiency should be greater than the difference between a 
Severe and a Moderate deficiency. Accordingly, the Defect Severity 
Values translate to the following rates of change by defect severity 
category (shown only for the Outside inspectable area):

                 Table 2--Defect Severity Values and Rates of Change by Defect Severity Category
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                                             Severity value
         Defect severity category               (outside)                  Severity rate of change *
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Life-Threatening (most severe)............              49.6  4.1 x Severe.
Severe....................................              12.2  2.7 x Moderate.
Moderate..................................               4.5  2.3 x Low.
Low (least severe)........................               2.0  N/A.
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* Severity rate of change is rounded to the tenths decimal place.

    Consistent with HUD's goal of prioritizing the health and safety of 
residents, Table 2 illustrates that LT deficiencies affect inspection 
scores 4.1 times more than Severe deficiencies whereas the rate of 
change drops to 2.7 times from Severe to Moderate deficiencies and to 
2.0 from Moderate to Low deficiencies. The rate of change at increasing 
severity levels is the same for all three inspectable areas; however, 
the following paragraph explains the defect value rate of change across 
inspectable areas.
    Similarly, the Defect Severity Values increase by a factor of 1.1 
from Outside to Inside and from Inside to Unit inspectable areas. For 
example, multiplying a Low defect located in an Outside inspectable 
area (with a severity value of 2.0) by 1.1 yields the Defect Severity 
Value for a Low Defect located in an Inside inspectable area with a 
value of 2.2. Similarly, when a Low defect located in an Inside 
inspectable area (with a severity value of 2.2) is multiplied by the 
rounded value of 1.1, it yields the Defect Severity Value of 2.4 for a 
Low defect located in a Unit inspectable area. Table 3 illustrates the 
increase in Defect Severity Values by inspectable area (Note: The same 
rate of change by inspectable area applies to all Defect Severity 
Categories).

[[Page 43375]]



                     Table 3--Defect Severity Values and Rates of Change by Inspectable Area
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                                                                   Inspectable area
      Defect severity category      ----------------------------------------------------------------------------
                                         Outside                 Inside                         Unit
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Low................................             2.0  2.2..........................  2.4.
Rate of Change.....................             N/A  1.1 x Outside................  1.1 x Inside.
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* Area rate of change is rounded to the tenths place.

According to the NSPIRE rule, the inspectable areas are described as 
follows:
    Outside of HUD housing (or ``outside areas'') refers to the 
building site, building exterior components, and any building systems 
located outside of the building or unit. Examples of ``outside'' 
components may include fencing, retaining walls, grounds, lighting, 
mailboxes, project signs, parking lots, detached garage or carport, 
driveways, play areas and equipment, refuse disposal, roads, storm 
drainage, non-dwelling buildings, and walkways. Components found on the 
exterior of the building are also considered outside areas, and 
examples may include doors, attached porches, attached patios, 
balconies, car ports, fire escapes, foundations, lighting, roofs, 
walls, and windows.
    Inside of HUD housing (or ``inside areas'') refers to the common 
areas and building systems that can be generally found within the 
building interior and are not inside a unit. Examples of ``inside'' 
common areas may include, basements, interior or attached garages, 
enclosed carports, restrooms, closets, utility rooms, mechanical rooms, 
community rooms, day care rooms, halls, corridors, stairs, shared 
kitchens, laundry rooms, offices, enclosed porches, enclosed patios, 
enclosed balconies,\10\ and trash collection areas. Examples of 
building systems include those components that provide domestic water, 
electricity, elevators, emergency power, fire protection, HVAC, and 
sanitary services.
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    \10\ Enclosed porches, enclosed patios, and enclosed balconies 
in the Inside inspectable area are available for the use of multiple 
tenants and are not accessible solely from a unit. By comparison, 
porches, patios, and balconies in the Unit inspectable area are 
intended for the sole use of the unit and only accessible from the 
unit.
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    Unit (or ``dwelling unit'') of HUD housing refers to the interior 
components of an individual unit. Examples of components included in 
the interior of a unit may include the bathroom, call-for-aid (if 
applicable), carbon monoxide devices, ceiling, doors, electrical 
systems, enclosed patio, floors, HVAC (where individual units are 
provided), kitchen, lighting, outlets, smoke detectors, stairs, 
switches, walls, water heater, and windows.

D. Final Scoring Conversion

    Property size can affect the number of defects observed during 
inspections; in properties where HUD inspects a larger number of units, 
the total number of defects observed can be expected to be higher 
compared to properties where HUD inspects a small number of units. In 
the absence of controls for property size, larger properties can face a 
higher point deduction simply because they have a higher number of 
units inspected, which can result in a higher number of deficiencies. 
Not taking property size into consideration in scoring is likely to 
severely disadvantage larger properties. The NSPIRE scoring methodology 
normalizes the Total Defect Deduction Value by dividing it by the total 
number of units inspected. This normalization allows the calculation to 
minimize the effect of property size on inspection scores and aligns 
with NSPIRE's emphasis on protecting residents' health and safety by 
focusing on areas where residents spend most of their time. The number 
of units inspected is a simple and easy-to-measure proxy value for 
number of items inspected at a property. To obtain Defect Deduction 
Value Per Unit, the Defect Deduction Values for all three inspectable 
areas are summed to yield Total Defect Deduction All Areas, which is 
then divided by the number of units inspected. The formula is 
represented below:

Total Defect Deduction Value All Areas/Number of Units Inspected = 
Defect Deduction Value Per Unit
To determine the final property score on a 100-point scale, the Defect 
Deduction Value Per Unit is subtracted from 100:

100-(Defect Deduction Value Per Unit) = Final Score


    Note: Inspection scores cannot go below zero; if the calculation 
yields a result below 0, the score is set to 0.

E. Fail Thresholds

    This Scoring notice retains the provisions from UCPS to consider a 
score below 60 as failing and adds a new Unit Threshold Fail. 
Administrative review of properties that fail in Sec.  5.711(i):
     Scores below 60 (Property Threshold Fail). Consistent with 
existing policy and practice, the Property Threshold of Performance is 
defined as properties that achieve a score of 60 or above. Failure to 
achieve a score of 60 or above is considered a failing score.
     Unit Point Deduction 30 or above (Unit Threshold Fail). 
Consistent with HUD's goal of maximizing the health and safety of a 
unit for residents, HUD has determined that the properties for which a 
substantial proportion of point deductions are from Unit deficiencies 
should be considered failures even if the rest of the property is in 
pristine condition. Therefore, regardless of the overall property 
score, if 30 points or more are deducted due to Unit deficiencies, HUD 
considers the property to have failed the inspection and deems the 
result of the inspection to be a score of 59. The Unit Point Deduction 
of 30 points applies to the Unit inspectable area at the aggregate 
level only; it does not refer to an individual unit's loss of 30 points 
in the inspection, thereby leading to a failing score for the entire 
property. Properties are evaluated at the Unit portion of the 
inspection collectively.
    Properties that received a score under 60 are required to perform 
an additional survey as described at 5.711(c)(2); properties that 
receive two successive scores under 60 on its inspection may be 
referred for administrative review as described at Sec.  5.711(i).

III. Examples

Example 1: A Property Where HUD Inspects 10 Units as Part of Its 
Inspection Sample

    The following example demonstrates a 10-unit inspection in which 
the property passes the inspection with a score of 80. In this example, 
an Inspector conducted an inspection of Property L and observed various 
deficiencies in all three inspectable areas (Unit, Inside, and Outside) 
inspected under the NSPIRE Standards. The following defects in the

[[Page 43376]]

corresponding Defect Severity Value categories were recorded by the 
inspector:

           Table 4--Example 1--Defects Observed During an Inspection of 10 Sampled Units in Property L
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                    Defect severity category                          Outside         Inside           Unit
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Life-Threatening................................................               0               0               2
Severe..........................................................               0               2               1
Moderate........................................................               0               3               0
Low.............................................................               1              10               0
                                                                 -----------------------------------------------
    Total by Inspectable Area...................................               1              15               3
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    Under the NSPIRE scoring methodology, each defect is multiplied by 
the corresponding Defect Severity Value to calculate the Defect 
Deduction Values (Inspectable Area), which are then added to calculate 
the Total Property Defect Deduction Value. Table 5 shows the 
calculations for Defect Deduction Values (Inspectable Area):

                      Table 5--Example 1--Total Property Defect Deduction Value Calculation
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   Defect severity category               Outside                     Inside                      Unit
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Life-Threatening..............  0 x 49.6 = 0..............  0 x 54.5 = 0.............  2 x 60 = 120.
Severe........................  0 x 12.2 = 0..............  2 x 13.4 = 26.8..........  1 x 14.8 = 14.8.
Moderate......................  0 x 4.5 = 0...............  3 x 5 = 15.0.............  0 x 5.5 = 0.
Low...........................  1 x 2.0 = 2.0.............  10 x 2.2 = 22.0..........  0 x 2.4 = 0.
Defect Deduction Values         2.0.......................  63.8.....................  134.8.
 (Inspectable Area).
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    Total Property Defect                                  2.0 + 63.8 + 134.8 = 200.6.
     Deduction Value.
    (All Inspectable Areas)...
----------------------------------------------------------------------------------------------------------------

    The Defect Deduction Value Per Unit is calculated by dividing the 
Total Property Defect Deduction Value (200.6) by the number of units 
inspected of 10 for a value of 20.06 (values and calculations in 
parentheses):

Total Defect Deduction Value (200.6)/Number of Units Inspected (10) = 
Defect Deduction Value Per Unit (20.06)

    The property's raw score, before rounding, on the 100-point scale 
is then calculated as follows:

100 - Defect Deduction Value Per Unit (20.06) = Raw Score (79.94)

    This score is rounded up to 80.

Example 2: A Property Where HUD Inspects 10 Units and the Unit Defect 
Deduction Value is Above 30

            Table 6--Example 2--Defects Observed During an Inspection of 10 Sampled Units in Property
----------------------------------------------------------------------------------------------------------------
                    Defect severity category                          Outside         Inside           Unit
----------------------------------------------------------------------------------------------------------------
Life-Threatening................................................               0               0               4
Severe..........................................................               0               2               4
Moderate........................................................               0               3               2
Low.............................................................               2              10               0
                                                                 -----------------------------------------------
    Total by Inspectable Area...................................               2              15              10
----------------------------------------------------------------------------------------------------------------

    The following is another example that demonstrates a 10-unit 
inspection of Property T that would receive a score above 60 but 
ultimately fails the NSPIRE inspection based on Unit Point Deduction 
threshold. In this example, the following defects and the corresponding 
Defect Severity Value categories are recorded by the inspector:

                                Table 7--Example 2--Total Defect Deduction Values
                                               [Inspectable area]
----------------------------------------------------------------------------------------------------------------
   Defect severity category               Outside                     Inside                      Unit
----------------------------------------------------------------------------------------------------------------
Life-Threatening..............  0 x 49.6 = 0..............  0 x 54.5 = 0.............  4 x 60 = 240.
Severe........................  0 x 12.2 = 0..............  2 x 13.4 = 26.8..........  4 x 14.8 = 59.2.
Moderate......................  0 x 4.5 = 0...............  3 x 5 = 15...............  2 x 5.5 = 11.
Low...........................  1 x 2 = 2.................  10 x 2.2 = 22............  0 x 2.4 = 0.
Defect Deduction Values         2.........................  63.8.....................  310.2.
 (Inspectable Area).
----------------------------------------------------------------------------------------------------------------
    Total Property Defect                                    2 + 63.8 + 310.2 = 376
     Deduction Value.
----------------------------------------------------------------------------------------------------------------


[[Page 43377]]

    In this example, defects were observed in all three Inspectable 
Areas. The Total Defect Deduction Value for All Inspectable Areas 
equals to 376; adjusting for the sample size of 10 units as follows 
(values and calculations in parentheses), yields a Defect Deduction 
Value Per Unit of 39.6:

Total Defect Deduction Value All Areas (376)/Number of Units Inspected 
(10) = Defect Deduction Value Per Unit (37.6)

The property's inspection score is calculated as follows:

100 - Total Defect Deduction Value All Areas Per Unit (37.6) = Final 
Score (62.4)

    Property T's overall inspection result would be considered passing 
under UPCS scoring, as the final score would be rounded to 62. However, 
under NSPIRE, the Unit Defect Deduction needs to be considered before 
determining the final inspection score for the property. Using the 
Defect Deduction Value (Unit Area) of 310.2, the Unit Threshold of 
Performance is calculated as follows (values and calculations in 
parentheses):

Total Defect Deduction Value per Unit (Inspectable Area) (379)/Sample 
Size (10) = Final Unit Defect Deduction (31.02)

    Based on the Unit Threshold of Performance, the property would fail 
the inspection because the Final Unit Defect Deduction is over 30 
(31.02), leading to an automatic adjustment to a failing score of 59 
despite the fact that the overall score is greater than 60. The reason 
for the property's failure to pass the inspection is the property's 
aggregate poor performance in the Unit portion of the inspection, which 
represents the entirety of the units included in the inspection and not 
any individual unit.
    The table below provides a summary of the Property and Unit 
Thresholds of Performance and details the circumstances in which a 
property passes an inspection based on the examples of Property L and 
Property Y above.

   Table 8--Summary of Property and Unit Thresholds of Performance and
                           Inspection Outcomes
------------------------------------------------------------------------
       Inspection results             Property L          Property T
------------------------------------------------------------------------
Property Score >=60.............  Yes...............  Yes.
Final Unit Defect Deduction <=30  Yes...............  No.
Overall Inspection Result.......  PASS..............  FAIL.
------------------------------------------------------------------------

IV. Administrative Details

A. Rounding

    Calculated scores will be rounded to the nearest whole number with 
one exception. For properties that score between 59 and 60, the score 
will be considered failing or properties that score between 59 and 60, 
the score will be considered failing and automatically rounded down to 
a 59. This reflects HUD's concern that properties must surpass these 
scoring thresholds to be considered at or above those scores which may 
dictate HUD's administrative, oversight, monitoring, and enforcement 
approach for poorly scoring properties.

B. Inspection Report

    In the inspection report provided to property ownership and/or 
management, HUD will provide the overall score and indicate the 
numerical results for each of the two types of inspection evaluations 
that determine whether the property passes or fails the inspection:

 Property Threshold Fail: Property Score on the zero to 100-
point scale
 Unit Threshold Fail: Defect Deduction Value (Inspectable Area) 
Per Unit

C. HUD's Use of NSPIRE Inspection Data and Scores

    HUD uses property scores to support monitoring and enforcement of 
HUD's physical condition requirements. Property scores give HUD, the 
owner or PHA, and any other relevant parties an evaluation of the 
overall physical condition of the property. A high or low score does 
not change the obligation that a participant is required to repair all 
deficiencies identified in the inspection, including repairing similar 
deficiencies that may not have been included in the sampled units as 
required by Sec.  5.711. As provided in Sec.  5.705(e), HUD retains the 
ability to inspect any unit at any property and requires that the owner 
or PHA corrects the same deficiencies in units that may not have been 
included in the sample of units for that particular inspection. 
Further, under Sec.  5.711(j), HUD may take additional administrative 
action which may be necessary and as authorized under existing 
statutes, regulations, contracts, grant agreements or other documents, 
to protect HUD's interests in HUD housing properties and to protect the 
residents of these properties.
    As provided in the NSPIRE final rule, property scores will 
determine:
     Frequency of Inspections: Properties that score higher are 
inspected less frequently (Sec.  5.705(c));
     Enforcement: Properties that fail or score below certain 
thresholds may be subject to HUD enforcement actions, including 
referral to the DEC (Sec.  5.711(i));
     Completion of a Post-report Survey: At the completion of a 
REAC inspection, the owner or PHA must review the inspection report and 
perform a survey of units not inspected and provide that information to 
HUD. For properties that scored at or above 60, the survey may be 
limited to inspecting for deficiencies based on the inspecting entity's 
inspection findings. For properties that scored below 60, the owner or 
PHA must conduct a survey of the entire project, including all units, 
inside areas, and outside areas, for any deficiency, and must 
electronically submit a copy of the results of the survey to HUD. 
(Sec.  5.711(c)(2));
     Public Housing Assessment System (PHAS) Designations: 
Average weighted inspection scores comprise forty (40) points of a 
public housing agency's PHAS designation. Properties that are 
Physically Substandard or Troubled are subject to additional 
requirements at Sec.  902.73 and Sec.  902.75;
     Participant Evaluation: Inspection scores are considered 
when determining whether a potential or existing HUD Multifamily 
business stakeholder may expand its involvement in HUD housing; and
     Risk Assessment: HUD's Offices of Multifamily Housing and 
Public Housing use inspection scores and pass/fail designations to 
assess the risk of owners/agents and public housing agencies.
     Research: HUD may use data gathered from physical 
inspection for research purposes and to improve its programs.

D. Non-Scored Defects and New Affirmative Requirements

    In recognition of its long-standing practice of not scoring smoke 
detector defects under the UPCS scoring methodology, HUD continues to 
not

[[Page 43378]]

score smoke detector defects and uses an asterisk (*) to denote 
identified smoke detector defects. The asterisk is appended to the 
numerical property score, and it is critical to note that these defects 
are classified as LT defects and must be corrected within 24-hours even 
though these defects are not scored. HUD follows the same policy for 
carbon monoxide devices and will use a plus (+) sign to denote carbon 
monoxide device defects. These devices are critical to safety and must 
be maintained and corrected within 24 hours, but are often disabled or 
removed by residents, and scoring them would result in many properties 
failing or scored at 0. HUD may further assess and work with PHAs and 
property owners that have ongoing deficiencies related to either smoke 
detectors or carbon monoxide detectors to remediate these issues 
through available funding, including using newer technologies that are 
more tamper-resistant. Further, some items, such as call-for-aid 
systems may be present in units but not currently used by the building 
management and have been modified or damaged by the tenant or their 
cat, for example, and will also not be scored. Otherwise, call-for-aid 
systems that are in use by the building management will continue to be 
scored. A quick list of these items is below:
Not Scored
1. Carbon Monoxide Device
    a. All Defects
2. Smoke Alarm
    a. All Defects (including the new ``Smoke Alarm is Obstructed'' 
defect)
3. Call-for-Aid
    a. System is blocked, or pull cord is higher than 6 inches off the 
floor.
    i. All locations
4. Handrail
    a. Handrail is missing.
    i. All locations
    b. Handrail is not installed where required.
    i. All locations

    Similarly, HUD recognizes that the NSPIRE Standards include new 
affirmative requirements defined generally as property attributes or 
requirements that must be met. The lack of these property attributes, 
which may include the quantity and location of these items (e.g., GFCI 
outlets) constitutes a defect and result in a deduction from the 
property's inspection score. HUD understands that it may take 
properties' ownership and management some time to comply with these new 
affirmative requirements; hence, HUD will not score new affirmative 
requirements, which are defined as those standards that were expressly 
not in the UPCS or in any way covered by those standards, in at least 
first 12 months of NSPIRE inspections for the program from the later 
effective date, ending October 1, 2024 for public and Multifamily 
Housing programs. HUD will also not score fire doors during this 
period, since the Fire Door NSPIRE Standard is new and properties may 
need to replace doors to meet the standard. Otherwise, call-for-aid 
systems that are in use by the building management will continue to be 
scored. Items that will not be scored until at least October 1, 2024, 
include:

1. Fire Labeled Doors
    a. All Defects
    i. All locations
2. Electrical--GFCI
    a. An unprotected outlet is present within six feet of a water 
source.
    i. All locations
3. Guardrail
    a. All Defects
    i. All locations
4. HVAC
    a. The inspection date is on or between October 1 and March 31 and 
the permanently installed heating source is working and the interior 
temperature is 64 to 67.9 degrees Fahrenheit.
    i. All locations
    b. The inspection date is on or between October 1 and March 31 and 
the permanently installed heating source is not working or the 
permanently installed heating source is working and the interior 
temperature is below 64 degrees Fahrenheit.
    i. All locations
    c. The inspection date is on or between April 1 and September 30 
and a permanently installed heating source is damaged, inoperable, 
missing, or not installed.
    i. All locations
5. Interior Lighting
    a. At least one (1) permanently installed light fixture is not 
present in the kitchen and bathroom.
    i. All locations
6. Minimum Electrical and Lighting
    a. At least two (2) working outlets are not present within each 
habitable room. OR

At least one (1) working outlet and one (1) permanently installed light 
fixture is not present within each habitable room.
    During this initial period of implementation until October 1, 2024, 
HUD will provide additional information to help PHAs and POAs estimate 
their score if all the new requirements were scored, to see the 
potential impact in future inspection and scoring. The Final score 
report will be provided within 90 days of the inspection and prior to 
the property's next inspection in most cases, unless HUD needs to 
conduct a risk-based inspection more immediately. The deadlines in this 
section may be revised if the inspection is subject to a technical 
review.

E. Scoring Designations

    HUD supplements a property's zero to 100-point score with the 
following designations that provide property ownership and/or 
management, residents, and other stakeholders with information 
important to understanding the overall inspection results. These 
designations include:
     Smoke Detectors: An asterisk (*) next to the property's 
zero to 100-point score indicates whether an inspector observed a smoke 
detector defect during an inspection.
     Carbon Monoxide Detectors: A plus sign (+) next to the 
property's zero to 100-point score indicates whether the inspector 
observed a carbon monoxide detector defect during an inspection.
     Presence of Certain Defect Severity Levels: HUD previously 
provided a letter designation (e.g., a, b, c) to indicate the presence 
of exigent health and safety defects; NSPIRE does not use such letter 
designations. HUD instead provides a summary table of the defect 
observations by Defect Severity Category, e.g., Life-threatening, 
Severe, Moderate, and Low. At the conclusion of the inspection, the PHA 
or Owner will receive a list of Life-threatening and Severe items that 
must be corrected within 24 hours of the inspection.
     Certain New Requirements: Until at least October 1, 2024, 
new requirements that were not scored will be flagged with a caret 
([caret]) symbol. Standards that may need more calibration through 
field testing, such as a minimum temperature standard, may be not 
scored for more than a year. In at least the initial year of NSPIRE, 
HUD will also provide two scores; one that shows the potential score if 
new requirements were scored, and the official score for that 
inspection.

F. Defect Remediation and Pass/Fail Status

    As provided in Sec.  5.711(c), HUD will evaluate the extent to 
which property ownership and/or management complies with its 
requirements to submit documentation indicating certain more severe 
defects have been remediated or are at least in the process of being 
remediated (e.g., the property implemented an integrated pest 
management plan to address infestation). HUD will use its 
administrative authority in its

[[Page 43379]]

regulations to compel compliance. More information is provided in the 
NSPIRE Administrative notice.

G. Draft and Final Inspection Reports, Preliminary and Final Scores

    After July 1, 2023, REAC will issue a draft inspection report with 
a Draft Inspection Score and a recordation of all defects including 
those that must be addressed within certain timeframes following an 
inspection. HUD will issue a Final Inspection report with a final score 
and a recordation of all defects following the technical review process 
specified in the NSPIRE Administrative Procedures Notice. Further, 
under Sec.  5.711(j), HUD may take additional administrative action 
which may be necessary and as authorized under existing statutes, 
regulations, contracts, grant agreements or other documents, to protect 
HUD's interests in HUD housing properties and to protect the residents 
of these properties. Both the draft and final reports will also provide 
summaries of the inspection results.

H. Unit Sampling

    HUD's inspection program and scoring methodology under NSPIRE 
relies on inspecting a statistically significant sample of units to 
achieve a 90 percent confidence level with a 6 percent margin of error 
for its inspections. HUD employed the same confidence level and a 
similar margin of error under UPCS, but had a maximum number of units 
inspected of 27 under UPCS. Under the NSPIRE scoring and sampling 
methodology, HUD changed the process to align with NSPIRE goals and the 
resultant increased the maximum number of units included in the scoring 
sample to 32 units. This sampling methodology with the corresponding 
assumptions allows HUD to balance between conducting physical 
inspections of HUD-assisted property for oversight and avoiding a major 
time burden on residents through additional inspections. HUD 
established in the NSPIRE Rule other mechanisms for oversight of 
housing conditions through PHA self-inspections and post-inspection 
activities. This increase in sample sizes helps achieve consistency in 
inspection results across all sizes of properties.
    Under the UPCS scoring and sampling methodology, many inspections 
required that every residence building be inspected regardless of 
whether any units within that building were subject to inspection. HUD 
is eliminating that requirement, and only buildings in the sample will 
be inspected. Further, HUD is limiting the number of non-dwelling 
spaces inspected to those where residents spend more time. Under the 
NSPIRE scoring and sampling methodology, building-level sampling is 
driven by units. For any building that contains a unit in the 
inspection sample, the building will also be inspected.
    Achieving a uniform confidence level is critical to the overall 
accuracy of HUD inspections and benefits residents and property 
ownership and/or management by reducing the number of re-inspections 
due to inspections that do not meet HUD's standards for accuracy. Under 
current HUD regulations, as affirmed in the NSPIRE rule, and HUD's 
contracts with owners and operators of HUD-assisted and insured 
housing, units should meet HUD's physical condition standards 365 days 
a year.
    The inspection sample sizes adopted under the NSPIRE sampling 
methodology are provided in Table 9. The sample sizes were developed to 
consider the desired confidence interval (90 percent), margin of error 
(6 percent), and expected defect population proportion (3.97 
percent).\11\ HUD calculated the sample size for every possible 
population of units by solving for the lowest possible minimum sample 
size in the following equation: \12\
---------------------------------------------------------------------------

    \11\ Based on an analysis of historical UPCS data, this is the 
estimate of the percentage of units with more than 3 unique NSPIRE 
defects.
    \12\ Cochran, William G., Sampling Techniques, New York: John 
Wiley & Sons, Inc., 1977.
[GRAPHIC] [TIFF OMITTED] TN07JY23.003

---------------------------------------------------------------------------
Where:

 [egr] = margin of error
 In this case, 6 percent
 z = z-score corresponding to confidence interval
 In this case, ~1.65 corresponds to 90 percent two-sided 
confidence interval
 p = expected defect population proportion
 In this case, HUD used a proportion of 3.97 percent
 N = unit population
 s = minimum sample size

    [Note: For comparison purposes, the UPCS sampling methodology is 
also provided in Table 9, although the unit grouping does not fully 
align.]

V. Inspection Sample Sizes

   Table 9--Number of Units Sampled Under NSPIRE Scoring and Sampling
                   Methodology Based on Property Size
------------------------------------------------------------------------
                                                        UPCS     NSPIRE
                  Units in property                    sample    sample
------------------------------------------------------------------------
1...................................................        1          1
2...................................................        2          2
3...................................................        3          3
4...................................................        4          4
5...................................................        5          5
6...................................................        5          6
7...................................................        6          6
8...................................................        7          7
9...................................................        7          8
10..................................................        8          8
11-12...............................................        8          9
13-14...............................................        9         10
15-16...............................................       10         11
17-18...............................................       11         12
19-21...............................................       12         13
22-24...............................................       13         14
25-27...............................................       14         15
28-30...............................................       14         16
31-35...............................................       15         17
36-39...............................................       16         18
40-45...............................................       17         19
46-51...............................................       18         20
52-59...............................................       18         21
60-67...............................................       19         22
68-78...............................................       20         23
79-92...............................................       21         24
93-110..............................................    21-22         25
111-132.............................................    22-23         26
133-166.............................................    23-24         27
167-214.............................................    24-25         28
215-295.............................................       25         29

[[Page 43380]]

 
296-455.............................................    25-26         30
456-920.............................................       26         31
921+................................................       27         32
------------------------------------------------------------------------

VI. NSPIRE and the Public Housing Assessment System (PHAS)

    For Public Housing properties subject to the Public Housing 
Assessment System, HUD will use the NSPIRE scoring methodology and 
associated property inspection scores to calculate the PHAS Physical 
Condition Indicator component of PHAS once a PHA's entire portfolio has 
been inspected under NSPIRE. This indicator, also known as the Physical 
Assessment Sub-system (PASS) indicator, comprises 40 points of the 100-
point PHAS score, except for Small and Rural PHAs, which are subject to 
24 CFR 902 Subpart H. HUD will employ the same unit-weighted average 
score methodology under Sec.  902.22 to calculate the PASS indicator 
score for PHAs subject to PHAS in calendar year 2023 using NSPIRE 
property inspection scores. Until all properties with public housing 
units are inspected under NSPIRE, a PHA's physical condition indicator 
will continue to be based on the most recent UPCS scoring and unit-
weighted average.

Adrianne Todman,
Deputy Secretary.
[FR Doc. 2023-14362 Filed 7-6-23; 8:45 am]
BILLING CODE 4210-67-P